The Rocky Road to Digitalization Success

By Benjamin Mueller and Jens Lauterbach

Introduction

While digitalization has been on the mind of many executives for a while now, 2020 has brought about an unprecedented and often unanticipated boost to many digital initiatives. From public administrations to the fine arts, from not-for-profits to plain old businesses, almost all organizations felt the pressure to leverage digital technologies when the first wave of CoViD-related lockdown measures hit. And the inevitable economic downturn notwithstanding, a surprising number of organizations found that they managed to employ some digital trick or another to muddle through—often even succeed in this new environment.

If your organization is one of these, you might also have used the temporary respite before the inevitable uptake of infections that is now ongoing to take stock and reflect on a way forward. In doing so, our experiences suggest that you will likely come across a realization that many of the organizations we worked with share: Sustained digitalization is a very rocky road indeed!

Thus far, you may have succeeded in safeguarding business continuity and have built up a bit of rapport in terms of reacting to ad-hoc crises using digital tools (from video conferencing to social collaboration technologies). But your ability to keep this momentum going forward and make for more impactful changes depends on recognizing one simple truth: Digital transformation needs to be more than just the digitization of products and services. Similarly, the implementation of technologies that climb Gartner’s Hype Cycle – from machine learning and IoT platforms to the blockchain – by itself is not digitalization. In our view, more than just fancy technology is required to achieve true and sustainable digitalization.

In this, we see three highly interrelated issues that are instrumental if companies want to overcome some of the stumbling blocks on the road to digitalization success: (1) coherent business strategy operationalization and execution, (2) novel IT management, and (3) effective use of digital innovation.

Coherent business strategy operationalization and execution

The first of the issues identified above, coherent business strategy operationalization and execution, needs to be understood as the cornerstone of every business transformation – and the digital kind is no exception. At the latest since Porter’s 1996 take on “What is Strategy?”, managers need to understand that strategy is about clever and sustainable positioning in the market and – equally important – about a fit of all of a company’s activities to that position as well as amongst each other. This results in two simple recommendations.

First, companies need to think about a coherent approach that transforms their business model and prepares customer engagement, value proposition, and operations for the digital age. They need to think about how their (even completely non-digital) business model will perform in the digital world of the future. If they don’t, competitors or new entrants will, and companies left behind will have troubles competing in future markets. In this, a simultaneous and careful refinement of all elements of a business model is required. For instance, many organizations have built-up social-media-enabled engagement models with their customers these past few months in order to compensate the decline in possibilities to directly interact with their clients. But engaging your customers through social media—from complementing the after sales process of physical goods to plain customer service—requires the people and processes to deal with your customers’ input. Otherwise your company will most likely make a fool of itself (like Amtrak in this little episode).

If your structures, people, or processes are not all aligned with your company’s new digital capabilities, misfits between the elements of your business model and your company’s operating model will wear the company down.

Often this reengineering of the business model is hard to achieve in companies with long-established and rigid organizational structures. No surprise that quite a number of digitalization initiatives in established companies result in spin-offs (e.g., TRUPF’s AXOOM platform or Mærsk Tanker’s ZeroNorth initiative) or are realized via acquisitions (e.g., Bayer’s acquisitions in the digital farming domain). Similarly, digitizing business processes that perform poorly as is will just cost a lot of money, without resulting in any tangible benefits for the business side.

Second, maintaining fit among activities requires knowledge about a company’s activities and how they match across various strategic and operational layers. It is surprising how many companies wander into the new digital world without having any clear mapping between strategies and business processes on one side and services, applications, and infrastructures on the other. While the fairly classical topic of Enterprise Architecture Management is perhaps not as sexy as anything that usually comes with the label ‘digital,’ it turns out to be an essential prerequisite before trying to transform anything.

If architecture management is not taken seriously, many companies will experience a stark fragmentation of their business strategy’s operationalization and execution. For instance, business intelligence systems to support decision making only make sense if your company has a clear approach to data management (from master data to data generation, processing, storing, and retiring), and if business processes, roles, and IT infrastructure coherently reflect this approach. Similarly, if many of the ad-hoc solutions introduced in the last couple of months are not consolidated and integrated properly, security vulnerabilities or inabilities to collaborate on a common platform will likely result (to name but a few examples).

Novel IT management

Facing these issues is a first important step to identify the most common stumbling blocks on the road to digitalization success. But to make a true impact, your company’s approach to IT management and how serious you are taking it to be part of your overall business need to step into the spotlight as well. And this means two important things: managing your IT per se, and rethinking the role of IT in your company.

So what does IT management mean in the age of digitalization? When it comes to digitalization, many IT and innovation managers keep their organizations busy by scouting, customizing, and implementing innovative technologies and emulating the Valley’s business models. In this, they too seem to be so much attracted the promises of digitalization that they forget the complexity of their company’s legacy infrastructure and processes (also compare to Jeanne Ross’s recent comments). As long as the focus is on the classical plan, build, run for the new technology, what is already there will be overlooked.

