Digital Economy Dispatch #173 -- The NAO’s Guide to Digital Transformation: A framework to assess your digital change programmes

Digital Economy Dispatch #173 -- The NAO’s Guide to Digital Transformation: A framework to assess your digital change programmes
3rd March 2024

My experience over several years guiding numerous organizations through digital transformation underscores a central truth: change is hard, and digitally-driven change presents a particularly challenging set of hurdles to overcome. This complexity stems from the often profound and disruptive nature of these changes. Digital technology adoption requires a re-evaluation of core organizational structures, decision-making processes, employee skillsets, customer relationships, and more. All while trying to drive the organization to meet its current targets, satisfy existing clients and stakeholders, and support the needs of employees. This is a very tall order.

Large established organizations (LEOs) face these challenges most acutely. Digital transformation for them requires not just a technology overhaul, but a fundamental reassessment of decision-making speed, organizational design, and even existing business models. In this task they face a fundamental dilemma: The very foundation of their past success may be ill-suited for the digital future.

As Clay Christensen aptly observed, organizations often cling to past successes, even when those successes become detrimental to future prospects. Established structures and ingrained decision-making dynamics create a natural resistance to bold choices, further compounded by the inherent inertia of human-centred activities.

While these concerns can be seen everywhere, they are perhaps most clearly observed in the public sector. Government agencies and other public institutions grapple with some of the most extreme challenges of scale, structure, and skillsets while navigating the complexities of responsible public fund allocation, demonstrating impartiality, and ensuring equitable service delivery to all citizens and businesses. Recent attempts, such as the UK's digital tax system transformation, illustrate how the sheer breadth of change can overwhelm even the most well-crafted strategies.

How can organizations assess their digital transformation delivery activities to ensure that they are taking a meaningful approach to digital change that allows them to adapt to current realities and prepare for unforeseen future disruptions?

Holding the UK’s Digital Government Efforts to Account

It is a key concern addressed by the UK National Audit Office (NAO). The NAO is the UK’s independent public spending watchdog, holding government to account and helping to improve public services. As the UK government increasingly invests in the digital transformation of its key services, ensuring effective delivery of these digital changes is a key focus area for the NAO.  Led by its “Digital Insights Team”, the NAO has been refining its audit and review capabilities to assess digital transformation and technology programmes.

Based on this experience, the NAO Digital Insights Team’s latest report is “Digital transformation in government: A guide for senior leaders and audit and risk committees”. This is an important document aimed at improving the questions asked by senior leaders, auditors, and risk committees when reviewing large-scale digital change programmes. These initiatives are intricate, spanning multiple years and involving internal and external teams across various business functions, IT operations, and service delivery units. The focus of the guide is on addressing audit and risk concerns early in the project to ensure realistic scopes, budgets, and timescales. The result is a framework suitable for all senior non-specialist leaders dealing with major digital change programs.

Anatomy of UK Government’s Digital Disruption

Despite significant investments, past attempts at digital transformation have shown mixed success, especially in larger projects where complexity increases exponentially with scale. The NAO’s digital transformation guide highlights a historical pattern of repeating themes in government's transformation strategies over the last 25 years, indicating the inherent difficulty and complexity of digital transformation. Furthermore, it emphasizes the challenge of modernizing legacy environments and the risk of focusing on improving the user experience without addressing underlying inefficiencies that drive future costs.

The guide aims to provide support by detailing core issues and pitfalls for audit committees and senior leaders overseeing digital change. It addresses the challenge that specialist digital leaders often face in gaining attention and support from senior decision-makers, with business leaders expected to drive transformation decisions. The objective is to enhance the digital fluency of business leaders, enabling them to make informed choices and understand the consequences of their decisions for digital transformation.

