Digital Transformation Strategy: What You Need to Consider

RJ Licata Director of Marketing
Key Points
  • Digital transformation strategy is your high-level plan to drive greater customer and shareholder value through a digital transformation initiative.
  • Without the right roadmap, you aren’t actually transforming your business. Instead, you’re just implementing technology.
  • Getting buy-in across the enterprise is essential for any digital transformation effort.

According to a 2020 study by the Boston Consulting Group, 70% of digital transformation efforts fail.

There are many reasons why large companies don’t meet their target values. This may include a lack of clarity, a failure to track key performance indicators (KPIs), and a misalignment on scope. In other words, these companies don’t have a well-architected digital transformation strategy.

70%

70% of digital transformation efforts fail

Boston Consulting Group

So how can you be in the 30% that succeed? Follow the blueprint below that outlines the key components of an effective digital transformation strategy.

Why you need a digital transformation strategy

Digital transformation strategy is your high-level plan to execute a complex digital transformation initiative. Without the right roadmap, you aren’t actually transforming your business. Instead, you’re just implementing technology.

In fact, many business leaders have a narrow view of digital transformation. Some see it in terms of improving manual business processes through automation. Others view it as a way of reshaping a business and implementing a new business model.

Still others think it means deploying new digital technologies, such as artificial intelligence or machine learning to gain a competitive advantage.

Because of these different views, it’s important to have a well-defined plan.


A digital transformation strategy clarifies the objectives, stakeholders, and business impact of an initiative. It also ensures the process is cohesive, effectively implemented, and properly measured.


TERAKEET

Risks of an incoherent digital transformation strategy

Without a clear strategy in place, the transformation process can result in:

  • Failure to meet key objectives and business outcomes
  • Technology being implemented but not used
  • Some elements of the business becoming digital while others don’t
  • A lack of understanding about what is being done and why it’s happening
  • Inability to measure the effectiveness of the transformation
  • Wasted or disjointed efforts not connected to the overall business strategy
  • Frustration and burnout among key stakeholders

A digital transformation strategy provides a common change management framework everyone can understand and agree upon.

Finally, a strategy provides clarity regarding the future. The prospect of making fundamental changes to how you do business can be intimidating to some, particularly those who have been with the company for a long time. A clearly defined strategy can ease some of these fears.

The bottom line is that if you want your digital transformation process to be successful, establish a well-defined strategy to guide you through the process.

Who owns digital transformation strategy?

Digital transformation strategy must be owned by key stakeholders across the board to be successful. That’s because digital transformation usually brings massive changes to multiple business units, and many people have a natural resistance to change.

Without buy-in, enthusiasm, and ownership of the strategy from those in leadership, it is difficult, if not impossible, to get others on board.

As PTC notes in “The State of Industrial Transformation” report:

PTC

With company DX annual spending commonly seven-figures, strategy and budget responsibilities fall to CxOs (CEO, CIO, CTO, etc.). Nearly 90% of respondents cite CxOs as the leaders of DX strategy and budget management responsibilities.

Put another way, digital transformation requires not just a shift in technology, but also in company culture and mindset. Creating such a culture and mindset shift requires key business leaders to own the digital transformation strategy.

Building a digital transformation strategy

There is no one-size-fits-all approach to developing a digital transformation strategy. The process will vary from company to company. However, there are some key steps that should be included in any strategy.

Identify business needs

The first step in creating a digital transformation strategy is not talking about which technologies to implement. Rather, it’s identifying specific areas where transformation is most needed, both short term and long term.

As a result, you’ll have better clarity on why you are going through the process and which outcomes you want to achieve through it.

The short-term areas are low-hanging fruit where digital transformation would have an immediate impact and serve as a proof of concept. Relatively small, initial successes in these areas can help build momentum and support for broader transformation.

The long-term needs are more strategic in nature and may not have an immediate impact on the business. But they should be pursued nonetheless as they will enable the company to keep up with or stay ahead of the competition in the future.

