Digital Transformation is Not Really about Technology

Executive Summary

Successful digital transformation goes beyond applying technology. It requires:

• A clear and compelling strategy;
• Tech-savvy leaders and talent;
• A digital culture and new ways of working;
• Peak-performance teams and new organizational designs; and
• A digital ecosystem that enables your organization to drive innovation.

How can your organization thrive in these fast-moving, digital and technology-driven times? That is the crucial question every CEO and executive team member needs to ask.

Digital transformation is part of the answer. However, transforming your organization to become — and remain — truly digital requires more than technology.

What makes digital transformation succeed?

For several years now, Deloitte and the MIT Sloan Management Review have conducted a global research project to find out what sets digitally mature executives and organizations apart. For digitally maturing organizations, technology is not simply an add-on to existing processes and practices. Instead, it prompts these companies to rethink how they do business. In this article, we outline the key findings from our research, highlighting the factors that separate the successful digital transformers from the laggards.

#1 Strategy — not technology — drives digital transformation

A clear strategy determines your organization’s ability to reimagine and transform your business for the digital world. The power of digital technologies lies not in their individual use, but how they are being integrated to transform your business and the way you work and operate. As such, your strategy should focus on integrating digital technologies to transform, innovate and achieve strategic goals, instead of using standalone solutions to solve a particular challenge.

Digital technologies should not be limited to separate digital divisions, channels, or functions; instead, they should be applied across the organization to support corporate strategies that address specific industry opportunities. Therefore, your digital strategy’s scope and objectives should include processes, talent engagement and business models. And, it should provide clear priorities and tell the story of how your organization will develop digital capabilities to align its activities, people, culture, and structure with a set of strategic and organizational goals.

The typical objectives of organizations with a high digital maturity level include:

• Improving customer experience and engagement
• Increasing efficiency
• Improving business decision making
• Improving innovation
• Transforming the business

Digitally mature organizations take a “zoom out/zoom in” approach to developing a digital strategy. First, they zoom out to consider how their industries and markets will change in 10 years and beyond, and what they need to do to be prepared. Then, they zoom into the next six to 12 months and identify two or three business initiatives that have the most potential to accelerate movement toward their longer-term destination.

Digital strategies should also tackle how the company needs to change its leaders’ mindsets and evolve its workforce while supporting its core business.

How to develop a successful digital strategy:

• Set clear ambitions, digital and innovation goals, by integrating digital strategy into the company’s overall strategy.
• Focus on transformation and innovation.
• Take a longer-term view, by conceptualizing how digital will impact your business in the future.
• Work backward from a future vision and rethink your business (instead of starting from existing capabilities).
• Use technology as a means to achieve strategic goals and drive innovation.
• Balance incremental and disruptive innovation by taking a portfolio management approach (some low risk, some moonshots).
• Define how skills for the digital transformation will be provided, and how employees will be encouraged to use technologies to work better with customers, partners, and colleagues.

#2 Tech-savvy leaders and talent wanted

Employees in digitally maturing organizations are confident in their leaders’ ability to play the digital game and are motivated to work for digital leaders. The digital agenda must be led from the top, requiring leaders to possess digital fluency. This does not mean they need to be technology experts; however, they need to be able to:

• Articulate the value of digital technologies to the organization’s future;
• Conceptualize how digital technologies can impact the business; and
• Understand how to use digital technologies to achieve strategic goals.

To become talent magnets, digitally maturing organizations do not only invest in strengthening the digital thinking of their senior management. They also commit to bringing digital skills to the entire organization, including a customer-first mindset, collaboration, and design thinking. And they do this increasingly online and on a just-in-time, on-the-job basis, rather than through formal classroom training.

Therefore, the ability to communicate the company’s strategy by telling a compelling story is an essential leadership capability. Leaders need to create narratives about digital and have a clear agenda to equip the company, its people, structure and culture with the capabilities and strategies necessary to traverse the digital age.

