This is the second of three mini-articles outlining the elements required for successful transformation and change. In this part we discuss business case, operational structure, and business capability.

Whilst leaders are rightly concerned with delivering results through a motivated workforce – they will also recognise the importance of financial management, not least because it will partly govern the assessment of their own success. Yet the financial aims of a transformation are often considered only in terms of the overall goal, and detailed financial analysis is seen not just as secondary, but perhaps even superfluous to the end goal of transformation. This of course depends on the role and background of the leader – those with a financial or analytical background will be more inclined to engage with the benefits and costs of transformation. The CFO, and Financial Directors, are some of the most influential people in the organisation, and carry great power to support, or veto, programmes, investments and ideas. This is why it is always necessary for transformation to be accompanied by a business case which addresses a clear financial objective, linked to the thinking on goals outlined in part one, so it can be shown that the organisation is backing the right idea.

Without this, transformation plans will simply fail to achieve sign-off from the financial stakeholders of the organisation. Focus on the customer is central to this – Forrester notes how digital transformations are, by their nature, focussed on how change improves the customer journey(1). Identifying how this improves customer satisfaction, revenue income, costs of the customer relationship, whether in the private or public sectors, is ultimately how transformation investment will achieve sign-off.

Digital transformation is inherently uncertain. For example, the revenues and costs of opening new sales and delivery channels are difficult to predict and can lead to wide, often meaningless ranges in forecasts which serve only to prevent the forecaster from being proved wrong. Approaches such as risk analysis can be incredibly useful in turning a single point forecast, into an assessment of the chances of success. The risk and reward of different transformation approaches and business opportunities can be compared, and key risk drivers and how to manage them for success can be identified to inform collaborative design of governance, structure, capability, process, change messages, and rewards.

Structure is the element that most executives will relate to most easily, when thinking of how the organisation will transform. Who will control what, and who will report to who, are questions which take up a disproportionate amount of managerial ‘head space’. However, there is more to structure than this, beyond a merely political exercise as noted in discussion of governance earlier. Clear roles and responsibilities are critical for the transformation to execute successfully.

There are also decisions to be made about what is the most lean and efficient way of organising. Which structure will best allow us to respond to customers, or to operate effectively in different markets? How will we innovate and who will be responsible for that? How can we ensure that support functions are delivering value to the customer-facing parts of the business? Much of this needs to be driven by the capability required to achieve goals as outlined below. However, there are archetypes for structure that we can consider in the design process to help thinking about the right way to organise. For example, IDC recently outlined four models of digital transformation(2):

• Digital Transformation Special Projects Team – best for discovery and defining the mission
• Office of Digital Transformation – best for establishing clear governance and organisational priorities
• Embedded Digital Business – accelerating execution of transformation, particularly through the right operational resources and skills
• Digital Business Units – best for fostering innovation and developing disruptive business models

The right model for your transformation also requires consideration of traditional and wider structural questions. For example, divisional structures can give focus where understanding of a country market is deemed most important – each division is empowered to run its market with a high level of autonomy, and accountability to the centre for delivery of its part of the overall goal. On the other hand, this can lead to overly parochial ways of working which make it hard for a global brand to maintain a clear strategic value proposition and benchmark performance meaningfully across divisions. Support functions can be centralised and even work across geographies, but how can this be tailored to meet the needs of country markets and individual product and service requirements? Excellent execution requires understanding of different models, combined with experience of the design process, and insight into the successes and lessons learned from other organisations. Key to this is ‘Collaboration and Ownership’, discussed in part three.

Having a clear direction, messages, and organisation are necessary for successful transformation. To achieve transformation goals, new or increased capability will almost certainly be required. The process of developing capability begins with understanding how the organisation is performing currently. This needs to include a review of financial performance, benchmarking against other relevant organisations, and assessment of the strength of current capability by a representative selection of managers and executives across the organisation – which is also a highly effective way to engage people and build a sense of ownership. Business function leaders may perceive themselves to be doing a good job. However, when peers or indeed customers are asked the same questions, there are frequently differences in perception which highlight areas where new and/or improved capability is required. The best executives want to be challenged on this. This requires know-how for specification of the capabilities to be measured, the metrics to be used, and set-up for the tools to gather the data from a representative sample of executives, managers and staff.

A new goal may necessitate the development of an entirely new capability, which requires a market review, and access to industry, functional and transformational expertise to guide that process. Simply assuming success will come from existing capability, without being clear on the services, skills and processes required, will cause a transformation to fail. Fundamental to this is clarity on what is a core competence, and what is a support function. This brings questions about what should be done in-house, and what can safely be delivered by partner organisations. As highlighted by IDC as organisations continue digital transformations they need to adopt an ‘industrialized’ way to create robust, reusable capabilities, construct enterprise platforms, and fuel their business transformation(3). This will enable the organisation to stay agile to future opportunities and deliver cost-effectively. As with all the elements of change and transformation discussed here, capability development needs to be done collaboratively, so executives, managers and staff share a common goal and have a stake in the journey.

The methods, skills, and tools to facilitate collaborative decision-making and design are therefore critical to success, which again can require outside insight from experts in the transformation field. Once the direction of required capability is set, new services and processes need to be designed using practical, fast and relatable approaches, which allow for collaboration and ownership by managers and executives if excellent execution is to be achieved. This requires know-how and the process will benefit from external experts who bring the required tools and facilitation skills to apply them.

Coming up…
In our final part tomorrow, we discuss metrics/KPIs, reward, and collaboration, and conclude by summing up all of the elements discussed. Missed part one? Take a read here.

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Sources:
(1) The Business Case for Digital Transformation, Forrester, 2017
(2) Organisational Structures for Digital Transformation: 4 Archetypes Emerge, IDC, 2017
(3) Digital Transformation Capabilities: Introducing the IDC DX Technology Capability Framework, IDC, 2017