Four Exercises for Contemplating Digital Readiness

Published by
Jim DeLoach

Jim DeLoach

Over the next few years, the digital revolution will force many organizations to undertake radical change programs and, in some cases, completely reinvent themselves to remain relevant and competitive. Ask executives and directors what their company’s biggest threats are, and chances are the answer will include the threat of disruptive innovation. That said, is disruptive innovation sufficiently emphasized on the board agenda?

Our experience indicates that most boards do not fully grasp the opportunities and risks associated with digital transformation. There are four important activities for organizations to consider as they contemplate what digital means to their business and strategy.

1. Assess digital competencies. Protiviti’s original research has identified more than 30 competencies at which digital leaders excel. These competencies consist of empirically supported capabilities and structural characteristics that can be used to benchmark the organization. They are arrayed across six core disciplines that many traditional businesses struggle with:

  • vision, mission, and strategy;
  • management and employee culture;
  • organization, structure, and processes;
  • communication, marketing, and sales;
  • technology innovation and development;
  • and big data, analytics, and automation.

An example of a competency related to “vision, mission, and strategy” is that executive management must have a clear understanding of the potential impact of digital disruption in the industry segments in which the organization operates and be able to articulate a clear strategic vision fit for the digital age. In addition, digital strategy-setting and review should be a continuous activity for the business and in the boardroom.

Competencies can be useful when plotting the path toward digital maturity. The strategy should reflect the competencies that currently define the organization and address the absence of those which present barriers to success. This is important because the digital age is forcing organizations to radically rethink how to engage with customers and pursue design breakthroughs for improving processes and functions continuously. That means they must balance outside-the-box thinking with the practical considerations of repositioning the business. Many strategies ignore these fundamental issues, resulting in a business that is digital on the edges but not at the core. Our view is that a truly digital business has a digital core.

2. Define and refine continuously the digital vision and strategy. Organizations need to make a conscious decision about whether they are going to lead as the disrupter of the industry or, alternatively, play a waiting game, monitor the competitive landscape, and react only when neces­sary to defend market share. For many companies, the answer may be somewhere in between. For organizations choosing not to actively disrupt the status quo, their challenge is to be agile enough to react quickly as an early mover. Few are ready for that challenge, however.

A leader of the organization must own responsibility for understanding the competitive landscape, the opportunities emerging technologies present, and the threats to existing revenue streams. Management must frame the digital vision and the strategic initiatives supporting it around the enterprise’s core competencies. The vision must reflect the direction in which relevant digital technology is trending. It should express how technology can elevate the company’s differentiating core competencies and deliver unique customer experiences. With technology and regulations changing, and innovation happening so rapidly, the business needs to review and refine its digital priorities constantly.

3. Define the target operating model. Too often policies, processes, and organizational structures get in the way of a business becoming and remaining digital. The key is to empower, trust, and monitor people, not control them. That’s a different way of thinking for organizations rooted in “command and control” structures. The business should clearly define where it’s going in its vision and strategy, and management must recruit and train the right people while ensuring that the enterprise’s policies, processes, and systems are suitable to compete in a digital world.

Accordingly, management should define the processes, organization, talent, methodologies, and systems comprising a future operating model that remains true to the company’s identity and brand promise. In the rush to become digital, the importance of policies shouldn’t be forgotten to address risks and ethical questions leaders must consider.

With the current and future states defined, improvement plans should be developed to close the gaps based on industry best practices and reviewed with executive management and the board. The risks associated with the target state should be identified and assessed against the entity’s risk appetite. In this respect, management should be careful to avoid understating the hyper-scalable business model component of digital transformation. Digital thinking requires organizations to solve the problem of rapid growth and scalability to rely primarily on technology rather than people, as opposed to the traditional focus on scaling ahead of demand.

