Digital Transformation Struggles to “land” says Arthur D. Little

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Digital Transformation made operational

By the end of last year, Arthur D. Little published a report on the state of maturity of businesses in their digital transformation which reading left me with a half-hearted impression. It shows at the same time that the relevance of digital transformation as a major concern is not questioned anymore, that nearly every business has undertaken a digital transformation initiative but that most of these initiatives struggle to “land”. Very similar to what an average employee could write to his CEO in a fictional letter, the “what’s in for me” lacks, even if reality is not that caricatural.

The digital enterprise is on its way…in the middle of nowhere

So the good news is that the digital enterprise is on its way. The bad one is that despite time and investment, it’s in the middle of nowhere. Yes, despite of the time spent. Because if digital transformation has been around for two years, social business has been there for 5 years before, preceded by social crm, social business, enterprise 2.0, web 2.0… Any business that tried to find his way, even without being a leader, is supposed to have learned for at least 10 years. So either the job has not been done seriously from the very beginning or the way businesses are trying to embrace digital as been wrong from the start.

Arthur D. Little built a “Digital Transformation Index” (DTI) that shows the state of progress of digital transformation, from “Digital Aware” to “Digital Centric”, on a scale of one to en.

The average score, regardless of industry sectors is…3,92

The most advanced sector is automotive (5,02), followed by Telcos and media (4,20). At the end of the ranking we can find energy and manufacturing (3,53) and Tourism and transport (3,51).

The state of digital progress is not a matter of industry

But, in my opinion, this industry-based approach can be misleading. As a matter of fact, if you have a look at the best and worst in class by sector, you will se that the automotive sector is very homogenous. Its leaders are less advances than in other industries but the less advanced are more advanced. If you want to find both the absolute best and worst in class, have a look at the finance sector.

It makes me say that the industry is not a reliable variable to tell if a business is more or less likely to transform. There are very advanced leaders, very delayed laggards, a huge mass in the middle and that’s true for any sector except for automotive where concentration in the middle of the curve is higher. So the most advanced sector in average is the one where its leaders are the less advanced.

 

Digital Transformation Index Arthur D.Little
Source : Arthur D. Little

On the other hand it makes we wonder about what makes progress easier/harder

• Sectors with short/long cycles

• Sectors with a huge tangible capital deepening (physical production tools) vs intangible capital deepening (financial barrier)

• Very regulated sectors vs barely regulated sectors (legal barrier)

If you have any clue, feel free to share.

The other interesting point of the report is the Digital Transformation Framework that helps to analyze digital transformation based on a set of sections.

Digital Transformation Framework Arthur D. Little
Source : Arthur D. Little

If the state of progress does not depend on the industry, il may depend from a section that’s more or less easy to master and transform.

• Drivers and challenges :

The matter has been discussed for so long that there’s a consensus : le social customer is the trigger of digital transformation. Regarding to the challenges, the three points caught my attention.

The first one is the lack of knowledge. I’m surprised because I see businesses investing a lot on this matter, but mainly for employees, not taking into account the fact that leaders must also take the time to learn.

The second, that I’ve already discussed in this post is the lack of sense of urgency,  Maybe my previous point on capital deepening and regulation can explain that. Everything show us that nothing prevents disruption to happen anymore but il seems that some still believe that digital-proof shelters exist. So the industry with the less sense of urgency is….finance. Good luck with the Fintech.

The third is complexity. In my opinion the real problem is not complexity but complication.

Contrary to what’s said in the last IBM C-Suite Study, competition from digital pure players and uberization is not seen as a real challenge by businesses in this report.

• Strategy and governance

Digital transformation is now on the agenda of the C-Suite, is seen as cross-functional matter and businesses know what skills and education are major concerns.

• Customer relationship

First, notice that the report focuses on managing the customer and not the relationship.

There’s no surprise with the importance given to omnichannel experience and customer data for better decisions and real time pricing.

We’re also told that there’s a correlation between the weakness of digital marketing budgets and the low level of sales through digital channels. What a surprise. But investments are supposed to grow in the next years.

• Operations and supply chain

70% of businesses have no clear vision about this matter.

In my point of view the equation according to which digital=web=communication is still too prevalent and does lot of harm. It’s urgent to understand that digital is not a matter of technology but a way to think, do and operate. The other way around would be like considering Toyotism as a matter of machine too while it’s about everything but machines.

•  Corporate services and control

Businesses see digital as a tool of choice to increase transparency and overall control. This point is too complex to be dealt with in a paragraph but there’s a key challenge here: redefining the idea of control in a digital context. As a matter of fact, if the purpose is to use new forms of technologies and practices to reinforce “your dad’s control”, digital will result in nothing else than complication at scale.

Without any surprise, process automation is also seen as key opportunity. I’ll make the same comment I did for control : what processes are we talking about ?

The process/control part is key because il will decide what digital transformation will result in. Will it be use to reinvent operations or to fix a dying model ?

• Information technologies

Leaders allow 50% of their IT budget to digital but I don’t know what to think about it. What’s digital and what’s not in IT ? What relates to transformation or not ? Anyway, the report surprisingly shows that IT is still passive.

• Work environment and culture

Simplifying communication and collaboration are the key points. What, in my opinion, means absolutely nothing without a clear alignment with customer orientation, a clear vision of what control and processes should be in a digital world.

As a matter of fact, the report says that it’s unfortunately not the most relevant playground to catalyze digital transformation. Once again : collaboration is the result, not the cause.

A blatant lack of customer and employee orientation

Everything in this study confirms what I think about digital transformation and its struggle to land. A good old top-down five years plan. Of course it’s necessary when it comes come align and foster a new dynamic but I seen nothing about customer orientation nor employee orientation. What certainly explains why, even well designed, a digital transformation program can miss the target because it has no visible benefits for those who are impacted at the end of the chain.

That’s all for this quick overview and I advise you to download the full report. It’s certainly one of the most interesting ones I’ve read recently. My only regret is that the causal relationship between the DTI and the framework may have deserved further elaboration.

Photo Credit : Make it happen by Aysezgicmeli via Shutterstock