It would be fair to say that most large enterprises have been living in a two-speed reality when it comes to digital transformation. On the one hand, they were adapting to a competitive environment being rapidly disrupted by new technologies. On the other, they dealt with an organisational environment grappling with legacy systems, processes and skills. The COVID-19 pandemic has rapidly accelerated digital transformations' ongoing pace, which may be true for many. However, not all enterprises will successfully navigate the path to digital transformation unless they recognise the internal barriers and address them head-on.
So, what are these barriers that could lead to digital transformation of organisations becoming a mirage? It would be natural to start with technology-related barriers. At the risk of paying insufficient homage to the importance of technological competence (which it is, clearly important), I would like to highlight the non-technical challenges that I believe are more pressing for businesses to address. Any senior leader who has embarked on a major digital transformation journey will have likely encountered these four barriers.
Shackles of the annual budgeting cycle
Digital transformation programs are often multi-year commitments and changing priorities can prevent businesses from staying the course. Multi-year obligations can be viewed as "big bangs" through a purely financial lens. However, this view is counterproductive. Multi-year investments and incremental returns throughout the transformation journey are not mutually exclusive.
For example, a fintech chief product officer explained the cause of legacy debt in most large enterprises: "We kept kicking the can on modernising our legacy products, not because we didn't know better but because we couldn't sustain our investments in modernising across multiple budgeting cycles", supporting the argument that digital acceleration's greatest impact is on eliminating years of technical debt incurred by enterprises. A truly digital transformation journey starts with the customer experience and emphasises the linkage of customer value creation. If you are embarking on a truly digital transformation journey, making large multi-year commitments tied to value creation at every stage is not only possible but necessary.
Cultural practices of the business ecosystem
Fundamental to digital transformation is to break down traditional organisational boundaries and building new digital ecosystems that operate faster and cheaper. This can result in a cultural change that is hard to carry out. There are specific ways an organisation may be accustomed to interacting with its customers and suppliers.
Take the case of a large equipment manufacturer that launched a new IoT-based asset management service. The largest challenge in rolling out this digital service was not the technology but the prioritisation of customer organisations to accommodate the downtime necessary to refurbish their equipment. Digital transformation will inevitably impact these traditional boundaries and replace them with new ones that require a massive change in people, processes, and systems.
However, the good news for enterprises is that the pandemic has affected everyone across the globe. The timing couldn't be any better for all stakeholders in your enterprise to agree to work differently to capture a digital ecosystem's full benefits.
Commercial risks of changing customer-facing platforms
Digital transformation programs tend to start with customer-facing processes and services, amplifying the challenge of transformation as it exposes you to a competitive threat. For example, a major provider of market data services to asset managers embarked on a program to upgrade their platform based on modern design thinking and analytical insights. While the potential for competitive differentiation was high, the risk that this new product introduction may trigger the customer to "test the market" for alternative providers also increased.
It is these commercial risks that often justify the large-scale effort necessary to pull off digital transformations. While these commercial risks are perfect for attackers, incumbents need to be particularly careful in protecting their current revenues.
Transition from legacy to digital engineering skills and processes
The expertise at the core of your technology talent is instrumental to the success of a digital transformation. Buzz words like "agile methods" and a collection of technical skills can't replace the knowledge from a team trained in actual development environments and cultures, which are quite different from the legacy IT departments that most organisations have.
In the early 2000s, today's mega IT services players like TCS, Infosys, Accenture, and HCL provided the much-needed ERP and systems integration skills lacking in large enterprises. However, digital enterprises will need to look to partners who bring a very different value proposition as the world turns. These new partners will need to excel at design thinking, rapid product innovation and deep product engineering methods and tools.
Each of the four barriers to digital transformation can be formidable. However, the pandemic has fundamentally transformed how customers engage with businesses, disrupted supply chains, and fundamentally altered how employees work. No wonder that private equity and strategic investors are aggressively betting on the rewards of digital transformations–as evidenced by the frothy valuation for many firms participating in digital transformation. However, these anticipated rewards may become a mirage if we underestimate the challenge of surmounting these barriers.
The writer is a Chief Executive Officer of Ness Digital Engineering