I recently attended an event with more than 1,300 delegates from mostly asset-intensive industries and when they were asked how many were involved in digital transformation projects, more than 80% of the room raised their hands. Digital transformation is a key strategic initiative for many organizations, as this Gartner survey highlights. Executives at these organizations realize that digitalization is not an option, but the way to survive and thrive in the years to come.
But talking about digital transformation and actually transforming a business are two very different things. The same Gartner survey explains, “CIOs across most industries are struggling to move from experimentation to scaling their digital business initiatives.” I often find that business leaders I talk to are confused about the difference between digitizing and transforming business and processes. Many of them are looking at ways to use digital technology with no clear meaning of what digital transformation could look like for their business and industry.
Real digital transformation has two main dimensions. The first is using digitalization to improve the way the enterprise operates. The second dimension focuses on using digital technology to improve how we create value.
Improve How You Operate
For many organizations, digital transformation translates into using technology to improve existing processes and efficiencies in their operations. This is often more a digitization effort than business transformation. Typical examples include using tablets to assign work tasks rather than paper on a clipboard or replacing customer service agents with smartbots at the other end of the spectrum. It doesn’t fundamentally change the business process, but it does bring efficiency improvements.
The primary business driver for this approach is typically cost reduction and improvements in customer satisfaction. Digitally automating business processes through robotic process automation (RPA), specifically in business process outsourcing scenarios, can help to reduce headcount but the benefits are often short-lived.
Improve How You Create Value
The second dimension of digital transformation revolves around how we create, deliver and capture value. It is the basis of business model innovation or changing the way you do business. It is not about improving existing processes but finding new ways to leverage digital technology to create new processes that make you competitive or even disruptive in your chosen markets.
This dimension is typically not possible at the enterprise scale without digital technology. It could be leveraging AI or machine learning, real-time event stream processing or smart contracts — to name a few digital-only examples. These new business processes are intrinsically automated, most often through custom coding and tend to be complex and inflexible. It does not allow the business to be agile and experiment with business models by split testing different scenarios.
What If We Combine How We Create Value And Operate?
Real business transformation happens when you can, firstly, improve the way you create value and then, secondly, improve the efficiency of that operating model. Each of these objectives can be achieved on its own, but real transformation happens when the sum becomes bigger than the parts. Productivity improvement projects often result in small incremental benefits, typically around 5-25%. Business model changes, on the other hand, can have a 10-fold return on investment. The combination of a digitized and scalable (automated) operating model can have an extraordinary outcome if it is done in a strategic and planned way.
Automating Digital Transformation
When talking to business leaders, I generally recommend the following steps in the journey to automate and scale up digital transformation projects:
1. Develop three or four strategic initiatives that focus on creating value for your organization.
2. Identify two or three tactical projects for each of the strategic initiatives that would deliver the value.
3. Develop the automated and digitized business processes for each project that will capture the value at an operational level at scale.
4. Review the outcomes at the project (tactical) and business (strategic) level on a quarterly basis and adapt the processes as necessary (agile operations).
A mining organization may, for example, have Digital Exploration, Agile Mining Operations, Connected Assets and Next Gen Safety as strategic initiatives. The tactical projects for Agile Mining Operations may include Integrated Operations, Smart Processing and Digital Supply Chain. The Digital Supply Chain operational processes could be around Autonomous Stock Pile Management, Pit to Port Optimization and Smart Supply Chain Contracts.
There is no single digital transformation technology vendor that provides everything that you need in a single solution. Review each of the business processes that will operationalize your digital transformation and choose the automation approach that best supports the process to deliver the expected operational outcomes. This technology can be RPA, business process management (BPM), workflow, complex event processing (CEP), AI or functionality that already exists in your ERP, CRM or EAM business solutions.
Digital technology solutions should support your specific strategic initiatives and provide an agile platform to change processes, tactics and strategy as you navigate the transformation journey. Not all projects and processes will deliver the anticipated value from digitally transforming the enterprise. An agile process and technology approach allows organizations to fail fast and readjust tactically and operationally while staying strategically focused.
Starting from a strategic perspective helps to look beyond the next shiny technology. It helps to focus on the real reason for transforming a business — that is, to stay viable, competitive and potentially disrupt the market.
