Your 2021 guide to digital transformation: 5 essential building blocks
- Posted on February 16, 2021
- Estimated reading time 4 minutes
Disruption is hard to predict – and harder to respond to. We may not know what’s ahead, but we do know regular change will be a certainty. Since the onset of the pandemic, business continuity and cost optimization have been key priorities. However, organizations recognize they can never be so unprepared for a disruption again and opening new revenue streams across multiple ecosystems will be essential to remaining resilient through continuous change. Transformation to a modular and agile digital business has become urgent.
So what steps does your organization need to take to transform to a digital business? Research from MIT Sloan Center for Information Systems Research (MIT CISR) has identified five building blocks that can help organizations develop those core capabilities.
Understanding the value of these building blocks is important, but how should you move forward in 2021? Here, we offer some practical advice on how to put each digital transformation building block in place.
1) Operational backbone – CX your operational backbone
Your digital offerings will only be as strong as your operational backbone – the core systems and processes that allow you to deliver value for customers. Stability issues in your operational backbone will be very visible to customers, so it is important to get it right. Take the time to design your operational backbone in a way that supports cross-functional teams working to deliver end-to-end customer journeys. Make the customer journey central in the design of the operational backbone.
2) Digital platform – just because you build it, doesn't mean they’ll use it
Your digital platform should contain all the reusable components your teams need, so they don’t have to start “from scratch” with each new digital solution. However, this alone does not guarantee success. We have seen large multinational organizations who have built best-practice digital platforms, yet usage and adoption remains low. If you want to increase value realization, involve your people in the build process and democratize data access to enable experimentation and innovation.
3) Shared customer insights – there is no substitute for talking to customers
Henry Ford is reported to have said, “If I had asked people what they wanted, they would have said faster horses.” Still, deep customer insights can identify ideas worth pursuing. Look beyond NPS and CSAT scores, and seek out trusted and loyal customers who can help you co-create innovations. A test-and-learn approach is then useful for confirming which innovations are both feasible and profitable. Validate your hypotheses early in the innovation process, so you only invest in developing products and services that will sell in the real world.
4) Accountability framework – letting go is scary
For large enterprises, this is probably the most difficult building block to put in place. It involves a fundamental shift from a hierarchical, command-and-control organizational structure to autonomous, cross-functional teams. A change of mindset and behaviors will be necessary for most people in the organization and this may require external change management expertise. A definite prerequisite for success is an enlightened Board and senior leadership that is not afraid to relinquish some decision rights to enable employees to respond faster and more effectively to market demands.
5) External developer platform – crowdsource your innovation
When you open up your digital platform to external developers, you enter a new era of limitless innovation possibilities. It’s a bold move, but one that removes the constraints of having finite internal resources to dedicate to innovation. It is important to consider beforehand how you'll monetize third-party development to create new revenue streams. A shared culture of transparency, ethics, and integrity with partners is also essential to mobilize mutual success.
Where do you start?
Putting these five digital building blocks into place can be an intimidating prospect. So where to begin? There is no single recipe for success, but consider these three steps to move forward in 2021:
- Prepare your Board and C-suite for the digital transformation. MIT CISR research shows organizations with a digitally savvy management team perform better.
- Understand your competitive position and how urgent customer-facing innovations are, versus operational efficiency innovations. Although a robust but flexible operational backbone is essential to support your digital platform and your digital innovation initiatives, you risk losing customers to current and new competitors if you are solely focused on building a robust operational backbone.
- Start small, but think big. Tackle small challenges to learn how to transform and then scale those lessons across the broader organization. Importantly, as you experiment to test and learn, be disciplined about stopping innovations that are not directly contributing to realization of your organization’s digital vision.
Need help to prioritize where to focus? Assess your business against these 10 strategic levers, spanning both operational efficiency and customer facing innovations to identify investments that will help reset your organization to be ready for continual change.