6 Ingredients for Successful Digital Transformation

I confess that I laughed when I saw this cartoon on LinkedIn the other day:
Digital Transformation
Certainly, the current crisis is accelerating digital transformation and innovation in nearly every business sector.

Telehealth is a great example. While there has been an increase in the use of telemedicine over the years, public health officials are pushing hospital systems and personal physicians to rapidly adopt it as part of their standard operating. In fact, the new $2 trillion stimulus package that was signed into law recently included Medicare waivers for telehealth services for the first time ever.

The phrase 'digital transformation' is incredibly broad and, in my opinion, over-used, but it typically includes three parts:

1.  Operations: Using technology, and the data generated by digitization, to adapt to labor shifts, improve performance and cut costs. Examples include using new digital tools to facilitate remote work and collaborate with colleagues, manufacturing automation to take the place of labor, and use of Internet of Things (IOT) technology to take the place of in-person inspections.

2.  Delivery: Using technology to change how goods and services are delivered to customers. Examples include eCommerce, eLearning, telehealth and virtual conferences. The Girl Boss Rally, for example, typically hosts about 1,300 people in LA each year. In less than 24 hours of announcing that this year's event would be digital, the company recorded 13,000 RSVPs. 

3.  New products: Using technology (or the data generated by digitization) to create new products and services. For example, we have many clients in the professional services industry who are trying to develop new products that are scalable and have more recurring revenue. Typically these are some type of “As-a-Service” type product such as a customized training company building learning experience platforms that are sold as subscriptions or marketing intelligence companies building self-serve predictive analytics tools. 

The good news is that digital transformation and innovation actually can be easier in times of crisis. You can read more about that in another recent blog I wrote, Innovating in a Crisis. The short version is that we are our most creative when faced with constraints and uncertainty, when we have a burning platform to change processes, and when we can kill sacred cows that may be impeding progress.

The bad news is that research suggests most digital transformations and innovations fail to meet expectations because of a lack of strategic alignment, poor coordination and a lack of measurement. Gary Pisano’s article, The Hard Truth About Innovative Cultures, summarizes it best: “Creativity can be messy. It needs discipline and management.”

The work we do at Vecteris focuses on helping companies with digital transformation as it relates to revenue - new products and delivery innovations. However, the research suggests that the lessons we have learned also apply to digital transformation for operations. 

Here are the key ingredients we have found will help organizations successfully accelerate their digital transformations in today's environment

1. Identifying the right problem to be solved. 

This is the time to go slow in order to go fast. This means taking the time to talk to customers so we can understand their urgent and expensive problems and, most importantly, the root causes of those problems. 

A big part of this is understanding the difference between a minor annoyance or a real pain point. For example, in a recent Voice of the Customer engagement for one client, we spoke with many customers who cited ‘feeling lonely’ while on out-of-town work assignments as a problem that our client could potentially fix. However, as we dug deeper, we realized that this problem was not as painful as other problems, such as job assignment uncertainty or better temporary housing options. We recommended focusing our client’s innovation efforts on solving those problems first and think about addressing loneliness later.

The point is not to stay anchored to a particular solution or ‘surface-level’ problem. When we identify the most urgent and expensive underlying customer problem, it opens the door for a real business opportunity.

2.  Quickly, but smartly, evaluate whether to build/buy/partner/not pursue

Once we know the urgent and expensive problem to solve, we need to evaluate whether it makes sense for  us to  build the solution, or if we should find an outside partner to help or if we should abandon the idea altogether.

​This decision point is especially critical if we’re already behind in digital transformation compared to our traditional competitors or if we have a number of new digital pure plays in our market. 

We need to understand:
  • Do we have a defensible competitive advantage?
  • Is there a solid business case (you’ll need to make assumptions about costs to build and maintain and revenue or potential cost savings)?
  • Do we have the capabilities and capacity to take this on?
  • Does it make sense to kill other initiatives to free up resources for this?

If the answer is no to any of these, we shouldn’t start building. We either find a partner or shelve the idea.

Our teams need to be laser-focused right now and if we skip the business case evaluation phase we risk diluting focus on efforts with a low ROI. Even worse, we could set ourselves up for failure because we will be under-resourced.
Pick a few immediate digital transformation priorities and say no to everything else.

3. Designing smart 'test and learn' experiments.

Successful digital transformations embrace the use of Minimum Viable Product (MVP). The MVP is a version of your product (or your product idea) with the right balance of features to satisfy early customers and provide learning back to the development team about how the product needs to be enhanced or changed. An MVP is not a smaller, cheaper version of your final product. It allows you to test your product in real life with real people in order to validate the product’s core value. MVP tests are designed to answer technical questions about the product, prove or disprove hypotheses, and gain a feel for the viability of the product in the market.

