Category Archives: Digital Innovation & Data Transformation

Digital Transformation Success is a Myth

I have been working for a while now as part of digital and data transformation teams in large traditional companies, both as a consultant and as a responsible manager. There are big plus sides of such a job. You are working on topics that are considered to be “hot” and there are usually some innovation budgets you can tap into in order to finance your new projects. Its easier to find new jobs and negotiate good salaries as headhunting firms are looking for digital skills and people with experience on digital topics.

The job has also a big downside that most mainstream media outlets involved in generating the hype seem to underestimate. It is a dilemma that nobody I met so far can truly escape.

In simple terms put, you either appear successful at digital transformation by focusing on digital showcases or you try to drive real change (which takes an awful amount of time to show results in the best case or does not show much effects even after years due to the difficulty to change company culture). In a way its a lose – lose situation, which leads me increasingly to believe that Digital Transformation Success is a pure myth, at least when you look at it from the perspective of the person tasked to do the digital transformation. The simple truth is that you cannot really succeed in digital transformation. Let me elaborate on that in a bit more detail and also tell you how I adjusted my tactics based on that simple realization.

Case 1: Happy Honeymoon

In the first case (focusing on digital showcases rather than transformation), you most likely get some recognition in the beginning but it will quickly evaporate as you are not able to deliver to the expectation after a while. This approach brings short term benefits that look good to your upper management. I saw many digital labs and departments tasked with digital transformation producing one digital prototype after the other while neglecting the need to make the rest of the organization ready to be able to absorb these innovations.

Hence, most of the innovative ideas never made it into production or roll out, where the real business benefits happen. And even if they get there, they are simply rejected by the business departments as their are not ready to use them. Inevitably, after a shorter or longer while, the honeymoon period ends. Due to pressure from your executives to work on productive roll outs and since that requires you to fix some basic underlying problems, you are naturally shifting your goals towards driving digital transformation at the business departments. This makes you focus on the underlying pain points that prohibit the success of your great digital innovations you produce. Which leads us to case number 2.

Case 2: The Endless Road

In the second case (trying the hard stuff: transforming the company at its core), its even worse! You and your team run 12 hours and more a day to transform the company. If you do a poor job, nothing happens. Other departments will start to point at you and will ask you to justify your existence. If you do a good job at it, most people hate you since you are changing the company that they know and love. There is most often a reason why people work for a company. It is because they feel attracted to the products and culture. And you are here to change probably both at the same time (Sidemark: this in itself is the very reason why it is so difficult to execute digital transformation as you need to push the company on these two axis simultaneously). As a result, competing departments will try to convince your board that you are a waste of money, time and resources to slow you down in making progress as they fear to lose power and influence in their kingdoms.

To make things even worse: Why the disruptive nature of change does not help at all

Well, we are not done yet. There is an additional difficulty that you need to deal with as somebody working in digital transformation. Digital disruption has an exponential curve, which mans that it comes slowly without being noticed, but then turns suddenly and brutally your entire industry upside down (as in the case of Nokia and Kodak). Considering that your company is a traditional company, the digital maturity of your company is probably extremely low and it takes years to see the first results. At the same time, the revenues and profits of your company are still very high since your products are in the “Cash Cow” phase of their product life cycle. So, your executives do not really feel the pain of the digital disruption that is entering your industry. Perhaps they believe you that it is coming, but that is very different to real pain. And even then, it takes years of digital catch up until first results are seen. There are not many executives that are willing to wait that long as most of them will move into new jobs by then or get retired. Why should they risk their big bonuses today for something that does not impact them immediately?

As a summary, when you choose to go the endless road, even if you are the smartest and most effective person in the world, digital transformation will probably take too long until the fruits can be reaped and there is currently not enough “real pain” to make what you do attractive to your current top leadership. For them, it is enough that you do “digital showcases” to prove to the investors that your company is making progress and is innovating. Then, we are back at case 1. Which means that at some point people will start saying that your showcases do not bring real benefits and will stop supporting you. Well, does that not sound like the perfect vicious cycle?

