Digital Transformation and its Business Outcomes
Digital transformation is a process that is often lost in a sea of buzz words and vague concepts. An article by BBI Consulting breaks it down simply: It is “all about converting data to insight, insight to action and action to outcome”. While the process itself is important, what makes digital transformation worthwhile is its business outcomes. But how do companies maximize those outcomes?
It is common knowledge that the best goals are attainable, specific, and measurable. The same is true with digital transformation. According to a McKinsey & Company study, how a business approaches and commits to the digital transformation process plays a significant role in whether it sees positive business outcomes from the investment.
The McKinsey study surveyed 1,700 C-suite executives and found that the “average” digital transformation had a 45% chance of delivering less-than-expected outcomes. The likelihood of that average transformation exceeding expectations was just 10%. Critical to increasing those odds is defining expectations. As mentioned earlier, the first key to a successful digital transformation is setting proper goals and clearly defining what practices will be used to achieve them.
“Adhering to a well-defined set of transformation practices lifts the likelihood of exceeding profit expectations to more than 50%,” the McKinsey study said. That is about five times better than efforts that did not take those steps. The most common practices are:
- Laying Out Clear Priorities – Those companies that focused on changes that were “tied directly to measurable business outcomes” increased the likelihood of the transformation exceeding their expectations by 1.7 times.
- Utilizing Talent – “Digital enablement tends to produce better results when a company puts emphasis on attracting and developing highly talented people and hires employees with strong digital and analytics capabilities.” The article goes on to advocate for creating CDO (Chief Digital Officer) and CAO (Chief Analytics Officer) positions. Even without going that far, it is critical to have people with skills in digital and data analytics directly involved in the decision-making process, which helps create a culture that values that skill set.
- Commitment – While this might seem obvious in theory, it isn’t so clear-cut in practice. The digital transformation process requires a “commitment of time and money”. Without this commitment, the first two factors do not have the chance to help. This commitment must be for the duration of the process no matter the length. McKinsey found that companies whose executives treated digital transformation as a top priority were 1.5 times more likely to exceed expectations.
- Embracing Agility – As technological change continues to move faster, companies must be able to reevaluate and adapt their business practices quicker and more often. This includes fostering and encouraging innovation by their employees.
- Empowering People – McKinsey found that digital transformations are even more effective when employees are invested in the change, owning their specific parts of it, and are held accountable for those parts as well as their individual goals. Implied in this is company-wide buy-in.
All of the above needs to happen to secure a successful digital transformation process and increase the likelihood of meeting or exceeding expectations. What that accomplishment looks like as a final business outcome will differ from company to company. That same BBI Consulting article cited an extremely encouraging statistic for businesses in general – the MIT Center of Digital Business says that “companies that have embraced digital transformation are 26% more profitable than their average industry competitors and enjoy a 12% higher market valuation”. Below are more specific examples of positive business outcomes from digital transformation from a 2017 article by Sujeet Chand on IndustryWeek.
Ford manages over 2 million products and their variations thanks to changes from digital transformation while PepsiCo reduced the time it takes to troubleshoot by 90%. Pharmaceutical company Zhejiang Medicine Co. was able to go paperless by utilizing new software which saved between 5%-10% of labor costs. Rockwell Automation decreased its parts-per-million defects by half when it consolidated its manufacturing executing system (MES). Milk Specialties, a dairy protein producer, improved its throughput by 7% thanks to improved analytics.
In short, the digital transformation process is exactly that; a process. Companies must do their best to define their goals, adopt best practices and commit to the process on a company-wide level in order for it to succeed. The positive business outcomes of digital transformation are undeniable as long as it is done the right way with proper backing.
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