Given the pace at which new technologies and radically different business models are upending entire sectors today, it’s not surprising that making sense of “digital transformation” is one of the corporate world’s top priorities. But even though business leaders may understand the need to digitally transform their organizations, determining the best way to do it can be quite another matter.
As a resource for companies attempting to negotiate the leap from being an enterprise that simply uses digital technology to becoming a full-fledged “digital enterprise,” analysts from McKinsey & Company have identified nine key questions that businesses can use as a guide along the sometimes-thorny path of digital transformation.
Do you know where change is actually happening?
Digital transformation is so pervasive, potentially affecting almost every aspect of the way a company functions, that it’s not always clear where such transformation can or should start. To help provide a framework for the process of implementing digital change, McKinsey recommends that businesses adopt a three-pronged systematic approach: review the big trends or themes of digital change, examine how those changes could affect the business’ core elements, and identify what foundations are necessary to support the chances. This kind of “feasibility study” helps ensure that businesses have a good understanding of the changing landscape and a better sense of where and how their own transformation fits into a larger context.
Which customer journeys matter most?
Focusing digital transformation efforts on customer journeys, or a customer’s total interactions across all of a brand’s channels in order to accomplish a specific task, can be a useful way to ground digital efforts in real-world practicalities. When the optimization of a customer journey is the center of digital transformation initiatives, companies are forced to begin by identifying every technology, process, capability, and transition that goes into a great customer experience; the focus can then shift to the reality of how each touchpoint can be improved by digital.
Is your company ready for cross-functional collaboration?
One of the major lessons that digitally maturing companies have learned and incorporated successfully is that digital activities cannot be separated or siloed off from the rest of a business’ operations and functions. Instead, digital becomes a business’ operations and functions. As such, effective digital transformation requires that companies shake up their traditional structures by building cross-functional teams with strong executive support, a clear mandate, sufficient resources, and accountability incentives.
Are you ready to learn by doing?
Another key shift that digital transformation has brought to the traditional business model is favoring “trial by experimentation” over waiting until a concept is perfect before launching or delivering it. Advanced digital companies will test a concept with customers in multiple iterations until they get it right, continuously reviewing actions and investments against customer data, and thus ultimately producing something that they know customers actually want.
How responsive are your budgets?
Traditional budgetary cycles are not usually as responsive as they need to be given the pace of digital transformation efforts; a recent McKinsey analysis found that only a fraction of companies (less than 15 percent) could quantify the return on investment that their digital initiatives provided. Today, typical three- to five-year business plans that don’t take short-term milestones into account are no longer adequate. What’s required instead is a model that closely follows project development and uses key performance indicators to quickly pull the plug on projects that aren’t moving in the right direction, or to shift more funding to projects whose promise is backed by hard data.
Are you ready to have your ideas challenged?
When it comes to digital transformation, it’s vitally important that companies lacking the expertise to handle it acknowledge that fact. Poorly thought-out ideas from senior executives without the proper knowledge or awareness to back up their decisions can squander resources quickly. Outside experts (in the capacity of an advisory board, for example) can add needed critical scrutiny to the decision-making process, which can help uncover problems and spot new opportunities quickly.
Is your workforce empowered?
Implementing digital initiatives is an effort that has to move quickly, but this can be hampered, if not outright paralyzed, by a traditional business hierarchy that calls for lengthy corporate approval processes and multiple layers of oversight. Instead, project leaders and effective teams need true business responsibility: the authority to make CEO-level decisions without advance approval. Of course, this requires accountability when tough choices don’t work out, but the alternative is usually projects or initiatives that never get off the ground at all.
Are you still using legacy IT systems?
Legacy IT architecture simply does not have what it takes to support today’s sophisticated digital transformation initiatives. Contemporary IT systems need nimble platforms with customer-facing capabilities and cutting-edge analytics and intelligence. The give-and-take approach of digital efforts today, in which processes and capabilities constantly evolve in response to customer input, needs to be supported by extensive automation.
Do you have a well-coordinated portfolio of initiatives?
As we’ve seen before, a digital transformation isn’t an isolated event but a collection of initiatives that, when combined, bring scaled change to an organization. The challenge is to ensure that these initiatives are not handled separately but are coordinated holistically as they develop alongside each other. Executives need to understand the map for each initiative, how it aligns with the business’ broader strategic objectives, and how it combines and runs in parallel with hundreds, if not thousands, of other initiatives.