Digital Economy Dispatch #091 -- The 5 Key Steps in Your Digital Transformation

Digital Economy Dispatch #0915th June 2022

The 5 Key Steps in Your Digital Transformation

“I wouldn’t have started from here”.

It is an answer that I seem to be giving much more frequently these days when I am asked to review digital transformation activities in a variety of different organizations. The reach out to me asking for how to move forward to build momentum. But invariably I find myself reaching for the handbrake and begin on a different conversation. In variably it requires that they make several steps backwards, take a deep breath, and start again from a different point.

A Framework for Digital Transformation

Organizations undergo digital transformation when they seek to adopt digital technologies to gain new insights and evolve their way of working. As a result, business activities are increasingly centered on digital assets, and their surrounding processes are evolving to take advantage of their particular characteristics. While sectors such as entertainment and online retail were amongst the first to embrace these changes, the effects of digital transformation are being felt across all industries and sectors.

To explore the elements of digital transformation, it is useful to consider the primary target and emphasis of the transformation being undertaken in 5 key areas.

This framework for digital transformation defines 5 areas where a focus is required to understand the impact of digital technologies. In any digital transformation program, an organization may be engaged in activities that address one or more of these areas. Frequently organizations proceed in a linear fashion by applying increasing resources and energy from element 1 through to element 5. However, often a much more complex profile of activities is simultaneously being carried out across these 5 elements.

Here we outline the 5 distinct (but related) elements of digital transformation:

  • Digitization: Converting data, transactions, and business artifacts into digital formats. This raises new business challenges and opportunities in existing markets and creates new digitally-focused markets not possible previously. For example, moving paper-based forms online does more for the organization than reducing the cost of printing physical artifacts. The act of digitizing the paper forms presents new opportunities in how they are created, stored, curated, analyzed, connected, shared, transformed, and destroyed.

  • Digital Process Definition: Deploying digital technologies and processes to support key business activities. Digital tools and mechanisms are now replacing many established business control and operational management capabilities in areas such as human resource management, marketing, point-of-sales, help desks, and supply chain management. As a result, business operations may be managed more efficiently, and may be redesigned to optimize key business tasks. Consequently, many projects largely involving upgrades to IT infrastructure and tools are considered digital transformations in that they are key enablement tasks for the organization (e.g. deployment of superfast broadband, rewriting customer-facing applications for use on mobile devices).

  • Digital Value Analysis: Using digital technologies to generate new sources of value based on products and materials created, information captured and analyzed, behaviors and actions monitored. Increasingly, digital technology is used to ensure greater intelligence is applied not only to the task of creating products, services, and devices, but also to gain new insights into their production, distribution, and use. Embedding intelligence in consumer goods, for example, allows them to report back on their current performance, communicate with other devices, and adapt their behavior to their environment. At its extreme, we can say that any physical device can now be wrapped with a digital capability broadcasting information such as its location, environmental conditions, and operating status. That digital footprint provides insights into the device’s value in use; information that was previously difficult or impossible to obtain.

  • Digital Business Model Innovation: Restructuring and redefining existing markets and environments to encourage new digital business opportunities. Examples in many business sectors have highlighted that when digital products and services replace existing physical goods, or when the physical goods generate a real-time digital footprint, the nature of those markets is open to severe disruption by new providers with radically different business models. In entertainment businesses, for example, the move to digital forms of music and videos did more than just replace DVDs – it revolutionized the production and consumption of entertainment services. The ability to understand in greater depth, people’s consumption of entertainment products in the home and on the move has changed pricing policies, altered their delivery formats and styles, encouraged new market entrants, and brought a diverse set of offerings to the market.

  • Digital Organizational Redesign: Reorganizing the organization’s strategy to be better suited to digital technologies and business models, requiring changes to management structures to support the new strategy. Many organizations competing in digitally-disrupted markets are re-examining how they should organize their work, supplier networks, governance bodies. Existing, mature organizations such as GE and IBM are openly questioning what it means to be a successful company in a digitally-disrupted economy. Meanwhile, newer companies such as Valve and Zappos operate based on radically new forms of management behaviors and alternative decision-making processes across fundamental aspects of their businesses: procurement, hiring and staff development, product and project management, auditing and compliance. For instance, a digitally-disrupted business looks not just to hire people with different skillsets, but also to attract them through online channels or within relevant online communities. It also manages their staff in smaller self-organizing teams, encourages them with impact-driven reward mechanisms, and places them in working environments designed to encourage creativity.

Individuals, companies, markets, and industries are all being affected by these shifts. In some cases, there may be straightforward adjustments through updating existing approaches and business practices. In most situations however, digital transformation is raising fundamental questions in areas such as pricing strategy, supply chain dynamics, labor management, and many more. Consider, for example, a core element of many businesses: auditing and compliance. The transformation of a business to digitize its assets and workflows brings many new concepts to the fore in this area. An organization may need to adopt or update auditing and compliance practices in areas such as privacy, security, data management, business continuity, and asset reporting. The implications of these changes will be felt across all aspects of the business from contracting and procurement through to staff training and project management.

And Now What?

Success in digital transformation requires stepping back to review fundamental characteristics and practices that may have been in place for many years. Often, existing companies do not welcome changes to core operating practices as they represent challenges to existing ways of working that must be endured and overcome. However, I have found that there are 5 focus areas that must be addressed for success: Digitization, Digital Process Definition, Digital Value Analysis, Digital Business Model Innovation, and Digital Organization Redesign. By using this framework, organizations can track their progress to exploit new opportunities and explore new business models more appropriate to the evolving environment in which they operate.

Digital Economy Tidbits

Researching in Context. Link.

Using digital solutions isn’t always as straightforward as we would hope. In practice, many manual workarounds are used to overcome challenges with the technology. Add this to the growing pile in the “when we asked them, they didn’t answer in the way we expected” category……

Through our research, we were able to show that staff used other, easier to use systems to complete tasks that the system in question was intended to enable. We also found that manual inputting played a significant part in the processes, and sometimes involved government departments who didn’t have permission to edit the information on the system, this meant that they were having to regularly contact the police to ask for updates to be made on their behalf.

ONS Data on Working From Home. Link.

Lots of discussion on hybrid working, attitudes to working from home, and how patterns of work have changes over the past months. Here’s some data from the ONS.

It even includes some nice datasets on working from home you can use!