Here are a few tactics that I learned
It is worth to think about tactics to solve at least partially the dilemma, especially when you believe that digital transformation is the right way to go for your organization. As part of my work, I started to apply three simple tactics that might help you as well. They won´t make the dilemma go away, but they can help to soften it.

1. The Mixing Cases Strategy: Combine some elements of each “Happy Honeymoon” and “The Endless Road” in every project you do, right from the very beginning. This will keep people happy while buying you time to do the long-term stuff. It might sound simple, but it is effective. The trick is to find the right mix. E.g., when you run an analytics pilot, also work on the data quality or data collection in parallel.

2. The Expectation Story Strategy: When you are doing digital transformation, never just simply say you are doing this and that because of this and that. Always tell a story where we are today, what the steps in between are and what the end game looks like. Make sure that from the very beginning you raise the right expectations of what your top leadership can expect at which point of time. This way they see even small steps as the right step towards a bigger goal, which your top executives can then communicate to shareholders and stakeholders (whatever makes them look good will make your live easier).

3. The Evidence Collection Strategy: Once you applied the Expectation Story Strategy, you should start taking base measurements and then start to take further measurements during every step to provide regular evidence to your leadership that your company is on the right track based on the expectations you have raised as part of your storytelling. Having evidence to show that corresponds to the expectation level of your storytelling in the beginning is a prove point that your story is right (at least so far). It helps to increase the level of trust of your upper management in the digital transformation activities during the next phases as you move towards the defined target state. Even if business benefits are not high during the phase you are in right now, people will feel more asserted that the high business benefits that come later are in the process of being achieved.

Happily Forever After

In a way we can draw a comparison to our private lives. At which point would you consider a marriage to be successful? Is it after a glamorous wedding and a honeymoon with lots of beautiful pictures taken on the beach and posted on Facebook? Certainly not. Just because you mastered the honeymoon, it does not mean that your marriage will last happily ever after. So, is the point of success after 5 years of happy marriage? Or, perhaps, rather after 20, 30 or more years? We cannot properly define what success means in the case of marriage as long as the couple is still alive. Nevertheless, we can perceive a marriage to be successful when we meet a couple after they have been through many ups and downs in their many years of marriage and still appear to be reasonably happy. We never know for sure, some myth will always remain! Maybe, its the same with digital transformation.

Is it Time for a 2-Speed Business?

Shortly before my summer break – a lovely holiday in Northern France – I gave a keynote at a data science event that highlighted the importance of a bimodal IT for digital innovation.

The key idea behind bimodal IT is that IT needs to offer a second mode in addition to traditional IT that is more risk taking, agile and customer-centric in order to drive digital & analytics innovation more effectively.

Mode 1 is characterized by Gartner as the traditional mode of IT, which has a focus on reliability, is plan and approval-driven, uses large enterprise IT suppliers and typically follows a waterfall approach for implementations.

Mode 2 emphasizes agility and, hence, uses agile implementation approaches, it utilizes often small, new innovative vendors and works closely with the business to drive fast and frequent customer-centric business innovations.

There are many organizations that have started to establish a second, more agile, mode of IT (e.g. in form of a data science lab, a digital factory, or an agile development and DevOps department) and they usually run into two major challenges which impede them to reap the expected benefits:

(1) The two modes of IT are not synchronized well enough

(2) Business is not able to engage effectively with agile IT

I will explain these issues in more depth in the following and some lessons learned how to resolve them.

(1) The two modes of IT are not synchronized well enough

What many organizations get wrong is that they focus to much on creating the new agile Mode 2 of IT.  However, this is only one component of implementing a bimodal IT. The real challenge is how to synchronize both modes so they can play as a team. Having them in silos will not only create conflicts, but also will limit the success of any projects that need both Mode 1 and Mode 2 resources to succeed – which is rather the usual. So, what organizations need to establish is a bridge between the two modes.

Practically speaking, it all starts with mutual understanding and respect between the two modes. If Mode 1 resources have the feeling the they are a second class of IT, they will stop supporting Mode 2 and hinder them wherever possible. Leadership needs to communicate that no mode is better than the other, and both modes of IT are equally needed for success. Mode 2 resources need to understand that Mode 1 is crucial to renovate the core of IT, which enables innovative digital apps to be built on top of a healthy infrastructure efficiently and securely.

