Companies are under increasing pressure to realize beneficial outcomes from digital transformation. According to EY’s Gaurav Modi, Managing Partner – Consulting ASEAN & Singapore and Shanaka de Silva, Principal – Consulting, EY Sri Lanka, successful digital transformations require companies to establish five key pillars.
The Digital Focus
Companies are expected to continue investing in digital transformation while facing increasing pressure to produce results, according to an EY-Parthenon Digital Investment Index (DII) survey of C-level executives from large companies around the world. They are also under mounting pressure to accelerate the launch of technology-enabled products and services and achieve efficiencies.
Over 40% of the surveyed executives aim for a structured approach to measure their digital ROI. However, many do not know their digital operating or capital expenditures from the previous year or the value yielded in terms of incremental revenues, cost reduction and working capital.
In addition, respondents’ organizations are shifting their focus from core internal operational efficiencies to new digital products and services that enable them to get closer to customers and generate revenue.
The DII survey found that customers remained at the heart of most firms’ digital priorities, with customer experience (CX) ranking highest in positive outcomes from important digital investments. More than half (55%) of the executives indicated “improved CX” as an area where they had seen a positive impact from their digital investments. This is because digital transformation enables businesses to reinvent experience and journey touch points to stay closely connected with customers, harmonize the use of emerging technologies and processes to achieve operational excellence and unlock data and insights to accelerate time-to-market decisions.
Conversely, businesses that fail to embark on their digital transformation journey risk losing out to competitors and becoming irrelevant. Known as the “red queen effect”, an organization’s success depends on its ability to match or outdo competitors’ advancements.
The DII survey also showed an increase in existing technology investments and the adoption of technologies such as chatbots, artificial intelligence (AI), machine learning, blockchain and augmented reality. Many companies have been building data platforms through investments in the cloud and the Internet of Things (IoT). The number of companies that reported the realization of the full benefits of investing in Cloud, IoT and AI increased by 54% in 2022, compared with 2020. But even with the right strategic digital transformation intent and a well-communicated vision, why do some companies stumble at various implementation phases of the journey?
Five Pillars of Successful Transformations
Gaurav and Shanaka argue that companies must establish the following five pillars in their digital transformation strategies to achieve the desired outcomes.
- Focus on nonlinear value creation and differentiation: A nonlinear approach to value creation that entails a culture change to sustain ongoing digital transformation is the most critical element for successful execution.
The Transformation Leadership: Humans@Centre study by EY teams and the University of Oxford’s Saïd Business School found that the complex factors influencing a transformation’s success or failure are rooted in human emotional behaviour. Therefore, organizations need to build a culture of change and understand the interdependencies linked with the emotional behaviour of the overall workforce and key senior stakeholders.
- Address skill gaps: Organizations need the right skill sets during the transformation and a sound plan to enhance workforce capabilities to sustain ongoing and future transformations. The EY Work Reimagined Survey revealed that 84% of employers expect generative AI (GenAI) to be used in the workplace.
Despite these expectations, only a handful of them are prioritizing training in GenAI skills. To do this effectively, organizations may also need to infuse skills that are not currently considered core and develop existing core skill sets to cover more than just the conventional essentials in each function.
- Maintain an agile business and technology architecture: An agile business and technology architecture can act as a foundation for transformation. Most organizations have fragmented systems — a mix of legacy and new digital stacks. Fragmented systems and rigid architecture would hinder an organization’s ability to provide seamless experiences to customers and result in inefficient processes.
The potential to explore future business models, partnerships and products depends on the agility of the organization’s technology landscape. The organization must see to it that its applications and technology infrastructure are not considered isolated functions. Instead, its transformation should align with the business strategy and outcomes.
- View data as an asset and embed cybersecurity: In line with the first pillar above on a nonlinear approach to value creation, data must be considered as an asset and managed accordingly. Data assets increase in value with usage and hence the treatment of data as an asset must be strategic. However, this is often complicated by existing operational structures, fragmented systems and a lack of distinct data ownership within an organization. Data also becomes the foundation for the organization to leverage advancements in data or AI technologies and create a frictionless enterprise.
As the organization undergoes greater digitization, its vulnerability to cyber attacks escalates, heightening the risk of data and privacy breaches. To combat these threats, organizations must envision and implement technological solutions with cybersecurity in mind, underpinned by comprehensive data protection and privacy policies.
- Set clear governance policies around decision-making: Transformations are intense to an organization, its employees, customers and connected ecosystem players. It’s critical for each decision to focus on business outcomes envisaged at the start of the transformation. Often, amid the complexities of the transformation process, such focus can be lost, making the transformation lose momentum and derailing it.
A sound operating model, clear decision-making, the willingness of leaders to accept trade-offs in decisions and being on schedule are also crucial for success. In addition, the leadership team and board must establish clear governance policies around decision-making at the beginning of the programme.
Gaurav and Shanaka conclude by saying that the continuous alignment of the five pillars above with short- and medium-term objectives and emphasizing urgency and timeliness are crucial to the long-term success of the digital transformation. Organization leaders must stay up to date on technological advancements and trends while encouraging knowledge-sharing among employees. This will help them adapt and fine-tune the digital transformation process as challenges arise. By applying these principles to deliver superior customer experiences, organizations can better position themselves for success in an increasingly competitive and complex world.