The transition from legacy architecture to digital is regressing instead of moving forward, according to PWC’s Tenth Digital IQ Survey. The survey measures how companies are able to harness and profit from technology. In 2016, 67% of companies felt they were on the right track; in 2017, this figure dropped to 52%.
Figure 1: Findings from PwC’s 10th Global Digital IQ Survey,
A further analysis of how this reversal could take place identified that most businesses had a limited view of what “digital” really meant. As PwC noted, when they conducted the first survey ten years ago, the perception was that digital transformation was about technology and IT only. Even today, only 6% of the respondents correctly defined digital transformation as something more than a technology initiative.
Figure 2: Responses from 2215 companies, source: PWC 10th Global Digital IQ Survey,
Even the “right” answer above has an important omission, as digital transformation should be done with one purpose in mind: to enrich the human experience.
What is Meant by the Human Experience?
The advent of big data has made it possible to understand each customer as never before: we know their tastes, likes, dislikes, and relationships. This knowledge helps us understand what brings a customer into a store or a bank branch and how to make their experience better. Processes should be mapped around the customer journey, and digital technology and software applications must be designed to make the customer experience streamlined, simple and pleasant. Most companies acknowledge this, but do not necessarily invest in putting customers first.
Don’t Forget Your Employees
Any successful digital transformation needs to be designed to fulfill customer expectations. But there is another facet to the human experience – the well-being and personal growth of employees. Despite all the predictions of robots and artificial intelligence taking jobs away, companies are still going to have employees; their roles will change, but they will still be needed. New skill sets will be required for employees working with the new technologies, and companies that understand this will have an advantage over their rivals. There also needs to be a cultural shift: managers must become leaders and organizational hierarchies must be replaced by teams.
PwC notes that companies that are leaders in the Digital IQ race have “a better understanding of the human experience that surrounds digital technologies.”
They “are more likely to resource digital projects with cross-functional teams of business, technology, and user experience specialists (74% vs. 65%), and to use agile methodologies for the majority of non-software projects (22% vs. 7%). More of them say, creating better customer experiences is a top expectation from digital investments.”
Embarking on the Journey to Digital
There are still some companies out there that have not started the move to digital. In Fujitsu’s 2017 survey on Global Digital Transformation, 11% of respondents stated that they had not started yet (Figure 3).
Figure 3: While 89% of companies have started digital transformation, there are still laggards
Figure 4: Progress is reported to be good.
Gartner has a much more pessimistic response to the survey they conducted in April 2017, with only 42% of CEOs reporting that they had started digital transformation. An earlier survey by MIT Sloan and Deloitte in 2015 found only 44% of companies prepared for disruption, although 90% of respondents expected it.
It is not Too Late
For those few who regard digital transformation as something that does not affect their business now, or in the future, the World Economic Forum (WEF) has set up a special project, the “Digital Transformation of Industries”, which looks at the implications of Industry 4.0 and its effect on the way we work. While the WEF makes it clear that no one can escape the threat, they point out that large, established companies have an advantage because of their size and customer base, but that they must start moving.
What the WEF recommends is that organizations need to focus on three elements for successful digital transformation:
- Building a digital business model based on customer experience.
- Turning the existing operational model into a digital operating model.
- Acquiring and developing digital talent and skills.
These are the prerequisites for a successful move from legacy to digital. Addressing the technological challenges without preparing the correct environment for the new digital business to operate in will not achieve success.
The WEF emphasize the fourth critical factor to consider, which other advisors in digital transformation often overlook: new metrics are needed for the new digital company to measure the true ROI of the changes that have been made. They have coined the phrase “digital traction metrics” for these metrics that replace traditional KPIs.
Where to Start
Digital transformation is hard, but the roadmap is straightforward. CEOs must undertake the journey, as well as ensure that everyone in the organization follows them. Careful planning and communication are essential, and the first successes must be notched up quickly to keep employees motivated and stakeholders convinced. The Boston Consulting Group (BCG) has recently published a paper that encapsulates what should be done in four steps. A good tip is to regard the new digital version of your company as a startup, rather than a remodeling of what you already have.
