“Digital is about creating value at new frontiers, creating value in core business and building foundational capabilities.”
[McKinsey Insights, ‘What Digital Really Means’]
It is important to understand that digital transformation is not about innovations and emerging technologies alone. Rather, it’s an approach to transform the processes and business models by leveraging these technologies. Accordingly, organizations need to address multiple requirements if they want to go digital and deliver the intended business outcomes. Based on our experience of working with a large number of companies, we have found that simplification and innovation are two fundamental elements for going digital.
Simplification refers to reevaluating the way business processes are configured today and redesigning them to support new business models and the requirements of a connected world and ecosystem. Innovation is about finding pockets of transformation in the business by leveraging emerging and transformational technologies. By taking a blended approach of these two elements, organizations can achieve what they aspire from digital transformation. This integrated approach will also help organizations benefit from the following:
1. Long-term value over short-term gain
Innovations can quickly unearth short-term gains by identifying areas that can be transformed by leveraging emerging technologies. For example, by connecting sensors to a compressor, a real-time equipment health index can be monitored. This can potentially alert technicians before a failure and save cost associated with unplanned downtime. However, in order to create a long-term value from this initiative, business processes pertaining to spares management, maintenance planning, and maintenance strategy need to be redefined by taking this input and possibly simplifying the entire maintenance, inspection, and repair process of compressor class of equipment.
2. Architectural resilience: embedding innovations into business processes
As digital innovations gain momentum, organizations can find it difficult to manage and integrate emerging technologies and their underlying architectures. For example, consider an AI-based chatbot, which logs in customer complaints and hands them to another AI-based scheduling engine for execution. If these two applications are built on separate platforms, they would need to be integrated for consistency. However, if innovations across a functional area (in this case, customer service) are built into the process or are enabled through a simplified/consistent approach, then the architecture will be more resilient with a reduced total cost of ownership.
3. Data consistency
A decade ago, processes generated data. Today, data defines the process. Data management is thus a critical element in the digital transformation strategy. This could refer to the approach of managing master data or transactional data (structured, semi-structured, unstructured, geospatial, streaming, etc.)
For example, suppose a smart meter produces data at 15-minute intervals, and this data is stored in a meter data management system. The smart meter is installed at the home or business of the consumer, whose other details reside elsewhere. The ability to connect these various sources of data, and to store, transform, and enable meaningful analysis is essential. It is important to ensure that extended systems can access the same master data for a seamless flow of information, as digital landscapes are seldom unified on one type of technology.
Orchestrating a balance between simplification and innovation is key to the long-term success of digital transformation initiatives. Digital needs to build on the organization’s underlying IT foundation. Accelerated business impacts of digitalization can be achieved if underlying business platforms enable simplification of the processes. Accordingly, companies need to find the right balance between investments across simplification and innovation. Purely focusing on innovation without simplifying the processes will hamper agility in execution, and vice versa.
For more on digital transformation strategies, see Driving Success In Digital Transformation: A Q&A With BackOffice Associates.