What Are the Essentials for Successful Digital Transformation Now?
Sheila Jordan was on the job as Honeywell’s newly minted Chief Digital Technology Officer for just 59 days when the global COVID-19 shutdowns hit. On an episode of Honeywell’s podcast “The Future Is…,” Jordan says that she left her post as CIO at Symantec to join the US$36.7 billion industrial conglomerate in large part because she was attracted to its digital transformation (DX) strategy. Forty-two initiatives, including system consolidation and data governance, were already under way across business units.
Jordan was eager to be part of this work since she believes IT plays a pivotal role in enabling DX due to its typically horizontal perspective and track record of breaking down corporate silos. She believed IT would enable the cross-functional connections that are key to digital experiences. Central to this work: consolidating the disparate core enterprise resource planning (ERP) systems that had grown up over time from dozens down to 10. This was particularly important for Honeywell’s industrial unit, she says, where employees had gotten used to working around the lack of connections between data sources. Enabling data to be more easily shared among systems and business units is part of the essential work of DX, Jordan believes, because its data is the foundation on which new customer, partner, and employee experiences are built.
It soon became clear to Jordan and her Honeywell C-suite peers that DX was (and is) far too important an undertaking to postpone – pandemic be damned. The business depended on it. As with many industrial companies, the crisis accelerated Honeywell’s sweeping transformation initiative as officials saw it as more important than ever to leverage data across the supply chain to create better customer and partner experiences. Jordan’s first challenge was accomplished in eight days: redesigning the network and making sure all of its 110,000 employees in 83 countries had everything they needed to work from home. (Given their direct connection to customers, call center employees were at the top of the list.) With much of the work done – the massive core ERP consolidation is expected to be complete by the end of the year – Jordan has learned a lot about how to keep up DX momentum and avoid scuttled projects. (Spoiler: Agile development keeps progress on full view within the organization, cementing employees’ commitment to DX while maintaining speed.)
Honeywell was far from the only organization whose leaders decided during the onset of COVID-19 that transformation was too important to pause. Despite the upheaval and uncertainty, organizations largely did not put their DX projects on hold during the shutdowns. In fact, the crisis accelerated their need for and work on DX. According to a recent McKinsey survey, COVID-19 sped the adoption of digital technologies by several years due to new customer demands, and executives do not expect this hastening to slow down anytime soon.
DX powers new ways of operating
So what exactly is digital transformation, and why is it so urgent? According to MIT scientist and author George Westerman, digital transformation involves rethinking how an organization uses its technology, people, and processes to fundamentally change business performance. The classic example: a car manufacturer moving from selling vehicles to selling services such as ride-sharing and, in Ford’s case, “connected vehicle experiences” that feature built-in Google apps and services.
The main driver of these organization-wide changes is often rapidly changing customer expectations of products and services – that and the availability of digital technologies, including machine learning and Big Data analytics that can power predictive, highly personalized experiences that enable new ways of operating. It is a time of great possibility.
Indeed, executives see transformation of their business models and how they serve customers as critical to their ability to survive. A recent McKinsey survey shows that executives believe changing work and lifestyles wrought by the pandemic require them to change their business models. A Gartner survey confirms that 66% of CEOs expect to change their company’s business model in the next three years. This may just be business as usual – the only constant is change, in all walks of life – but there is a widespread sense that the pandemic has quickened the pace. At its heart, DX is about changing the way a company makes money, and digital technologies are the way a company effectuates the new business model. DX momentum is not likely to fall apart as the pandemic wanes. Far from it. IDC estimates that global spending on DX will grow at a compound annual growth rate of 15.5% from 2020 to 2023, reaching $6.8 trillion by 2023.
Analytics accounts for a large portion of the spending. That’s because business uncertainty (among other types of uncertainty) exploded during the pandemic. Businesspeople are more desperate for data than ever so that they don’t have to navigate in the dark. Such business data or analytics has often been considered a nice-to-have – a luxury in stable businesses with well-known and understood business models. People could rely on experience, gut feel, or heuristics instead. The pandemic has thrown all that in the air. There is now a major emphasis on leveraging data to innovate and move business objectives forward. At the same time, the proliferation of new tools that help harness the power of data, extending its reach with predictive capabilities, for example, is driving much opportunity.
According to McKinsey, companies that lead the pack in their adoption of digital technologies such as analytics do everything they can – like frequently reviewing multiple sources of customer data to assess their unmet needs, sharing digital lessons learned across the organization, and reallocating digital talent where needed. For its part, Honeywell decided to bring all of its technical staff back in-house. Outsourcing wasn’t cutting it anymore.
“We knew we had to build the muscle and talent,” Jordan says in the podcast. The approach of “come in, install it, and leave” left the organization lacking expertise and promoted inflexibility, Jordan learned. She is now in the process of filling 400 technology roles, including systems engineers, project managers, and chief data architects, aiming to build a diverse team in all senses of the word.
Another key lesson: data is the foundation of DX. As such, it requires the full attention of a data steward to set strategy and create governance. Manufacturers and industrial companies such as Honeywell have a plethora of data, but much of it is still siloed in multiple ERP systems, CRM systems, manufacturing execution systems, and partner systems. Before it could proceed full force into its numerous DX projects, Honeywell underwent a major data consolidation and integration effort so that data could be shared more easily among systems. The team also worked long and hard to shore up data quality, according to Jordan. This work is hard but necessary.
