Technology continues to disrupt all industries, creating unprecedented challenges and opportunities for all businesses. Digital transformation (DX) refers to how an organization transforms itself using technology.
When it comes to digital transformation, most companies find themselves in one of two camps - they're either leveraging technology to disrupt their industries or are defending their core business from disruption.
In reality, there is a third camp of companies who live under the illusion that their company/industry is not impacted by technology. So, they cling to how they've always done business. If we go by recent history, these companies will either go out of business or lose a significant portion of their market share to their competitors.
In this Digital Age, companies must disrupt or risk being disrupted
Statistics shows that digital transformation is now a business imperative and is the focus of most forward-looking companies.
Of CEOs in Global 2000 companies will have digital transformation at the center of their corporate strategy.
Source: IDCOf CEOs feel they have 2 years to make digital transformation progress before suffering financially or falling behind competitors.
Source: ProgressA common myth is that digital transformation is all about technology. While technology is a very important piece, we believe that companies who obsess over technology, miss the bigger picture.
Digital transformation is not about digital. It's about the transformation.
We think that the "transformation" is first and foremost about becoming a more customer-centric company. And, “digital” is the catalyst that enables new ways for companies to engage and delight their customers.
Whether it is Amazon, Google, or Uber, "customer-centricity" is a common value shared by market leaders across industries. These companies understand their customers better than their competitors and innovate faster with products & services that their customers love.
By 2020, 80% of companies will compete on customer experience - Gartner
At ProductStack, we've developed a Digital Transformation Framework to provide a holistic structure for assessing an organization’s digital strategy and digital maturity.
As you can see, successful digital transformation requires a lot more than just technology. In fact, technology is often the easiest part of the transformation and changing the culture is the hardest.
Organizational culture is the invisible force that manifests in how people behave in an organization. The right culture acts as a lubricant that aligns employees and encourages the right behavior to serve the customers. Conversely, a poor culture results in organizational friction, making it hard to get anything done.
Below are the 5 attributes of organizational culture that we believe are essential to an organization’s digital transformation success:
"Culture eats strategy for breakfast" - Peter Drucker
Digital transformation is hard because to be successful it requires changes to almost every aspect of an organization. Unless you're a startup, these changes won't happen overnight. Therefore, it is useful to think of digital transformation as a journey and not a destination.
Digital transformation is a journey not a destination
During this journey, the organization will progressively build new capabilities and capture new value. Digital maturity then is an indicator of an organization's maturity as it makes this journey. Here are the 5 stages of digital maturity:
It is possible and quite likely that in larger organizations different business units are at different levels of maturity.
At ProductStack, we help business executives leverage technology to innovate, grow revenue, or gain operational efficiencies. And it starts with a sound digital strategy. We believe that "strategy first, followed by disciplined execution” is the recipe for successful digital transformation. Here's our 4-step process to develop a comprehensive digital transformation strategy:
Start this process by documenting your current business model(s). At its core, a business model describes how a company makes money. For this, use the Business Model Canvas, which is a visual representation of the key elements describing a company’s customers, value propositions, and underlying pieces of the operating model. If your company serves multiple customer segments or has multiple products and services, you’ll create multiple business model canvases.
But, your company doesn’t exist in isolation—it is constantly shaped by its environment, including the markets you serve, competition, technology, and industry trends. As you document your business models, analyze the internal and external landscape to document the key challenges facing your company. For example, is the profitability of your business going down? Is it becoming harder to scale operations? Are your customers choosing your competitors? Is there a new competitor who’s gaining ground?
In this step, your team will define the business objectives that your company will pursue, which will largely depend on whether the leadership’s outlook is to defend their core business or to expand into new areas.
We recommend that you use the OKR (Objectives and Key Results) framework. OKR is a goal management framework which was invented at the Intel Corporation by Andy Grove and is widely used amongst the biggest companies in the world like GE, Google, and Microsoft.
In the OKR framework, the Objectives are the qualitative description of what your company wants to achieve, and the Key Results are the quantitative measurements of your progress towards those goals.
Choosing the right objectives and appropriate key results is one of the hardest things to do in business. The important thing to keep in mind is that you must go beyond broad statements about improvements to define exactly how to measure success.
Next, conduct a brainstorming session with your team to come up with ideas that will help your company achieve the objectives and key results (OKRs) identified in the previous step. Depending on your company’s aspirations to defend its core or expand into new areas, you can pursue five transformation strategies:
At the end of this step, your team will have an “Opportunity Backlog” of ideas that have the potential to transform your company.
In this step, your team will prioritize the Opportunity Backlog to uncover the highest priority ideas and then build an execution roadmap. It’s normal for an Opportunity Backlog to consist of ideas that range from incremental to radical. Prioritizing them might seem like comparing apples to oranges—how do you compare ideas for small improvements to market-busting ideas that might require big investments?
This is where the Three Horizons framework proposed by McKinsey & Company comes in. In this model, Horizon 1 refers to incremental innovation that protects your core business. Horizon 2 consists of ideas that build on your existing business to generate new revenue opportunities. Finally, Horizon 3 consists of the “moon-shots” where your team is inventing the future.
The Three Horizons framework takes a portfolio model to innovation which states that a company must diversify its investments across these 3 horizons to ensure sustained growth and relevance. Each horizon has a different level of risk, demands a different mindset, and requires different levels of investment.
Take each idea and score it on business value, effort, time-to-market, and risk levels. This is where your team must attach the right weights for each parameter based on your OKRs to come up with a weighted average score for each opportunity.
Armed with a prioritized opportunity backlog, the team should be able to sequence the opportunities to create a transformation roadmap.
There you have it! This is ProductStack's Approach to digital transformation. We hope that you find value in our approach and embrace it so you can build a more competitive and profitable business. But remember, digital strategy is just the first step, the real work is ahead of you - disciplined execution. All the best!
If you want to learn more about digital transformation, check out our "Comprehensive Guide to Digital Transformation"
A journey of a thousand miles begins with a single step. Start your digital transformation journey with a FREE 2-hour consultation with Rahul Mohan, CEO, ProductStack.
In this deep-dive conversation with Rahul, you will refine your business ideas or challenges, and walk away with clear next steps.
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