What is digital transformation?

Digital transformation certainly isn’t taking existing business processes and automating them; that is called workflow or process automation. Similarly, it isn’t simply the migration of old systems to new(er) systems. Both activities may have a value but aren’t as beneficial to the business as digital transformation.

Digital Transformation involves reconfiguring business processes and retraining people to leverage modern technology and data, and thereby enhance existing business outcomes and potentially spin-off new ones.

Doug Walters, Board Member, Enterprise Solutions Architect

There is no doubt that digital transformation is difficult. Gartner, in its Digital Transformation Trends – A Roadmap for Success 2022 papers has estimated that 40% of digital transformations fail and are abandoned: “In 2022, digital transformation will take twice as long and cost 2X more than anticipated” and “53% of the organizations surveyed remain untested in the face of digital challenge and their digital transformation readiness therefore uncertain.” On the other hand, in 2012 the Standish Group, based on an extensive survey, reported that 90% of all IT programmes fail. So, things must be getting better, and the reason is largely that lessons are being learned constantly.

When an organisation is considering and undergoing digital transformation, Board members can add value by asking probing questions to understand the capability of the executive, the strategy and risk mitigations to support more successful outcomes for the organisation.

I have spent most of my career involved in digital transformation.

The first in 1989, converting an entire building society from an account-based to a customer-based approach was technically successful but resulted in significant launch issues: a “big bang” approach required an overload of training for colleagues to consume and caused a tsunami of customer complaints regarding delays in customer service.

I learned a lot from that experience. The solution is to identify core business services that align with the business vision and strategy: e.g., customer on-boarding or buying shares and to implement the new functionality for that service simultaneously across all delivery channels, then move on to the next service.

The benefits of this approach:

The amount of change, training, and customer expectation at any point in the programme is contained to a level where it can be easily consumed.
It allows the technical team to work hand-in-glove with those who are reconfiguring the business processes and those who are training colleagues

However, key to this approach is preliminary work to understand the dependencies (business and technical) between each of the services – the disruption of dependencies during the transformation can create an unacceptable level of risk for the business. Considerable work needs to be undertaken up-front to identify these dependencies and agree ways to mitigate them in a way that is least disruptive.

During the early analysis phase there is often a tendency for boards and senior management to apply pressure to “see more progress” – in my experience, this is a recipe for disaster. First, dependencies must be identified, and mitigation tactics agreed.

Another hurdle is that business users invariably specify their requirements based on what they know and with which they are familiar; most cannot envisage different mechanisms for achieving their desired business outcomes.

Focusing on replicating existing tasks rather than desired business outcomes is a problem because:

The whole point is to change business operations.
It increases implementation and ongoing maintenance costs through requiring customisation (rather than simple configuration).
Every time you customise you introduce risk that must be mitigated by additional testing and therefore additional cost.

In this context, the most effective strategy is to allow business users to get their hands “dirty” on prototypes or mock-ups to demonstrate that the desired business outcomes can be achieved in a different way: “seeing is believing.”

My final point is that success requires bringing together and coordinating a far greater range of components than most Directors appreciate. A poor showing in any one of four inter-related domains – organizational change, process re-engineering, data, or technology – can scuttle an otherwise well-conceived transformation. The important stuff, from creating and communicating a compelling vision, to crafting a plan and adjusting it on the fly, to slogging through the details, is all about people.

More than anything else, digital transformation requires talent. Indeed, assembling the right team of technology, data, and process people who can work together – with a strong leader who can bring about change – may be the single most important step that a business contemplating digital transformation can take. Of course, even the best talent does not guarantee success. But a lack of it guarantees failure.

Board considerations

Does the Board have sufficient IT literacy to provide effective scrutiny of the programme (if the answer is “No”, consideration should be given to recruiting or co-opting this expertise.)
What Board-level reporting will be provided in relation to progress against the Business Strategy?
Will the transformed organisation support the Board’s (perhaps emerging) ESG strategy and obligations?
Does the Board have a clear understanding of the proposed benefits of digital transformation, and how the realisation of these will be tracked?
Digital Transformation usually opens up new opportunities (new markets, new product / service lines.) Will the organisation be able to scale to take advantage of these cost-effectively? If not, there needs to be a thorough review of the nature of the proposed digital transformation.
Will compliance with industry-specific regulations and general legislation such as data protection laws be assured?
What plans / provisions are being made for Business Continuity?
Are digital transformation related risks on the Board risk agenda? Do we understand these and are they being tracked and mitigated?

Some probing questions for NEDs to ask of the executives:

Is the Business strategy consistently understood throughout the organisation and transformation partners?
Have we identified the critical functional and technical capabilities necessary to support the Business Strategy and do we have assurance that the proposed transformation will supply those capabilities?
Based on your existing knowledge of the business and of similar businesses where you have undertaken digital transformation, which services would you identify as carrying high risk, and how would you mitigate that risk?
Are Security and Internal Audit and their considerations embedded in the programme from the start and throughout?
How will you mitigate potential disruptions to normal operations / customer service?
How will you ensure that the workforce delivering the programme, as well as end users, have the expertise and knowledge necessary for a successful digital transformation outcome?
How will you assure progress, and that the transformation remains true to agreed objectives? A word of warning here – it is not adequate to rely on assurance based on programme documentation. It requires more technical assessment.

So, in summary:

The board needs to have a clear strategy. It is important to identify the business vision and target landscape first and thereby understand the required processes, components, and data. Having done that, the next step is to review the existing equivalents and determine their suitability for the future.
Ensuring there is the right team of technology, data, and process people who can work together – with a strong leader who can bring about change – may be the single most important step that a business can take when contemplating digital transformation.

This article was written by Doug Walters for NEDonBoard. Doug has 44 years’ experience in IT, becoming a CIO at the age of 29, before switching to Architecture. He is pragmatic and results focused, thinking strategically and on an enterprise scale, whilst also having current experience of implementing change and solving business problems. He has diverse experience working both in the UK and internationally, and across a wide range of sectors. Doug is a member of NEDonBoard. For further insights and perspectives, please contact [email protected] to reach Doug.

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