Digital Transformation Is A Management Challenge

February 10, 2020 · Paolo Timoni
Photo by Fezbot2000 on Unsplash
Photo by Fezbot2000 on Unsplash

Despite great advancements made in digital technologies and best practices over the last twenty years, leveraging digital transformation to improve performance and gain a competitive advantage continue to be a challenge for too many companies outside of the technology industry. Realising that digital transformation is primarily a management challenge is an important step to achieve a successful outcome.

A recent survey of directors, CEOs, and senior executives found that digital transformation (DT) risk is their #1 concern in 2019. Yet 70% of all DT initiatives do not reach their goals. Of the $1.3 trillion that was spent on DT last year, it was estimated that $900 billion went to waste.

Digital Transformation Is Not About Technology, Behnam Tabrizi - Ed Lam - Vernon Irvin, Harvard Business Review, March 2019.

Digital transformation is about competitive advantage

About ten years ago, a famous technology entrepreneur and venture capitalist wrote:

Software is eating the world. Companies in every industry needs to assume that a software revolution is coming.

Marc Andreessen, co-founder and general partner Andreessen-Horowitz, WSJ Aug. 2011

Today, no one would dispute the importance of the so-called digital revolution in business but most companies still fail to appreciate its full implications and to achieve positive outcomes. As the ability to implement a succesful digital strategy become the determining factor that separates winners from losers in more and more B2B and B2C industries, companies should be aware that:

  1. Even in traditional industries, digital transformation will drive a change in industry structure resulting in greater concentration and bigger performance gaps between top and bottom companies;
  2. Digital transformation's key objective is to creatively re-think how to transform operating processes and the customer’s value proposition to achieve a competitive advantage;
  3. Increasing investments in digital marketing or in the latest new digital technologies by itself will not produce the desired outcome.

Strategy and execution are the main challenges

Outpacing competition is getting harder and harder in every industry and avoiding common mistakes is often an essential step toward a successful outcome. Implementing a value creating digital journey in most cases starts from avoiding three common mistakes:

  • Having a narrow ROI focus and a lack of dialogue and imagination at the expense of pursuing broader strategic opportunities that are harder to analyze and capture;
  • Putting a greater emphasis on short term results. Deploying a new digital infrastructure and driving change in both employees and customers’ behavior takes time and an adequate testing and validation period. Failing to aknowledge that will result in suboptimal outcomes;
  • Underinvesting in human capital. Truly qualified growth and digital professionals are in great demand and short supply and therefore difficult to find. However, compromising on human resources will always produce delays and waists financial resources.

Three proven management practices to drive success

Companies that are able to leverage a digital transformation to improve performance and gain a competitive advantage often have three conditions in common:

  1. Top management alignment: the top management team is directly involved and as a group includes senior executives with both a deep industry expertise, internal processes knowledge, and a proven understanding of strategy, change management, and digital technology;
  2. Clear project selection criteria: manager should choose projects and set priorities that are aligned with strategy, support business goals, maintain a desirable market position, solve customers’ problems, and create optionality value (and stay away from the technology kool-aid of the day);
  3. Reinforcing decision-making and incentive systems: decision-making and incentive systems reinforce the priority given to digital efforts by promoting a cross-functional approach, taking in due consideration employees' fear of being replaced, creating a safe spaces for experimentation and risk-taking, and creating adequate performance-based incentives to avoid moral-hazard issues and attract professional talents and senior leaders that have the required expertise.