The guide draws attention to three main challenge areas:

• Constraints of the existing environment: The government's existing operational estate includes aging and inflexible services that pose a significant constraint on business change and innovation. Transitioning from legacy systems to modern replacements is complex, especially when these systems are interconnected, and their maintenance is challenging and often underestimated. Additionally, the government faces data-related challenges, such as incomplete, inconsistent, and difficult-to-process data, leading to manual workarounds that add cost and time.

• Under-estimating the scope of early work: Programmes face challenges when ambitions in digital transformation are unrealistic and lack grounding in the complexities of the existing legacy environment. The intangible nature of digital change and the rapid evolution of technology introduce uncertainties that need to be acknowledged upfront, contrasting with non-digital programs. This raises the importance of detailed planning, a strong focus on risk management, and meaningful progress measurement to avoid slow and shallow progress and to uncover problems early in the transformation journey.

• Lack of skills and leadership: There are significant challenges in digital leadership within the government, exacerbated by limited digital capability across the wider civil service. While some senior digital leaders possess excellent experience, communication struggles arise as wider leadership teams lack digital understanding, often excluding chief digital officers from top decision-making boards. The scarcity of digital skills in the market, especially in areas like AI, poses challenges for ambitious digital change agendas, and a global shortage of digital economy skills, compounded by budget constraints, may lead to delays or failures in digital transformation initiatives.

A Framework for Digital Assessment

The main focus of the digital transformation guide is a set of questions which act as a framework for planning new initiatives, or assessing in-flight digital transformation programmes. The provided questions support senior leaders in understanding the main pressure points they face in driving digital change, and assist audit and risk committees in evaluating how their organizations are managing risks and capitalizing on transformation opportunities.

• The questions addressing the existing environment focus on understanding and addressing constraints in the existing environment for digital transformation. They delve into the organization's awareness of legacy systems, neglected maintenance, and the quality of data within these systems. Financial aspects are also explored, assessing ongoing funding, budget allocation, and whether the IT strategy explicitly addresses legacy concerns, emphasizing the importance of distinguishing between transformation and simple 'lift and shift' approaches.

• The questions on managing the scope of work highlight the risk of underestimating the scope of work in a digital transformation initiative. They address the comprehension of senior leaders regarding the proposed changes, the adequacy of documentation, and the identification and mitigation of uncertainties and risks. Furthermore, the importance of analyzing baseline facts for the environment and prioritizing services for transformation is emphasized, along with involvement from the business in key decisions and considerations for data-related requirements.

• The questions on skills and leadership draw attention to the significance of skills and leadership in successful digital transformation. They revolve around the expertise and experience of senior leaders, their digital fluency, and representation at the board level. They highlight the necessity for clearly outlining minimum capabilities for digital change programs and ensuring that leaders receive structured training. It also delves into the organization's evaluation of its talent and skills management profiles, considering options for addressing staffing and capability shortfalls, and the importance of in-house expertise for external service assurance.

Next Steps on the Digital Pathway

Navigating the complexities of digital transformation requires a clear understanding of potential challenges and a well-defined framework to guide the process. The NAO's framework equips leaders with valuable starting point to assess digital transformation efforts and identify areas for improvement. The questions posed provide a comprehensive starting point for exposing weaknesses and highlighting risk areas.

However, successfully implementing a digital transformation strategy goes beyond simply having a framework of questions in place. Having the depth and context to be able to turn this exploration into action is critical. As the guide states, it this requires a commitment to continuous learning and adaptation. Leaders must actively cultivate digital fluency throughout the organization, ensuring everyone understands the implications of digital change and can contribute effectively. Additionally, fostering a culture of innovation and collaboration is crucial to overcome challenges and embrace new opportunities that emerge during the transformation journey.

Whether you are leading a digital transformation initiative or playing a part in the strategy and direction in your organization, take a look at the NAO’s digital transformation guide to help you ask better questions about the digital changes taking place. By proactively leveraging this framework, to define your path and assess your progress you can increase your chances of a successful digital transformation and optimize the potential of digital technology adoption in your organization.