A Philosophy for Digital Transformation

PART I

Digital transformation has become the buzzword used by organisations wishing to improve their performance and their prosperity by implementing the latest technologies. However, if not approached correctly, digital transformation can be intrusive and disruptive, destabilising operations and degrading performance.

It would therefore be prudent for organisations to follow a well-defined philosophy for their digital transformation. This article outlines the need for digital transformation and presents the considerations relevant to such a philosophy. The next two articles will provide more detail about each of the considerations.

At the outset it is important to align on the four reasons that should motivate any digital transformation journey.

1. To accommodate changes in the customer’s perceptions of value

Consider the new value types important to the digital economy customer, which are:

  • cost – such as the availability of free/low-cost product and service options, and/or, consumption-based pricing;
  • experience – such as product suggestions based on past behaviour, customisation of products and services to individual needs, and, fast and non-cumbersome delivery options; and,
  • platform – the ability to collaborate with other customers, or, simple and easy access to chat-bots or in person customer services, etc.

These considerations are likely to result in business model changes where product and service specifications, and, sales and delivery processes, are aligned with the new value type requirements.

2. To use the mechanisms provided by technology advances

Changing the way in which technology is used in an organisation impacts the operating and resource models of the organisation. Operating model changes include making available business intelligence (based on relevant data consolidations across the systems and functions within the organisation) to enable management decision-making; to obtain more intimate knowledge of customers and their behaviours; and, to add value to the customer’s experiences. It also includes the automation and optimisation of business processes, which will include relevant system integrations to minimise the amount of manual labour within operations.

Resource model changes refer to strategies where the ownership of resources (such as infrastructure or systems) are outsourced to a provider that specialises in servicing an organisation’s functional and non-functional requirements.

Functional requirements can be generic as in online meeting facilitation solutions, or more specific, as in enterprise resource planning (ERP) solutions. Non-functional requirements include, for instance, the ability to scale transaction volumes, which will ensure system capabilities are available as they are needed. It can even address security requirements, such as access control, and many more.

3. To align with our understanding of organisations as “complex adaptive systems” in which cause and effect can no longer be viewed as linear and predictable

Organisations are complex adaptive systems, comprising multiple components (e.g. functional units; people, systems, etc.), each with multiple connections to other components. When a component changes, it will impact the behaviour of all the components connected to it.

All components constantly change and as they change the behaviour, and therefore strengths and weaknesses within the organizational system, change. These changes can be the result of strategic intent. It can be organic, as internal optimisation practices evolve. It can also be the result of ineffective transitioning procedures used in previous transformation initiatives; or, the result of the retention of non-optimal legacy components retained because of a legacy mindset. A system with multiple components and connections can become so complex that the ultimate end result of any planned change can become unpredictable. Any digital transformation should therefore include a simplification of the operational capability of the organisation.

4. To be resilient in the face of internal- and external environmental changes

Resilience implies the ability to align not only to incremental changes within the internal and external environments of an organisation, but also to adverse external situations. Resilience implies the following operational characteristics:

  • the availability of cash reserves
  • the ability to identify harmful changes in the internal and external environments in a timely manner, and to have adequate information for analysis and solution planning exercises
  • operational agility to ensure that the identified solutions are implemented successfully. This usually requires simplicity and standardisation across all models used within the organisation.

These reasons for digital transformation suggest a complete rethink of how we do business and how we enable operations to deliver on customers’ demands. The Zeta Digital Transformation Philosophy, identifies six considerations, based on the premise that a deep understanding of the capabilities and health of the current operational system and the opportunities and threats of the environment in which it operates, exist.

Figure 1: Digital Transformation Philosophy: 6 Considerations

 

A DEEP UNDERSTANDING OF THE CAPABILITIES OF THE CURRENT OPERATIONAL SYSTEM

It is key to have a single system’s view of the organisation; and, more detailed complexity analysis diagrams for specific areas under evaluation. Both As-Is and To-Be models should be created as part of the Digital Transformation Plans created after each evaluation phase of the organisation’s transformation journey.

There are some examples below of model templates developed by the author when performing optimisation requirement exercises in organisations. As an example, the first model (Figure 2) shows an organisation with a single product/services portfolio operating in different countries. Because of different resourcing constraints within each country, each country is allowed to create their own resourcing strategy model, and each country has its own local operational entity. More detailed diagrams, as per the example in Figure 3 below, would be required to analyse the differences, and therefore transformation requirements, for each country.

Figure 2: Example of a LEVEL 1 model created of an Organization

Figure 3 clearly shows all the components and connections used by the Functional Unit to execute on its functional responsibilities, which is a critical requirement for planning a digital transformation journey. For example, it is clear from the detail in the model, that process optimisations and application system replacements would be required before a process automation plan can be implemented.

Comparing more than one such model, for duplicate functional areas, would also clearly show the differences in complexities and inefficiencies within the compared functions, thus providing details of the different transformations required by each function.

 

Figure 3: Example of a DETAILED Component and Connection model created for a Functional Unit within an Organization

 

*For discussion in PART 2 of this series

CONSIDERATION 1: COMPANY STRATEGY

A company’s strategy defines its approach to enhancing operational strengths, overcoming weaknesses, exploiting opportunities and mitigating threats. It therefore needs to contain the desired digital transformation objectives as goals within the overall company strategy.

CONSIDERATION 2: CRITICAL SUCCESS FACTORS

The digital transformation journey must be formally approached and managed within the organisation. It should be comprehensive in its coverage, and, its outcomes should be governed.

CONSIDERATION 3: DIGITAL PRINCIPLES

A very important step in the creation of the digital transformation plan is the definition of principles to be used for coherent and consistent decision-making throughout the transformation process.

*For discussion in PART 3 of this series

CONSIDERATION 4: LIMITING FACTORS

Several operational characteristics have been identified as limitations to the success of a digital transformation journey. These include the complexity of the operational system and, an inability to identify the changes (in both the internal and external environments) having an influence on the future success and prosperity of the organisation.

CONSIDERATION 5: DIGITAL MECHANISMS

Digital transformation encompasses the use of a variety of mechanisms. Some mechanisms may require the use of new technologies, while others may require strategic and structural changes within the operational system. These will be presented as business model and operating model mechanisms.

CONSIDERATION 6: DIGITAL PLAN & PROCESS

A phased transformation process is suggested, the phases of which would depend on the current strengths and weaknesses within the organisation, the organisation’s risk appetite, and, the level of disruption experienced by the organisation.

Two follow-up articles will discuss each of these considerations in much more detail.

 

Lizette Robbertze is an Organisation Optimisation Architect & Digital Strategist at Zeta Advisory Services. She can be reached at:
LRobbertze@ze-ta.co.za
+27 84 777 9916
www.ze-ta.co.za