Driving Dimensions to Succeed Digital Transformation

December 18, 2023
DTO, EAM, EAP, ITFM, SPM, Whitepaper

Today’s business leaders are confronted with numerous existential challenges, of which digital transformation is among the most pressing to leverage on the chances and stay competitive. This paper is designed to support CEOs, COOs, CIOs, and decision makers with best practices and thought leadership to create and implement digital transformation.

In the digital landscape, it is easy to get lost in the nuances between digitization, which involves the conversion of analog data into digital formats, and digitalization, which represents the broader integration of digital technologies into existing processes; while digital transformation is the profound, strategic shift in business models and operations to leverage digital capabilities for innovation and growth. Leaders and organizations are often missing out on the latter aspect – the holistic transformative approach – and just focus on technology. Accordingly, transformation is thus commonly tackled from the IT perspective, instead of business-wide and from the top.

Strategically however, transformation should spark from an ambitious digital vision that is well thought through and starts from the customer’s perspective. This leads to a more modern outward-facing positioning of the company and the ability to organize its business functions across the value chain. Such a vision also motivates people internally to work towards a common target. This inner approval and company-wide commitment is needed for change and modernization. Own co- creation and agile implementation in a cross-divisional and step-by-step manner are essential while acting fully transparent along all objectives and key results. The result is an intertwined approach that is aligned with all business functions and brings clarity about decisions in a company’s complex environment and to everyone involved in steering towards the future.

Achieving success in the transformative process requires an all-encompassing 360° design of the organization. This design idea can be segmented into five essential dimensions that pave the way for making digital transformation easy and more likely to succeed: A modern business model, functional organization, collaborative culture, seamless processes, and then scalable technology.

In the following, first the challenges and pitfalls in digital transformation that hinder progress and success are reflected and explained. Second, a strategic solution design to overcome the common mistakes is presented. And third, concrete ideas, operational measures and best practices for successful implementation of digital transformation are illustrated.

1 | The Challenges of Digital Transformation: Understanding the Reasons for Frequent Failures

In today’s rapidly evolving digital landscape where customer expectations and market dynamics are constantly shifting, there is no question on whether to do digital transformation or not. It is imperative for organizations to embark on a transformative journey to remain competitive. This requires businesses to constantly stay up to date with emerging technology for business innovations, effectively managing and analyzing new data, and ensuring adaptability. In the practical realization of transformation, companies are often confronted with a scattered environment lacking strategic direction in the jungle of silos with inefficient communication, collaboration, and coordination between different hierarchy levels and departments which slows adaptability and transformation. Unless building on transparency about management-relevant data, effective and unambiguous data, data-driven decisions and decentralized decision-making it is difficult to transform (regarding those topics also read our Whitepaper on the principles of a fast execution). When not approaching all these challenges, businesses risk falling behind and disappearing from the market. The digital transformation is no longer optional but has become compulsory, so everyone feels pressured to adapt.

Yet, despite this obvious business need, according to Deloitte, 70% of transformative actions fail.¹ To better understand this high failure rate, we must take a closer look at the underlying challenges. In general, typical digital transformation initiatives exhibit, among
other issues, (1) a lack of clear strategy by approaching it like a simple IT project, (2) poor choice of technology, (3) inadequate leadership, and (4) intra-organizational resistance to change. They have common root causes: (1) Mixing up the terms of digitization, digitalization and digital transformation and thus having wrong expectations and the psychological phenomena of (2) hindsight bias and (3) urge for action. To not mix up the different terms of digitization, digitalization and digital transformation, it is necessary to differentiate between them (see Figure 1).

Digitization is the process of changing from analog to digital form, also known as digital enablement.²

Digitalization is the process of using digital technologies and information to transform individual institutional operations.³

Digital business transformation is the process of optimizing & transforming the institution’s operations, strategic directions & value proposition through deep & coordinated shifts in culture, workforce and technology.⁴

They assume the reason for these insufficient exchanges between the employees in Spain and Germany lying in infrequent opportunities to talk due to the distance between the countries. As a countermeasure they decide to introduce MS Teams since this tool enables the employees to talk to each other easily without having to travel and the management read from their competitor that this is the new go-to-tool for this issue and thus supposes a better communication and collaboration in consequence. After a while of usage, the management however has to discover that the expected increase in communication and collaboration did not happen. Therefore, there seems to be a mismatch between expectations and results.