Complete a competitor analysis

After you identify specific needs, conduct a thorough competitor analysis to understand their digital transformation strategies.

Do they rely on cloud computing or big data analytics to gain key insights? Or did they invest in a new ecommerce ecosystem to address customer pain points during the pandemic?

Studying your competitors can reveal ways to differentiate yourself, whether that’s launching new products or investing in strategic partnerships.

Additionally, you should also study companies that have experienced a successful digital transformation. Analyzing successful digital transformation examples that worked for others can help you create your own roadmap. Identify the specific actions that helped competitors succeed, then incorporate those steps into your own digital transformation strategy.

If a company isn’t a competitor, you might be able to consult with their transformation team. These insights can be invaluable because they can prevent mistakes and expedite time to completion.

Get stakeholder buy-in

If you expect your digital transformation strategy to have a serious business impact, then you need to get leadership buy-in.

This means you’ll need to engage in active dialogue with all stakeholders across the company. Share your findings from the first step and consider their feedback. This ensures the strategy accounts for how the business works and what’s important to different function areas.

Additionally, work to ease any hesitation, resistance, or fear from employees. As the Harvard Business Review (HBR) notes:

When employees perceive that digital transformation could threaten their jobs, they may consciously or unconsciously resist the changes.

HBR continues, “It is critical for leaders to recognize those fears and to emphasize that the digital transformation process is an opportunity for employees to upgrade their expertise to suit the marketplace of the future.”

Any digital transformation strategy must take the human aspect into account. The transformation process isn’t solely about leveraging new technology or improving overall operational efficiency. It’s also about helping people do their jobs more effectively.

Getting buy-in across the organization requires demonstrating the value of the digital business transformation process, both to those in leadership and to the teams they lead.

Leaders need to see how transformation will positively impact earnings, streamline operations, and boost performance. Employees need to see how digital technologies and transformation will allow them to spend more of their time on high-value work.

Establish a team

A key part of any digital transformation strategy is establishing a cross-department team that will lead the transformation process. This team should be composed of individuals with the necessary skills and knowledge to carry out the transformation.

The team should be responsible for executing the strategy, as well as ensuring everyone across the company is aware of and supports it. The team should also be responsible for monitoring the progress of the transformation and making any necessary adjustments along the way.

A senior executive, such as the CIO or CTO, who has decision-making power and can get things done would be a recommended leader for the team. But it’s important to note that the team should be composed of individuals from across the organization who can provide key insights about the processes, procedures, and workflows used in their department.

The most effective digital transformation teams operate with a spirit of collaboration and transparency. They work closely with other teams across the organization to ensure everyone understands what is happening and why it’s happening.

True digital transformation is a multi-year process. Therefore, the team must regularly update company stakeholders on key milestones and solicit feedback at every step of the process.

Prioritize initiatives

Every transformation initiative requires time, resources, and finances. As such, it’s important to prioritize initiatives in order to get the highest ROI from the transformation process.

Your initiatives should be prioritized by impact, value, and the effort required. As we already noted, starting with relatively small, yet impactful initiatives can demonstrate the value of the digital transformation process and increase buy-in across the board.

When leadership and employees see the impact of digital transformation on a small scale, it helps them envision the value that much larger, more intensive initiatives can bring to business operations.

When prioritizing initiatives, it’s important to see things from the customer’s perspective as well. What initiatives will have the biggest impact on digital customer experience? What will make it easier for customers to do business with your company?

Answering these questions can help you prioritize initiatives that will improve the customer experience and, as a result, boost your bottom line.

Create a roadmap

In order to hit key milestones and deadlines, create a roadmap that lays out what will happen and when. A roadmap is also important because it allows leadership and team members to see where your strategy is headed.

Integrating new technology, and creating new processes around that technology, will inevitably frustrate some people. A roadmap helps people see the big picture of what is happening and how it will benefit the company.

