A multi-dimensional approach to Digital Transformation
The Covid-19 pandemic crisis has accelerated technological change for businesses and pivoted digital transformation as the lever for organizational resilience and revival. Albeit the massive hit in operations and direct revenue due to continuous lockdowns and restricted logistics, direct digital transformation (DX) investment is growing at an annual growth rate (CAGR) of more than 15%. It is predicted that the investments would be more than $6.8 trillion from 2020 to 2023 (IDC, 2020). However, studies show that only 30% of all the digital transformations indeed succeed, out of which only 16% of the companies realized significant improvement in their Key Performance Indicators (KPIs). Going one level further, only 9% of those companies witnessed sustained improvement or at least were able to maintain the leverage in performance due to digital transformation (Mckinsey, 2018). Why does such trusted and proven-to-work technology fail to deliver the expected results?
Before answering the question, let us think about the need to answer the question. Given the less than satisfactory track record highlighted above, digital transformations may not seem worth the capital, effort, time and human involvement. Even among the most tech-savvy industry experts, there is plenty of skepticism and doubt. The mistrust and doubt seemingly make most rational decision-makers stay away from the digital technology bandwagon, let alone experiment with AI/ML or any other advanced technology.
Non-IT industries like manufacturing, energy, and automobiles often make these significant investments late in the game. These companies mostly struggle to stay in sync with their competitors or markets and cater to ever-changing consumer expectations. In support of those industries, it becomes an inherent responsibility of the tech-solution providers to institutionalize the ongoing implementation of the product/service/architecture syndrome which ensures technology’s contributions to success in terms of growth, sustainability, and future readiness.
The absence of a holistic implementation strategy leads to the failure of digital transformation projects. It will not be long when companies across the globe realise that change management and transformation management are critical to a successful digital journey. However, we find that IT organisations do not consider Organizational Change Management (OCM) as a capability that needs to be built at the same pace as they build their technology solution.
The Multi-Dimensional Approach
In their traditional ‘Theory of Firm’, Legendary economists David Ricardo and Leon Walras suggest that “Firms act as a homogenous unit and seek to maximize profits”. Optimizing all available resources throughout its value chain maximises profits. However, during a technology change or digital transformation of a certain scale, it is ubiquitous to overlook its potential impact on the operational value chain and its imminent effect on overall organisational well-being.
The People-Process-Technology (PPT) framework has been used in order to prevent this myopia. Though it has been in existence since the 1960s, it has been extensively used only in the late 1990s after the IT revolution.
PPT framework is about how the three elements interact with each other in a value chain and achieve a balance. Mapping this interdependency would help us understand the level of impact one component has on the other. This will further help develop insights into how a disruption in one of these elements affect the other two.
If the implemented processes are not robust enough, the effectiveness of people’s action will be sub-optimal. Most of the value created by the technology ends up under-utilised. If people do not use the technology to the fullest, it results in substantial losses in the creation of value and a reduction in the return on investment. At the same time, labyrinthine processes lead to a loss of flexibility and agility to change.
The Technology
Technology is the tool people use to implement the process. The latest and fastest technology will create the greatest value for the organization. The caveat here is the difference between value creation and value realization. The value created by the newest and greatest of technologies would not be realized completely if there is no organizational fit for the technology solution.
One way to approach technology change is to adopt the one that has the best fit for the organization. This way, even if it is not the latest or the greatest, the technology would likely produce the optimal results. The other way of approaching this problem is by changing the people and processes to fit incoming technology. Though painstakingly tougher than the first method, this would provide greater value and return in the long run.
Once the technology is decided, companies should think about how the existing processes would be affected. The ideal is to identify the obsolete processes that no longer add value to the ecosystem and develop new processes that will produce and capture the additional value created by the technology.
The Process
The steps and actions performed to achieve a particular defined goal or result is a process. Processes are standard operating procedures designed to produce the optimal result in an ideal setting.
While creating and implementing an effective process, it is imperative to
- Have people understand how they fit in the new process. Designing people-centric processes will be the right way to produce optimal results.
- Create a high-level value chain first by identifying the key steps that contribute most to achieve the end result and later retrofit other pieces of the puzzle.
- Define the right KPIs at each stage of the design. “If it cannot be measured, it cannot be improved”.
- Include a working feedback channel for continuous improvement of the current process.
Technology and processes are only as good as the people who use them. The next focus should be on the people’s dimension of the framework.
The People
By people, we refer to all the stakeholders in a firm, directly or indirectly involved in its functioning. The most often forgotten but the most crucial of the dimensions, human resources are non-fungible and capable of producing other resources, including the process and technology.
To ensure a proper balance from ‘People’ in the PPT framework, it is essential to
- Onboard the right people - identify the right skill, experience and attitude for the task at hand.
- Make the right hiring/contracting/outsourcing decisions
- Have a clear definition of vision, strategy, roles and responsibilities.
- Design a 2-way, reliable and continuous communication channel that keeps all stakeholders aligned on the goals and builds trust.
- Have buy-in from the right people at the right time - involve all the relevant stakeholders
- Equip people with proper tools, training and provide continuous support
Understanding the interactions
- If the operations are not quick enough or results are not available as fast as expected, the interactions between process and technology should be studied.
- If efficiency is not as much as it is claimed or proved in the MVP/POC, it is time to take a closer look at the interaction between the people and processes to understand the failure due to scaling efforts.
- If there is no additional value created due to the transformation or the value created is not captured, the problem lies in the interaction between people who cannot innovate and improve with the new technology.
Conclusion
An organizational change management/transformation management becomes an essential part of any transformation. Companies that show a better Return on Digital Investment (RODI) and successful scaling should have all three dimensions interacting harmoniously with one another and within themselves.
As consultants, we enable clients to go through an iterative Technology-Process-People thought process, in that order while strategizing a tech-driven business future for their organization. However, when it comes to the actual implementation journey, it should be People-Process-Technology, in that order, thus driving efficiency and success right from day 1.
Organizational change management is no cookie-cutter solution. A carefully crafted, unique, industry-specific, functional change management process begins right from the discovery phase through the implementation and scaling, considering factors like regional, cultural and behavioural perspectives would be ideal for a successful digital transformation journey.