The reason for this lies in thinking that online meetings via MS Teams (as a digital tool) make collaboration successful. It is the same as with cooking a delicious meal: It would be wrong to think that it is the expensive pot (as a cooking tool) that leads to a tasty meal composition. These examples might seem simple, but we already get trapped there, and it becomes a more significant issue when scales and complexity rise. Mixing up cause and effect is so easy because often humans are not able to see the entire process from start to finish and (wrongly) rationalize to create sense (hindsight bias)⁵ – in our example the hindsight bias let us believe that the digital tool enabled seamless collaboration.

Another phenomenon that can be frequently observed is the following: CEOs, COOs, CIOs, and decision makers are confronted with an uncertain future. And as managers are humans, they want to get active and start doing something. Coming back to our EBSC example: Picking a digital tool seems simple, so picking something – even if it is a poor choice – brings the feeling of relief and being able to do something. For EBSC it was a poor ERP system. As it is not embedded in the strategic vision for the company, this is where we can find inadequate leadership and the urge for action. The early days of the Covid19 pandemic were a good example for this phenomenon, too – to give you another example to relate to. People’s reaction on rising infection numbers was to run to the supermarkets to hoard food. The reason for such behavior is that being able to do something (such as buying food) already makes us feel better as we feel like being able to care for ourselves. Buying food therefore reduced the complexity of a threatening virus to an understandable well-known action. This psychological phenomenon is falling for the urge for action. This and the changes in work resulting from using new digital tools encounter resistance from employees as they question the purpose of such quick and meaning as well as strategy lacking actions. Relating back to the Covid-19 example this was a behavior that could also be observed during that time. People protested contact restrictions, intervention measures and vaccination.

2 | The Solution: Designing the Digital Transformation Holistically and Strategically

To circumvent these reasons for failure and to arrive at a holistic design for digital transformation, first, in this chapter we provide an overview perspective on the necessary solution. This perspective then builds the foundation for our transformation approach and helps translate it into operational action in the next chapter.

The starting point for the solution is the familiar example of EBSC introducing MS Teams to replace face-to-face meetings in the hopes of improving collaboration because of quick and easy possibilities for meetings across different locations fast and easy. Yet, it is not the technology itself that creates collaboration. It is exactly the other way around: The solution is providing people with the meaning for collaboration between Spain and Germany to let employees feel the need for collaboration themselves, including the right people that cooperate well, and enabling a smooth sequence of workflow.

As for the pot example, it is the right mixture of ingredients and following the correct procedure and understanding for this necessity. Withstand the hindsight bias and look for the root causes to see these cause and effect relationships clearly prevent from falling for wrong expectations when digitizing. Work on these aspects and then MS Teams – or other tools scale and enable worldwide collaboration.

Enduring and accepting uncertainty and thinking holistically and strategically lets you withstand the urge for action. They prevent from just introducing an ERP system as EBSC did while lacking strategy, leading inadequately, choosing tools poorly and getting resistance to change: The solution is to first focus on customer needs and to design high-quality services. The ERP system then helps with the day-to-day operations. After having experienced the previously mentioned challenges, EBSC decided to solve their challenges following this solution process.

In conclusion, digitizing the existing is not an end in itself. It is not a matter of “We just need the right tool”. This would mean falling for an easy but wrong single source of truth. The same goes for the following single action points: “We just need better processes” which only focuses on the process-driven view and digitalization. “We just have to collaborate more” narrows towards employee interaction. “We just have to run along the value chain” and “We just have to have the one strategy” miss out on the interplay of the dimensions (see Figure 2).

The solution is to widen these narrow views to encompass the holistic picture and work on digital transformation.
Coming back to the Covid19 example:
Looking at the whole picture, humans wanted to fight the virus. For that it was necessary to look at the situation as a complex challenge that could not be grasped completely yet, because only then interventions from different dimensions could be started such as mitigation interventions, information campaigns and vac- cine invention. And this approach has to be transferred to the digital journey as this is also why organizations need a broader and holistic approach and cannot only focus on one dimension: Business is run holistically because only then value is created step by step for the customer, which then enables a stronger market position and growth potential.