Moreover, there are touchpoints between Mode 1 and Mode 2 that require bimodal synchronization through explicit governance:

~ When a new application is planned to be developed, selection criteria have to be defined that outline which implementation should be done in which mode of IT.

~ When a new Mode 2 implementation project is starting, it has to be examined if interfaces to Mode 1 applications are needed and/or if other Mode 1 resources are required.

~ In particular, when the Mode 2 product is supposed to be released in a Mode 1 production environment, traditional release management needs to be involved already in the beginning of an agile project.

~ Finally, when a Mode 2 product is released, there might be a decision to further manage it in Mode 1 in the future.

(2) Business is not able to engage effectively with agile IT

Today´s businesses are not ready yet to engage with Mode 2 IT in a productive manner. This has two main reasons.

First, the second mode of IT is all about experimentation. Trying out new features, new approaches to analyze data and new ways to interact with customers, and taking into account that many of the experiments will not turn into viable products after all. Today, most traditional organizations have not developed a mindset for experimentation yet.

Second, using agile IT methods requires a much more intense participation of business during IT projects. Business is used to “throw business requirements over the fence” and IT would take them, take a few months or even years to implement them, and would come back eventually for testing. In the meanwhile, business does not need to spend much time for the  IT project. This is not the case for agile projects. In each sprint, the business needs to closely work with the developers and defines the business requirements on the run during the project.

These two points highlight some of the obstacles that come up, when there is a two speed organization on the IT side, but only a one speed organization on the business side. The solution is simple, but substantial: Many large organizations that I work with have recognized the need to establish also a second mode of business, which is more experimental, fast paced and enables real digital innovation.

The consequences are visible: There are more and more business labs and business innovation centers of large enterprises popping up around the world in addition to data labs that have the role to work with agile IT to come up and test new innovative ideas in a fast mode. They aim to imitate a startup environment  where creativity, experimentation  and disruptive innovation is in the focus. The results are impressive so far. Mode 2 IT can be much better utilized and the collaboration between business and a bimodal IT becomes significantly better when a two speed business has been established.

This is only the beginning, but one new imperative clearly emerges: It is time for a two speed business for any organization. The pace of change will become faster and volatility will increase in the future. So, let´s get business ready for it.

 

Dr. Alexander Borek advises Forbes 500 companies in multiple industries with regards to their digital transformation, data governance and Big Data Analytics innovation strategy.

All opinions in this blog are written in private capacity and do not express or reflect the opinions of his employer.

Frontend Versus Backend for Digital Innovation

Very simply speaking, business processes can be divided into two categories, namely, front office processes, which are all customer interfacing business processes and, back office processes, which are all business processes that have no customer touch points.   The back office is usually what the customer does not see.

Let me use a simplified exemplary scenario to explain how all these things interplay:

A customer finds a red wardrobe in a catalog and would like to know if his nearest furniture shop has this particular product available to make sure he does not drive 35 miles to the store for no reason. The front office business process in this scenario is that the customer asks the question if the product is in stock and gets the answer to his question. To answer his question, we need to know which products are available at any given time. Hence, there is also a back office process required, which is to keep track which products are in stock and which ones are out of stock at the moment.

If the front office process and the back office process are both not digitized at all, the customer has to give the store a phone call and hope that some staff member will pick up the phone, go to the shelf where the product is stored and checks visually if there is still a red wardrobe available for sales.

Examples Front office process Back office process
Not Digitized Process Customer gives the store a phone call. Staff member picks up the phone, checks if the product is available Staff member goes to the shelf where the product is stored and checks visually if there is a red wardrobe still available for sales
Digitized Process Customer types “red wardrobe” and his address at the web site of the furniture store and it shows that product is available in the nearest store All products contain an RfiD chip that can track them on the shelf. IT System can provide real-time availability information to staff and customers.
Automation of Business Process Website makes call obsolete and staff does not need to take an additional phone call RfiD tracking of stock instead of visual check if product is available
Digital Data Generation Customer address and product of interest is captured Stock level and availability for each product is captured
Digital Data Usage Data about availability of red wardrobe is used to answer request Data showing which RfiD tag is linked to which product is used to track stock level

In contrast, if we want to digitize the front office process, we could create a website through which the customer can check if the wardrobe is in stock. The website would automate the business process in the front office. By typing the product name of interest at the website, the customer provides this information in a digital format. The result comes back on the screen, which uses existing digital information about product availability in store. The data about product availability could still be entered into an IT system and maintained manually by an employee in the back office. The customer would not notice if the back office process is digitized or not as long as the information is up to date.

