Digital Transformation Is Not About Technology (Harvard Business Review)

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. Why do some DT efforts succeed and others fail?

Fundamentally, it’s because most digital technologies provide possibilities for efficiency gains and customer intimacy. But if people lack the right mindset to change and the current organizational practices are flawed, DT will simply magnify those flaws. Five key lessons have helped us lead our organizations through digital transformations that succeeded.

Lesson 1: Figure out your business strategy before you invest in anything. Leaders who aim to enhance organizational performance through the use of digital technologies often have a specific tool in mind. “Our organization needs a machine learning strategy,” perhaps. But digital transformation should be guided by the broader business strategy.

At Li & Fung (where one of us works) leaders developed a three-year strategy for serving a marketplace in which mobile apps were just as important as bricks-and-mortar stores. They chose to focus their attention in three areas: speed, innovation, and digitalization.  Specifically, Li & Fung sought to reduce production lead times, increase speed-to-market, and improve the use of data in its global supply chain. After concrete goals were established, the company decided on which digital tools it would adopt. Just to take speed-to-market as an example, Li & Fung has embraced virtual design technology and it has helped them to reduce time from design to sample by 50%. Li & Fung also helped suppliers to install real-time data tracking management systems to increase production efficiency and built Total Sourcing, a digital platform that integrates information from customers and vendors. The finance department took a similar approach and ultimately reduced month-end closing time by more than 30% and increased working capital efficiency by $200 million.

There is no single technology that will deliver “speed” or “innovation” as such. The best combination of tools for a given organization will vary from one vision to another.

Lesson 2: Leverage insiders. Organizations that seek transformations (digital and otherwise) frequently bring in an army of outside consultants who tend to apply one-size-fits-all solutions in the name of “best practices.” Our approach to transforming our respective organizations is to rely instead on insiders — staff who have intimate knowledge about what works and what doesn’t in their daily operations.

Santa Clara County in California (where one of us works) provides an example. The Department of Planning and Development was re-engineering work flows with the goal of improved efficiency and customer experience. Initially, external consultants made recommendations for the permit-approval process based on work they themselves had done for other jurisdictions, which tended to take a decentralized approach. However, customer-facing staff members knew, based on interactions with residents, that a more unified process would be better received.  Therefore, Kirk Girard and his team heavily adapted the recommended tools, processes, diagrams, and key elements of the core software as they redesigned the work flow. As a result, permit processing time was cut by 33%. Often new technologies can fail to improve organizational productivity not because of fundamental flaws in the technology but because intimate insider knowledge has been overlooked.

Lesson 3: Design customer experience from the outside in. If the goal of DT is to improve customer satisfaction and intimacy, then any effort must be preceded by a diagnostic phase with in-depth input from customers. The staff of Santa Clara County’s Department of Planning and Development conducted more than ninety individual interviews with customers in which they asked each customer to describe the department’s strengths and weaknesses. In addition, the department held focus groups during which they asked various stakeholders – including agents, developers, builders, agriculturalists and crucial local institutions like Stanford University – to identify their needs, establish their priorities, and grade the department’s performance. The department then built the input into their transformation. To respond to customer requests for greater transparency about the permit approval process, the department broke down the process into phases and altered the customer portal; customers can now track the progress of their applications as they move from one phase to the next. To shorten processing time, the department configured staff software so that it would automatically identify stalled applications. To enable personalized help, the department gave Permit Center staff dashboard control of the permit workflow. Leaders often expect that the implementation of one single tool or app will enhance customer satisfaction on its own. However, the department’s experience shows that the best way to maximize customer satisfaction is often to make smaller-scale changes to different tools at different points of the service cycle. The only way to know where to alter and how to alter is through obtaining extensive and in-depth input from the customers.

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Harvard Business Review

13 March 2019

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