When doing that, it is not headless action (remind the grocery buying), but following the right action and goal in total: To make business and have a holistic look in order to not get trapped in biases and stumbling blocks but to follow the correct procedure towards a successful digital transformation which offers a chance and benefit: Steering the business, aligning it to the digital future or expanding or reinventing enables taking advantage of opportunities that digitization offers. Being clear about the direction and transparent information makes the company steerable and able to prioritize to then work on the maximum output with minimum effort.

This approach towards digital transformation is not a one- time project but a continuous change process. This underlines the importance of digital transformation and the need for applying the necessary resources and steps in the right order – as EBSC then did – changing to a forward-looking digital transformation of the business. To stay on the course, it is crucial to focus on the following five dimensions (see Figure 3) (to learn more from the angle of adaptiveness see our Whitepaper on the five practices for adaptive IT governance):

1. To create a business model that leverages digitalization and the latest technological advances to make customers, partners and employees fully benefit.
Starting with the vision for the future, it is necessary to fundamentally question the current business model and find a new target picture that takes full advantage of today’s technology opportunities.

2. To adapt the functional organization that runs its service delivery along the value chain.
Based on this, organizations can derive the functional organization to run the changes, projects, continuous improvements, and services to deliver maximum value.

3. To introduce an empowered culture that benefits from collaboration and knowledge across functions.
Without people who move with the management it would all be nothing. It is thus necessary to set the frame towards a collaborative culture to empower people and boost capabilities across functions.

4. To design seamless processes that provide all services end- to-end in operational excellence.
For a focus on value for the employees to notion their efficacy it is necessary to not implement processes that work against value creation (such as rigid control processes). There is thus a need for seamless processes that enable employees to provide operational excellence and eliminating duplications, rework, and unnecessary work.These steps imply the necessary technology – the technology just follows concludently and then, the digitalization itself is just a technical task:

5. To implement the latest technology that enables, extends, and scales up all business.
Technology is to support in doing business, e.g., to interconnect and leverage business.

And it can provide new opportunities for new business. And that is where the circle closes and organizations can restart with building a modern business model. Without each dimension transformation cannot work (see Figure 2). Thus, all five dimensions are needed. But then it is normal business work. And as a result, on the way, organizations learn what to be digitalized.

For very good reasons John Doerr (the inventor of Objectives and Key Results) says: “Ideas are easy. Execution is everything.”⁶ This raises the remaining question of how to realize the new digital business model. The following will give a guideline through the five dimensions.

3 | The Execution: Implementing the Five Operational Dimensions

Modern business model

A modern business model is the foundation for digital transformation. With a focus on the customer perspective, it creates a competitive edge to position the company digitally. It starts with an ambitious digital vision and strategy. This modern business model, vision and strategy includes three directions: First, the possibility to scale up via digital services, second, to offer these services through all channels to all target groups across all countries and third, the potential for simplification and efficiency via central data and systems.

A common challenge is prematurely taking new ideas off the table with „buts“ and references to known problems. Another one is the difficulty in switching from linear to exponential thinking as humans are trained for linear but not exponential thinking and thus miss out on opportunities.

To circumvent this, establish a surrounding, where it is allowed to think utopian at first and to push aside possible barriers: The idea is to set up and think through the maximum feasible goal. Integrating exponential thinking into the business model enables the transformation of envisioned utopias into attainable realities. Particularly successful business models found a way to scale exponentially. One example is to not only rethink the design of existing services, but by connecting and leveraging them as a digital platform in new target groups and markets. To reach a wide-view vision, it is important to ignore the current organizational structure and processes at this stage. This innovative vision should then be viewed „backwards“ from the customer‘s perspective and broken down into business areas, target groups, markets, products and services.

At this stage in the process of digital transformation EBSC restarted and envisioned to now include business customers to their customer base and to their business model. To this point, they have had only experience with and were only serving end customers. To make this scaling possible, EBSC made all products available and personalizable on a new digital customer platform besides their existing local stores.

