THE DIGITAL DILEMMA: HOW FAST, HOW BIG, HOW VALUABLE?

Digital transformation is imperative. It is no more a question of why businesses need to go digital, but the dilemma is more a case of how companies devise the strategy for their digital footprint. BCG sees digital transformation as not a destination, but a journey for businesses.

The journey starts with a health check, i.e. with an assessment of digital maturity, and by educating the key actors on digital trends and ecosystem. This exercise in itself allows companies to identify gaps relative to competitors and leads them to the next milestone of the journey, which is to crystallise their digital vision, strategy and targets. Articulating these help accelerate the process of transformation, while continuously building digital capabilities.

The last stage of the journey is to scale up and transform into a digitally empowered and an evolved business, ready to tap global potential in the digital space.

However, CEOs the world over are struggling to determine the kinds of digital initiatives that can have the greatest impact on their businesses. After analysing more than 1,000 companies that were undergoing digital transformation, across multiple industries and locations, BCG concluded that the most successful companies outperform their competition by excelling in the following three fundamental areas:

1. Speed: The digital transformation, when done right, is not a monolithic endeavour. Rather, multiple projects run simultaneously on parallel tracks. When selecting initial pilot projects, teams rally around a business objective (such as increasing conversion rates by a certain percentage) and then brainstorm product offerings that will best achieve that objective.

Each team has a captain, or product owner, who drives the process forward and tracks outcomes. The product owner designs each project to meet an accelerated delivery cycle, allowing teams to rapidly test the project, quickly learn its strengths and weaknesses, and continually adjust course as needed. Each project contributes to a compound effect that benefits the entire enterprise and catalyses additional pilots.

The beauty of this approach is that companies generate results quickly, which helps fund the journey towards ever greater opportunities for innovation. At the same time, the parallel projects gradually build up capabilities for speed within the organisation.

A leading North American bank took 18 months, on average, to release new digital products into the market. With startup attackers moving quickly on the digital front, the bank needed to shorten its development period without compromising quality or regulatory compliance.

The bank changed three things: the way it organised teams, the way it made decisions, and the way its teams worked. By implementing new processes, the bank released products in about half the time the process used to take while maintaining compliance and improving quality.

2. Scale: To succeed at scale, companies need to create a culture in which initiatives thrive across varying locations and markets. Any discrete business unit can create an app or launch a pilot — and many do — but scaling up requires a shift in mindset across the entire enterprise. Senior leaders must provide strong, steady support.

Cross-functional teams must extend their digital capabilities and ensure that agile principles and the associated culture become embedded across the organisation. Meanwhile, internal business units — such as HR, budgeting, and IT — must receive training and development to encourage the right culture and behaviours.

It is also important for teams to think through the end game for each initiative. While brainstorming potential pilots, they need to ask tough questions: Why does this project matter? Can it create significant value? Does it yield a sustainable advantage? Rigorous analysis is an essential part of identifying initiatives that create a true competitive advantage and can scale up rapidly.

Digital products can deliver strong return on investment when designed thoughtfully (by targeting a key customer segment, for example) and developed with a keen focus on rapid, comprehensive scalability.

Starbucks has become an industry leader in mobile payments, and its journey illustrates the value of scalability. Its digital strategy began in 2008 when the company built an online community on Twitter and Facebook. In 2009, the company launched its first app, which enabled customers to find Starbucks stores and get nutritional information about its products. Next, Starbucks launched an app to make digital payments possible, using existing technology (rather than developing a new leading-edge technology). The company’s most recent app, Mobile Order & Pay, which builds on the previous versions, has become a model for the industry.

While Starbucks executives may have had this vision in mind from the outset, they started with smaller initiatives that gave them the opportunity to experiment, learn what customers like, build their internal digital capabilities, and improve their offerings. The results have been stunning: app usage continues to grow, revenue is at an all-time high, and today more than 20% of all orders at Starbucks in the US arrive through Mobile Order & Pay.

3. Value: How can we create tangible value for the business — and for customers?

Above all, a digital transformation must deliver value — not five or 10 years down the road, but now. Thus far, digital hasn’t delivered its full potential in many large organisations. In our view, this is because those companies haven’t successfully tackled change management, either from a technology perspective (assessing which initiatives will deliver the most value) or from an organisational perspective (understanding how to manage work differently across the organisation). Companies need to address these two aspects of change management in an integrated way and in parallel.

Once digital projects are under way, project leaders must relentlessly focus on measuring their value in terms of real-world outcomes: customer response, increased revenue, reduced churn, cost savings, time savings, and so forth. Companies must kill initiatives that don’t deliver value. Output is irrelevant and counterproductive in the long run if it doesn’t create value. To succeed, organisations must think creatively about how best to capitalise on their assets.

Although transformation tends to be viewed as an audacious undertaking, the most successful digital transformations start with focused initiatives that deliver on all three dimensions: speed, scale and value. Once the earliest digital initiatives prove their value, they catalyse the next round of more ambitious follow-on projects. At the same time, a culture shift occurs within the organisation, as the company adjusts to digital as a new way of doing business.

A well-executed digital transformation doesn’t just even the playing field for large companies — it tips the odds in their favour. With speed, scale, and value on their side, incumbents can fend off attackers and win in the digital economy.

Isada Hiranwiwatkul is a partner and managing director and head of the Bangkok office of The Boston Consulting Group. For more info, please contact hiranwiwatkul.isada@bcg.com