Destination digital: Key questions to help define your transformation to a dynamic digital enterprise

Traditional enterprises must do the same.

To learn how established companies are faring, DXC Technology commissioned The Economist Intelligence Unit to survey more than 600 senior executives at large organizations worldwide about their digital transformation progress. According to the survey, 75 percent of companies say their digital strategy is central to their business strategy. The figures run even higher in financial services, technology and manufacturing. Yet it’s clearly still early days in scaling digital, as nearly 60 percent of survey respondents said they’ve only had a strategy in place for 2 years.

These companies have not advanced to the next stage of a more significant overhaul of their business model, and that won’t do. To survive, established enterprises must break away from traditional 20th century hierarchical command-and-control structures with a quarterly financial focus, and enter a new era of business competition. Reaching what management consultant Geoffrey Moore refers to as “escape velocity” takes more momentum than incrementally digitizing current activities, investing only slightly ahead of the cost of capital. That’s the business strategy of a more stable past.

Implementing relentless business model innovation requires energy, ideas, a new culture of continuous change, a unified strategy and a modernized capability framework — in short, a dynamic enterprise.

To accelerate digital transformation, achieve escape velocity and move toward the goal of becoming a dynamic enterprise, traditional enterprises are faced with big decisions.

The starting point? Not technology. Your customers.

Are you doing the right things for your customers?

Customers are in control. It really is as simple as that. If you are not creating differentiated value for your customers and are instead relying solely on conventional wisdom about what’s important to them, you are missing opportunities and operating at some level of business risk. Many companies already understand this. Sixty-four percent of survey respondents say their company is likely to be disrupted by competitors with superior customer-centric digital transformation strategies.

Doing the right things for customers means turning a company’s traditional inward gaze toward the outside. A relentless focus on customer outcomes begins to unlock potentially huge sources of economic value. First and foremost, considering what customers value and how they prefer to interact shapes the way we think of and engage with them.

Auto manufacturers, for example, are contending with customer preferences in a way they could not have foreseen a decade ago. Multiple trends are influencing not only what customers want in a vehicle, but also how they buy and use it. Megatrends such as wealth concentration, urbanization and environmental concerns are transforming attitudes about car ownership. In some areas of Paris, for instance, it is considered uncool to own a car.

Even traditionally staid industries such as insurance are being entirely reinvented to reflect customer needs, offering products that are simpler to understand and easier to buy. Insurance company Lemonade’s artificial intelligence bot Maya automatically configures your policy. The company processes claims in seconds rather than weeks. Significantly, Lemonade adds an element of what it calls “social good” to its business model, promising to cap its profits and return any excess to charitable causes of your choice. This trust-based model reduces fraud and drives down the operational costs of claims — leading to lower premiums.

Winners increasingly align and flex their corporate and business strategies based on the dynamics of digital and invest more to keep ahead of the curve. Over 80 percent of our survey respondents expected to increase investment in digital in the following 12 months, with nearly 75 percent expecting that investment to increase profits in the subsequent 3 years. In prior analysis, we discovered that half of firms we interviewed were looking to significantly overhaul their portfolio of technology partners in order to better support digital transformation.

Understanding what the right thing is for your customers informs an honest outside-in analysis of the potential relevance of digital as well as the next big digital transformation decision: what you intend to do about it.

How will you deliver value and differentiation?

Many enterprises understand the need to embrace uncertainty and complexity and are increasingly building portfolios of both experimentation and optimization. Our survey indicated that companies across industries, geographies and size groups intend to greatly ramp up their efforts.

But exactly how they go about creating new value and differentiation depends heavily on factors such as industry, size and location. Companies can derive value from various aspects of digital transformation, including new, connected products or services; digital marketing and sales; intelligent business process automation; and supply chain transformation.

One global energy supplier’s first focus, for instance, has been to enhance the efficiency of its operations. Uniper is providing a platform that can expand in different directions, creating tools that help its distribution companies intelligently manage the risk of balancing demand and supply. On the other hand, an oil and gas giant with a different business model has to manage digital diversity ranging from its exploration business to a retail operation that has more fuel stations than Starbucks has coffee shops.

Company cultures have dictated whether companies tend to pioneer, look for first-mover advantages or be fast followers. Now, however, the fast-follower strategy seems risky. Markets are now being disrupted by newer, more agile digital entrants, and traditional enterprises may not be able to respond quickly enough.

Regional cultures also influence strategy — companies based in developing regions in particular are realizing that digitally enabling more of their business could help them leapfrog their European and North American rivals.

A spectrum of potential digital plays emerges, including launching new brands and diversification, acquiring new entrants, radically optimizing operations and even partnering with traditional competitors. Ironically, digital platforms may open up a flood of new entrants and make an industry less attractive, indicating it could be time to gracefully exit.

Everything is possible, but not all at once. Successful enterprises develop a critical perspective on where to play and how to win. They embrace a new culture of continuous change, continually adapting their journeys and shaping an overall route to value.

