Digital transformation (DX) is one of those buzzwords that we don’t understand. It also applies to most IT transformation projects. So let’s look at the best definition of DX: me.
Digital transformation refers to the systematization of computer-based systems into an organization’s products, processes and strategies. The basic idea is to bring value back to the business by better engaging the workforce, customers and the customer’s customers. The desired outcome is to drive greater operational efficiency, cost optimization and clear innovations that will define the future of business.
DX is an important thing. This is really important. We will see leading companies being driven into bankruptcy due to their inability to implement their DX strategies while their competitors figure it out. The ability to get digital right is ultimately everything.
According to Statista research, companies spent $1.6 trillion on digital transformation (whatever the definition is, I guess) in 2022. This figure is expected to reach 3.4 trillion dollars by 2026. But research shows that the returns on these investments are mixed to poor.
According to McKinsey & Company research, the long-term positive impact of transformation projects is rare. The majority of survey respondents (56%) said their organization had achieved most or all of its DX goals, which is good news. But only 12% say their goals are sustainable over three years: uh-oh. Additionally, an average of 42% of financial benefits are lost in the final stages of a large-scale change effort.
What’s going on?
To summarize, companies have invested heavily in DX for several years. However, this does not lead to truly sustainable change in the business. Companies are making tactical improvements to IT that have little real value beyond making them feel good that something is being done.
This failure could be due to lack of budget, lack of availability of needed talent, lack of support from executives, or too much focus on technology fads, all of which are likely contributing factors. But the main reasons why organizations dislike DX are systemic problems that can be easily fixed if the political will exists. In my experience, this is the biggest obstacle to success.
Implement a holistic DT strategy. It’s best to have a master plan and detailed breakdowns because DX is a major systemic change over time. The plan should include anticipated benefits and relationships with the market, workforce, and customer. When I hear the term digital transformation, I want to see plans; They never exist, and most organizations run DX as a project, not as something strategic for the business. True digital transformation is not tactical; It is strategic and needs to be operated and financed as such. Otherwise, get used to failure and poor return on investment.
Focus on the broad architecture, without forgetting the narrow architecture. Rather than focusing solely on individual systems, organizations need to understand the holistic architecture required to support accurate DX positive outcomes. This is the result of a comprehensive strategy where we use all systems in place, including legacy and other on-premises assets, and determine how they will work and work well with migrated or new systems available in public clouds.
If companies focus only on small systems or architectures, they often neglect to understand how to exist in a strategically defined DX ecosystem. This results in discrete projects that may be impressive on their own, but provide little or no value to the larger strategy that is more important than its constituent parts.
The best example I’ve seen lately is people wanting to develop cloud native applications as part of their “DX effort” (note they don’t say “strategy”). The result is an astonishing system that everyone who designed and built it will be proud of. However, this is a tactical development that can worsen the DX strategy if it leads to too much heterogeneity and complexity. Therefore, there is a significant lack of ROI for this “DX investment” as companies do not take into account the overall macro architecture or DX strategy. Many small successes can still lead to overall failure without coordination, planning and strategy.
It’s not an easy fix
I wish I could tell you that moving everything to the “cloud” will solve DX bugs. It is much more complex than that and requires people and cultures to change, which is difficult.
The most important problem is that most people do not even understand what digital transformation is, even those with this term in their titles. Instead, they focus on tactics, tools, and technology and never understand the plan to make things incrementally better.
This change needs to come from the top, from new or existing managers who understand why this needs to change and don’t.