2021 is shaping up to be an extremely challenging yet thrilling time for business and IT leaders in pursuit of digital business transformation, acceleration, and evolution. To address immediate needs resulting from the rapid changes in business priorities and ways of working during a volatile 2020, many organizations understandably focused their digital transformation strategies on digitization – which is fundamentally about operational excellence – or doing what they already do but better and faster. As a result, huge progress was made in 2020 to facilitate remote working, increase efficiency, and automate workflows. This has resulted in a real momentum that is expected to continue accelerating in 2021.
While these efforts are foundational and essential to success in our digital age, organizations increasingly understand that they must also focus on digitally enabled business innovation and experiential excellence if they want to remain competitive over the next few years. This will require the ability to rapidly identify and deliver new customer value propositions and digital offerings.Digital transformation needs a focus on digitally enabled business innovation and experiential excellence for orgs to remain competitive – @Veridity #digitaltransformation Click To Tweet
Creating competitive advantage through digital transformation
The great news is that in 2020, across multiple industry sectors, there was an exponential increase in organizations creating digital or digitally enhanced offerings for internal or external customers through digital transformation. As these organizations improve their maturity and capability in developing and delivering these offerings, they’ll also increase velocity, customer delight, and value realization. On the other side of the coin, organizations that don’t embrace these changes will find themselves at a disadvantage and may not be able to compete.
Imagine, if your organization made candles 150 years ago, operational excellence might mean making a more efficient, long burning, or dripless candle – whereas innovation would be the electric lightbulb. If you focused exclusively on making better candles at the dawn of the electric age, you might be out of business sooner than expected. Today if you can’t evolve your organization to rapidly and consistently identify and deliver new customer value propositions and digital offerings, then your organization may soon find itself unable to catch up with the rest of the market. This is, of course, bigger than simply being able to identify new and better products and services. It’s about becoming the kind of organization that can keep evolving, at a much faster pace than has ever been seen in history.
Simply adding the latest tech to your old industrial era organizational model and calling yourself digitally transformed won’t cut it in terms of digital transformation.Simply adding the latest tech to your old industrial era organizational model and calling yourself digitally transformed won’t cut it – @Veridity #digitaltransformation Click To Tweet
The size of the digital transformation challenge
To evolve an existing organization from a more traditional model into one adapted for the digital age is a serious undertaking, not one that can be addressed with technology alone, or with simply adopting a methodology or particular practices. What is required is an understanding of your organization as a system, within a larger ecosystem. It’s then about integrating and optimizing this organizational system to both achieve specific outcomes and to be sufficiently agile and resilient to continually evolve and benefit from changing circumstances while managing the relentless onslaught of risks. This is what will allow it to continually adapt to both an ever-changing external environment and the changing needs of customers, both internal and external to the organization.
The next paradigm
All organizations, regardless of type or size, have some sort of management system, whether they name it that or not. An organization’s management system is what we call the way an organization manages the interrelated parts of its business to make decisions, manage resources, and perform activities to achieve its business objectives. The management system is what enables an organization to work effectively with a shared vision.
However, we need to address the fact that as we’ve moved from the industrial era of the 20th century to the digital age, the organization as a system has also evolved. In the 20th century, the pinnacle for an organization was to run like a well-organized machine. The priorities were efficiency, productivity, and control. For today’s organizations, the focus is increasingly agility, velocity, and value creation.
In the industrial economy of the 20th century, the primary challenge for many organizations was to coordinate the physical assets produced by employees. The resulting focus was on optimizing the production and physical flow of products. This led to the creation of the many ISO management system standards we know today, such as ISO 9001, to support that optimization. While these standards are still quite useful and important, it’s time for organizational systems to move to the next paradigm.
Organizations and their ecosystems today are already increasingly complex, but when we attempt to manage them as if they were simple, ordered systems it can actually impede agility and resilience. We can end up bogged down with bureaucracy, significantly reduced responsiveness to change, and decisions based on outdated and incomplete information. By contrast, deliberately managing the organization as a complex adaptive system increases the ability and structure needed to continually evolve and the capacity to coordinate multiple evolving components. When structured as an organizational system that provides a balance between constant adaptation and the right level and types of visibility and appropriate controls, the organization has the ingredients for dynamic stability – success – in today’s challenging environment.
One of the biggest challenges business and IT leaders have today is siloed priorities across different business units or geographies, resulting in competing initiatives, overstretched resources, and deficient outcomes. There’s also the issue of siloed information held discretely in different parts of the organization, rather than integrated by a common platform and integrated workflows. In terms of organization structure, functional, business-unit, or geographic silos are often either encouraged as a means of supporting internal competitiveness or are guarded by managers intent on protecting their territory, power, or perceived value to the organization (these issues are discussed in more detail in Culture and Transformation).