The roadmap should be created by the digital transformation team and be reviewed and approved by leadership.

It should include:

  • Initiatives
  • Milestones
  • Deadlines
  • Resource requirements
  • Responsible parties
  • How the initiatives will be funded
  • Expected outcomes
  • Criteria for measuring results

The roadmap should be flexible enough to accommodate changes that occur during the transformation process.

Innovate and communicate

A digital transformation strategy should have an emphasis on creating a culture of innovation. The digital transformation process is just about incorporating new technology and processes to make your business more efficient and productive.

It’s also about instilling a mindset that looks for creative, innovative solutions to problems.

To encourage innovation, include a list of known problems for which you don’t yet have a solution. As the transformation process is unfolding, communicate those problems to the relevant parties and ask them to brainstorm potential solutions to the problems, even if those solutions might not seem immediately possible.

What often happens is solutions to previously unsolved problems are made possible by the new technology, processes, and workflows that come with digital transformation. Collaboration and communication between those leading the process and those closest to the unsolved problems can unlock new, innovative solutions.

Experiment and scale

Finally, test specific elements of your digital transformation strategy in pockets of your organization. Each business segment has its own set of objectives, strengths, and weaknesses. Systems and technology that improve processes in one business unit might hinder growth in another unit.

So don’t look for a single solution that scales vertically and horizontally across the company. Instead, test solutions where similar problems exist, and scale them within that business segment, or department.

Measuring digital transformation ROI

It’s critical to measure the ROI from digital transformation initiatives. Firstly, it validates your initial investment. More importantly, it can unlock additional funding and support from leadership for future projects.

Determining ROI on your digital transformation strategy

  1. At the outset of the digital transformation journey, determine the key objectives and goals. Is your goal revenue growth? Cost reduction? Real-time supply chain optimization?
  2. Assign key metrics to the goals that allow you to measure whether or not you achieve them. For example, if your goal is to improve employee productivity, a key metric could be the number of hours spent on specific manual, low-value tasks and processes.
  3. Calculate the costs associated with the initiative. This should include all associated costs, including hardware, software, infrastructure, hours needed, consulting, etc.
  4. Establish a timeframe to complete the project. At the outset, establish a baseline by measuring the current status of whatever you hope to impact. You’ll need this at the end of the project to calculate gains or losses.

At the completion of the digital transformation project, calculate the value gained.

For example, prior to the initiative:

  • Combined hours per month spent on low-value processes = 300
  • Value per hour = $50
  • Total = $15,000 per month / $180,000 annually

After the project:

  • Combined hours per month spent on low-value processes = 100
  • Value per hour = $50
  • Total = $5,000 per month / $60,000 annually

Savings = $10,000 per month / $120,000 annually

Project cost = $50,000

ROI = (Total savings / Total cost) 100 = ($120,000 / $50,000) 100 = 240%

Don’t plan to fail

The old adage, “If you fail to plan, plan to fail,” is certainly true when it comes to digital transformation strategy. If you don’t have a thorough, well-defined plan in place, you’ll inevitably join the 70% of companies that fail to implement a digital strategy.

Obviously it’s easier for startups to go all in on a digital marketing plan than a traditional retailer. But remember, even the ecommerce juggernaut Amazon was once a new company. If you don’t take your digital transformation strategy seriously, your brand could become the next Blockbuster Video — a company that failed to digitally innovate and, ultimately, paid the price.

FAQs

What is digital transformation strategy?

Digital transformation strategy is your high-level plan to execute a complex digital transformation initiative. Without the right roadmap, you aren’t actually transforming your business. Instead, you’re just implementing technology.

Who owns digital transformation strategy?

Digital transformation responsibilities are often owned by CxOs (CEO, CIO, CTO, etc.) because they are best positioned to enact the culture shift necessary to complete such large change management initiatives.

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