Turning the page on DX failure
Amid this flurry of activity, the specter of failure looms over DX. Many in the C-suite are disappointed in DX returns. Many pilots are stalled and cancelled before scaling up. Only about 14% of respondents to a McKinsey global survey on digital transformation reported that their efforts led to and sustained performance improvement.
There are examples of failed DX efforts in which vast amounts of money and time were squandered on early, high-profile projects. In 2011 at GE, then-CEO Jeff Immelt led an ambitious digital transformation effort, but he was forced out after investors did not embrace it. Writing in Harvard Business Review, Thomas Davenport and George Westerman cite failed DX efforts at GE, along with P&G, Sears, and Nike. In these cases, they write, the early excitement both internally and externally fizzled quickly after early projects failed to generate much return. In the early days of DX, top executives tended to get so carried away with the possibilities of transforming their operations that they neglected such essentials as setting concrete goals, measuring results, and shutting down projects that didn’t work.
Luke Smaul, founder of digital technology consulting firm Chakra, learned a thing or two about DX working alongside Immelt at GE. In his experience, many failures can be put down to a simple misconception: to wit, that digital transformation means automating processes with digital technology. This belief leads to frequent failures, he warns, in that it does include concrete paths to drive new revenue and other tangible goals, such as creating more engaging customer experiences.
Smaul often advises large industrial companies on how to pick up after failed DX pilot projects, with chops earned working for 13 years at GE. Automating a process or updating a system is useful but does not constitute digital transformation, no matter how much efficiency you gain. “Just updating all the automation in your manufacturing plant is not going to get you there. DX has got to be about how you’re going to gain new revenue, drive new customer value, things that you can do now with digital technology that you weren’t able to do before,” says Smaul. Without a strategy that incorporates central business objectives as well as metrics for success, DX will be doomed.
Down to the essentials of DX
Emerging from the pandemic, companies need to understand and implement a variety of basic principles to achieve the results they seek from their DX efforts and boost competitive advantage.
First, start with the business problem, not the technology. It’s hard to believe companies still fail to do this, but DX must be driven by digital business strategy and concrete goals, not by a non-specific plan to implement a particular digital technology such as machine learning. This is true for all technology initiatives, but it bears repeating in the face of so many DX failures. So, for example, rather than having “leverage machine learning” as an objective, a better approach is “build personalized and predictive customer experiences through machine learning.” The business part goes first.
Then, take an iterative approach – and spend enough time to thoroughly vet each stage with your customers. If you’re looking for growth, says Smaul, “Make sure you do gut checks along the way. Research your target markets, check with local customers, check with prospects, really get into that iterative mindset as early as possible in the process.” Painful and work-intensive as it is, it is essential to measure and confirm that the demand you think exists is real (and not just an untested figment of your strategy). Ask your customers to share the metrics they use to run their business and create DX strategy aimed at helping them move those KPIs in the right direction. So, for example, rather than moving whole-hog into selling in the Asia/Pacific region for the first time, the better way would be to research smaller regional markets in Asia/Pacific and proceed cautiously, one at a time. Meanwhile, an iterative approach is equally useful when it comes to software development, as Jordan learned. It’s too risky to wait months for a release – better to get new capabilities out there to keep momentum strong.
The thrust of DX is serving customers in new and profitable ways, so you will need to better understand your customer journeys and then redesign them according to the new possibilities posed by digital technologies. This exercise has to start with the customer and move inward to the company, not vice versa. Successful transformation means focusing not on selling your products and services but on making sure that customers are using your products successfully (and that they are the right products to meet current customer needs). It’s less about telling people how wonderful you are and more about being wonderful. So, for example, rather than saying “We will provide the best customer service in the business,” shift to a customer-oriented objective such as “We will make our customers’ lives easier by never making them wait.” The key is to put the customer metric first.
Focus on helping your people understand and embrace transformation. As we’ve said, DX turns much more on people and culture than technology – so make those your focus. What that boils down to on the ground: a lot of communication about why the DX is necessary and how it affects people personally. “As soon as people don’t see the digital transformation effort working, they’re going to revert back to their old ways of doing things,” says Mark Reisig, VP of product marketing at Aras, a software vendor. Especially at the middle and lower ranks, employees tend to be leery of top-down initiatives. But if you don’t work on getting their buy-in, it can quickly become chaotic. “Leaders really need to focus on changing the mindset” from resistance to acceptance and – with a bit of luck and the right strategy – all the way to evangelism,” says Reisig. So, for example, rather than speechifying from the top, enlist the help of key influencers in the organization to help carry the message about the need for transformation on the ground.
Businesses like Honeywell that chalked up some DX wins prior to the pandemic are generally better situated in this post-virus period than those that did not – more resilient, better able to seize new opportunities.
For her part, Jordan feels the foundational DX work, such as data preparation and system consolidation, that Honeywell has done puts it in better shape going forward. Digital transformation is not optional, Jordan likes to say. As business and technology leaders look ahead to the next year and beyond, they’re asking how to keep DX momentum going. The key is taking the best of what we’ve learned during the pandemic and making sure it’s woven into everything going forward.