Roadmap for a Successful Digital Transformation

Industry leaders master six elements of a successful digital transformation - and reap the benefits

Digital disruptions are striking most industry sectors head-on, even if the effects are only beginning to manifest for some. Whether it's the rise of e-commerce, new disruptive technologies, changes in consumer behavior, or new business models, companies are striving to catch each new wave.

The biggest players in an industry have long been working on digital transformations, but most have only truly started to develop new digital products and services and focus on the digitization of internal processes in recent years.

They could benefit from some important lessons learned from progress in digital transformation in other sectors. To name just a few of the most important: digital transformations suffer from half-measures; while pilot projects generate excitement, scaling them up to the enterprise level is difficult and often does not yield the expected results; after implementing a number of obvious measures, roadmaps tend to be vague or too narrowly focused, reflecting a lack of commitment; many small, product-focused digitalization efforts are underway within a company, but there is no overarching strategy or central coordination and moderation.

Our experience with various industries, such as media, automotive parts distribution, or retail, has taught us that successful digital transformations must be well-designed and solidly executed in six key areas (see Figure 1).

To succeed in transformation, it is necessary to be clear about the impact of each of the six areas on the others and to understand the main dependencies between them

Figure 1

Six Core Elements for a Successful Digital Transformation

Digital Strategy, Targets, and KPIs

The first step in the transformation process is to develop a digital strategy that takes into account the myriad of new ways to create value through digital technology.

For a digital strategy to become practical, it must be translated into a clear roadmap, with specific actions that are communicated to key people in the organization, who will execute them. To track progress and maintain speed, leaders must establish quantifiable key performance indicators (KPIs). Among these indicators, one can cite the absolute number of digital products and services in development or the amount of R&D spending devoted to digital technologies compared to total expenditures.

In many companies, there is a strong tendency to support safe projects that bring incremental improvements. Focusing on a key performance indicator like digital R&D spending can help the company focus on riskier ideas that also have the potential to bring greater benefit.

Good key performance indicators should also address cultural issues such as employee satisfaction, organizational measures, or capability-related measures, such as the percentage of staff trained in digital or the turnover of digital talent.

Defining the Organizational Structure

Companies are most successful in their digital transformation when they organize around one of the three main organizational archetypes:

1. A new distinct business unit

2. Within several existing business units

3. A center of digital competence and innovation

Creating a new, distinct digital unit (1) or integrating digital activity within an existing business unit (2) are valid options, but establishing a digital competence center (3) is more relevant for most large companies, as the units are generally large and operate relatively independently.

The center of digital competence and innovation ('Competence Center') is responsible for defining the direction and ensuring that learning is widely shared. In this structure, the competence center does not have P&L responsibilities, but it has its own budget, and each business unit (BU) has its own internal digital initiatives. The Competence Center fulfills three important functions: developing products and services, strengthening skills across the BUs, and creating external networks.

Leading projects that promote trial and learning

While digital transformations need to have extensive scope and scale, the 'on the ground' action revolves around launching digital pilot projects. This happens when small cross-functional teams create a prototype of something new, like a new way to connect with customers or a proposed process improvement, test it live to gather feedback, and then iterate based on what is learned.

Most companies have already launched a few digital pilots. However, the mindset of failing fast and moving on, which is at the heart of the 'test and learn' approach, has not been adopted at the necessary scale to accelerate transformation.

Undertaking a continuous series of test and learning pilot projects is the starting point of digital transformation. The essential actions to make these pilot projects work are:

Ensure initial funding.

Allocate funds from the central budget of the Chief Digital Officer (CDO), to avoid any unnecessary delay in launching the project.

Form effective teams.

Initially, assemble teams with internal talent, supplemented by external staff if necessary. It is also useful to partner with startups, as they can provide capabilities that large companies often struggle to recruit or develop internally. When internal staff complete their work in pilot teams and return to their previous position, they can become ambassadors for the new way of working and serve as a link to the digital unit.

Follow the 'test and learn' method rigorously.

Be clear about protocols and responsibilities so that teams understand how to fail quickly and rethink the idea based on lessons learned from failure.

Demonstrate success.

Encourage the achievement of early results, which can generate excitement throughout the organization.

While the pilot projects are being implemented, the company must also standardize the approach to scaling digital solutions. Standardization can help accelerate projects by reducing confusion and creating common tools that large groups of people can use.

Attract and Develop Talent + Capabilities.

Digital transformations often require technical capabilities (such as software development, cybersecurity, artificial intelligence) that traditional organizations lack.

To attract talent, companies must offer attractive work environments and the right incentives. In cutting-edge areas such as machine learning or analytics, establishing offices near technical hubs allows talent to be close to like-minded experts and also helps to better position a company within the digital ecosystem.

It is preferable that ideation and prototyping teams be physically close to the main business activity. This facilitates cross-functional communication and helps to spread an agile way of working within existing operational units. There can be a lot of knowledge and creativity already present within the existing employee base. Activating this talent is another factor in sustainable digital transformation.

Leverage the Company's Ecosystem

Given the myriad of disruptions facing various industries, success today requires the ability to collaborate in unprecedented ways with former competitors and new digital players, often based in technology hotspots. Competition will no longer be limited to merely improving products or services offered; rather, a company's value proposition will increasingly depend on its ability to attract the right partners.

Promote a Change in Culture and Mindset

Larger organizations are often bastions of conservative and traditional perspectives, so it is essential to promote changes in culture and mindset. Several major players have launched change programs to establish a digital culture and mindset focused on agile working methods in all their divisions and at all levels of the organization.

Three key actions can strengthen an organization's commitment to cultural transformation: ​

Foster Understanding and Conviction

Define what 'digital' means for your organization and generate excitement by clarifying new digital opportunities and how they could transform the business and reshape the industry. In practice, this means making big bets and allocating real money and resources to support them.

Establish Reinforcement Mechanisms

Create structures that support the innovation and digital goals of the company; focus on memorable digital events to foster a sense of community. It is essential to empower front-line workers - for example, in our experience, by providing them with data to help them make better decisions when interacting with customers. The flip side is holding people accountable for their work.

Present Digital Role Models

Publicly and frequently reward role models within your teams who act in innovative and digital ways both at work and in their life outside of work.

Our intervention will address the six elements to ensure your digital transformation is successful.