There are many good MVP examples out there (you can find some in another Vecteris blog). One that works well in a virtual world is 'sell-then-build'. It is aptly named. First, you sell the product concept. Then, you build the actual product. We like sell-then-build approaches that use a “landing page,” directing potential customers through advertising and email marketing. That landing page is a marketing tool that allows for testing the product against market expectations and demand.

This is the idea behind Kickstarter, which we’re all likely familiar with by now. It’s a platform for sell-then-build products for creative types. The designs range from world-changing to downright wacky. For example, one woman raised over $1400, three times her goal, to create 100 little birds out of wire and felt. Who knew that there was a market for wire and felt birds? This woman does, and she learned it without first spending a dime on wire or felt.

The point of an MVP, test-and-learn approach is to create a version of our product that lets us:
  • “build” a product we think customers want;
  •  “measure” if and how they use it;
  • “learn” from what customers do and say about the product; then, 
  • “loop” back to the beginning to build again.

4. Developing digitally fluent employees.

Digital fluency is a combination of understanding and appropriately using technology. In the simplest example, digital fluency is knowing when to use a chat program, email, or Zoom to best communicate with a remote colleague. 

But to accelerate our digital transformations, we also need to make sure we have the right talent. In my experience, this almost always requires new blood. Even if we are under a hiring freeze, it is important to understand that creating a successful digital transformation and leading innovation takes specialized capabilities. Recent McKinsey interviews with digital transformation leaders found a common theme about talent: “a single digital star can lift your organization higher than a team of the next-best workers.” You may need to make a hiring freeze exception and take advantage of the great talent out there right now.

Likewise, hiring for 'learning agility' is important for long-term success. Technology is evolving quickly, so we need employees who are comfortable with self-directed learning and acquiring the skills they need to stay relevant.

5. Practicing good technology hygiene on data compatibility, technical consistency, and cybersecurity.

We should not overlook the need for security in all aspects of our digital transformations. Look at what happened to Zoom with the rise of Zoombombing and the discovery that Zoom for iOS was secretly sending user data to Facebook. 

Cybersecurity has to be a top priority or we risk losing our customer’s trust. For example, according to a 2017 study, 65 percent of online shoppers who have had their personal information stolen will never return to the site where it was compromised.

Good technology hygiene doesn’t end with security. It also includes data compatibility and technology consistency. A great place to start is to make sure that your organization has developed an enterprise architecture. Enterprise architecture is commonly defined as the "process by which organizations standardize and organize IT infrastructure to support business goals." Typically, if I work with an organization that has competing applications (e.g., multiple CRMs or multiple team collaboration tools), systems that do not talk each other, and no framework for making decisions about new technology, it is a sign they do not have an enterprise architecture. The lack of an enterprise architecture is not only expensive but also highly inefficient and likely inflexible.

6. Shifting the culture and our mindsets.

A recent McKinsey study of leading innovators and digital transformers found failure to be a key to success. It’s essential to “make failure a virtue and core to your culture.” I love to remind my clients of the famous quote by Reid Hoffman, the founder of LinkedIn: 

“If you are not embarrassed by the first version of your product, you've launched too late.”This quote is so important because the best way to see if a product idea is a good idea is to see if the market will buy or use it. This means adopting a test and learn methodology, as discussed in point three above, as well as becoming comfortable releasing products before they are 100% finished.

Take online education leader, Khan Academy. At Khan, the team prioritizes getting their online courses launched on their site, over getting the most perfect version of the courses out there. Their target market, namely students, are craving knowledge. So, Khan delivers a good course (that is still well-built on the tech side), but with lots of room for improvement. Then, they listen to what their users tell them about their experience with the course. That way their next iteration delivers what the users actually want and need. 

This not only requires a shift in culture but we've also found that leaders need to shift their mindset. We like to call this the fearless innovator mindset.

Getting comfortable with failure is a good example of being fearless. It’s related to one of the four most important things I’ve learned about what it takes to be a fearless innovator,  letting go of perfectionism. Other practices that can help us adopt a fearless innovator mindset are:
  • Listen, especially to our intuition: Sometimes referred to as “gut instinct” or “founder’s intuition”, it’s our inner voice that encourages us to take the unknown path.
  • Ask for help: Asking for help means giving up the idea that we have all of the answers, and trusting our teams to own and solve problems as they arise.
  • Letting go of perfectionism: When we are talking about digital innovation, we need to rapidly iterate, rather than taking months of research and development to perfect. 
  • Practice gratitude: This works on a personal level to help leaders acknowledge and build upon their strengths but also to lead from a place of abundance, rather than scarcity. When it comes to generating new product ideas, practicing gratitude helps us focus on the strengths and opportunities part of a SWOT analysis, rather than the weaknesses and threats.