Figure 5: BCG’s Roadmap for Transformation –
Part 1: Prepare the Journey
Get the Message Out
The first step is to achieve buy-in from stakeholders, employees, partners, and customers. This is done by communicating what will happen upfront, as well as establishing channels for communicating regularly with all those involved.
Understand What Needs to Change
Chances are you are in an industry that is being disrupted by digital upstarts like AirBnB or fintechs. Use their successes (and failures) to conceive a new business model that will help you compete with and beat them. Your biggest threat lies within your walls: you need to transform your culture to match the mindset of your most feared competitors. This requires a comprehensive change management program. Part 4 of BCG’s process identifies what must be included in this change.
Before implementing even a single software solution, it’s important to get a clear picture of the future system, not to speak of digital transformation in general. Web app developers from Iflexion suggest creating a proof-of-concept before launching any more or less complex web project: “A proof-of-concept helps evaluate the feasibility of your concept for real-world implementation and assess the potential of your idea with minimum resources consumed.”
The Dinosaur Still Gets the Work Done
Every article on digital transformation focuses on the need for a digital platform to keep customers satisfied and able to connect via their devices. Very few mention that every one of these customers is also depending on and using your legacy systems. Production of statements and transaction processing happen in the background of these legacy systems at financial institutions and retailers. A mobile app used by the customer to retrieve a statement is merely a display.
You will not be able to dismantle your legacy systems in a hurry, and that is what you will need to achieve visible results soon. Create short-term goals that will provide deliverables ASAP. There will be risk involved and a certain amount of failure (remember, this is a startup). Define a flexible long-term strategy that will help you ease the dinosaur out. You may need to invest in resources that have the new skill sets to drive the digital development, either on a consulting and skills transfer basis, or by making permanent offers.
Define Your New Metrics
You need to demonstrate ROI as early as possible. Design new metrics that will measure how digital transformation is benefitting the organization, and implement them in anticipation of the journey ahead.
Part 2: Fund the Journey
With the blessings of your stakeholders, you can now embark on your short-term strategy. Focus on the quick wins that will improve both investor and customer confidence. If they are not viable, drop them and start on something else; this is how your digital company will work in the future. Another benefit of working this way is that your employees will be learning on the job, possibly working in teams for the first time.
Put Your Operating Model under the Microscope
It is time to look for cost savings by attending to inefficient processes and obsolete business rules. There is no benefit in having sleek, customer-facing apps and the same old inefficient backend processes supporting them. You should also be measuring the ROI of these changes to increase confidence.
Part 3: Reinvent for the Future
This is where you attend to your long-term vision, having demonstrated success in your short-term initiatives. The timeline for this part of the journey will depend entirely on how constrained you are by your legacy software and legacy mindsets. This could be as long as ten years, but you can keep the motivation strong by launching agile projects along the way.
Part 4: Organize for Sustained Performance
You must have noticed by now that technology plays a rather small part in the digital challenge, while people are pre-eminent. Managers will have to become leaders, teams will replace hierarchies and design thinking will become a keystone of your digital future. Skills that are needed are in short supply and roles and jobs will change. HRs have a major challenge ahead of them to build the new organization. Resources who work with AI and Big Data are difficult to find and external expertise could be considered.
This may seem rather a vague roadmap, but that is deliberate. Because of the rapid change that technology is imposing on us, one has to adopt an agile philosophy and accept that frequent change is essential and non-negotiable in the future. Agile thinking only focuses on short-term delivery; medium and long-term goals will shift because of the rapid growth of the new technologies and their equally rapid decline in price. The WEF illustrates how the decline in costs makes all the new devices affordable:
Figure 6: Shrinking Costs for New Technologies
While many of these devices will replace work that is being done now by humans, there will still be a need for human intervention and intuition to interpret the huge amounts of data that these devices already generate. AI can only do so much. This is why the human experience is such a critical factor in digital transformation.`