Bill Schmarzo

Why Digital Transformation Is So Dang Hard?

I recently talked to Clint Boulton, author of “Why digital transformations are lagging” about why Digital Transformation is so hard. His article raises lots of interesting points about the inhibitors of Digital Transformation, so I thought I’d share my thoughts about how to overcome some of these challenges.

Forrester published a report entitled “The Sorry State Of Digital Transformation In 2018” (love the brashness of the title) that found that 21% of 1,559 business and IT decision makers consider their digital transformations complete.  Complete? Really?!

One of the reasons why Digital Transformation is extremely hard is because these 21%-plus of CIOs and IT decision makers fail to ‘understand digital mastery.’ Digital Transformation is NOT about digital “technology” transformation.  If your CIO thinks Digital Transformation is about creating some mobile apps or adopting some agile application development approach, then he or she has already lost the battle.

Digital “business model” transformation is also hard because it is about how effective the organization is at leveraging data and analytics to digitalize their business models and its value creation processes (see Figure 1) which entails mastering:

  • Economics: to identify new sources of customer and market value creation, and
  • Value Chain Analysis:  to re-engineer (digitalization with analytics) internal systems and processes to capture those sources of customer and market value creation

Figure 1:  Big Data Business Model Maturity Index

Digital Transformation Inhibitors

The article listed several challenges that organizations are facing in trying to achieve digital transformation.  I’ve only highlighted a few of them.  You should read the article for the full list.

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Digital Transformation Inhibitor:  Lack of Vision and Leadership.  Aligning the organization around a common vision is a key first step in articulating the digital transformation journey.

Schmarzo Perspective:  I’m not sure there is a lack of vision and leadership as much as there is a lack of knowing what digital transformation means to an organization’s customers, partners, channels and employees.  A significant amount of effort is required upfront to identify the new sources of customer and market value creation, and understand where and how the organization captures those new sources of value creation in the form of superior customer, product, service and operational insights.  There is too much focus on technology and optimizing existing operational processes (paving the cow path) and not enough focus on mapping the company’s business model to the customer’s value creation process (or journey).

One way to identify these potential new sources of customer and market value creation is to embrace Design Thinking concepts such as personas, customer journey maps and storyboards.  Use Design Thinking to identify the sources of customer and market value creation from the point of ‘customer epiphany’ (they realize the need to accomplish something—going on vacation, buying insurance, reducing operational downtime, optimizing production yields, reducing hospital readmissions, achieving college student 4 year graduation) to the point of journey expiration.  And it’s critically important NOT to limit your thinking to the artificial boundaries of your industry. Customers don’t care about the boundaries of your industry; they are looking for outcomes regardless of industry boundaries.

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Digital Transformation Inhibitor:  IT and business don’t see eye-to-eye.  There is a significant disconnect between IT and the business, a relationship that is critical to any business transformation.

Schmarzo Perspective:  IT and business have never been on the same page because the IT folks have not earned a spot at the big boy business table.  Now I say that too quickly, because I have seen organizations where the CIO is the equivalent of the Chief Marketing Officer and Chief Digital Officer and Chief Revenue Officer, but the occurrences are rare (sort of like a Big Foot sighting).

But it doesn’t have to stay that way.  IT can move beyond just being those “PC and network guys” to becoming a trusted advisor to the business units.  There are many Design Thinking techniques that IT could embrace to help them more closely align with the business units.  The article “Prioritization Matrix: Aligning Business and IT On The Big Data Journey” highlights one of my favorite organizational alignment tools – the Prioritization Matrix (though it’s actually a Six Sigma technique). The Prioritization Matrix is a very simple but highly effective tool in ensuring that IT is investing their precious data and analytics resources against those business problems with the right balance of business value and implementation feasibility.

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Digital Transformation Inhibitor: Little to no employee engagement.  Enterprise leaders are also failing to bring their employees on their digital transformation journeys.

Digital Transformation Inhibitor: Metrics misalignment.  Companies need to figure out how to quantify lifetime or at least annual customer value and satisfaction, and instantiate metrics in which every unit of an enterprise can see the impact of their role in the value chain.

Digital Transformation Inhibitor: Failure to change culture.  But even organizations that recognize the need for culture change fail to do so because they don’t properly manage the significant shifts digital requires.

Digital Transformation Inhibitor: Not failing enough.  If organizations aren’t failing enough they’re not working quickly enough to figure out what works and what doesn’t.

Schmarzo Perspective:  I think that the above four inhibitors are related and can be solved with the same two approaches:  compensation and design thinking.

Compensation.  “You are what you measure, and you measure what you reward.”  You wanna change behaviors?  Change your compensation system, and not just for the top executives.  Create a compensation system that rewards creativity and sharing for all employees, including the rank-and-file who are driving digital transformation every day.

Design Thinking. Design thinking is the “operationalization of trust and shared purpose collaboratively across functions with the objective of accelerating the commercialization and monetization of organizational intellectual property (IP) assets.”  Design Thinking shows up in how we communicate, how we plan our meetings, how we engage with customers and especially in how we show respect for our colleagues and customers.

Summary: Removing the Inhibitors to Digital Transformation

Digital Transformation is not being achieved via technology mastery.  If that was the case, then AOL, CompuServe and MySpace would be dominating the digital world.  Digital Transformation is about business pragmatism; about mastering leveraging customer, product, service and market insights to create and capture new sources of customer and market value.

But to achieve Digital Transformation, organizations need to attack the inhibitors to success head on.  This blog provided a recipe for overcoming inhibitors to fully digitalize your business model:

  • Start by identifying the sources of customer and market value creation from the point of ‘customer epiphany’ to journey expiration.
  • Embrace a business-IT collaboration process to ensure that IT is investing their data and analytics resources into the most appropriate business problems.
  • Create a compensation system that rewards creativity and sharing for all employees, including the rank-and-file who are driving digital transformation every day.
  • Embrace Design Thinking to create shared purpose across the organization with the objective of accelerating the commercialization and monetization of organizational IP assets.

Digital Transformation is not achieved with just strong management vision and force of will; the entire organization – from top to bottom – needs to be brought along on the Digital Transformation journey.

By Bill Schmarzo

Bill Schmarzo

CTO, IoT and Analytics at Hitachi Vantara (aka “Dean of Big Data”)

Bill Schmarzo, author of “Big Data: Understanding How Data Powers Big Business” and “Big Data MBA: Driving Business Strategies with Data Science”. He’s written white papers, is an avid blogger and is a frequent speaker on the use of Big Data and data science to power an organization’s key business initiatives. He is a University of San Francisco School of Management (SOM) Executive Fellow where he teaches the “Big Data MBA” course. Bill also just completed a research paper on “Determining The Economic Value of Data”. Onalytica recently ranked Bill as #4 Big Data Influencer worldwide.

Bill has over three decades of experience in data warehousing, BI and analytics. Bill authored the Vision Workshop methodology that links an organization’s strategic business initiatives with their supporting data and analytic requirements. Bill serves on the City of San Jose’s Technology Innovation Board, and on the faculties of The Data Warehouse Institute and Strata.

Previously, Bill was vice president of Analytics at Yahoo where he was responsible for the development of Yahoo’s Advertiser and Website analytics products, including the delivery of “actionable insights” through a holistic user experience. Before that, Bill oversaw the Analytic Applications business unit at Business Objects, including the development, marketing and sales of their industry-defining analytic applications.

Bill holds a Masters Business Administration from University of Iowa and a Bachelor of Science degree in Mathematics, Computer Science and Business Administration from Coe College.

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