The ‘why’ behind Business Process Transformation
Author: Jaywardhan (Jay) Pandey
Co-author: Lucio Chen
Business Process Transformation came to life as a medium to enable Digital Transformation by helping businesses design, restructure, and automate their business process to improve operational efficiency. Unsurprisingly, every major Digital Transformation initiative now heavily focuses on optimizing business processes through intelligence and insights. However, there still is a misconception about how wide of an impact Business Process Transformation has on your overall Digital Transformation Strategy which comprises various other important factors and initiatives. Through this blog, I would like to dig deeper into understanding Digital Transformation and highlighting how Business Process Transformation plays a much bigger role than we give it credit for (hang tight!), especially as offerings in the space become stronger and wider. I would like to share some learnings and research from a course that I took on ‘Digital Transformation and Enterprise Agility’ at Duke University and from my time at SAP Signavio as a Product Strategy intern, touching on three crucial aspects:
- The three horizons of Digital Transformation
- How Business Process Transformation plays a role in Digital Transformation; &
- The path forward
Join me on this journey!
The History of Digital Transformation
Digital Transformation has been around for years. Despite being a relatively new concept that is adopted at scale today, it can be traced back to the late ‘70s when computer-aided design and manufacturing came into the picture.
Looking further back, we can also find traces of transformation at the onset of industrialization. Mass production changed how businesses worked, followed by changes with the wide availability and adoption of computers. It took some time for these technological advancements to appear; computers came 50-60 years from the onset of mass production, and the internet became publicly available after 15-20 years of home computers.
Despite these huge gaps, it was hard for businesses to adjust to these technological advancements and change how they work and interact with their consumers. The common pitfall was the lack of a holistic understanding of Digital Transformation; and history has taught us that Digital Transformation efforts should focus on much more than just technology.
Employee engagement, cross-functional collaboration, accountability, and the right mindset are critical to realizing your dream of Digital Transformation on top of a willingness to maintain, extend, improve, and reimagine your business through innovation. Moreover, Digital Transformation is not a one-time exercise anymore but needs to be constantly incorporated into your business strategy to survive. It becomes vital for businesses today to be prepared and to keep riding these waves of disruption.
The Three Horizons of Digital Transformation
These days, we understand that Digital Transformation is not just about using the latest technology to improve your current operations and make them more efficient.
While it is essential to strengthen your core against possible disruptions, it is also important to constantly look at how you can improve and extend your offerings while thinking about innovation to reimagine your business.
According to the model on Strategic Horizons of Digital Transformation, developed by Prof. Anthony O’Driscoll of Fuqua School of Business, Duke University, an organization looking at Digital Transformation should look at all the following three horizons.
Source: Prof. Anthony O’Driscoll, Fuqua School of Business, Duke University (Developed for PMI’s Organizational Transformation Course)
With the rise of both technological and competitive disruptions, the need to constantly look for new areas to explore is higher than it has ever been before. To understand the three horizons mentioned above, let us look at organizational examples of digital transformation across the three layers. Below you can find some examples of each of the horizons:
Horizon 1 – Maintain
A simple example of Horizon 1 (Maintain) would be of the hospitality/hotel industry which included technology through online bookings to maintain/improve their operations. Although some direct technological investments did serve the long-term purpose of making bookings easier, we still can argue that the hospitality industry could have done better. They could have prepared for insurgents like Airbnb if they had reimagined their businesses and invested in innovation across Horizons 2 and 3 alongside focusing on Horizon 1.
Horizon 2 – Extend/Improve
An example of Horizon 2 (Extend/Improve) is Spotify, which ventured into podcasts on top of its music platform. Spotify already had the technology to deliver content through its platform. It understood the growing demand for podcasts and extended its offering, opening a new market by providing podcasts alongside music.
Horizon 3 – Reimagine
The last example for Horizon 3 (Reimagine) is Amazon which foresaw the red ocean being created in the e-commerce space and ventured into AWS, using the internal capabilities which they had built for scaling their e-commerce operations. AWS is now the most profitable segment of Amazon and serves as a benchmark for reimaging your offerings through a radical change in the business model.
Keeping all these examples in mind, we see that Digital Transformation becomes essential not just for legacy organizations but for all organizations, old and new, as they constantly need to look out for technological disruptions and insurgents.
It is equally important to understand your current capabilities/processes and how you can further build upon them to venture into new arenas when a wave of disruption hits you. According to Harvard Business Review, companies that allocated about 70% of their innovation activity to core initiatives (Horizon 1), 20% to adjacent ones (Horizon 2), and 10% to transformational ones (Horizon 3) outperformed their peers. The return ratio is roughly the inverse of the ideal allocation described. Core innovation efforts typically contribute 10% of the long-term, cumulative return on innovation investment; adjacent initiatives contribute 20%, and transformational efforts contribute 70%.
How Business Process Transformation plays a role in Digital Transformation
All trends show that Digital Transformation is here to stay.
The Fortune Business Insights projects that the Digital Transformation Market will reach USD 3,546.80 billion by 2028 with a CAGR of 22.1%. But what does the term ‘Digital Transformation Market’ even mean?