How can you best enable agility and innovation?

The route to transformation involves becoming more dynamic, building unity around a shared purpose, generating energy and new ideas, and constantly evolving. Dynamic enterprises continually sense and respond to the changing environment, innovating and adapting at macro and micro levels and in real time. They break down traditional hierarchical command-and-control structures that stifle agility and innovation through organization layers — and become flatter, more networked and more focused on capability and collaboration.

Dynamic enterprises cultivate these five key attributes:

1. Laser focus on creating customer-first value via simple, intuitive and compelling lifestyle and business experiences
2. Fluid, adaptive front offices with small, multiskilled business and technology teams able to sense, respond and adapt to outside-in environmental change
3. Highly effective and efficient core operational processes supported by a connected, intelligent, secure and fault-tolerant backbone
4. Robust back offices providing foundational stability and services that enable flexibility in core and front-office execution
5. Operational and digital service platform integration based on next-generation delivery and service management

In a dynamic enterprise, decision-making and value-creation responsibilities are more distributed and ecosystem engagement is a core competency. Based on the right digital metrics, the organization continuously reviews results, fails fast where it must, learns quickly and adapts nimbly. After all, digital is not chaos.

A large insurance company, for example, has recognized that control needs to be turned into trust and empowerment. To be fast and to create better outcomes, Zurich is moving to a flatter organization, working together as global communities of experts both within the company and throughout the partner ecosystem. The global insurer is collaborating through strategic alliances, InsurTechs and startups to continue to experiment with new opportunities.

The dynamic enterprise is built on a digital core — a set of adaptable capabilities that deliver the expected value for both customers and the enterprise. The core encompasses culture, people, processes, technology and data — underpinned by next-generation delivery and service management.

A strong digital core is built around a nucleus of digital integration and the key constructs of orchestration, intelligence and automation. It connects customers, partners and employees, bringing information into the fabric of every interaction. It features complex event detection, data exchange and applied learning, all within a trusted, secure and robust operational framework. Critically, the digital core provides the ability to scale new digital solutions and integrate them with existing mainstream enterprise IT — avoiding further technology debt.

A multinational networking and telecommunications company, for example, has established the cornerstone systems and data for its enterprise core: enterprise data, processes that are common across the company and the connected information for those processes. This foundation enables the company to provision new digital platforms that people can use to innovate and scale.

If you’ve made the commitment to develop the foundational enablers for business model innovation and agility, the next big decision is how to drive the necessary culture of continuous change.

What cultures do we need to infuse in our teams?

There may not be a worse digital epitaph than: “We failed due to political inertia.” Seventy-two percent of our survey respondents agree that a change in culture is necessary to digitally transform any organization.

Culture change, however, remains a topic that is difficult to quantify. Everybody wants a cool culture where highly engaged employees deliver outstanding results as part of high-performing teams. But what does that mean in the context of digital transformation? Fortunately, digital culture is actually very tangible. It is the culture of continuous change — new ways of thinking, behaving and working that require us to unlearn a lot of what has gone before. Critical approaches in a digital culture include:

• Focus relentlessly on customer value. This means having a passion for customer outcomes and a less-myopic view of everything you do, proactively engaging with customers to co-develop the brand.
• Adopt an entrepreneurial attitude that challenges accepted wisdom and embraces new ideas. Governance is designed to clear out roadblocks rather than create them. This spirit encourages bolder investments and digital business moonshots.
• Create one plan for everyone’s benefit. A top-down approach creates a congruent set of rewards based on customer outcomes and fosters a “one-team” approach where personal politics have no place.
• Design for change. Elon Musk once observed that the problem with most large enterprises is that the answer to every problem is a process. Organizations have to unlearn some of this thinking and embrace new models for designing teams and more flexible, task-oriented collaboration.
• Emphasize products over projects. Think roadmaps and flight plans where change is part of the ongoing cost of business rather than traditional programs and projects with fixed IT costs — a big shift for chief financial officers. Think dedicated, cross-functional teams where resource management is an exception process rather than the usual juggling act. Think of continuous delivery and operations where you create just enough documentation, promote continuous communication, eliminate unnecessary activities and reward reuse.
• Embrace partners. Collaborate with others for a share of the economic profit potential as opposed to perpetuating a zero-sum warfare culture. A philosophy DXC calls “Connect and Grow” requires an ecosystem-player mind-set: new trust-based partnering and cocreation skills, increased orchestration, and distributed decision making that enables innovation at the edge.
• Create the right blend of business and technical skills. Many large enterprises’ business and IT functions are not as well integrated as they could be, perpetuating division and prejudice. Driving new digital ways of working requires a doubling down and high degree of literacy in both business and technology — fostering an environment where data scientists, experience designers, creative technologists and social marketing specialists work as one to create platforms that appeal to consumers.

How will you orchestrate continuous change?

