Digital transformation struggles to land according to Arthur D. Little

by bold-lichterman

The Arthur D. Little Firm published late last year a study on the progress of the digital transformation of companies I find the finding half-fig, half-grape. It shows both that the relevance of the subject of digital transformation is not up for debate, that all companies are involved, but that all of this is struggling to land on the ground. A little shared observation by our fictitious digital employee and his letter to his CEO : from top to bottom, the “what’s in it for me” is missing, even if the reality is, of course, less caricature.

The digital business is on its way … in the middle of nowhere

So the good news is that the digital business is on the way. The bad news is that despite the time and the investment it is in the middle of nowhere. Yes… time. Because if we have been talking about digital transformation for 2 years, we were entitled to 5 years of social business before, preceded by enterprise 2.0, social CRM, Web 2.0. The company which has progressed quietly without hurrying, without being a leader, has nevertheless worked on the subject and is supposed to have progressed with it for 10 years. This proves that either the job has not been done before, or it is the global approach to digital in business that has been bad from the start.

Arthur D. Little has thus built a “Digital Transformation Index” (or DTI) which shows the state of progress of the digital transformation of companies, from “Digital Aware” (“we are aware”) to “Digital Centric” , On a scale of 1 to 10.

The average of companies in all sectors is… 3.92.

The most advanced sector is the automobile: 5.02. Then come the Telcos and Media with 4.20. At the back of the pack we find “Energy and Manufacturing” (3.53) and the donkey hat goes to Tourism and Transport (3.51).

Digital progress is not a business sector affair

But this sector approach can be misleading in my opinion. Indeed if we look at the best and the bad students by sector we realize that the automotive sector is distinguished by its homogeneity. Its leaders are less advanced there than the leaders of other sectors… but the less advanced are much more advanced than elsewhere. In absolute terms, it is in finance that we find both the best and the worst.

I allow myself to deduce from this that the sector of activity is not a key variable to presume the capacity of a company to transform. There are very advanced leaders, very late followers, a large mass in the middle and this in all sectors except the automobile where concentration is mainly done in the middle. The most advanced sector overall is the one with the least leaders.

Digital Transformation Index Arthur D. Little

Source: Arthur D. Little

On the other hand, it makes me ask myself a few questions about the factors in the advancement of digital transformation:

  • short cycle sectors vs. long cycle sectors

  • sectors with high tangible capital intensity (physical production tool) vs. sectors with high “intangible” capital intensity. (financial barrier)

  • highly regulated sectors vs weakly regulated sectors (legal barrier)

If you have any studies on the subject, I’m interested.

Another finding of the study: a Digital Transformation Framework which makes it possible to analyze digital transformation with regard to a certain number of axes.

Digital Transformation Framework Arthur D. Little

Source: Arthur D. Little

In fact, if the state of progress of digital transformation does not depend on the sector, it may depend on a transformation area that is more or less controlled or easy to transform.

• Drivers and challenges:

Since the time, there seems to be consensus on the subject. The “social customer” is the trigger. As for the challenges, three points caught my attention, however.

The first is the lack of knowledge. However, I see many companies investing in the subject but mainly at the level of employees, forgetting that leaders too must force themselves to take the time to learn.

The second, that I have already dealt with here, is the lack of sense of urgency. I come back to my stories of long and short cycle, tangible capital intensity and regulation which I think explain this. Everything proves to us that these are less and less barriers to disruption, but obviously many still seem to believe in them. The sector that feels the least sense of urgency is therefore… finance. Good luck with Fintech.

The third is complexity. In my opinion the real problem of our companies is more their complication than their complexity.

On the other hand unlike the latest IBM study, competition from digital pure players and uberization does not seem to be a major subject here.

• Strategy and governance

Digital transformation is now on the management’s agenda, is seen as a transversal subject and it has been understood that skills and education are a major subject.

• Client management

By the way you will notice that we are talking about managing the customer and not the relationship.

No surprises on the importance of the omnichannel experience and customer data in the service of decision-making and real-time pricing.

On the other hand, we learn the correlation between the weakness of digital marketing budgets and that of sales through digital channels. A real surprise. But, we are told, these investments will grow.

• Operations and supply chain

70% of companies have no clear vision on the subject.

From my point of view, the digital = web = communication equation is still very present and does a lot of harm. It is urgent to understand that digital is not a matter of technology but of way of doing and operating… otherwise it would amount to making Toyotism a matter of machine tool when it concerned everything except tools.

• Corporate services and control

Companies see digital as a tool of choice for increasing transparency and overall control. In my opinion, the subject is too rich to be treated in this paragraph, but there is a key issue here: redefining the notion of control in a digital context. Because if the idea is to use new technologies to reinforce the “control to daddy”, one will do nothing but create complication on a large scale.

And not surprisingly, process automation is still seen as a topic of choice. Subject on which I will make exactly the same remark as for the control: which processes are we talking about?

For me, this “process and control” part is key because it will almost alone decide what the digital transformation will bring. Are we going to use digital technology to reinvent these notions or strengthen an end-of-life model?

• Information technology

For leaders 50% of the IT budget is dedicated to digital, without me really knowing what to think. What is digital or not in IT, related to transformation or not? On the other hand, and surprisingly, we are told that IT remains passive on the subject.

• Work environment and culture

The simplification of communication and collaboration are in the spotlight. Which, from experience, doesn’t mean much either apart from a clear alignment with customer focus and a clear vision of control and processes as they should be in a digital world.

The proof: the study clearly shows that this is unfortunately not the most relevant playground for catalyzing digital transformation. Another story of ends and means, but at least they clearly say it: the problem, as we know, with collaboration is a matter of meaning, alignment, and context. It is a result, not a cause.

A glaring lack of customer and employee orientation

All of this confirms my opinion on the difficulties of landing digital transformation. It smacks of the “top-down” five-year plan. Indispensable when it is necessary to align and stimulate but at no time do I feel the customer orientation or theemployee orientation, which could largely explain that even well thought out, a digital transformation program can miss its subject because without benefit or meaning for those who are concerned at the end of the chain.

It’s over for this quick overview, I advise you togo download this study which is undoubtedly one of the most interesting that I have read in recent months. My only regret is perhaps the raw presentation of the DTI then the framework without showing how maturity on the second impacts the first.

bertrand-duperrinBertrand Duperrin is Digital Transformation Practice Leader in Emakina. He was previously Consulting Director at Nextmodernity, a firm in the field of business transformation and management through social business and the use of social technologies.

He regularly deals with social media news on his blog.

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