Defining Digital Transformation

Session 5
Learning Outcome

LO 1 : Explain the digital-native organization

ACKNOWLEDGEMENT

• These slides have been adapted from

Neil Perkin and Peter Abraham. (2017).
Building The Agile Business Through
Digital Transformation. Kogan Page
Limited. New York. ISBN:
9780749480394.
Introduction
Introduction
• So how might we best define exactly what digital transformation is? We must
first acknowledge three foundational truths:
– Digital transformation is inevitable. Change is happening whether you like
it or not. You can either choose to respond or get left in its wake.
– Digital transformation is about more than technology. As we will discuss
at length in this book, it is also about strategy, process, culture, behaviors
and people
– Digital transformation involves fundamental and comprehensive change.
It is the reinvention of the way in which a company operates. Clay
Christensen has a useful way of framing an organization’s capabilities
(what it can and cannot do), defining three broad areas:
This is useful since, as Christensen says, these aspects are mutually
exclusive in that a part of a business cannot fit into more than one of the
categories, but are also collectively exhaustive (put together the three
categories account for everything inside of the business). So digital
transformation is fundamental in all three of these areas.
• Resources (tangible ones like buildings and headcount, intangible
ones like brands and IP);
• Priorities (the consensus on what’s right to do, the values, and the
strategy;
• Processes (the formal or informal way in which the work gets done).
Introduction

• In 2014, digital and business consultancy Altimeter defined digital

transformation as:
– the realignment of, or new investment in, technology and business
models to more effectively engage digital customers at every touchpoint
in the customer experience lifecycle.
• This definition acknowledges the shift required in not only technology but
also business models and customer experience. Yet it perhaps does not
emphasize enough the changes to processes, ways of working and culture.
So, bearing in mind Clay Christensen’s way of summarizing the entire
capabilities of an organization, this is our way of capturing a one sentence
definition:
– The transformation and reinvention of the resources, priorities and
processes of a company in order to be fit for purpose in a digitally
empowered world.
What digital transformation is NOT
What digital transformation is NOT

• Digital transformation is not simply chasing shiny new technology. There is a

salutary lesson contained in research conducted by Cap Gemini and MIT
Sloan. The study (The Digital Advantage: How digital leaders outperform their
peers in every industry) looked at more than 400 large companies over a
twoyear period to assess the impact of digital technologies and how those
companies were responding to those challenges.
What digital transformation is NOT
• The study found that while most companies were active with digital
initiatives, only a few had positioned themselves to capture real business
benefit. A combination of two separate but related dimensions combined to
contribute toward digital maturity: digital intensity was defined as
investment in technology enabled initiatives to change how the company
operates (including customer engagements, internal operations, business
models); transformation management intensity was about creating the
leadership capabilities to drive digital transformation (including the vision,
governance, engagement in the process of change, IT or business
relationships to empower it). These two dimensions mapped out four
different types of digital maturity on a two-by-two matrix:
1. Beginners: organizations that do very little with advanced digital
capabilities, have a low awareness of opportunities.
2. Conservatives: companies that favour prudence over innovation, have a
unified vision but are sceptical of the value of digital trends.
3. Fashionistas: follow digital trends and implement shiny new digital
apps, but do not have a unified vision for the digital transformation of
their business.
4. Digirati: those that truly understand how to drive value through the
digital transformation of their business. In other words combining
transformative vision and governance with investment, innovation and
continuous improvement in people, process and technology.
What digital transformation is NOT

• These more digitally mature companies (or ‘digirati’) were able to combine a
focus on change through new technology, with a concurrent focus on change
management, people, process and culture. The study found that this latter
group of companies were, on average, 26 per cent more profitable, had a 12
per cent higher market capitalization, and derived 9 per cent more revenue
from existing assets.
• This was an advantage that persisted across different industries. But what
was also notable in the research was how companies that pursued shiny new
technologies without the underlying strategies, processes, team structures
and cultures to exploit it (the ‘fashionistas’) effectively damaged their
business performance and were 11 per cent less profitable than the average.
• The overarching lesson of the research is that digital transformation drives
real advantage but pursuing shiny new technology (‘the digital magpie
syndrome’) without focusing on all the supporting behaviours, skills, culture,
vision and leadership is bad for business.
What good looks like: a maturity model for
change
What good looks like: a maturity model for
change

• So that we might better represent and summarize many of the key shifts that
we will be talking about in the coming chapters, we have developed a
maturity model for what good looks like. This model describes three key
stages of development:
1. Legacy: the state before a business has begun their journey toward
digital transformation, wherein traditional thinking and approaches still
dominate.
2. Enabled: the business is in the midst of the journey, and has likely
adopted many of the foundational shifts in mindset, strategy, process,
resources and culture, but there is still work to do to fully embed,
extend and realize the full potential value of these new elements.
3. Native: the business is native to the fluid, rapidly changing environment
in which it operates, and this is reflected right across the organization in
the fabric of its culture and how it operates
What good looks like: a maturity model for
change

