With 70% of Digital Transformation programmes apparently ending in failure, Alan Hewitt explains why boards need to stay on top of developments, and how.
In 2011 the consulting firm Capgemini, (in partnership with MIT), coined the term “digital transformation.” At the time they defined the meaning as “the use of technology to radically improve performance or the reach of businesses.”
But just how long has “Digital Transformation” really been around? This website says:
“Despite being a relatively new concept, digital transformation has a long history. It can be traced back to the late 1970s when computer-aided design and manufacturing were first used in businesses. This was followed by the introduction of enterprise resource planning in the 1980s and customer relationship management in the early 1990s.
Each of these technologies aimed to improve efficiency and productivity by digitizing manual processes. In the late 1990s, we saw the rise of eCommerce and online banking. These activities were initially carried out offline but were later moved online as internet speeds increased. This was followed by the introduction of social media in the mid-2000s, which revolutionized how we communicate and share information.
When companies first started using digital channels, they focused on connecting with their customers. This was followed by the emergence of digital processes to support customer interactions. As companies’ digital ambitions grew, they soon realized that they needed dedicated digital teams to manage new social and mobile channels.
Over the past decade, we have seen a renewed focus on digital transformation as businesses strive to remain competitive in a global marketplace. Although the concept is not new, it has taken on a new urgency in recent years.”
In June 2023 McKinsey said in this article (What is digital transformation?):
Digital transformation is the fundamental rewiring of how an organization operates. The goal of a digital transformation, as outlined in the new McKinsey book Rewired: A McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley, June 20, 2023), should be to build a competitive advantage by continuously deploying tech at scale to improve customer experience and lower costs.
To go into a little more detail I found this article (Difference and Similarities: Digitization, Digitalization, and Digital Transformation) and have extracted this section:
So what is digital transformation?
Closely related to digitization and digitalization, digital transformation’s primary aim is to integrate technology to most, if not all, business operations. In digital transformation, digital technology is incorporated into all areas of the business to fundamentally improve efficiency in workflows and create value for customers. Cultural, organizational, and operational changes are implemented through the integration of digital technologies. Digital transformation allows businesses to adapt to ever-changing industry trends and landscapes.
Digitization vs. Digitalization vs. Digital Transformation
One may be easily confused with the meaning of digitization, digitalization, and digital transformation. However, these three concepts vary in different aspects such as their objectives and outcome.
Let us first discuss in terms of the purpose and outcome:
- Digitization’s purpose is to encode information in computers by converting from analog to digital format. The process mainly deals with recording data that can eventually be used in digital technologies.
- Digitalization deals with information processing, or how digitized data can be used to improve workflows through automating existing processes.
- Finally, digital transformation is all about leveraging knowledge and integrating it in all business areas to enhance engagement and create new value.
I think that this last extract is very useful as it outlines and suggests that there is a progression through a few stages to go from an Analogue World to a fully Digitally enabled working environment.
So this seems all to be good and a practice that all organisations should take up and drive through doesn’t it? Yet if you read this Deloitte article (Digital Transformation Are people still our greatest asset? [PDF]) it would seem that 70% of Digital Transformations fail, which really isn’t a great statistic.
Here is an extract but I would recommend reading the full article.
“As you consider the impact of exponentials and begin thinking more deliberately about how and where to innovate, it is easy to become distracted by thinking ‘this is all about technology’. Alarmingly, this rationale has also infiltrated the boardroom. As many as two thirds of CEOs believe technology will create more value in the future than people will as senior leadership prioritise investment in the tangible (technology), at the expense of the intangible (people)
- History is littered with examples of failed transformation efforts, it happened in e-commerce, with the likes of Staples and Walmart, it happened with analytics and big data, when Sears and Zynga invested big in analytics centres that never returned on the investment. And now it’s happening with digital transformation
- 70% of transformation efforts fail and it takes around three years for organisations to even begin competing in the digital market, even when they get it right. At the heart of most failures is not the technology, it’s the people. The most prevailing reasons for failure? ‘management behaviour not supporting change’ and ‘employee resistance to change’
- Failures are often characterised by a lack of urgency, a reluctance to adopt, a fear of change and a lack of clarity about ‘where we’re headed and why’, all factors that are rooted in the psychology of an individual or team, and all factors that can be addressed by good leadership. It’s important not to lose sight of the fact that people remain at the heart of any business. Therefore, understanding the psychology of human behaviour is critical to leading successful transformation. It is our assertion that in the digital era that: Good leaders are our greatest asset.”
Deloitte go onto say, in the same article
“Current approaches to digital transformation are heavily focused on the process, technology and the execution plan. However, this approach is short-sighted. The greatest obstacle to digital maturity, as George Westerman Principal Research Scientist from MIT Sloan puts it, is where organisations ‘think about transformation as a technology challenge instead of a strategy or leadership challenge’, and that ‘in digital transformation, the transformation is more important than the digital 6.
If digital is the ‘What’ of a transformation, then Leadership is the ‘How’.”