4. Align the organization with the needed change. Using digital technologies to improve products, services, and processes requires focus and discipline. To enable continuous or breakthrough change with confidence, buy-in must be obtained from executive management and the board for significant changes in strategy, processes, and systems. Support also is needed from business-line leaders, operating personnel, and process owners affected by the change. The communication of change and its implications must address why a digitally-focused culture is necessary for the entity to survive and thrive, and offer a compelling case that the interests of employees and the enterprise are inextricably tied to effecting change.

Depending on a director’s perspective, the exciting or worrisome truth is that the digital revolution is just getting started. Even when executives are aware of emerging technologies that obviously have disruptive potential, it is often difficult to have the vision or foresight to anticipate the nature and extent of change. That is why every organization must chart its own digital journey.

To that end, the board should be engaged in all of the above activities, from readiness assessment to organizational alignment. When addressing digital, directors should recognize the signs of organizational short-termism and executive management’s emotional investment in traditional business models. Ultimately, the board must ask the necessary questions to encourage management to advance the enterprise’s digital journey at a pace that will sustain the company’s sources of competitive advantage and market position.

Jim DeLoach is managing director of Protiviti. 

3 Comments

  • You are welcome Jim. While we both agreed that alignment of organization to the target model is a tough one and needs to be carefully handled, I tend to slightly differ with you on the talent acquisition. True, we need to acquire new talent, get external assistance (contract consultants) but empowering existing staff who are well versed with the existing and proposed business processes, with new digital skills, is of paramount importance, as they can mitigate the massive disruption that will likely happen in the entire organization. With new found digital skills these experienced employees, will be empowered to contribute even more to the successful digital transformation. Hence I feel, some new employees plus external help together with empowered existing employees, is the best (talent) model for digital economy.

  • Jim DeLoach says:

    Wow, Sankar, thank you for taking the time to share your clarifying points! Most appreciated. One observation on your well articulated points: with respect to the competencies necessary for digital readiness, our experience is organizations have to acquire the right talent commensurate with their digital strategy in addition to training the staff. A tiger cannot change its stripes. The companies that win the talent war are going to win the game.

    I agree completely with you that alignment is the tough one.

    Cheers and a nice holiday season to you.

  • Great Blog Jim – Let me summarize – 4 Questions an organization and BOD should ask
    1. Competency level – Technology, process, organization and vision
    2. On-going Digital transformation strategy
    3. Target operating model – revamped new target model of org, process, people or coexistence of existing operating model with new model
    4 Align the organization with the above model

    Though Jim has addressed comprehensively what checks are needed to be done for an organization to be involved in total digital transformation, I will add few clarifications/tips
    “Digital transformation involves one or more of mobility, cloud computing, Big Data and Analytics, Artificial Intelligence incl. Machine Learning and In-memory computing – not that all of these must be present but majority of it usually are there. So from a technology competency, an organization has to train the staff or get external assistance or both. ” (SK Ex 1)

    Operating model : Besides a completely revamped new model where digital transformation is executed, an organization can make a conscious choice to innovate and coexist with existing infrastructure, organization, process, people and technology. In retail industry for ex – Digital eCommerce initiatives (e.g SAP Hybris) might necessitate say Home Depot/Best Buy to allow a feature called BOPIS (Buy Online and Pickup in Store). This way the internal systems and organizations may be tweaked little bit and take advantage of new digital initiatives and makes unified process. (SK Ex 3)

    Continuous Digital transformation Road map ; We usually do road map 2-5 years and address what systems/technology will be part of the digital transformation, when and how? Sometimes an absolutely brand new technology/product/services can make the management/BOD take a fresh look at the Road map and Adapt if possible and hence proactive continuous Digital Road map Strategy (SK Ex 2)

    Biggest challenge of Digital transformation in my opinion are – Corporate compliance/Governance, Employees skill set updates, Training, Risk mitigation of new technologies/process, Agile organization and OCM (organization Change management) team and they need to be aligned quickly to the operating target model (SK Ex4)

    As Jim points out every organization need to plot their own digital journey depending on where they are and where they need to go. I agree and hope the additional points I suggested could also be considered by Executive management/BOD

    Great read Jim. Thanks

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