Companies may experience “piecemeal” results during the early stages of digitization. Executives must push through and leverage their learnings to create real change.
Shaping a digitization vision and strategy is a key challenge for business executives and one that many are finding unexpectedly tricky.
There are, of course, theoretical frameworks for digitizing businesses but they all focus on how things should be done: executives should have a vision and strategy for digital. They should be clear on what experiments and efforts require prioritization, and what results constitute success.
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Founder and CEO, HFS Research
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In reality, it’s tough to follow such frameworks. Far-reaching strategies and change are, after all, hard to plan, risky and expensive. This is precisely why so many companies digitize their business with a more of “hands-on” approach—they start by experimenting with specific initiatives and try to go from there.
But this can also be problematic, says Phil Fersht, founder and CEO—HFS Research. “The ‘going-from-there’ part can be very tricky. In fact, most companies seem to struggle with getting it right,” notes Fersht. Research reports show “how companies have yet to turn early insights into strategies, and how hard it is to scale digital experiments,” he adds.
So, what can executives do? Are there any other frameworks to follow? Or are there steps companies and executives can take to make digitization easier?
Fersht and his team of industry analysts created a framework that both describes “real-world” digitization efforts and serves as a roadmap for executives trying to master the digital transformation process.
We recently sat down with Fersht to discuss the model and his opinion on digitization steps and best practices.
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Making the most from digital is tricky: An Accenture survey of 900 large companies found that that only 13 percent of them were achieving both higher efficiency and business growth from their digital investments.
Where do we stand with regards to managing digitization—do best practices exist and are they being used correctly?
Phil Fersht: I think it’s still a mixed picture. Because yes, we’re now at a point where we can see what seems to work, and what does not. But that’s not the same as saying that we have “best practices” for every digitization scenario—and we’re certainly not at a point where everybody is using those which exist. I like to say that so far, digitization has given us “basic digital”. Most companies are digitizing parts of their front office, and parts of their back office.
They should be doing both and in an integrated way—but that’s still something only very few winners manage to get right.
Then what are managers doing? And where are they struggling?
At HFS, we have a four-stage-model for digitization; I think it reflects what most businesses are doing well. The four stages are “experimentation”, “tinkering”, “exploring”, and “disruption”—and businesses should go through all four.
So, in the “experimentation” phase, digitization is often very use-case driven. Companies pick one or more uses cases, “experiment”—let’s say around leveraging Robotics Process Automation in the back-office—and test. Here, things are still exciting. But then companies move on to the next phase. They start “tinkering”, that is they try to copy what they’ve done and paste it elsewhere. That usually doesn’t work, and so frustration ensues. But some manage to push through, learn from their mistakes and make it to the next two stages. “Exploring”, which is about turning the learnings from the “tinkering” phase into plans for company-wide change, and “disruption”, where these plans are executed to change the business.
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So companies “drop out” before completing all phases. Why?
Yes, that is precisely the case. They get stuck in the first or second phase, and never go beyond these. That’s a challenge, because during the first two phases, digitization tends to be piecemeal, and the return on the investments made tends to be low and below expectations. So they’d have to push through this “dip” that occurs during the first two phases to see a return on investment—but they can’t.
There are many reasons for that, some of which have to do with resources, know-how, and other restrictions. But I believe that leadership and management are equally important. And there, I often find that many companies have not entirely clarified their vision for their digital future. That’s a huge issue. If you don’t know what your vision is, then how can you decide which of your experiments are working? How can you take the insights you have, and turn them into some strategy? I’ll insult oh-so-many executives with this, but I really believe that when it comes to digital, then there isn’t so much a shortage of strategy as there is a shortage of vision and clarity—and that’s what’s holding us back.
If this is a leadership issue: What should executives do?
Well, in general, create the vision first. Paint the “big picture”, and then make sure that real change is being made. Don’t get me wrong here, I’m not saying this is easy, I know it isn’t. But it can be done, and it must be a priority.
Every digital transformation is a journey that starts with experiments, gets harder before it gets easier, and either ends in real change—or fails. And it will fail if you don’t have clarity around: “What’s it for”, “who’s it for”, and so on.
Keep in mind that digitization is not really about technology, it’s about people and change. Digital tech is really just a means to get your business from A to B. But it’s people who make that journey from here to there happen. So, make sure that once you have clarity, and once the first experiments are set up, real change is being made. Companies must ensure that the required methods are in place to learn from experiments, to share those learnings, and to turn them into know-how first and new ways of working second.
Can you recommend some specific steps, too?
Well, there are several things which we have seen “digital leaders” do, and there are very helpful recommendations about which steps to take out there, too. I’ll call out two specific things which I’ve come to like over time.
One is to make someone responsible for the company’s digital vision and to put that person in charge of the required change efforts. Many companies have opted for putting these matters into the hands of a “Chief Digital Officer”, and it seems to have worked well for them. The other is to bring in fresh perspectives and best-practices by hiring “right-brain”, entrepreneurial people. I really believe that this can help to reinvigorate a company’s digitization efforts.
But, in the end, it really comes back to shaping the vision that’s required to succeed, creating a company-wide strategy, and changing from those early experiments which all these companies are running. If you can do that, then putting the other building blocks in place will become so much easier.
Thanks for this, Phil!
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Phil Fersht is the founder and Chief Executive Officer at industry analyst and research firm HFS Research. A veteran industry analyst, writer and thought leader, Phil regularly thinks, speaks, and writes on topics such as emerging technologies, automation and AI, digital business services, and the transformation of enterprise operations to drive customer impact and competitive advantage. More from Phil can be found at HFS Research, the “Horses for Sources” blog or at his LinkedIn site.]
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