What does it mean to be a digitally transformed business and how do companies achieve digital transformation? According to MIT research scientist Stephanie Woerner, who's studied the topic since 2012, companies that succeed in digital transformation have plotted their course along two dimensions.
"They knew they had to become great in operational efficiency: increasing automation, standardization, reuse and productivity. And at the same time, they were really ramping up on their customer experience," said Woerner, who works on business transformation at MIT Sloan's Center for Information Systems Research (CISR) with Chairman Peter Weill. In other words, digitally transformed companies are "ambidextrous," she said -- both efficient and big on customer delight.
Woerner spoke at the recent #CIOChat Live event at Boston College, a gathering of CIOs and IT industry experts who convene on Twitter to dissect the complexities of modern corporate IT. In a keynote talk about her research, she laid out the pathways companies typically take to achieve digital transformation and the role CIOs play in each of these models.
From traditional to transformed: Four quadrants
Organizations in CISR's "future-ready" quadrant have pretty much figured out how to compete in a digital economy. They are low cost and innovative. They provide a great customer experience. They are modular and agile. They use data as a strategic asset, and their operating platforms are "ecosystem-ready," Woerner said. "They are ready to plug and play, they are ready to partner, they have really figured out how to operate in this more networked world."
They are also the exceptions. Most companies -- 53% according to CISR research -- operate in the "silos and spaghetti" quadrant. Their processes, systems and data landscapes are complex. They are product-driven rather than solution-driven. To cut through the complexity, they lean heavily on their people and "perform via heroics," Woerner said.
"Industrialized" organizations, like their silo and spaghetti counterparts, are also not digitally transformed, but for different reasons. Their primary focus has been on becoming operationally efficient. They are making "great progress" in building plug and play products and services. They have service-enabled their core capabilities, or what Woerner called their "crown jewels." They typically have a "great set of APIs" and are analyzing how best to deploy them. They have started to consolidate their data. And they have a single best way of doing things. Customer experience hasn't been a priority.
Companies in CISR's "integrated experience" quadrant do provide great customer experience, but typically not via a well-oiled platform. Instead their approach to digital transformation depends on putting a "wrapper around" their data and systems silos. "We call that a simulated customer experience. To pull that off, you have to have strong design and user experience," Woerner said. Mobile is very important in this quadrant.
How to achieve digital transformation: Four pathways
To get to a future-ready state, the companies that Woerner and her CISR colleagues have worked with typically take four pathways. Here is a brief description of the four pathways and ways in which CIOs can help keep companies moving toward digital transformation. Woerner said individual business units may require different pathways, and it is common for companies to be on two pathways at once.
- Companies that have put a lot of work into creating a platform, taking out costs and automating tend to exist in a "digitation desert. There is no uplift on customer experience," Woerner said. (These often are manufacturing companies and fall under the "industrialized" category described above.) But in many cases, the optimized platform prompts the way forward. As these companies get better at becoming modular and reusing components, Woerner said they begin to see "one great way of dealing with customers" and make a conscious effort to invest in customer experience.
CIO role: Facilitate reuse of existing processes, data and technology.
- A second pathway is taken by businesses that find themselves under threat from competitors. These companies feel they have to act quickly to improve customer experience, often by developing a mobile app. They see their net promoter score jump -- "We call it the dopamine effect," Woerner said. The CX improvement, however, creates yet more complexity, until at some point the company reaches a breaking point and is forced to take a sharp right turn and integrate these CX improvements into a platform.
CIO role: Encourage a minimum viable product approach.
- A third pathway is taken by companies that are not under nearly as much threat as those on pathway two, so they take a "stair-step" approach, integrating work on CX with work on the platform as they keep moving up into future-ready status, a journey that could take many years. "This is a hard pathway for your employees because you have to be very good at roadmaps. You have to let your employees know what is happening along the way," Woerner said.
CIO role: Build dashboards.
Stephanie WoernerResearch scientist, CISR
- The fourth pathway is more big bang than plotted course. "It's where you look at your organization and say, 'Oh the hell with it, I can't get there from here,' so you just start with a brand new organization," Woerner said. The new organization starts out as future-ready. The challenge is deciding what to do with the old company, including what migrates to the new company and whether there are lessons learned that can be applied to the old company.
CIO role: Promote Agile methodology as the way to work throughout the enterprise.
Survey data on the 'strategic CIO' and 'digital savvy IT unit'
Forthcoming research from CISR and executive search firm Harvey Nash shows that CIOs and IT units play a critical role in companies' ability to achieve digital transformation, Woerner said. That includes boosting the bottom line. The research showed that companies with "strategic CIOs" and "digitally savvy IT units" were on average 24% more profitable compared to competitors. Here are the salient attributes:
- Strategic CIOs work closely with their executive committees, educating them on what digital transformation can do for the company and what it will take to get there. They also connect senior IT people with younger colleagues, facilitating reverse mentoring to build up a digitally savvy IT unit.
- The IT unit builds digital discipline across the enterprise, not just within IT.
- The strategic CIO and digitally savvy IT unit "relentlessly" deliver operational efficiencies and focus on "great" customer engagement.