A digital-oriented culture of continuous change is a critical ingredient of successful digital transformation and emphasizes a bias for action. Overanalyzing every option didn’t always help in the past, and now companies may not have the luxury.

But how do you introduce the required cultural changes to create a more dynamic enterprise while executing your digital strategy? Should you hothouse new ideas and capabilities? Incubate within a selected business unit? Establish a shared digital factory? Or go all-in and drive extensive business-unit change?

Traditional top-down digital transformation planning approaches are heavy on upfront analysis and design, and low on risk tolerance or uncertainty. Organizational boundaries often complicate and lengthen the time from strategy to execution. We can overestimate results yet underestimate effort and expense. Bottom-up planning does not promote the required unity either — it often dilutes strategic outcomes through budget cuts, internal politics and/or discretionary spending.

A new digital change life cycle embraces real-world uncertainty, complexity and risk — favoring action and increased customer engagement. It emphasizes four E’s: Explore the big picture. Elaborate on concepts and solutions. Then scale to Execution, all the time Evolving the enablers and our ecosystem of partners: delivery specialists, platform players, go-to-market channels and more.

A playbook for digital transformation supports the culture of continuous change and articulates how to successfully execute digitally enabled business change. Here are some key elements:

Understand how the dynamics of digital affect the management of your corporate strategy. Strategy must become increasingly fluid. You need a strong sense of purpose and a roadmap for change that describes how the delivery of core capabilities, competencies or assets realizes the desired outcomes. You must frequently review these top-down plans based on business context, with a significant emphasis on testing and experimentation. It isn’t the Wild West, though. Even experiments are constrained by resources, time and results. Zombie projects that never end must be killed off.

The top-down approach promotes strategic unity. In addition, reallocating resources and approaching CAPEX allocation and budgeting more dynamically can drive significant savings from your current operations and promote successful transformation.

Develop the capacity to manage continuous business change. Many enterprises have already embraced the concept of a digital office. But this is not a program office, a reporting function or where digital “sits.” The digital office has a strategic mandate to orchestrate the overall portfolio of change and ideation, sensing and responding to environmental events and driving continuous business change and value.

The digital office acts as an investment steward, driving change through the digital change life cycle and providing lean governance and assurance on key topics such as information strategy, architecture and security. It drives the development of the necessary transformation enablers and delivery capabilities, as well as helping to foster talent, skills, teams, coaches, communities, knowledge and collaboration.

A key enabler is the emerging concept of a “digital business twin” — a digital model of the proposed business environment that can test the implications of change. Top-down management of strategy execution has been hard until now due to a lack of tools to manage the complexity of an enterprise roadmap. A digital business twin helps address this by linking product teams, finance, continuous delivery and operations, and by leveraging modeling, visualization, machine learning and more.

Deliver continuous change and develop the enablers. In a dynamic enterprise, delivery shifts from combined program and project approaches to focused product approaches led by product owners seeking to minimize costs but maximize learning. Product owners with end-to-end ownership of outcomes have influence, a strong sense of purpose, and hybrid business and technology skills. Teams are agile, self-managing and performance-oriented. They embrace the digital culture, use iterative approaches, and emphasize transparency of information and continuous communication.

Activate and nurture your partner network. A critical success factor in digital transformation is the ability to activate or engage in appropriate ecosystems. Partners can provide access to markets, innovations, technology skills, data or enabling platforms. Ecosystem participation can come in many guises — from orchestrator to simple supplier — but a clear value proposition and ability to monetize ecosystem participation is vital. This context requires new approaches to collaboration and engagement. Traditional supplier procurement models are no longer appropriate.

Beyond ‘one and done’

After years of observing the impact of digital transformation happening around them, business and technology leaders are now embarking on the most rapid, dramatic and sophisticated pursuit of progress in decades.

If you’re among them, you’ve decided where to play and how to win, where you need to experiment and test. You know which capabilities you need to deliver to increase agility and innovation, and you’ve committed to the foundational investments in a new digital core. You’ve identified the core competencies of your new digital culture and how these need to be implemented via a playbook for continuous transformation.

You’re done — right? Wrong.

Destination Digital means constant change. It is not something you determine once and are then done with. It’s something you do all the time.

Digital transformation depends on people, cultural change and investment. It can’t be a headlong process. Yet digital adoption is progressing quickly; your competitors are already looking for the next move.

Meaningful progress means making big digital decisions — the ones that can truly help you achieve escape velocity. They include setting the direction of travel, making key leadership decisions, managing key stakeholders, determining how to experiment and test new customer journeys and capabilities, activating ecosystem participation, measuring change, rapidly allocating funds, revising budgets and reducing legacy investments where required.

Technology is an enabler, but it all starts with your customers, meeting their needs and establishing the building blocks that allow them, their organizations and their communities to realize their full potential.

Download Destination Digital, and contact us to learn how DXC Technology can help you on your digital transformation journey.