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Bridging the transformation divide

February 23, 2022

When a business transformation and a digital transformation collide, projects can fail to return the promised value.

Companies have been undergoing transformations for ages, but the new wrinkle is the notion of a digital transformation: the idea that technology can create powerful benefits for the business. As companies began to experiment with advanced analytics, omnichannel systems of engagement, and back-end automation, there is a lingering question about the impact this can have on the business. Many organizations have hired chief digital officers (CDOs) to help scale their digital transformations. And from this, the transformation divide emerged: the business transformation office (BTO) has existed for years, driving efforts that can be broadly classified as non-digital. Inevitably, the agendas for the CDO and the BTO begin to conflict. The result is often that both projects fail to return the promised value.

For example, a large technology company began a transformation initiative to re-engineer its key processes. Led by the BTO, the program aimed to reduce the time and costs of delivering services. Unfortunately, at the same time, the CDO was driving a project to use robotic process automation to meet the same objectives. Under the best of circumstances, this could have led to in-fighting; however, this was not the best of circumstances. Since the projects were being managed on separate tracks, the processes that the digital automated team optimized were often not the transformed processes that the BTO had proposed. The result was wasted investment and massive amounts of rework. This led to a loss in confidence that either the BTO or the CDO could deliver. However, there is a better way.

Modern transformation programs

Today’s transformations should no longer be thought of as having two components: digital and non-digital. In reality, almost every transformation has elements of both. That’s not to say there’s only one type of transformation. But we have found that more than 99 percent of transformations can be classified in one of two ways (see figure 1):

Fig 1: Nearly all business transformation fall into one of two categories

Innovation-led. In this type of transformation, the digital components are front and center with the CDO organization engaged to create a capability that can be leveraged by a variety of business units and transformation programs. One example is a program that builds artificial intelligence and machine learning capabilities. This type of transformation is best when innovation is driving the business change.

Business value-led. In this type of transformation, the digital components are downstream from the business transformation. These programs often leverage capabilities that may have been developed in other transformation projects. An example is a project to reduce the full-time equivalent (FTE) costs for a service organization in which self-service and robotic automation will be central to returning value but will not be the focus of the delivery. This type of transformation is best when business efficiencies are driving the business change.

Unlocking value in both business and digital transformations

Regardless of the type of transformation, four factors maximize the success and the value of these programs (see figure 2):

Fig 2: Four factors can unlock the full of potentials of a business transformation

Methods: capitalize on the best of agile processes
Agile is not the right methodology for every program, but many transformation programs take advantage of agile tools and processes to deliver more value. Although using agile methodologies is common practice for digital transformation projects, we still see many organizations using traditional waterfall methods to address non-digital transformations— creating unnecessary complexity as diverse workstreams attempt to align and coordinate. Using agile processes for a non-digital transformation, even if managed with a static set of requirements, can reduce the execution risks of the program. Using tribe and squad structures, empowering small teams to decide how to execute, and running with short sprints powered by retrospectives can help traditional business projects succeed. This also often presents an opportunity for the business to begin using agile in other contexts, which can lead to a larger transformation.

Orchestration: integrate the programs through a control tower
Research indicates that companies that run integrated transformations are 1.8 times more likely to meet their long-term objectives. In contrast, non-integrated transformations have low success rates of only about 20 to 30 percent. This translates to $900 billion of wasted value from the $1.3 trillion spent on digital transformations in 2020, as noted by both the Harvard Business Review and International Data Corporation. In effect, integrating programs across the BTO and the CDO domains could unlock $250 billion of value.

Even with the flexibility of agile, companies must still navigate a variety of pitfalls when engaging in a transformation. We have seen many transformations hindered by poor coordination with internal enabling functions such as finance, human resources, and procurement. Communication often breaks down when program managers and product managers don’t talk to the right people. These are expensive problems that demand a centralized solution. For business transformations, we recommend having a centralized control tower function that can facilitate communication, anticipate roadblocks from enabling functions, and ensure a fair calculation of benefits before, during, and after the execution.

Governance: create the right incentives to encourage the right behaviors
Many transformation programs end up with dozens of KPIs that focus on operational metrics and very few that indicate how the business is actually creating value. This lack of focus can lead to unnecessary effort being spent on solidifying measurements rather than achieving business objectives. For instance, if digital teams are measured against KPIs that focus on technology while non-digital teams are given broader business targets, the two teams that need to work together will likely conflict because they have different incentives. We recommend evaluating the transformation based on objectives and key results (OKRs) that are calibrated with the aligned business objective of the program while providing a few key results that are aligned across the organization. Creating the right objectives and calibrating a few well-considered results encourages the right behaviors, with teams focusing on what they bring to the business rather than on operational targets that might not be relevant to the business.

Deliverables: focus on creating capabilities
One of the most common challenges with transformation programs is that they are not built to scale. The result is that as programs begin to consume capabilities, breakdowns reduce the business value of the transformation. For instance, many organizations build automation using robotic process automation or other workflow tools but then create robots or tooling without building a platform that can help scale the solution. The result is that the delivered capabilities are only usable in one context—limiting their value to the organization. To avoid this, we recommend focusing on scalable, reusable solutions rather than on-point solutions that solve for one problem. The control tower is often in the best position to assess the viability of solutions. The orchestration function of the control tower requires that the teams be fluent in the language of both digital technology and business. This gives them an advantage in creating reusability and scale for transformation deliverables and develops real capabilities that become part of the organization’s DNA.

Understanding the value drivers for transformation

Nearly every sector of every industry is facing some form of disruption. From financial services and telecommunications to retail and oil and gas, transformations are triggering major changes. Organizations that recognize that all transformations have aspects of both digital and traditional business and that those transformations can have a different focus are generally the ones that succeed. Companies that create value through agile processes, integrated planning, capability building, and well-thought-out OKRs are quickly becoming the digital leaders. Those that don’t follow this path do so at their own peril. Transformation can be difficult and risky, but by understanding the type of transformation and the associated success factors, your company can overcome the challenge.

Source: Kearney

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