Increase the odds of success in digital transformation

It is hard to imagine a company that has not attempted some form of digital transformation.

Nine out of 10 senior leaders told consultancy firm McKinsey that their firm has pursued one or more large digital transformation projects since 2020.

However, most of these are dismally unsuccessful. Just one in every eight digital transformation initiatives meet their stated objectives.

Worse still, some of these failed projects cause extreme cost overruns that can put the entire organisation at risk.

We believe that a key barrier to successful digital transformation is the chasm that persists between business and technology.

Implementing a stronger digital transformation strategy

In order to increase the chances of success, organisations should help business and technology leaders to understand, appreciate, and integrate each other’s perspectives.

This will help create a sense of shared ownership of the digital transformation project and develop shared targets.

Many organisations begin by expanding the remit of their existing technology functions, or creating designated offices that are responsible for implementing new technology.

However, this approach can send a message that these offices have sole ownership of the project. As a result, other parts of the businesses may feel they can sidestep the painful process, causing the project to fail.

Bridging the gap between business and technology

To bridge the gap between business and technology, it is vital to accomplish two things.

The first is to enable business leaders to understand the benefits that digital solutions and technology could bring. Give them the motivation and the accountability to weave technology into business practices.

The second is to help technology specialists see the business benefits of digital transformation.

Ensure these technologists understand the perspectives of both internal and external customers. That way they can actively work with business leaders to drive the transformation.

Both of these are tricky to achieve. They ask business leaders and technology specialists to operate in each other’s domains.

This goes against their training, outlooks, and daily routines.

We identified three fundamental strategies to accomplish this balancing act and achieve change. This is based on our experience of leading and researching digital transformation over several years.

1 Develop your technology DNA

Firms should develop their native, in-house technology expertise rather than outsourcing most of its provision.

This does not mean providing everything in-house. However, bosses should assess the balance between internal and external provision to ensure their own technology competence is not hollowed out.

Extensive outsourcing could shackle firms to inflexible existing providers, who may not be willing to provide the skills to shift business requirements without a prohibitive price tag.

It may also create a sense that real ownership of technology is not part of the business.

Developing the firm's own technology DNA means that technology specialists and business leaders are likely to possess the skills and the shared sense of ownership required to align technology with business strategy.

For example, one key goal of NASA’s current digital transformation process is developing in-house digital capabilities that can deliver short-term benefits on particular projects, as well as helping to align operations with the organisation’s longer-term strategy and priorities.

In order to embed and accelerate the process, NASA has fostered agency-wide digital transformation communities. These connect internally, as well as with external stakeholders.

The agency’s business model is now in its commercial network phase. It acquires many of the engineering technologies it needs for missions on the open market. However, it also invests significantly in its own native digital technology capabilities to optimise and align operations.

At the same time, the agency carries out initiatives such as research projects that aim to learn from external best practice.

Alongside these, it runs leadership development programs to ensure that technologists acquire management capabilities and managers understand more about the potential of technology.

2 Set common objectives for technologists and business leaders

Firms should set joint objectives for technology and business leaders by developing company-wide metrics that apply equally to both.

This is the most under-appreciated aspect of digital transformation and is tricky to accomplish.

The forces of tradition, routine, and habit operate so that business leaders naturally focus on business outcomes. Technology leaders, on the other hand, focus on technology outcomes.

DBS Bank accomplished a digital transformation process that helped it move from a slow-moving, bricks-and-mortar bank that used a multitude of legacy technology systems to one of the world’s leading digital banks.

It did so by creating 30 separate ‘platforms’. These included consumer banking, institutional banking, or wealth management.

Each platform mapped onto a certain business function and was co-led by a business as well as a technology head. The owners had a set of shared platform objectives which included business, customer, and technical outcomes.

Co-ownership of these objectives was key. This became truly transformational in how the business and technology teams learned to operate as real partners over time.

DBS also developed a balanced scorecard that integrated technology and business strategy.

This focused 40 per cent on traditional financial performance, risk, employee and customer key performance indicators (KPIs).

It also focused 20 per cent on digital outcomes. These included digital revenue, digital customer engagement and customer journey targets.

The final 40 per cent focused on the bank’s digital transformation and other business goals.

These targets applied to all senior leaders in all functions and were cascaded down several levels in the organisation.

They were also linked back to the platform objectives so each platform’s outcomes were tightly coupled to the bank’s mission.

3 Develop ambidextrous leaders

It is crucial to maintain the focus on integrating the business and technology capabilities and developing ambidextrous leaders who can appreciate and operate with both domains.

Otherwise, natural behaviour will tend to separate business and technology functions into specialised domains again over time.

Develop a management system that can drive the culture of integration so it becomes second nature to the organisation.

This can be done through a regular cadence of objective setting, quarterly business reviews, performance goals, platform alignment, training, and corporate communications.

For example, NASA has adopted an implementation process that includes the creation of digital transformation roadmaps in different parts of the agency, synchronising and integrating these roadmaps and relevant implementation efforts, funding “catalyst projects” to address barriers to implementation, and measuring progress over time to help maintain focus.

Following these three principles can help an organisation beat the dismal odds to achieve successful digital transformation.

Over time, this will help to create an organisation that can operate at the speed of technology.

How to lead successful organisational transformation

These lessons may also apply to other forms of organisational transformation, especially if employees need to develop new competencies.

For example, organisations that aim to develop cutting-edge innovation competences have to maintain and sharpen their in-house creative DNA across functions.

Innovators should appreciate the broader business imperatives. Meanwhile, business leaders should appreciate the potential of new creations.

This can be hard to achieve, especially in organisations where specialisation comes naturally. It requires ambidextrous mindsets to overcome the usual bias in favour of tradition and focusing on existing businesses.

Constantly reinforcing these mindsets through role modelling, management systems, and values can help to ensure that transformation succeeds.

Further reading:

How to frame a strategy to make sure staff back it

Five questions to unlock open strategy in your organisation

How can an SME out-innovate bigger companies?

Why digital transformation may fail - and what can be done about it

Loizos Heracleous is Professor of Strategy and teaches Strategy and Practice on the Full-Time MBA, Executive MBA, and Global Online MBA.

Learn more about strategy on the four-day Executive Education course Platform Strategy at WBS London at The Shard.

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