Performance measurement and incentives are also often structured to maintain silos, for example when they reward individual or team performance rather than rewarding collaboration or organization-wide achievement of business objectives.
The digital strategy needs to address issues that impede organizational integration.Your digital strategy needs to address issues that impede organizational integration – @Veridity #ITSM Click To Tweet
Agile strategy and digital transformation
A strategy is a complex set of planning activities in which an organization seeks to move from one situation to another in response to a number of internal and external variables. Due to relentless change and uncertainty in our VUCA (volatile, uncertain, complex, and ambiguous) world, traditional strategic planning approaches and processes are no longer sufficient and will need to be augmented.
Agile strategy management entails developing and adjusting strategies, products, services, initiatives, and operations as needed based on live data, new risks, and insights, and changed circumstances. To be successful, business and IT leaders must have a clear and comprehensive understanding of the whole enterprise and the ecosystem in which it operates. It’ll also require new or augmented capabilities, potentially a different operating model, and an accelerated cadence for the management of risk. There are a number of tools available that can help organizations to support these efforts – it would certainly not be ideal for the digital strategy to be managed by a spreadsheet!
There are various options for ensuring the right focus in your digital strategy across both operational excellence and experiential excellence. For example, consider a bi-modal approach where 80% to 90% of initiatives are focused on the predictable, such as optimizing existing, proven capabilities while 10% to 20% are focused on exploration, such as higher risk, experimental activities. Both modes are essential for creating and protecting value and neither is static. For both modes, breaking initiatives down into shorter increments of delivered capability that can deliver value quickly and regularly, both increases velocity and provides greater flexibility as circumstances or priorities change.
4 dimensions and digital transformation
The ability to understand the environment from multiple perspectives and facilitate integrated rather than siloed decision-making is a key indicator of success for an organization in the digital age.
To be enterprise-wide and integrated rather than siloed, the digital strategy must consider and reflect changes needed to the organization across multiple perspectives, for example:
- Organization – including governance, leadership, and operating model/organizational structure
- People – including culture, skills and competencies, values, and behaviors
- Practices – including policies, processes, guidelines, and business architecture
- Tools – including applications, workflows, automation, artificial intelligence (AI), and analytics
ITIL 4 includes the 4 Dimensions of service management. These are: Organizations and People, Information and Technology, Partners and Suppliers, and Value Streams and Processes. It’s intended that all practices, contracts, relationships, risks, and opportunities be considered in terms of these different perspectives, which can help identify and prioritize initiatives in the digital strategy.
Considering the digital strategy across these dimensions can ensure that as the organization transforms, it will evolve in a balanced way, not focusing on only one or two of the dimensions but considering all current and future activities in terms of all dimensions.
Designing your strategy to incorporate all four dimensions can also facilitate the ability of the organization to continually reconfigure its resources and capabilities in a more agile way, both as a result of the end-to-end visibility of capabilities and their interfaces and the ability to quickly identify gaps, opportunities to leverage existing capabilities in new ways, and a means of ensuring a balanced approach.
To demonstrate what the improved integration of these dimensions can look like in operation, consider the following digital transformation example: cross-functional teams, supported by technologies, are regularly scanning the internal and external environment of the organization in terms of risk and opportunities. They frequently evaluate the progress of projects, products, and services and decide whether to shift resources toward or away from projects and business-as-usual activities, using standardized, fast resource-allocation processes to allocate people, technology, and suppliers and other resources rapidly between activities, based on value measurement results.
For this to be achievable, the organization must have clarity about what capabilities and resources it has in place today across all four dimensions, which capabilities and resources it can leverage from other providers, as well as how to best prioritize new or changed capabilities and which are no longer required. There should also be shared policies and rules for consistent decision making and prioritization.
ITIL 4 also includes consideration of external factors, including political, economic, social, technological, legal, and environmental (PESTLE). These factors are becoming increasingly important to organizations, governing bodies, and investors focused on ESG (Environmental, Social, and Governance) criteria for investment and performance.
Demonstrable, measurable value
Digital transformation and evolution necessitates re-envisioning how an organization and its ecosystem creates and protects value through information, technology, people, relationships, and practices. Business and IT leaders need to ensure that value measurement is built into the business case as well as the delivery of initiatives and investments as the digital strategy is rolled out. This includes the ability to calculate the expected quantitative as well as qualitative return on investment (ROI) from the delivery of a capability, which should then be measured against the actual once that new or improved capability is operational.Business and IT leaders need to ensure that value measurement is built into the business case as well as the delivery of initiatives and investments as the digital strategy is rolled out – @Veridity #digitaltransformation Click To Tweet
Value mapping and measurement provides the business justification for prioritization, investment, and resource allocation, validates whether the right decisions are being made, and provides visible, visual links back to the organization’s strategy, business objectives, and capabilities. These measurements are then used to continually re-evaluate, re-prioritize, and reallocate resources as required.