As is known from the „Objective-Key-Result“ (OKR) method, precisely specified goals and expected results follow. They enable leaders to identify the success of implementing a modern business model. Furthermore, suitable KPIs must be set up with which the newly designed products or services can be continuously and transparently measured in both quantitative and qualitative terms. This allows leaders to steer in the right direction.

Functional organization

To derive optimal results from the modern business model, it is crucial to adapt the organizational structure accordingly.

An integral part is to align the requirements of all stakeholders across functions first. The requirements of the various departments are collected transparently, contradictions and overlaps eliminated, harmonized and optimized in view of the new technological possibilities. This creates a completely new service catalog and companies then get an overview of what is being done and how. Based on the service catalog all roles and responsibilities get clarified to avoid both friction and overlap. Each service is done by only one center of excellence functionally company wide and each service is represented by just one face to the internal or external customer. Qualitative and quantitative key performance indicators are implemented to get an overview for decision-making.

This is always a chance to relearn the old and act newly. Yet, this poses a challenge and threat to employees since they fear losing their power. And there is a challenge in not getting side- tracked and just focusing on the organizational structure before introducing new processes or launching any digital solutions.

It is thus necessary to focus specifically on employees’ perceptions. Although the new functional organizational structure is introduced top-down in accordance with the new target picture, it should be designed in detail together with the employees. Initially, all relevant departments and people are invited to cross-divisional workshops, regardless of the hierarchical organizational structure that still formally applies. In these workshops, the service catalog from before is refined. All services are rigorously viewed from the customer‘s perspective and the best form of service delivery is co-created. Now, the focus is on the operationalization of the business model. The business model is the idea and the plan. The execution then takes place in the implementation of the appropriate functional organization.

The key to leadership is to inspire all employees for the goal, to put personal hierarchical considerations to one side and to place their commitment at the service of the common goal. Committed employees should be encouraged and valued by being given responsibility. Instead of hierarchical promotions, new functional roles, for example as „product owners“, can often be used to provide additional drive.

Following this process, this enabled EBSC to get its employees excited about the new vision. The previous 9 silos were organized into only 3 functionally centralized Centers of Excellence, which now seamlessly deliver their part of the value creation for all customers, products and locations.

Reflecting on the new functional organization, it should be possible to delay the hierarchy and to reduce the number of departments significantly. The success can be seen in the fact that there is no duplication of activities and clear responsibilities making frustrating rework a thing of the past. As a result, the entire organizational structure functionally follows the needs of customers, the company and employees. This new way of seeing and working is a great opportunity, but also a challenge for collaboration, which will be examined in more detail below.

Collaborative culture

Modern collaboration and employee empowerment is the foundation for digital transformation. Yet, the importance of a collaborative culture is often underestimated. There has been a lot of talk about agile management. Not all methods are convincing. However, a practically lived agile mindset is essential to modernize an organization. Frequently, managers may not be inclined to delve deeply into understanding the practical implications of a decision. It is essential to actively listen to insights from the lower levels, receive competent feedback, analyze and evaluate the information, then bring it back to the management circle for consideration of potential consequences. This approach aims to foster employee engagement, to welcome new ideas, be resilient in facing challenges, and avoid the path of least resistance. Prioritizing success and the optimal goal is crucial. Proactively addressing and resolving disturbances, rather than ignoring them, is key. Abstract concerns can be tackled by at least acknowledging them, listening patiently until everyone is heard, or creating an improved framework to prevent issues from arising. It is important to recognize that worries are consequences, not causes, and maintain a constant focus and prioritization, elevating the importance of addressing these aspects to prevent potential problems.

In addition, the employees should be viewed as experts whose expertise should be trusted. Transparency is the key. All tasks, the current status, and every mistake must be shared transparently on a modern online collaboration tool. This enables everyone to learn from faults and avoid them. The important part is to not blame the person who made the mistake. This leads to a learning mindset. The challenge here is that it challenges some root business foundations and thus the comprehension and power of people. The challenge also lies in the capabilities of the managers. In addition to a great deal of empathy, they also need the courage to give employees the freedom to make their own decisions.