But especially in cases where established companies attempt digital transformation, this usually does not come in the form of a clean slate on which to build a new world of systems and data. Quite to the contrary, old systems have to be maintained and retired carefully and data needs to be cleaned up and migrated if they are not supposed to become stumbling blocks in their own right. Because of these difficulties, many companies are easily tempted to simply “plug on” social-media-based channels to their customers or data analytics solutions, to name only a few pertinent examples.

While virtualization of systems into the cloud or an on-premise integration layer are important tools in the transformation journey, they by themselves are not the solution; are not digitalization.

But digitalizing the outermost layer of a system landscape and continuously placing more and more new systems next to the legacy ones will only contribute to the friction among activities discussed above. If a well-documented and well-managed enterprise architecture is to be fruitful, business and IT managers are well-advised to recognize the imperative nature of application and infrastructure portfolio management! While virtualization of systems into the cloud or an on-premise integration layer are important tools in the transformation journey, they by themselves are not the solution; are not digitalization. If an organization is not able to manage its legacy IT landscape well, there remains a lot of homework before digital transformation should even be attempted.

This has clear implications on the role of IT in your company, too. Beyond the traditional technology focus, IT today needs to be understood as an integral part of the business, intimately woven into its structures and processes. Rather than falling for what the literature calls ‘magic bullet thinking’ – that is, believe that just buying an innovative piece of technology will mean that you are digitalized – you need to recognize that IT is now an inseparable part of your digital business strategy, and no longer a mere functional strategy. You also need to be aware that it is not the technology per se that will heal all that ails, nor a mere local adaptation of and to the technology. What is needed is an infusion of digital ideas and capabilities into the thinking of everyone that works for you. This points towards an approach to digital innovation that is akin to cultural transformation more than to just technology implementation (also see the comments by Westerman and colleagues on this matter here).

Effective use of digital innovation

In this spirit, digital transformation is not just about digitizing the interface with the customer or some forms used internally, but must also be about the effective use of digital innovation, for example in the context of workplace transformation. In this, we are guided by the insight that no technology will create any impact if not used effectively in the organization. Such strategic fit requires a careful mapping of strategy and processes to tasks, roles, and goals. Providing innovative digital technologies without rethinking the work done in an organization will likely turn into an expensive infrastructure project, but will not have any sustainable impact in terms of economic potential. While less noticed, past technology hypes (e.g., service-oriented architecture) have shown the mismatch between promise and actual benefit delivered if this line of thinking is not taken seriously.

To make sure that technology that fits the company’s strategy is used effectively, individuals and their workplaces need to be transformed as well.

To make sure that technology that fits the company’s strategy is used effectively, individuals and their workplaces need to be transformed as well. First, this applies to basic design and setup of tasks, processes, and physical (or virtual) workplaces. But it also entails training and enablement that empower employees to truly draw on the technology’s potentials. For example, just providing a digital collaboration platform without transforming the way people work (from basic skills to incentive systems) will not result in any impact. Or advancing pharmaceutical development by drawing on real-time computing to replace costly chemical lead optimization with model-based simulations only makes sense if the product engineers and managers understand the output of the algorithms and can truly enhance their decision making with it. Otherwise companies will soon find themselves run by algorithms they do not really understand.

Conclusion

Taken together, our discussion highlights the gravest stumbling blocks organizations face when trying to turn their current digital momentum into the first steps of a more comprehensive and sustainable journey towards digitalization. Carefully rethinking strategy, vision, and business models is just a first step and needs to be complemented by architecture and portfolio management as well as workplace transformation and employee enablement. Similarly, the nature and role of IT and its management in organizations need to be rethought and updated. Of course, this shift from the what and why of digital transformation towards the how comes with a lot of very hard groundwork. But in the long run, investing this work now can turn stumbling blocks into steppingstones towards digitalization success.

Again, just because something is as hard as digital transformation should not mean that it must not be attempted. Quite to the contrary, many organizations are well advised to face digitalization head on if they want to avoid imminent digital disruption. But truly digitalizing a company—and not just glossing over an outdated organizational core with some fancy technology—is an endeavor that requires diligence, persistence, strategic vision, and very careful planning. But if done well, the efforts of the past months showcase the enormous potential that true digitalization holds.

About the Authors

Prof. Dr. Benjamin Mueller is an Associate Professor of Digital Innovation and Design at the University of Lausanne, Switzerland, and a member of the Enterprise for Society (E4S) center founded by UNIL, EPFL, and IMD. His research focuses on how advanced information and communication technologies transform organizations and augment work.

Dr. Jens Lauterbach is an independent advisor for digital and organizational transformation projects. Jens mainly works at the intersection of business and information technology and helps organizations to establish structures that lead to the effective implementation and use of digital technologies.

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