Finally, if we want to digitize the back office process in this scenario, we could, for instance, automate the tracking of products in the shelf by putting RfID tags on each product (RfID = Radiofrequency Identification). An RfID reader can then wirelessly detect how many products are on the shelf at any given time and store this information in an IT system. The IT system can provide this information to the website so it is visible to the customer. But the front office process does not necessarily have to be digitized. Even when the customer calls in, the staff member still saves time. The staff member would not need to make a visual inspection to capture the stock level as he can look up the product availability in the IT system.

Even if your customer does not see what is going on in the backyard, digital transformation of your back office is very important to your business success. A great customer experience is often not possible without efficient and effective back office processes. In our small furniture shop scenario, when the stock level and availability for each product is captured digitally, it is ensured that the customer has always accurate information in real time. Secondly, making your back office running more efficient with digital transformation can save you a lot of costs and make your operations run smoother and leaner. In our small example, you would need a lot of additional service staff that answers service requests. And thirdly, digital transformation makes your back office more effective, which can help you, for instance, to optimize your supply chain management, to prevent fraud, manage business performance better, optimize your physical assets, create the highest value with your human resources and better manage your finances.

In essence, executives should avoid to focus all their digital innovation efforts only on what is shiny and visible to the customers, the inner core of your business can be an even stronger competitive differentiator, even if that is not directly seen from the outside. And not everything that shines is gold.

Free Digital Lunch for Retail Banks

“When I go to Silicon Valley…they all want to eat our lunch. Every single one of them is going to try.” Jamie Dimon, Chairman and CEO of JPMorgan Chase

The pressure to innovate with digital technologies is enormous for banks. Yes, the competition is tough between existing banks. The biggest threat comes yet from outside the banking sector by startups and companies that never knew the pre-digital era.Tunde Olanrewaju, principal at McKinsey´s London Office highlights where the focus of digital transformation for banks lies: “Most of the potential value in digital banking comes from the impact on the cost base, particularly in the areas of automation of servicing and fulfillment processes and migration of front-end activity to digital channels.“ When you want to provide shinny new digital customer services to your customers as a bank, you have to sort out a lot of the back office challenges first. 60% of customer dissatisfaction sources and 10-20% of contact center volumes originate from execution issues in the back office.

Some of the results banks are achieving through digital transformation of the back office are truly game changing, for example:

  • Managing an end­ to ­end payments solution
  • Automating manual controls and processes
  • Simplifying the business by moving away from non­core products
  • Consolidating operating call centers
  • Optimizing the branch network
  • Reducing cost of service without reducing quality of service
  • Product back-office automation
  • Document-management digitization
  • Automation of credit decisions
  • 24/7 availability via interactive voice response

One way to achieve operational cost reductions is to get rid of the old branch structure. For example, piloted in Malaysia, the Philippines and Singapore, Citi Bank launched a new global initiative called Citibank Express, which is a next-generation ATM that allows clients to access nearly all the services available at a traditional branch. 

Barclays Bank, as many large banks that combine retail and investment banking, had to face a lot of mistrust by consumers in the aftermaths of the global financial crisis. And Barclays knows that cultural change  at the bank is necessary. “We were too aggressive, we were too short-term focused and too self-serving,” admitted Barclays CEO Antony Jenkins in an interview with CNBC, “The industry, and Barclays, got it wrong on occasions.” And digital technology is an important element for Barclays to restore trust with its customers.

