“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that”

Lewis Carroll

Author: Saša Šćekić, Head of PM & Digitalization Department, CKB bank, member of AmCham Digital Committee

Companies of today must run just to survive digital reality, and if they want to grow in digital, they need to run twice as fast, make bold moves, and even disrupt their own business. For example, look at Kodak, a company that revolutionized photography and made it available to general public. They’ve recognized the importance of shifting to digital cameras and started selling them during the nineties. However, they’ve underestimated just how big the digital would be, and failed to transform their business and processes fast enough to adapt to changed market expectations. This ultimately led to the company filing for bankruptcy in 2012.

Nowadays, tech giants such as Google, Apple, Amazon and Facebook, fin-techs and startups are reshaping our reality by providing new ways to go about our everyday activities – communicate, transport, shop, consume and pay for services, exercise, eat, sleep… We are used to expect: simple, fast, anywhere and anytime. Ever evolving technologies lead to continuous shifts in customer expectations. Next to encouraging competition, this also leads to a global evolution of regulatory frameworks and related compliance requirements. It’s an age of Digital Darwinism where the “adapt or perish” premise stands strong.

Well this may sound a bit apocalyptic, as not all companies are affected the same, nor do they need to keep the same pace of digital transformation. It depends on their business models and markets they are operating in. But most of them – if not all – do need to work on transforming. To draw a parallel from the climate change perspective: we can have our heads in the sand, but once we get past that carbon threshold, things can go only one way, no matter the effort we put in. We need to take it seriously and continuously work towards the positive outcome that we want to achieve. The same applies to Digital Transformation.

“Changing the nature of an organization means changing the way people work, challenging their mindsets and the daily work processes and strategies that they rely upon” (Bobby Herald, IT Pro). It is a common misunderstanding that digital transformation is about IT – and while it is about technological changes it is just as much about the people. The business model needs to be adjusted, as changing markets drive changes in products & services and in the way customers are engaged. To support new business model it is necessary to change the operating models – which means changing the organization and its processes. And finally, in order to enable changed business and operating models, companies need to adapt the supporting technologies. That’s a lot of changes that need to be governed and prioritized over a prolonged period of time.

Remember, it’s a journey!

While taking wrong turns is part of the journey, taking too many of those is why many companies are failing to transform and see the value of their efforts. You can find some quite interesting research and stats on the subject, but one that especially caught my eye – and which I warmly recommend to you – is provided by Capgemini Digital Transformation Institute and MIT in their 2018 report: “Understanding digital mastery today: Why companies are struggling with their digital transformations”. In summary, after surveying more than 1.300 executives in over 750 global organizations, they’ve drawn conclusions that digital transformation is hindered due to poor leadership and resulting deficiencies in: transformation vision, governance model, cooperation between Business and IT areas, and employee engagement.

The report elaborates that “aligning the organization around a common vision is a key first step in articulating the digital transformation journey”. It goes forward in concluding that only 31% of surveyed companies agree that their senior executives share a common vision of how the business should change through digital technologies. On the subject of common vision, the survey also indicated that there is a big disconnect between senior executives and middle managers. The report states that there are disconnects between IT and the business – with impatient business leaders “spinning up shadow IT” – in order to lead their digital initiatives (resulting in 38% of technology purchases managed and controlled by business leadership). It also indicates that the lack of key competencies and increased complexity of the technology appears to be slowing down progress in operations.

OK, not to copy a fine work done by these guys, just check the report to get a lot more interesting info on the subject (you find it here: link). The point I wanted to make here is that, again, digital transformation of a company is a journey, and its people are the key component, which can make or break the transformation efforts. Transformation will impact operations and lead to reconfiguration of roles and responsibilities throughout the organization. This long term endeavor requires clear digital vision, C-level commitment and enabled organization – with competences, capacity and authority to govern changes.

So digital transformation is a journey and a continuous effort, and now what? Now you just need to create the “perfect” strategy, establish an organization capable of turning that strategy into action and kick-off the transformation program. It’s easy – with almost no chance that you will mess something up down the road.

Turning Vision into Strategy

It goes without saying – first, you need to have a goal. If you enter the digital transformation road without knowing where you want to go and how fast you need to get there (equally important), you’ll probably end up lost running around in circles, until you get stranded down the road, next to an analog exit sign. In other words, running digital transformation projects without clear objectives, timely reached milestones and delivered value, will eventually lead to lost momentum and lost senior management support. You do not want that to happen!

Digital Strategy provides the answer to “where do we need to go and how fast we need to get there?”, and from this it derives objectives of adjusting the business model and changing people, processes and technology in order to support that model.

