Breaking through the uncertainties in a digital transformation

How a company transformed from a product supplier to a leader in innovative services.

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A strategic business change is extremely disruptive, not only to employees but also to partners and customers. It’s even more challenging when the starting point is an underinvested IT environment mostly just surviving in maintenance mode compared to the future-state goal to be a company providing technology-enabled innovative services. That kind of situation has me thinking about what happened at H. D. Smith. 

Based in Springfield, Ill., the company had been a pharmaceutical distributor since its founding in 1954; but a few years ago, the Smith family decided to branch out beyond their traditional business. They wanted to supply not only healthcare products but also technology-enabled services and business solutions integrated around the products. It fit with their strategic intent of controlling healthcare costs, safety and quality while maximizing patient outcomes. They could see the that the digital world was beginning to transform business and present new opportunities – or threats to businesses not moving to digital technologies. 

They brought in a new CIO nearly five years ago to lead the transformation of the IT environment. David Guzmán’s background includes a highly successful tech-enabled business transformation at Owens & Minor, another healthcare products supplier, several years ago. Even so, that didn’t enable him to whiz past the challenges at H. D. Smith. As he shared the H. D. Smith transformation story with me, it was clear that the company had underinvested in its IT environment and there was no way that environment could move the firm into a digital business. But it was also clear that the leaders were willing to invest to have a shot at the vision of where they wanted to take their business. 

In the environment Guzmán took over when he joined H. D. Smith, the data center was inside the distribution center. It had one generator, so there was no redundancy. As he described to me, “If we lost power, we had to choose between the data center and the huge refrigeration unit for medical products that needed to be kept cool.” 

Other examples of the environment at that time: The IT department didn’t conduct intrusion detection or manage other basic security processes. Most processes were very immature. They tested code in production. And there was no change-management methodology. Guzmán recalls that “change management was basically an email from one developer to another that said, ‘Don’t touch this object while I’m working on it.’” He observed that the cultural atmosphere of the IT team was sort of a justifiable pride in being able to run a major company despite not spending money and not having formal processes.

Stepping into the midst of this environment and tasked with transforming it to enable innovation, Guzmán was immediately also saddled with responsibility for getting an SAP implementation under control, occupying much of his attention during his first three years (two years to implement and a year of post-implementation “hyper-care”).

Today, H. D. Smith develops innovative programs and services. Approximately 15 percent of its business is from new digital and speciality distribution services. Part of this is via the acquisition of Triplefin. At the same time, the IT group supports the growth of the core pharmaceutical products distribution business, realizing the Smith family’s vision of growing their core business and creating a complementary digital business. Impressive results, indeed, for a five-year journey! : And the transformation continues, with Arete Pharmacy Network, a joint venture with American Associated Pharmacies, the most recent addition to the emerging digital portfolio.  How did the CIO help the company propel this vision?

First, he recognized that moving a company into a digital business is much more than changing the technology. My advice to companies undertaking business transformation is to never underestimate the business side of the change; it’s not just IT. Change on the business side must be embedded and part of the DNA of the transformation. A CIO can help lead the change but must drive the change into the very fabric of the business and business model.

This requires a united leadership team effort. Dale and Chris Smith are the drivers of change. The CIO has been a key part of driving change as has the head of HR, Karen Callaway, and the president of the specialty solutions business, Bob Appleby. Together, these five form the executive committee that drives the transformation of H. D. Smith. Over time, this also included the CFO and industry veteran, Joe Conda. 

Guzmán shared with me that he emphasized the change of the entire business and that changing to a digital business required thinking differently through all processes. There are so many complex uncertainties in that level of change.

“Digital transforms the business, so understanding the business is key,” he says. The executive team made sure that the SAP implementation and teams performing the other IT changes also involved talent from the business perspective of every department (finance, operations, logistics, sales, etc.).

Another step they took in thinking differently about processes in a digital world was to rethink how the Project Management Office (PMO) should operate. Because of the level of change, they shifted the PMO to report directly into the office of the CEO, Chris Smith. “This gave the PMO the power to communicate to the organization the imperative for the business to change,” he recalls. 

Part of his role as CIO was to transform the business to be a better consumer of digital capabilities. Before the company began its digital transformation journey, Guzmán says it was like a Venn diagram with two circles. “One was IT and one was the rest of the business, and those two circles did not intersect at all before our digital journey.”  

The digital transformation comprised the whole company, and it was necessary to elevate everyone’s level of sophistication. “We needed to build those skills in each department,” he explains. “For instance, we trained people on how to test software, how to do requirements, how to articulate digital needs, how to be the first line of defense in supporting the solutions that we deliver, how to make projects run smoothly and how to understand the systems development life cycle.” 

Digital transformation isn’t just about IT; check that mindset at the door. It’s a CIO’s first step in dealing with the uncertainties and challenges that will arise.

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