These are preconditions to get away from vertical silo-thinking to smooth collaboration across functions. With fears involved, it is necessary to focus and concentrate on using digital transformation wisely and to help managers and employees create value, support them with resources and capacities and not throw too much demand at them and not threat them with performance pressure. The decision on the topics to work on is also a decisive one: It is helpful for leaders, managers and employees to see and work on something that produces pain already, as this shows the necessity of the actions and work.

When noticing that transparency makes performance visible and this is followed by appreciation and self-efficacy feelings, this is motivating and to humans pulling forward themselves. Another way to include employees’ motivation is to co-create solutions across all relevant functions. When employees are empowered, are given ownership and responsibility, they are willing to spend their time, effort and enthusiasm. They are allowed to decide all details and to make mistakes. Undesirable developments must be addressed openly and corrected with great appreciation of the attempted solution by the respective employees. Employees should therefore not feel like losers, but rather like active designers who make corrections and are supported by their manager with trust and experience. EBSC management did exactly that, they shared their vision of a best-in-class digital customer platform. This led to the EBSC team feeling fully empowered to develop it in an agile way, sharing each new feature transparently across the organization and even testing it with selected clients. The old-fashioned mustiness gave way to a modern spirit of optimism and even the works council likes it.

The efforts outlined are worth it. It often exceeds all expectations how powerful an organization becomes when a digitally scalable strategy and a functional and collaborative way of working are successfully combined. Without any doubt, this culture boosts modern collaboration and fosters digital transformation.

Seamless processes

Fully in line with the before mentioned smooth collaboration and following the new functional organizational structure all processes are developed further to end- to-end workflows – along the entire value chain to move from a scattered to a seamless service delivery. A good way to analyze the efficiency of existing work processes is to map all human resources against them. Overlap of different departments doing similar tasks or friction within the value chain will become fully transparent.

Value creation, which is often vertically fragmented into silos according to business areas and/or regions, is best tracked „backwards“ from the product or service delivered to the customer along the value chain back to all service areas. In this way, all duplications in responsibilities, workflows and systems are eliminated throughout the company.

EBSC invited representatives from all areas to analyze their products and processes. They found ways to improve their processes, for example in customer support. They discovered that three areas (sales, IT and consultants) were involved instead of the expected one touch point. EBSC strategically prioritized customer satisfaction by implementing a two-tier support system, meticulously defining the customer support journey to ensure a seamless experience. Coordination among all contributing departments is paramount, with a designated leader overseeing communication, avoiding silos, and promoting cross-departmental collaboration. The focus shifted to providing the best service for both customers and the company, disregarding internal divisions. Clear roles, accepted responsibilities, and ongoing data-driven measurement of KPIs replaced the previous lack of clarity. It is important that IT experts are always involved in this optimization. During the technical conception phase, they already clarify which data or documents are required for the work step and which IT applications are currently being used or will be used in the target scenario.

It is therefore better to proceed with the processes in smaller steps that already consider all business, organizational and technological aspects. In other words, proceed in small steps but on a broad front.

The challenge here is that having working processes does not enable the view for a need to change working systems. The reason is that humans cannot foresee the coming crisis. However, that is the time where organizations should act – to prepare. Otherwise, fully slid into the crisis already, there is a problem of budget and capacity and fire-fighting modus, and this does not include a future-wide possibility view. This is why this step is ideally taken during a transformation triggered by the management and not by the circumstances.

The success factors of this approach are obvious: all activities run seamlessly end-to-end along the va- lue chain, use harmonized IT applications with unam- biguous data and serve the modern business model.

Scalable technology

Then, obviously, the latest technology is needed for ambitious digitalization and automation. Depending on the business model and the size of the company, a distinction must first be made between corporate IT and core business IT. Corporate IT is a service organization that provides a modern workplace for all employees as well as the company-wide secure and scalable IT infrastructure. Ideally, business IT is functionally integrated into the core business. This means that it not only operates the business applications technically, but also develops them further together with the business departments. The foundation for this is the previously discussed agile way of working and cross-divisional culture.

