Unless you’ve been living under a rock, it will be no surprise to hear that the global economy has its challenges. Instead of waiting for global corrections, companies have resorted to solely relying upon themselves for growth. However, with its narrow tolerance for error, self-growth is typically the most challenging.
Because cutting costs and optimizing for efficiency will only take a company so far, many companies are compelled to revisit their value proposition to their market. Even for companies that want to stay close to what they currently do, any kind of reinvention represents vast and exciting potential. However, it also brings change and challenge.
As a CTO, I have worked with many other leaders undergoing a business transformation and have developed an approach to take the edge off an otherwise daunting task. As a strategic leader in your organization, whether you are currently experiencing or recently completed a transformation, some of this should be familiar to you. Or if you’re expecting to transform your business soon, this article provides insight and guidance on how to leverage differentiating capabilities for a successful digital transformation.
YOUR UNIQUE BUSINESS CAPABILITIES BRING YOUR STRATEGY TO LIFE
What is a business capability?
A business capability is what your company does to support its strategy, not how it does it. At the highest level, I tend to group business capabilities into one of two buckets: commodity (or operational) and differentiating.
Commodity capabilities include activities such as payroll or invoicing. It is unreasonable to think that any client is going to choose you because you have the best invoicing capability. Yet, without it, a company cannot exist.
The others are differentiating capabilities. These are the aspects of a company that make it attractive to prospective clients and also provides the stickiness for existing clients. In addition to that, having differentiating capabilities that work well together as a whole is a way to truly create value and support your company’s brand promise.
For example, you may look at two media companies from afar and see that they both have the business capability to efficiently rent movies to customers. However, they may each implement this business capability much differently. One will most likely succeed over the other. Look at the days of the video store, then video kiosks, and now video streaming. They can all check the box that says, “Distribute media content efficiently at a competitive price.” But the company that has innovated and made itself the most valuable and relevant to its market is ultimately going to rise above the competition.
To start, let’s look at the four components that make up the anatomy of a business capability:
- Technology: Software, hardware, other tools
- Process: How you operate
- People: Skills and culture
- Organization: How you structure people, the tools they use, and the processes that tie them together.
Both operating and differentiating capabilities do not always need all four components to exist or be effective, but they will always have at least one.
For the purpose of this article, let’s assume that a business strategy already exists. Your strategy may be based on events such as the availability of a new technology or a shift in the competitive landscape. Whatever the driver, once the strategy has been established, the business capabilities must bring these strategies to life.
As you continue to read this article, I will use a real-world example of a health insurance payer that successfully transformed its enterprise as a result of regulatory changes stemming from the Affordable Care Act (ACA). In order for the company to become more cost effective and have the ability to significantly increase its capacity for insurance applications, underwriting, and policy fulfillment, leadership decided that an enterprise overhaul was required.
STEP 1: KNOW WHERE YOU ARE
To begin any kind of strategic transformation, it is important for organizational leadership to know what it already has in terms of the four components—or the “As-Is.” Although many of the details can certainly be gathered from subject matter experts and people in the trenches, leadership needs to be involved to ensure all areas of the organization remain aligned. Just think about how many times you’ve heard company leaders say they were on the same page and truly believe it? If they are not involved from the start, it will be hard to recognize a lack of alignment.
Knowing from where you start in terms of the four components (technology, people, process, and organization) of a business capability is usually straightforward. However, for our insurance company, this was not the case. As the result of inefficient processes and a recent exodus of key people, little had been done with regard to documenting what the company’s capabilities were or how they were being implemented.
This led to an effort to catalog what the company had by using the four categories as a framework. From this, one can build the inventory from the bottom-up and infer which business capabilities existed. It also afforded the team a catalog of which tools, processes, people, and organizational structures were already in place.
One of the company’s many business capabilities is to process health insurance applications. Since all applications were currently processed via paper, in order to meet the company’s future capacity needs, reduce cost, and expedite customer fulfillment, a digital transformation was deemed necessary. This would allow the company to meet the changes around ACA and also capture opportunities that resulted from changes connected to ACA. This decision led the company into the next step.
STEP 2: KNOW WHERE TO GO
As digital transformation takes shape during the second step, the “To-Be” state is designed and leaders align. This is what the company both wants and needs to meet its business strategy. In the case of the insurance company, all four components were affected:
- Technology: Software was needed to manage user accounts, collect dynamic applicant information, comply with regulations, and automate underwriting and fulfillment. Additionally, software was required to track and provide immediate status from enrollment through fulfillment.
- Process: With this change, the collection of paper applications was about to be sunsetted and handoffs to underwriting would also make a major turn. In addition to having immediate visibility of the application throughout the underwriting process, policy packet distribution was streamlined and most of the underwriting approval process was automated.
- People: Typically, digital transformations give rise to large change management initiatives. In this case, data entry of paper applications into a mainframe by clerical workers was minimized and eventually eliminated. Additionally, call center staff needed to be trained on finding and helping customers with their electronic records and website data. Agents, managing their book-of-business, needed visibility into information that allowed them to service their clients.
- Organization: A variety of organizational changes resulted from the transformation including: an IT support team was created to handle production software products; call centers had to take on more responsibility with decreased head count; and a paper processing department was scaled down significantly. Finally, the IT team needed to be restructured in order to support its expanding role in achieving the new business objectives of the enterprise. The agents were also part of this transformation and helped define how they needed to work with their clients.
STEP 3: GOING FROM AS-IS TO TO-BE
The third, and final, step of any business and software transformation is to create the road map from the “AsIs” to the “To-Be.” Because this transformation typically takes place while both business and software are still operating, it is usually the most challenging and intricate part of the journey.
For our healthcare insurance company, the road map included making transitional plans for its technologies, processes, people, and organizational structures. Here are a handful of planned changes that were implemented as well as their outcomes:
- Technology: Platforms consisting of redundant applications, data, and products were consolidated. New tools were defined, developed, and used in innovative ways to leverage automation capabilities.
- Process: For business and IT, true alignment among leaders was essential, along with process visibility, rigorous testing, and contingency plans. These steps helped to ensure that the overall rollout was reasonable and eliminated any significant surprises. IT changed how it built software tools for business. Underwriting procedures were completely transformed.
- People: When applicable, people were reallocated to different roles and given new skills to meet their new roles. Culture would also change with this transformation to be more business outcome and team oriented.
- Organization: A more sophisticated IT organization was designed and would include a PMO, Product Management, Product Support, and newer technologies that better support talent recruitment. Policy fulfillment time and underwriting would also receive an overhaul.
In addition to its original goals, the company was also able to more than double its policy base through M&A because of this digitization effort. Policy fulfillment head count was reduced by about 75 percent, and application turnaround time went from one month to a few days.
BOTTOM LINE: STAY AHEAD OF YOUR COMPETITION
As a leader in your organization, once consensus is reached to initiate a transformation, there are questions you need to ask yourself right from the start. For example, should you be looking for outside assistance? Do you need to hire new talent or invest in leveraging current talent? Transformation is a big lever to pull for any company.
Finally, if a system of capabilities is created that is successful and will directly support your strategy, your competition will take notice.
If you’ve fully addressed the four components discussed in this article, it is unlikely that your competitors can replicate your success. While they will be able to see the final outcome of your work, they won’t be able to see the four components of your new capability or the vision that was its genesis.
Having your capabilities designed and implemented as a system can be a monumental advantage that is healthy for you and your customers and potentially toxic for your competition.