• It is important to note that we are not describing a transition with a

beginning, middle and an end. Rather, that the transition is one to an
organization that is able to operate within a constant state of flux,
continuously adapting to new challenges and opportunities that arise. In
order to provide some structure to the model, we have delineated levels of
maturity across multiple aspects including customers (orientation of the
business), planning and processes, resources, strategy, vision and culture.
Three key stages of development

• Customers

• Legacy – multichannel, not omnichannel, company orients around efficiency

rather than customer need.
• Enabled – organization orients around customer need, joined up processes
and data create coherent, consistent, high-quality customer experience.
• Native – seamless, rapid customer feedback loops inform strategies, tactics,
innovation and continuous improvement.
Three key stages of development

• Planning and processes

• Legacy – rigid waterfall processes, rigid approaches to planning, waterfall

project management, infrequent release cycle, control centralized.
• Enabled – agile development, SCRUM, test and learn, deployment of rapid
prototyping and build, operations empowered by digital, strong governance,
measurement frameworks.
• Native – interdisciplinary agility, cross-functional, small, nimble teams,
embracing of uncertainty, permission to fail, rapid test and learn embedded
throughout, lean methodologies, embedded digital operations, data-driven
and adaptive processes.
Three key stages of development

• Resources

• Legacy – siloed data sources, basic analysis tools, descriptive analytics,

technology restricts, legacy platforms, isolated knowledge, vertical skillsets,
poor training, organizational structures oriented around functional siloes,
rigid structures that do not adapt to opportunity.
• Enabled – software-as-a-service, integrated technology stack, flexible
partnerships, joining up data, basic modelling, predictive analytics, digital
centre of excellence, specialists and generalists, tech skills, more fluid
structures, collaborative environment, integrated digital and online/offline.
• Native – structures and resourcing oriented around the customer,
continuous reconfiguration of resourcing, flexible, adaptive structures,
organizing around opportunity, joinedup data/tech, prescriptive analytics,
empowered frontline staff, customized dashboards, scalability of the cloud,
actionable modelling, real-time decisions, T-shaped, deep knowledge, human
layer over tech, fluid flow of knowledge.
Three key stages of development

• Strategy

• Legacy – digital capability development not central to organizational

strategy/KPIs, clinging to legacy advantage, episodic innovation, short-term
view.
• Enabled – systematically designed innovation process, more fluidity to
strategy and planning, innovation accounting.
• Native – fully agile and adaptive strategy, systematic and embedded
experimentation, healthy disengagement from legacy advantage, long-term
view.
Three key stages of development

• Vision

• Legacy – assumes retention of existing advantage, lack of clarity around

organizational direction or purpose on the ground.
• Enabled – compelling vision and strategy, strong link between vision and
organizational priorities/KPIs, rigid execution of vision.
• Native – clear organizational purpose and vision lived through leadership
and operations, evident in explicit tactics and implicit behaviours, adaptive
execution of vision.
Three key stages of development

• Culture

• Legacy – precise, slow, controlling, restrictive, focused on efficiency,

incremental improvement, highly discursive.
• Enabled – collaborative, customer-centric, data-driven, focus on talent,
challenging norms, ownership mindset, greater autonomy, learning from
failures as well as successes.
• Native – highly fluid/collaborative, agile culture, ‘fast and roughly right’,
entrepreneurial, empowered teams, distributed authority, bias to action, 10X
thinking, networked, embedded learning culture.
The agile formula
The agile formula

• With comprehensive change requiring a comprehensive response, our

definition of organizational agility incorporates three key foundational
elements:
1. Velocity: heightened pace and progression through broad and proficient
adoption and application of digital-native processes including design
thinking, agile and lean, continuous experimentation and a culture that
supports constant testing and learning, coupled with an exhaustive,
customer-centric innovation process that enables rapid origination,
validation and commercialization of ideas.
2. Focus: building organizational momentum through an enabling, agile and
adaptive strategy with strong links to execution, and aligned to a curious,
outwardly looking perspective and a clear vision and purpose.
3. Flexibility: creating the culture, environment and structures to move fast
through agile structures and small, multi-disciplinary teams, greater agility
in decision-making and governance, productive and collaborative
environments and an empowering and engaging culture characterized by
The agile formula

• Each of the elements is essential in becoming truly agile. Without velocity we

lack momentum, without focus we lack direction and governance, without
flexibility we lack the enabling environment necessary for success.
The agile formula

• We will take each of these elements in turn in this book to help set out the
structure and logic of our arguments. Since these foundational elements are
not mutually exclusive, but are combinatorial in expounding the essential
components of change, we can represent our formula for the agile business
as:
Agility = (Velocity × Focus × Flexibility)
• Each Part of this book will incorporate a series of short discourses that build
to form a blueprint for change, and in the final section we will bring these
elements together to form a roadmap to becoming an agile business.
Summary
Summary

• What digital transformation is NOT

• What good looks like: a maturity model for change
• The agile formula