So clearly Company Boards have a lot of thinking to do about how they look at their own organisations and ensure that they remain competitive by exploiting the opportunities that the introduction of Technology can enable and not become one of the 70% who try and fail?. If advances in technology weren’t fast enough the introduction of new AI based products and offerings will both complicate and accelerate the advances and, I think that it’s fair to say, aren’t and mustn’t be seen as a passing phase.
The Deloitte Paper “Bringing Digital to the Board Room” says:
Current approaches to digital transformation are heavily focused on the process, technology and the execution plan. However, this approach is short-sighted. The greatest obstacle to digital maturity, as George Westerman Principal Research Scientist from MIT Sloan puts it, is where organisations ‘think about transformation as a technology challenge instead of a strategy or leadership challenge’ . . . If digital is the ‘What’ of a transformation, then Leadership is the ‘How’.
I find this a really interesting comment as it mirrors what we, at Praxonomy, think, namely that Boards should appoint an AI representative but that this person Should Not be an IT person. Transformation, as Deloitte very clearly say, is about people enabled by technology. Where change is driven primarily by technology it will, in my opinion, have a reduced chance of success.
I am obviously biased as we are looking to promote and sell our product Boardlogic to boards to, we hope, make them more efficient and more effective, but those gains will only be realised if the technology is used and adds real value.
Again Deloitte go onto say:
THE TOOLS: THE ADVANTAGES AND CHALLENGES OF BOARD PORTALS
Recent technological advancements have led to the rapid adoption of board portals as a vehicle for board communications. These portals are intended to support the easy sharing of documents and data between board members and management. In fact, many written board communications today happen via board portals.
Board portals deliver several benefits over old-school paper-based communications, and even over electronic document sharing without a mechanism for coordination and centralisation. For one thing board portals are designed to be protected, trackable electronic tools that cannot easily be lost as paper documents can.
On the pragmatic side, board portals give directors a single place to go for information, eliminating the need to keep track of multiple communications delivered in hard copy or through email.
BUT
THE CONTENT: TOO MUCH INFORMATION, NOT ENOUGH TIME
It is well known that boards receive a great deal of information to digest in a limited amount of time. In fact, the aforementioned Fed proposal on enhancing board effectiveness noted that “boards of large financial institutions face significant information flow challenges [and can be] overwhelmed by the quantity and complexity of information they receive. Although boards have oversight responsibilities over senior management, they are inherently disadvantaged given their dependence on senior management for the quality and availability of information.”
I think that this brings me back to an earlier point in this Blog Piece:
- Digitization’s purpose is to encode information in computers by converting from analog to digital format. The process mainly deals with recording data that can eventually be used in digital technologies.
- Digitalization deals with information processing, or how digitized data can be used to improve workflows through automating existing processes.
- Finally, digital transformation is all about leveraging knowledge and integrating it in all business areas to enhance engagement and create new value.
The temptation is certainly to just digitise what you do today and I have seen examples where the information being provided via Board Portals is literally a scan of what the paper output would be. In a Blog Piece that I wrote in July 2019 (Think Like a Director: Writing Effective Board Papers) I emphasised the need to present information in a way that is easy to digest for the directors reading it and where the main points that the directors need to understand are clear and presented upfront.
In the article I said:
“I’d like to take a look at the many documents that we have to read online – be it on a laptop, tablet, or phone – in preparation for a board meeting. Many people still tend to print out documents on paper to read them because it’s easier to skim through in that format.
Do we do that because the documents that we receive aren’t written with the reader in mind or the medium on which they will be read? Throughout my working life, I have been involved in writing many proposals which, almost without exception, started with an “Executive Summary” before delving into details at length. The “Executive Summary” captured the essence of the proposal by highlighting major points.
So if we focus on board briefing papers in board packs, why don’t we create them using a similar approach?
I did some research and came across a method called the “Inverted Pyramid,” a story structure used in journalism where the most important information – or what can be considered the conclusion – is presented first. In an inverted pyramid, the widest section contains all the “need-to-know” information, while the narrowest portion of the pyramid holds the “nice-to-know” details.
Conclusion
So in conclusion. Technology will keep offering new business opportunities and threats to virtually every organisation. Boards must stay ahead or at least on top of those developments and how they may or may not be of value to their organisations. Just digitising what you do today may be the next step towards a full Digital Transformation but certainly isn’t the end game. A key point for me is, as Deloitte say, “If digital is the ‘What’ of a transformation, then Leadership is the ‘How’.” Transformation means change and change always involves people. As I outlined in my last Praxonomy blog piece, ‘change’ is challenging as the 70% of failed Digital Transformations show. So my recommendations are:
- Make Digital Transformation a standing agenda item on board meetings
- Ensure that you have a Digital Transformation lead on the Board
- That person should not be an IT Professional unless they have the almost unique mix of IT and Business experience/skills
- Ensure that you are working with the clearest and best information (hopefully enabled by technology)
- Recognise that change is neither quick nor, in reality, ever ending
- There will be increasing numbers of technology based opportunities that will need the business to adapt and change the way that it thinks and operates. Embrace those opportunities and drive through the changes required even when the going gets tough.
- FINALLY make sure that ALL board members have the information that they need, presented in an easily digestible format that enables them to make good and well-informed decisions.
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Alan Hewitt