Digital strategy starts with a vision and commitment to make changes. And depending on the company’s digital maturity, in order to get results those changes may need to be radical – reshaping the organizational structure, renewing staff, changing core IT infrastructure of the company, etc. When I think about this, I often remember what Steve Jobs said in an interview with Steven Levy from Wired. Although given in a different context, I think it perfectly relays the importance of a strong vision.

“If anybody’s going to make our products obsolete, I want it to be us.”

Just as the iPhone has cannibalized the iPod, digital cannibalized voice services in Telco industry, Digital Banking is shutting down branches in Banking, physical stores get replaced with online ones, and so on. As change is imminent, if companies do not replace their products with digital counterparts, competition will do it for them.

Companies need clarity of today just to survive digital revolution, while vision of tomorrow is imperative in order to thrive. Usually the CEO of a company has the vision and delegates responsibility for turning that vision into digital strategy.

A working group consistent of most competent employees from key business and support areas may be tasked to draft the strategy and reconcile it at the executive management level. It would be prudent to consider engaging external consultants to support the working group efforts, as most companies embarking on digital transformation road lack internal competences and do not have processes in place to collect and analyze relevant market and industry data. Of course, there is always a “we know best” style, avoiding consultants altogether, and bravely pushing towards reinventing the wheel. I wouldn’t recommend it – as stakes are too high and the cost of messing up the strategy can be significantly higher than consultancy costs.

While working with consultants it’s imperative to remain focused when it comes to long-term vision versus short-term objectives. Sometimes they tend to concentrate too much on the future and next-gen things, and forget the here and the now! Don’t get me wrong, it’s cool to talk about AI and the Internet of Things, but if you mess up the basics then it’s all for nothing.

For example, mobile banking customers expect to be able to check accounts balance, view transactions and make payments in a simple, fast and reliable manner. No amount of advanced functionalities will make them want to use a complicated, slow and unstable app. Look at it from your perspective – would you use an app you do not trust to manage your finances? That’s why keeping customers’ trust is one of the guiding principles for defining digital banking objectives. Same approach applies to other industries. Working groups should focus on understanding customer expectations and build them into strategic objectives.

What is our business driver to transform? This should probably be among the first questions to explore. Working group should elaborate the company’s current business model in contrast to trends in the industry and in the markets where the company is operating. Furthermore, they should consider competitors’ activity, and shifts in customer expectations. Often this is not a single driver but a combination of drivers such as: improving digital customer acquisition and retention, improving customer experience while reducing costs through process digitization and automation, etc.

What are the risks and opportunities associated with changes in the legal environment? For example, EU law on data protection and privacy (see GDPR) requires data protection to be designed into the company’s business processes. Companies established in EU need to transform their processes and supporting technical solutions in order to protect customers’ data – or risk being fined up to €20 million, or up to 4% of the annual worldwide turnover.

Should we migrate our customers from traditional to digital, in order to reduce our physical footprint and related costs? Again, banks are a good example: UK banks are closing 60 branches a month according to “Which?” research. While this works in a UK’s highly digital society, in countries like Montenegro, where digital banking is only starting to get traction, physical, face-to-face, relationship with the bank is crucial.

In addition to questions discussed above, many important organization related questions will also need to be answered in order to asses readiness to turn the strategy into reality:

• How much does our organization and corporate culture fit into digital? A siloed organization with a lot of up and down, and not so much of left and right communication does not compute with digital transformation (unless you are satisfied with a snail speed progress).
• Do we have necessary competencies to redesign our products, services and underlying processes in order to provide frictionless customer journey? Do we need young blood to refresh our perspective (millennials and post-millennials)?
• How well can we train and re-qualify our staff to be more digital and to sell more digital? For example, if you google “digital ambassadors”, you’ll find a plethora of articles on the subject of banks training and converting their staff into digital ambassadors and service executives.
• Do we have a proper system in place to measure progress of our digital transformation? Traditional KPIs usually do not define metrics which are well suited-for digital initiatives. All executive and senior level managers should have digital KPIs – measuring sales, digital marketing, operations, customer experience, etc.

The answers to these questions will show you the gap between your current and targeted organization, and the steps that you will need to take in order to bridge that gap. Add a time component to this, and there you go – you have your strategic objectives. Core objectives to increase revenue and reduce costs are extended with digital ones: development of digital channels, digitization of traditional products and services, channel preferences and redirecting customers to optimize experience and value, analytics and digital sales, end-to-end business process digitization, and so on.

Building a strategy is a fairly complex endeavor – hard to get right the first time. Over time you will need to make adjustments, as market conditions change, technology evolves and trends shift. It is however a crucial first step which sets the road for digital transformation of the company, defining and prioritizing business objectives, organizational requirements and C-level commitment.

Now that we know the destination and how fast we want to get there – who is going to drive?

Answer comes with the next blog.

Stay tuned.