The starting point is each company must design its specific data model covering static, historic, and moving data. Data is to be stored once and centrally, all responsibility down to each data field should be clarified. Ideally, just one application is developed or customized to cover each service company-wide using the same single-source-of-truth and providing a seamless and data-driven value chain. An open platform approach should be considered seriously offering portals and interfaces to all stake- holders. They can benefit from direct access to the digital ‘engine room’. Of course, a scalable IT infrastructure is needed, and the latest tools for collaboration should be provided. Often the ‘best of suite’ approach helps to prevent excessive complexity.

EBSC pursued exactly this strategy: the ERP system followed the new service catalog and was expanded into a strategic platform that supports all core business processes, connects suppliers via modern interfaces and – most importantly – is directly linked to the digital, scalable customer platform. Numerous previous individual solutions and all manual workarounds were eliminated. The successful approach is to not get trapped in the vast variety of technology options but, as the steps before changing the perspective from a digital tool to digital opportunity drivenness and thus let the technology follow concludently from the business needs.

4 | The Essence of Digital Transformation

This paper was intended to assist CEOs, COOs, CIOs, and decision-makers by offering best practices and thought leadership for digital transformation. Faced with fierce market and business challenges, having a clear view and strategic view towards digital transformation is of utmost importance. Often, the focus solely lies on technology and IT, neglecting the holistic transformative approach. Yet, the path to successful digital transformation includes:

1. Answering the question of why: Digital Transformation is no end in itself.

It all begins with a visionary digital strategy rooted in the customer‘s perspective. Digital transformation is particularly worthwhile when the business model is perfectly enhanced to benefit from new technological opportunities.

2. Answering the question of what: Digitalization alone falls short.

Effective transformation requires a 360° design of the business model, organization, culture, processes, and technology – all seamlessly along the value chain. You must therefore implement all five operational dimensions shown.

3. Answering the question of how: Modernization needs inner approval.

Co-creation and agile implementation, executed in a cross-divisional, step-by-step, and transparent manner, are crucial in this process. Ultimately, the responsibili- ty lies in carrying out the work and executing the digital transformation.

Achieving success in the transformative process requires a comprehensive organizational design. In a nutshell, digital transformation becomes straightforward and effective when focusing and executing on five core dimensions: a modern business model, a functional organization, a collaborative culture, seamless processes, and scalable technology.

This approach aligns with all business functions, providing clarity in complex decision-making and involving all stakeholders in shaping the future for business opportunities and growth. This is how Exquisite Business Solutions Corporation (EBSC) became the market leader and the most popular employer in its sector.

References:

¹ Clayton-Ball, Tim; Norman, Mike; King, Adam; Sloan, Peter; Vaghani, Hima; Arthur, Dunstan (2020): “Digital Transformation – Are people still our greatest asset?”, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/about-deloitte/deloitte-uk-digital-transformation-are-people-still-our-greatest-asset.pdf

² Gartner Glossary (2023): “Digitization”, https://www.gartner.com/en/information-technology/glossary/digitization

³ Connamix (2023): “Digitization, Digitalization or Digital Transformation?”, https://connamix.com/digitization- digitalization-or-digital-transformation/

⁴ Ebd.
⁵ Kahnemann (2012): “Thinking, Fast and Slow”, Penguin

⁶ Doerr, John (2018): “Measure What Matters: The Simple Idea that Drives 10x Growth”, Penguin

About the Authors

Dr. Julia Schreier

Leveraging experience across different fields – from Industrial Engineering and Management to People, Julia‘s passion is enhancing knowledge and creating value by exploring and sharing innovative concepts and management insights. A key facet of her expertise involves effectively bridging the gap between academic insights and practical applications, particularly in addressing management topics and organizational challenges. This multifaceted background uniquely positions her to contribute valuable impetus to initiatives aimed at fostering comprehension, continuous growth, and progress.

Alex Betz

Alex Betz has been ‚digitally transforming‘ for three decades as a founder, an entrepreneur, and a member of management boards in international corporates. But whether in a student-run small business, a hyped start-up or a listed international corporation, the challenges are basically always the same. Over time, he has been able to identify, internalize and successfully apply the essence of the digital transformation of companies, their business models and their employees.