In 2013, Barclays created two top positions for its technology driven transformation, a group chief data officer and group chief digital officer. Usama Fayyadd was appointed as chief data officer. He is regarded by many as the first executive ever to be titled chief data officer when he took on the role at Yahoo no less, back in 2004. Although a high profile executing, Fayyadd had not much previous banking experience. The firm-wide governance of data is something that is being looked with a view to simplification and gaining both efficiencies as well as a better overall quality of data. Shadman Zafar, who holds the position of the chief digital officer, has previously worked for mobile network giant Verizon.

“What is happening is that customers are becoming much more used to using technology and want to use technology to deal with their banking. Why not check your balance on your smart phone? Why not pay a check on your smart phone? That means that over time we are seeing a shift how customers do business and technology allows us to serve them where and when they want to be served. […] I think we should accept that, over time, there will be more and more delivery of our services by technology”, says Jenkins. “Barclays has spent time and money on mobile – and it shows”, comments Forrester analyst Stephen Walker. In 2014, Barclays has been recognized to be the top mobile banking provider. Moreover, 6,500 cashiers from Barclays branches are trained as a new breed of ‘community bankers’, who, armed with iPads, will help customers use automated machines. A new voice recognition system and a voice-biometrics security system is planned to be rolled out to its 12 million retail customers in 2016.

Banks have to live with a lot of legacy systems. In fact, up to 90% of the average bank´s IT budget is spent on keeping up those systems. To avoid replacing the legacy systems, banks have often built new applications on top of old ones and added new interfaces. A typical retail bank has to manage and monitor between 300 and 800 back-office processes. Many of these tasks are redundant tasks, create excessive manual processing with slow response times. The potential for digital transformation is huge. Automating and digitizing processes can help to mitigate the risks of human error and reduce paper consumption costs. It can lead to leaner channel and organization structures, a streamlined governance, a more agile culture and an enhanced revenue model.

The Pressure for Traditional Companies

Characteristics of a new digital world

The world is changing rapidly and becoming digital. Digital technologies fundamentally change how we live, work and interact and will also transform the basis of competition in most industry. This can make “the physical world better, worse, or just different”, as Eric Schmidt and Jared Cohen describe it. What are the characteristics of this new digital world? We can observe three major trends which will be laid out in more detail during the next paragraphs. The physical world is becoming rapidly more instrumented and interwoven with the physical world. Having all the information about the world digitized allows computers to analyze this data with speed, precision and context-awareness, providing a new source of intelligence and automation. MIT researchers Eric Brynjolfsson and Andrew McAfee have announced the second machine age: “Now comes the second machine age. Computers and other digital advances are doing for mental power – the ability to use our brains to understand and shape our environments – what the steam engine and its descendants did for muscle power”. As a large proportion of the whole planet will be equipped and interconnected with smartphones and integrated mobile computing devices at home and everywhere else in the not too far off future, this new intelligence will be fully integrated into our lives.

When I talked to top executives of incumbent leaders in traditional industries such as banking, insurance, consumer products and manufacturing, they all admitted that their biggest threat for their companies future they see are digital savvy companies like Google, Facebook, Amazon and Apple and new technology startups from Silicon Valley and other innovation hubs.  CEOs have carefully observed how new digital players have exiled established players in the retail, music and TV industry and they fear that the same will happen to them. The new wave of digitization does not stop at the online channel. It includes every part of our lives through the new mobile channel, social media and the Internet of Things (sensors and chips hidden in traditional products).

Companies have entered the digital race

Data and digital technologies are becoming the new major source for productivity, competition and innovation. Collecting, combining, analyzing and using the large volumes of data available to us can provide companies with such valuable insights that it can be a true game changer in nearly any industry. But real change comes only, when the new data and insights are fully integrated into the business processes of the company, and when customer experiences and the underlying business models are redesigned. So, if you take away only one thing about the digital world that is evolving, this should be it:

The most important imperative for business leaders is that data will be the basis of competitive advantage across all industries and that companies need to digitally transform to reap the benefits

Naturally, data driven innovation and digital transformation get a lot of C-level executive attention today. Many companies are embarking on a journey to transform their core business processes with data and digitization. It is not enough to simply set up a single project that looks at disruptive technologies to compete in this brave new world. Leading companies have started to re-think their entire business.