Four key questions to consider for successful digital transformation

Guest Post from Jonas Andrén, Lokesh Dadhich, Johan Treutiger and Tove Kjellén, Arthur D. Little

Digitalization is a cross-societal megatrend affecting and challenging all sectors, from manufacturing to local government. There are, however, very few success stories of traditional “analog-native” companies becoming digitally mature enough to compete with “digital-native” players. This is demonstrated by the results of Arthur D. Little’s Digital Transformation Study. Almost 80 percent of companies surveyed said that they were still only “digital adaptive” – with their digitalization efforts limited to products and services at best, with no comprehensive approach to digital transformation.

To counter this trend, we have identified four key questions for organizations to ask themselves when developing digitalization strategies.

How can we adapt organizational structures to accelerate transformation and become more digitally mature?

In order to match the agility and customer centricity of digital players, analog-native companies need to break down legacy functional silos. They must create organizations that foster cross-functional collaboration, with processes, such as product development, that flow seamlessly across departments, enabling the digitalization of products, processes, and touchpoints in an end-to-end manner. Collaboration needs to stretch outside the organization to ecosystem partners and customers, as well as internally through the organizational structure.

Organizational models to drive transformation

The choice of which organizational model to adopt to facilitate digitalization depends on multiple factors, including current digital maturity, intended target picture, urgency of change and risk aversion.

• Digitally aware organizations embarking on digital transformation may start with central models. This brings clear accountability and transparency at the expense of a possible “us-and-them” relationship with the wider organization.
• An integrated model overcomes this issue, providing greater momentum for change. However, it risks creating alignment issues due to unclear accountability and the difficulty of following a common vision.
• The hybrid model combines the positives of the central and integrated models, but is more complex and difficult to deliver.
• The most digitally mature structure is a centrally facilitated and fully integrated model. Here digital is fully embedded in the business model, products and services, processes, and mind-sets of the company.

How can we ensure company-wide digital governance and investments?

Digital-native players leverage the investment and competencies of each component, such as process, product and platform, across the organization. Replicating this in an analog-native organization requires strong and robust governance to ensure that the right digital investments are made, shared throughout the organization to avoid costly duplication, and managed in the best way possible. Another key responsibility of the governance function is to constantly monitor the organization’s transformation progress, in order to steer the business towards higher levels of maturity – for example, through smart KPIs, which both maintain the business as-is and gradually push it towards digital maturity.

For analog-natives to create truly digital operating models, the IT focus needs to shift from business process management to digital transformation. This shift can be done by going from a situation in which individual business units request IT development and support from the central IT department, to one in which a digitalization layer can push digital innovation across all group units through a cross-functional team of business and IT experts. This “digitalization factory” works on top of central IT’s existing infrastructure assets, integrating and implementing digital technologies to enable transformation.

What are the skills, competencies and roles required for a digital business model?

Digital-native organizations rely on new digital competencies, processes and working methods, as well as unique leadership roles in their organizations, in order to deliver the core elements in their DNA, such as customer centricity, agility, data centricity and a culture of continuous experimentation.

On the other hand, analog-native firms typically attract people with specific industry and functional specializations, and therefore possess gaps in their digital skills and competencies. The success of digitalization efforts therefore hinge upon their abilities to acquire or develop specific functional competencies around digital skills, technologies and processes (or operating model). It also depends on behavioral competencies that help create the cultural cornerstones necessary for a digital organization.

Analog-native companies should aim to develop the new leadership roles needed to facilitate digital transformation, along with corresponding changes to their business and operating models. One such commonly considered role is a business-led, market-driven, and application-minded chief digital officer (CDO) to complement the existing chief information officer (CIO) role. The CDO creates new revenue sources and drives digital transformation through high-speed procedures and by leveraging capabilities from across the organization. The CIO role, on the other hand, is a business-enabling partner, ensuring efficient IT operations and a holistic, efficient IT landscape through business understanding, technology expertise and enforcement of standards.

What cultural shift is required to build a fundamental advantage over digital competitors?

In order for an organization to digitalize successfully across its layers, it needs to overhaul its corporate culture. Analog companies, which have often succeeded through creating systems and structures to control complicated tasks, generally have cultures that hinder rather than help digital transformation, and the traits that hold back digitalization need to be identified to move forward. While the technology to enable the digital shift is often already in place, ways of working and thinking within the organization need to be challenged in order for operational culture to change too.

For analog-native organizations, this shift is normally around areas such as ways of collaborating, employee mobility, and knowledge creation and storage. In digital-native organizations, collaboration is often decentralized (such as through social media), video is frequently used and hierarchies are replaced with cross-functional teams. Employee mobility is enabled through cloud solutions, and the focus is on goal fulfillment rather than process, with knowledge built online through communities and networks.

Conclusion

Analog-native companies face serious challenges in their digitalization journeys – they are often unaware, sometimes ignorant and most often unprepared for one of the most important battles for their survival. While nurturing their core business, analog-native companies need to take a leaf out of the book of digital-native players and make structural changes to their organizational models.

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