5 things that are dragging down your digital transformation

Since IDC conducted its first digital transformation (DX) benchmark in March 2015, we have seen progress in the number of organizations that have digitally transformed. Yet, despite this progress, we find most organizations are at an impasse. Fifty-nine percent of organizations worldwide are running digital projects and making progress, but they are not transforming the overall organization.

From the beginning, there have been numerous obstacles impeding digital transformation, including legacy culture, process and financial incentives. Now, a new set of challenges has cropped up that only manifest themselves after an organization begins its digital journey, and grow on the underbelly of a DX initiative, creating a drag on an organization’s transformation. They are: outdated KPIs, siloed organizational structures, tactical digital plans, silos of innovation and limited expertise.

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If any of this sound familiar to you, read on as we explore why they are a drag on progress and how to overcome them.

New KPIs for the new digital enterprise

The tools an organization uses to communicate its digital success to employees, investors and the board of directors do not necessarily reflect the way in which a digital enterprise operates. Organizations need KPIs that can communicate the real-time nature of the future enterprise. As long as organizations use traditional KPIs to measure new digital businesses, their investors will penalize them.

To effectively and successfully communicate to employees, investors and partners, a new set of KPIs that capture the capabilities of a digital enterprise are in order. The new digital KPIs need to include financial, business and operational KPIs. And they need to be developed for each part of your new digital business. Categories of KPIs need to include:

• Leadership represented by KPIs associated with innovation rates
• Customer Engagement represented by KPIs focused on customer advocacy
• Information Monetization represented by KPIs focused on data capitalization
• Operating Model represented by KPIs focused on business operations
• WorkSource Transformation represented by KPIs focused on the workforce.

Digital is business as usual

One of the fundamental challenges of digital transformation is the need to change legacy culture and processes, which is embedded in the organizational structure. Organizations are experimenting with a multitude of structures. A recent study by IDC reveals that digital organizational structures need to evolve to keep transforming the organization. We categorize DX organizational structures into the following archetypes.

• Digital Special Projects Team. For those organizations that are just beginning their digital journey, this team is a central group that typically reports to the CEO and is exploring digital for the company in a structured and formal way.
• The Office of Digital Transformation. For those organizations that are ready to move their digital strategy to the next phase, they put together a more formal centralized group that typically reports to the CEO and is focused on providing governance around the digital strategy.
• The Embedded Digital Business. This archetype embeds digital resources into the various lines of business that are digitally transforming. There typically is still a central “digital” group that orchestrates digital for the company and provides common core platforms and digital expertise.

Ultimately, enterprises need to evolve to the embedded digital business model. This model moves an organization to the state where digital is “business as usual”. The embedding of digital capabilities into the lines of business, gives the business a greater sense of ownership around the digital strategy.

If you are wondering where the separate digital business unit is, we do have an archetype for that as well. However, it only occurs in less than 10 percent of organizations and is focused on creating disruptive and innovative offerings as opposed to transforming the organization.

IT organizations need to embark on their own journey of transformation, evolving to understand the needs of customers and to be able to rapidly develop new innovations. If the IT organization is not evolving, it may wind up impeding the overall digital transformation of the organization.

In a study of IT organizations, IDC found that IT organizations in companies that are just beginning their digital journey still exhibit many of the traditional qualities of IT. They primarily employ waterfall practices; their biggest challenge is finding partners to work on digital transformation; and they still measure the length of projects in terms of months, not weeks. In contrast, IT organizations working in companies that are far along on their digital journey have significantly transformed. These organizations primarily employ agile and design thinking practices; they are focused on creating new DX business models; and they measure their project lengths in 90 days or less.

A modular and scalable digital roadmap

Too many organizations are not making progress because they have built a tactical digital roadmap, focused on achieving near-term goals. The challenge is that digital strategies evolve and the roadmap needs to be able to evolve with them.

The development of a digital roadmap should start with a visioning session about how one’s industry may transform in the coming years. How will autonomous vehicles change the insurance industry? How will 3D printing change the retail industry? How will robotics change the hospitality industry? From there, one can build a roadmap that backs into that future scenario.

A key element of the roadmap is to incorporate use cases. Use cases allow the roadmap to be modular in that the use cases that can be swapped in and out as they emerge. The roadmap also needs to span across multiple horizons. Horizon 1 of the roadmap consists of the use cases being deploying today and the underlying technology to support them. Horizon 2 of the roadmap includes the use cases being incubated. Horizon 3 imagines the possibilities.

A data-centric digital platform

The absence of a singular technology architecture is holding back many enterprises in their digital transformation. This is primarily driven by the fact that digital IT environments are often established separate from the traditional enterprise IT platform. IDC is anticipating a large build out of digital platforms in the next three years. Before this build out takes place, we recommend technology executives rethink their approach and develop a technology architecture that is integrated and spans across IT, digital and business domains.

If the ability to transform data into insights and actions is going to be the means for competing in the digital economy, the digital platform needs to be optimized around this task. At the heart of a digital platform should be what we are calling the “Intelligent Core”. This is where the algorithms, the code and the models live that enable you to turn data into insights and actions. The foundational services do not go away. IT governance, architecture, integration and development services are the enablers for this new digital platform.

New digital capabilities around customers, data and scale

As organizations evolve to a digital enterprise, new capabilities need to be developed. Capabilities are the “what” an organization does to deliver value. Digital capabilities require the bringing together of technology, talent, governance, processes and data. IDC believes too few organizations are actively working towards developing new digital capabilities. Rather, they are preoccupied with building the piece parts.

We believe the three most important capabilities to focus on creating will be experiential engagement, data monetization and operating a digital business at scale.

• Experiential Engagement capabilities allow an organization to create and continually innovate exceptional, immersive customer experiences that resonate and engage with the customer and that allow the customer to engage with the organization in an easy, frictionless, and pleasing experience.
• Data Monetization capabilities allow an organization to take data and turn it in to a revenue stream for the organization.
• Scaling a Digital Business. As an organization scales its digital business, it will be moving too fast to run traditional operational process like lean. If an organization wants to deliver hyper-personalized digital services, it will need to implement more autonomic processes, while driving down costs as volume increases.

Beyond the digital deadlock

We expect the next 2-3 years for many organizations will be an internally focused period — a time when organizations expend a lot of focus on internal systems, processes and culture to “get digital done”. Once organizations move past this, they will be able to focus on recognizing the benefits of innovation. IDC predicts that by 2022, 80 percent of revenue growth will depend on digital offerings and operations.

Digital transformation is a 10-year process. We predict digital transformation of 75% of enterprises will take until 2027.  It is important for an enterprise to keep pace with the major milestones your peers are hitting. If you are like most organizations, you are making progress in your individual digital programs; but you are not making progress on the greater goal – digitally transforming the entire enterprise. Use the framework presented here to identify which areas are slowing down your digital transformation and begin taking the steps address them.

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