Results-driven Digital Transformation: The Power of going small

Committing significant resources and time is generally considered a preamble to success in any Digital Transformation journey. While having an overarching vision and a clear roadmap is critical, it is seldom beneficial to go all-in without a pointed digital investment and mobilizing the organization behind the digital efforts.

Most firms get fixated on creating myriad projects involving cross-functional teams and resources. Unfortunately, after spending a number of years and a huge amount of budget, the majority of cases do not present much discernible benefit or progress. Gartner has predicted Global IT spending to reach a mammoth $4.6 trillion in 2023 ¹. A subset of this investment will be on tools and technologies needed for Digital transformation which is expected to be $2.3 trillion this year ².

However, despite huge investments, the spending only guarantees a little value. In fact, various pieces of research suggest that an average of 87.5% of Digital transformations fail to meet their objective ³.

Hewlett-Packard (HP), spent north of $160m on a failed ERP implementation eventually losing $400m in revenues and reportedly leading to a significant shake-up in their executive team ⁴.

GE-Digital, a digital transformation business unit by GE had to be spun-off eventually in 2021, after reportedly churning more than $7 billion. A Wall Street Journal analysis stated, “Instead of charging a small team with developing the best product and then letting the operation grow with the product’s evolution, GE set up a huge organization that wasn’t quite needed yet.” ⁵

That is the exact problem and a solution. By setting aside an “IT budget”, and spending millions on technology, Organizations believe in creating a right to succeed for them. Unfortunately, there are more examples of unfinished and expensive IT projects that one can find than the ones delivering any value. CEOs are treating this as an existential crisis⁶ – and rightly so, however, we need to understand that it is not the spending on technology that matters…it is about the business value or potential it can unlock.

In my research evaluating organizational spending vs the benefit-driven, I have found certain plans of action or steps that a firm should incorporate in its Digital Strategy. These actions will help avoid this all-or-nothing pitfall and create a sustainable and results-driven digital transformation.

Value-first approach

As a rule of thumb, measure the business value first and think about IT later. Initiatives, anchored into a business need and value are the only ones that should be part of the Digital Roadmap. American retailer Best-buy, when threatened by Amazon, was forced to re-think its business model and create “a reinvigorated customer experience”. This anchoring to the business need eventually led the company to streamline its warehousing, logistics and software initiatives and become one of the early adopters of a ‘click-and-collect’ model⁶.

Core competencies Focus

Is digital really your core competency or is it a vehicle to strengthen it? Most firms get entangled between an outcome of a digital initiative and how it relates to its core competency or business model. Emotional attachment to digital initiatives, results in losing sight of the fact that business value is created through a re-invigorated and compelling consumer experience and not via a 3-year-long digital project. Business leaders need to step back and map out, with certainty, what critical expertise their businesses possess to drive digital transformation and which ones they can ‘borrow’ through an external expert. In today’s gig economy, it is becoming increasingly cost-effective and convenient to hire outside talent on short-term and targeted projects. Word of caution, however, is to choose your partners very carefully and based on the alignment of how their core competencies would complement yours.

Micro-Digital factories

A major problem, the over-committing of resources causes, is the diminishing return on investment (ROI). Firms get trapped in a vicious circle of investing more to create return only to find out each incremental investment further diluting the overall ROI. In 2013, BBC wrote off £98 million in unusable technology assets due to an overly complex digital investment not being governed effectively ⁷.

To overcome this dilemma it is critical to have a 3 to 5-year operational boundary around a digital transformation with a clear roadmap of ‘Digital Initiatives’ being delivered within 6-12 months time-frame. However, with a continuous digital flux, the firm’s ability to evolve and pivot with agility throughout this journey, while delivering on specific Digital Initiatives, is the key here.

It is pertinent to understand the difference between an overarching ‘Digital Vision’ and a ‘Digital Initiative’. While a ’Vision’ is less volatile, longer-term and encompasses the entire organisation, a ‘Digital initiative’ needs to be delivered in a short, repetitive and agile manner. Small teams of cross-functional experts, developers, and analysts should be structured in the form of ‘Micro-Digital Factories’ at the business unit level, responsible for experimentation and agile delivery of digital initiatives in the form of an MVP (Minimum Viable Product). The self-sharpening and standardized processes need to be defined within these micro-digital factories to ensure faster decision-making on digital ideas and the scalability of initiatives.

The results-driven and incremental approach to digital transformation not only creates excitement across the organization as tangible results can be seen in a short time, but it also minimizes the downtime or disruption caused by conventional ‘IT projects’. The correct orchestration of deploying resources while creating maximum ROI requires an agile, value-driven and cost-effective approach. The steps mentioned above can act as a guiding principle to create the right momentum for a firm’s Digital Transformation journey.