While one might argue that all the examples that we saw above for the three horizons seem to be more of business choices or decisions, it is imperative to understand that when we say ‘investment in Digital Transformation,’ we refer not just to the investment by businesses in technology or tools that help realize these business choices or visions, but also the investment that is done to enable reaching such decisions and transforming the way you work. Therefore, the investment should ideally not just be in building new offerings or bridging capabilities to venture into new areas, but also in channels that facilitate collaboration within your stakeholders (including your customers), or in tools that help you manage and derive insights out of your processes, or even in platforms that can help you innovate by prototyping and experimenting. Something as simple as hosting hackathons can work wonders too for igniting innovation within your teams.
The Digital Transformation Market thus comprises various tools and technologies that benefit businesses to realize a holistic transformation. Within this broad market comes Business Process Transformation, which provides tools focusing specifically on designing, managing, and improving your business processes to be ready against disruption.
In my time at SAP Signavio, I learnt that while Business Process Transformation plays a vital role in Digital Transformation by improving current processes and workflows through mining, insights, and automation, focusing mainly on Horizon 1, there lies a high potential to further help businesses Extend, Improve and Reimagine across Horizon 2 and 3.
For example, various Business Process Transformation suites offer Journey Modelers, which can be used to map/design user journeys around business processes, enabling businesses to Extend and Explore (Horizon 2) by keeping their users at the center and using their feedback to transform business processes.
Further, as Digital Transformation brings forward a need to work in more collaborative environments, Business Process Management enables transparency and uniformity across your organization. A Business Process Transformation Suite can also support innovation in Reimaging your business (Horizon 3) by helping you design new processes, run simulations, and manage and improve these processes through process intelligence.
Several such use cases enable Digital Transformation across all the three horizons, and the list is further expanding as Business Process Transformation offerings become broader daily. A Business Process Transformation suite thus doesn’t just act as a meager set of tools to design/redesign processes but plays a wider role in addressing crucial aspects of Digital Transformation like incorporating user-centricity, inviting collaboration, and driving innovation. Especially with respect to business processes, which ultimately are the backbone of any business.
The path forward: Potential of Business Process Transformation in People Transformation
According to the article ‘Unlocking success in digital transformations’ by McKinsey & Company, one of the main reasons for Digital Transformation strategies to fail is the lack of focus on people. It is crucial to remember that a business can genuinely realize its dream of keeping up with disruptions if its people have the right mindset. As humans, resisting change is our natural reaction; however, transforming requires a shift in thinking and a vision for the future.
People Transformation is thus an essential aspect of Digital Transformation and, in a way, an opportunity for Business Process Transformation. While it is hard to imagine how Business Process Transformation can play a role in shifting human mindset, there is a possibility being explored by the industry to open a new arena of managing people and their skills through Organizational Mining.
Organizational Mining is the use of event log data (similar to records used to mine processes but with a higher focus on people who perform different parts of the processes) to understand how your employees and departments work together in relatively unstructured scenarios.
Not only can Organizational Mining be used to optimize resource allocation, identify which skills are required for which roles, perform conformance checks, and optimize task handovers, but it can also play an important role in enabling People Transformation by identifying and bringing out crucial connected leaders, who tend to have a significant influence in your organization, by mining and understanding their interactions.
Focusing on skills required for specific roles in different business processes can also help organizations identify employee skill gaps and address them, further enabling the organization’s Digital Transformation Strategy.
While the use cases are unlimited, Organizational Mining is still a relatively new concept that is not yet dominant in the Business Process Transformation market. However, a handful of players do talk about it in their academic spaces and offer limited use cases. With time, it would not be surprising to see Organizational Mining play a crucial role in Digital Transformation strategies.
To sum up…
The three-horizon model helps understand the avenues a business must take to transform successfully.
Business Process Transformation plays a surprisingly significant role in achieving this transformation across the three layers. It is now a fact that while it is imperative to maintain and improve your current operations, you must constantly look at possible disruptions and be prepared to re-invent and explore new possible directions. One obvious step is to understand your current processes using a Business Process software and leverage them for your benefit, much like Amazon which used its internal systems and capabilities to venture into AWS.
Another step would be to understand that investing in a Business Process Transformation Suite is not just about maintaining and improving your business processes but a vital enabler to Explore, Extend and Reimagine through transparency and quick experimentation.
As the definition of Digital Transformation is expanding, Business Process Transformation is opening its wings to support businesses at all levels and horizons of Digital Transformation, including People Transformation.
It would be interesting to see how the future of Business Process Transformation further unfolds to strengthen organizations against digital disruption to survive the ever-changing and dynamic world of technological advancement.
If you enjoyed this blog, please share your comments and feedback below; I would love to hear your perspective.
To know more about similar topics, you can visit SAP Signavio’s Community page here: https://community.sap.com/topics/signavio
To read similar blogs, please visit: https://blogs.sap.com/tags/088166be-6441-4660-9e5b-1a046de322bf/
You can also ask questions in SAP Signavio’s Community using this Q&A link: https://answers.sap.com/tags/088166be-6441-4660-9e5b-1a046de322bf
Source: Strategic Horizons of Digital Transformation (Developed for PMI’s Organizational Transformation Course) by Prof. Anthony O’Driscoll, Fuqua School of Business, Duke University