Five Key Elements of Digital Transformation Payback

Digital transformation as we see it is the business transformation of a firm/corporation. These transformations have five characteristics.

Design/Strategy

Numerous frameworks and strategy approaches have evolved over time, become the hype of the day, and then vanish again (Mintzberg, Ahlstrand, and Lampel 1998). No matter what the approach chosen actually is, one thing I have learned over almost two decades of strategy work is that any transformation approach not based on a clear strategy to win will almost certainly fail. This is probably even truer for digital transformation, where the sweet temptations of digital technology can lead to losing sight of the true goal of any business: sustainable success.

Catalysts/Drivers

Organization and strategy research is usually clear in the sense that most if not all strategic transformations of a given firm are influenced by the market context. Numerous frameworks and strategy approaches related to this idea have evolved over time (Mintzberg, Ahlstrand, and Lampel 1998) usually with one idea interwoven: There is a more or less complex supply and a more or less complex demand consideration. In managerial practice, industry sector, industry concentration, or similar data points serve as moderators for statistical firm performance and value analysis, as for example nicely summarized for technology/IT/IS value research by Kohli and Deveraj (2003).

Reactants/Scope

As visible in practitioners’ and academics’ digital transformation work so far, there is some agreement that, in the end, the firm overall is the ultimate reactant in scope of the digital transformation. Beyond perspective advice, however, there is no common structure for further breaking down this scope (reactants) in terms of where to start, in which order to proceed, and even less which planning and execution process (reaction mechanism) should be applied to achieve the desired outcomes. As already proven in digital transformation practice and discussed in sporadic managerial articles at least some common themes to better structure digital transformation scope emerge. It all depends where in your firm you start and where you are planning to end. Leveraging — similar to established innovation research — the distance to the core business (Strecker 2009), the distinction between “core,” or the “center” business (Gray et al. 2013), the “adjacent” business, and the “frontier” business, also called the “edge” (Gray et al. 2013) is applied to define your starting point or current transformation focus. This is always based on the view that these scope questions only mark the starting point of a digital transformation, never losing the full firm scope out of sight. Because the whole firm needs to adopt (Andal-Ancion, Cartwright, and Yip 2003), firms need to find the right balance between exploitative transformation in the “core” (for example, modernizing their legacy infrastructure) and explorative transformation in “adjacent” and “frontier” areas (for example, launching new business units or diversifying into very different or close-by industries).

Reaction Mechanisms/Process

Interestingly, and opposite to the widely accepted ingredients of a clearly broken-down winning strategy (Lafley and Martin 2013), practitioners are shifting more and more away from discussing the transformation reactants (i.e., the actual transformation scope) to the reaction mechanisms (i.e., the transformation process). Without a clear target in mind, business buzzwords of the day, originated from software and IT development practices, like “agile,” “hybrid,” “dual-speed,” “bimodal,” come into play and need to be carefully described and understood to allow for a meaningful integration into our framework.

Products/Outcomes

Finally, outcomes (products) are structured in two different categories with distinct characteristics: abstract outcomes and concrete outcomes. The first category includes all subjective digital transformation outcomes, which are not observable by shareholders. Unfortunately, it still forms the major body of digital transformation impact analysis in research and practice and encompasses all questionnaire/survey or other subjective analysis-based maturity models. This category serves as an element of the transversal framework for the sake of completeness, but it is of little value for empirical-driven research. Instead, the second, the objective category, likely includes more unbiased descriptions best proxied by publicly available statements on digital transformation efforts, actions, or qualitative achievements, operational KPIs — that is parameters, for example, on customer experience or employee experience (net promoter scores) — and productivity parameters and financial KPIs — that is directly linked digital transformation data from P&L statements, balance sheets, cash flow statements, and these can provide more adequate inputs for empirical findings.  

Excerpted with permission from the publisher, Wiley, from Digital Transformation Payday by Tim Bottke. Copyright © 2023 by John Wiley & Sons, Inc. All rights reserved. This book is available wherever books and eBooks are sold.

Tim Bottke is a senior strategy partner at Monitor Deloitte and an associate professor for Strategy and Digital Transformation at SDA Bocconi, a Financial Times/Forbes/Bloomberg Businessweek Top-Five European business school. He has more than 22 years of top management consulting and (digital) transformation experience from two global strategy boutiques and Deloitte, working with clients in more than 20 countries.

In Digital Transformation Payday: Navigate the Hype, Lower the Risks, Increase Return on Investments (Wiley, December 13, 2022) Bottkedelivers a provocative new perspective on digital business transformation — using research to get beyond the hype and uncover its real financial payback.