Digital leaders:

• Provide vision and purpose and have clear aspirations.
• Provide the opportunity to execute the digital strategy by creating conditions to experiment.
• Put in place platforms — virtual or physical — where people can play and experiment with new ideas and business models, including with other parties such as universities, entrepreneurs, etc.
• Empower people to think differently.
• Enable people to collaborate across boundaries. The most significant barriers of collaboration in companies are mainly organizational, such as culture, mindset and silos.
• Rethink who needs to lead, pushing decision-making authority down to lower levels of the organization so they can work better in a digital environment.

Leaders can set the stage for their employees to excel, creating conditions that foster agility, collaboration, and innovation through new ways of working.

#3 If digital transformation is what you want, reinventing your ways of working is what you need

Despite the importance of leaders showing the way, digital transformation cannot just be a top-down mandate for change. Instead, it involves creating conditions where existing employees can start thinking and working differently, driving change from the bottom up as well. Digital cultures, ways of working and behaving — which lead to the adoption of new technologies — are characterized by innovation through experimentation and learning, risk-taking, agility, and cross-functional collaboration.

Creating such a digital culture and building the capabilities for new ways of working is an intentional effort: 80% of respondents from digitally maturing companies say they are actively engaged in bolstering risk-taking, agility and collaboration.

How can you strengthen your digital culture?

1. Ensure your senior-level talent is committed to digital: companies that give their senior leaders the resources and opportunities to develop themselves in a digital environment are more likely to retain their talent.
2. Invest in your own talent: more than 75% of digitally maturing organizations surveyed provide their employees with resources and opportunities to develop their digital acumen.
3. Cultivate soft skills: these trump technology knowledge in driving digital transformation.
4. Develop leadership and collaborative skills: such as having a transformative vision (22%), being a forward thinker (20%), and having a change-oriented mindset (18%).
5. Foster rapid experimentation: this creates the company’s rhythm and provides the knowledge and solutions that keep it moving.

Is your culture ready for digital?

Rate your company culture on the following elements:

• Agility: slow/deliberate — nimble/quick to act
• Risk appetite: cautious/risk-averse — bold/exploratory
• Decision making: instinctive — data-driven
• Leader structure: hierarchical — distributed
• Passion for work: work to live — live to work
• Workstyle: independent/siloed — collaborative

#4 From hierarchy to a network of teams

A vital part of transforming your culture and ways of working is focusing on peak-performance teams. Digital organizations recognize and reward collaboration, regard cross-functional teams as a cornerstone of how they operate, and are less likely to rely on hierarchical management structures to make decisions.

To foster speed, agility and cross-functional cooperation, digital organizations:

• Simplify and delayer their organizational structure by shifting from a vertical departmental structure to a horizontal end-to-end approach;
• Shift from a process focus to a customer experience focus, which drives cross-functional collaboration;
• Rethink how work is done and by whom, allowing people to move from project to project fluidly;
• Push decision making to autonomous teams; and
• Evaluate teams as a unit.

#5 The myth of the lone innovator: Digital ecosystems accelerate innovation

Digitally maturing companies innovate at far higher rates than their less mature counterparts, and they innovate differently.

These companies invest more in innovation and continuously drive digital improvement, spreading the responsibility for innovation throughout the entire organization instead of confining it to labs. This means that the cross-functional teams described earlier have more freedom to innovate in their daily jobs and are provided with the necessary resources. This greater autonomy requires higher governance, which is achieved by giving clear priorities as outlined in the strategy.

Moreover, digital organizations do not only rely on their internal innovation capacities but are also more likely to collaborate and partner with external partners. And, as with many things outlined in this article, they take a different approach to these collaborations; relying less on formal contracts and more on building trusting relationships.

Conclusion

The five critical success factors outlined in this article offer CEOs and their executive teams a framework to deliver a successful digital transformation strategy for their organizations. To navigate the complexity of this transformation, the organization’s culture, people, structure, and ways of working must be in sync and aligned to its overall strategic objectives. Following these guidelines will enable your company to become — and remain — a truly digital organization that can thrive both now and in the future.

Is your organization ready for a successful digital transformation?

• Does your company have a digital strategy that goes beyond implementing technologies?
• Does your company culture foster digital initiatives and new ways of working?
• Is your organization confident in its leadership’s digital fluency?

This article was originally published at Deloitte InsideNOW.