Value mapping and measurement is an increasingly essential tool for business and IT leaders to ensure that the digital strategy is delivering demonstrable value.
The clarity provided by the business architecture is what allows the organization to continually move forward with precision and transparency, and to answer the key questions executives and other stakeholders have about who, what, where, when, why, and how.
The answers to these questions should form the organization’s digital strategy and plans and provide the ability to evaluate the value of initiatives.
In the digital age, business architecture has become a core capability. It’s iterative and can provide a means of facilitating an enterprise-wide, integrated strategy that is continually re-aligned with the organization’s operating model, business processes, and IT architecture. This in turn allows leaders to better streamline demand and allocate resources more strategically. Identification of new or optimized capabilities needed to support the strategy can also facilitate the identification of new digital offerings and clarify how these can be supported by the business and its ecosystem.
Aspects of the business represented by business architecture
Business architecture provides the framework for translating the digital strategy into actionable initiatives and executing them. The business architecture defines the organization, capabilities, value streams, and information, as well as their interfaces with stakeholders, products, initiatives, and metrics. It should be stakeholder value-driven, capability-centric, strategic, and support integration rather than business silos.
The BIZBOK GUIDE from the Business Architecture Guild can be really helpful to organizations looking to mature this capability.
Technology provides the operational backbone required for an integrated platform for the organization, which provides a single source of truth that can drive cross-team collaboration and optimize customer experience. Technology also enables the identification, development, and delivery of new digital and digitally-enabled offerings. Technology facilitates the integration and coordination of resources, including people. Technology can optimize the organization’s practices, including automating workflows and performing repeatable tasks. It gives us real-time and predictive analytics, AI, and end-to-end visibility across the enterprise and its ecosystem.
“As the pace of transformation accelerates, there’s no time for silos, guessing, or finger-pointing,” says Steve Tack, SVP product management at software intelligence company Dynatrace. “Imagine having all teams in your organization on the same page all the time, with everyone using a common language, collaborating across teams, and speeding toward better business outcomes. This is possible with a platform that provides automatic and intelligent observability.”
While digital business transformation is obviously much bigger than technology, without key technical capabilities and an integrated approach, it’s not possible for a 21st century integrated organizational system to thrive.
Nevertheless, technology implementations frequently provide some of our most regular examples of lack of organizational integration. Take for example the common story of a 2-3 year, multi-million-dollar CRM project that once implemented isn’t adopted by users or doesn’t improve business outcomes or doesn’t improve efficiency and effectiveness for the business. Even though the project has reported mostly green against its milestones and deliverables, week after week, and the IT team and external consultants or integrators have all met or exceeded their targets. The organizational change team has performed their change readiness activities. All the boxes have been ticked. But if this new technology has been clamped on to an old industrial era organizational model, it may fix a few problems and provide some new functionality, but it may not deliver the expected benefits or provide the expected competitive advantage. Without organizational integration, in terms of a holistic systems perspective, shared objectives and targets, and an aligned digital strategy, even the explicitly technical components of digital transformation can fail.
Digital (and digital transformation) is an enabler of organizational transformation and is, therefore, more than digitization. It’s a fundamental shift in the ways an organization delivers value to the market, encompassing a revolutionary rethinking of how to manage information, technology, people, relationships, and practices to significantly transform execution and business performance across the entire enterprise. It’s ultimately a fundamental shift in how the organization as a system operates, evolving from prioritizing efficiency, productivity, and control toward agility, velocity, and value creation.
This means that to ensure success:
- The development and execution of the organization’s strategy needs to be significantly more agile than in the past
- Tangible value needs to be achieved quickly and consistently
- The integration and coordination across different perspectives needs to be prioritized, as well as a balanced focus on both operational excellence and innovation.
The key to digital business transformation is understanding and coordinating the organization as a complex adaptive system rather than an industrial-age mechanistic system. The digital age is one of disruption, but this presents as many opportunities as it does risks for organizations, as long as they’re prepared to evolve in an integrated way with intention and nurture a culture of innovation.
Links to other articles in this series
People are the most fundamental component of organizational transformation and evolution. When I ask business and IT leaders in pursuit of digital transformation, acceleration, and evolution what the biggest obstacle to change is in their organization, the answer is invariably the same – culture. This article addresses Culture and Transformation.
What are the core capabilities every organization needs to be successful with digital transformation, acceleration, and evolution? Read my article: Digital Transformation Core Capabilities: Navigational Aids for a VUCA World.
Erin Casteel is a strategic advisor, governance and management system expert, and business architect, helping organizations transform and thrive at velocity in the digital age. She works with organizations to design, implement, run, and improve whole organization governance and management systems to create and protect value.
Erin is a lead architect and author of ITIL 4 and an editor of/contributor to a number of international (ISO) management system standards, including the ISO/IEC 27000 family of standards for information security management and the ISO/IEC 20000 series for service management.