The new survey not only assesses the boards of companies in terms of their digital transformation strategy, it also considers the steps that have been taken to combat digital disruption. While some companies have accomplished this, many organizations investing in digital lack strategy. For example, around a third of board directors report that their companies have no digital transformation strategy.
To discover more about the survey findings, Digital Journal spoke with Chip Cohron, BDO USA’s National Digital Transformation Services Leader, and Stephanie Giammarco, BDO USA’s Technology & Business Transformation Services Practice Leader.
BDO is a global network that delivers assurance, tax, and financial advisory services to clients.
Digital Journal: How important is digital transformation for business?
Chip Cohron: Absolutely critical—we cannot stress this enough. The current world we live in is digital, and the future will be even more so. Undergoing digital transformation today is a matter of survival: Businesses that don’t modernize and transform will be left behind, usurped by those that do.
Besides enabling organizations to stay relevant, digital transformation has many benefits. Companies that are in a constant state of digital transformation (i.e. are actively evolving themselves using new technology and processes) have typically reported boosted profitability, customer experience, and operational efficiency. They are often able to transform and optimize not only their internal processes, but their external brand—reaching new customers or audiences they otherwise might not have reached, or cultivating loyalty with current ones.
Stephanie Giammarco: While we’re on this topic, it’s also important to note that digital transformation encompasses much more than simply digitization and digitalization—a common misconception among many companies. While making investments in new and emerging technologies is important (along with updating legacy or outdated IT infrastructure), digital transformation is the journey to becoming a digital business, and requires companies to connect the dots between digital initiatives, strategy, and business enablement. For true transformation to occur, there has to be an equal emphasis on both technology and people, with both working together to respond to business shifts and adopt meaningful, human-centric change.
DJ: Is this so for all types of businesses?
Cohron: Absolutely—no business is immune to the technological disruption happening today. While some industries may be adapting to the changes faster than others, all will eventually have to face the music very soon in the future—if not already.
Giammarco: In addition, digital transformation should be a priority for organizations of all sizes. Some companies, such as startups and younger ventures, were “born in the cloud,” and thus already have digital disruption embedded in their DNA. However, those that get too comfortable and stop evolving easily risk getting replaced. Larger organizations and industry stalwarts face the same mandate, if not with even more urgency: Evolve and modernize, or risk getting disrupted by new market entrants.
Middle market companies have their own unique challenges. Unlike larger enterprises, which often have access to valuable resources that enable them to make massive digital investments and experiment freely, mid-market companies are often constrained by limited time, capital, and/or talent. Unfortunately, too often, we see these impediments lead to inaction, which all but guarantee failure—for every business.
DJ: Which businesses are at the greatest stage of maturity and which are furthest behind?
Cohron: This is a difficult question to answer because there is such a wide range of businesses—all in varying industries with different capital structures, operations, and goals. Thus, to simply cite which businesses are furthest along in the digital maturity spectrum would not be a fair representation of how each one actually stacks up, when considering its unique culture, approach toward innovation, and other key factors.
Giammarco: This raises an important point—that understanding one’s own maturity level and how you compare with your peers is a critical component in beginning the digital transformation journey. Without a self-assessment, it’s difficult to set attainable goals, maximize existing assets, and develop a realistic roadmap.
Because this component is so important, we at BDO often recommend that businesses use our unique digital maturity assessment framework, which we call our 3+1 approach. The framework helps organizations assess their maturity in three key areas of transformation—business model maturity (Digital Business), operations maturity (Digital Process), and IT maturity (Digital Backbone)—with the goal of Digital Adoption at the center.
Each transformation area comprises of additional sub-categories (referred to as Digital Performance Indicators), which companies can evaluate across four different levels of maturity (laggard, adopter, transformer, and innovator). Once organizations get a good grasp of how they are doing individually, we provide them with industry benchmarking data that can help them figure out how they compare to their peer group.
DJ: What factors are required for a successful digital transformation?
Cohron: The answer to this question probably requires hours of discussion! But the good news is that there are many guidebooks out there that can help companies figure out the step-by-step process to approach and undergo digital transformation—in fact, BDO has one for middle market companies specifically.
However, the most important factors for successful digital transformation often boil down to a few key components. First is strategy. We can say this a million times, and it still won’t be enough: Having a holistic digital transformation strategy before beginning anything is critical. As we mentioned before, digital transformation is more than a collection of technology-related, ad hoc processes; it’s a lifelong journey where each digital initiative strongly correlates to attainable business goals that bring the organization long-term value. Too often, organizations conflate digital implementation (which is more of a tactic in the digital transformation journey) with digital strategy.
Organizations must make sure that their strategy (which can focus on anything from improving customer experience to increasing operational efficiency) is the north star guiding them forward. This process doesn’t necessarily have to take months and/or cost millions of dollars to complete, but nonetheless needs to be done.
Giammarco: Second is people and change management. An organization’s digital transformation efforts are only as successful as the ability and willingness of its end users—employees and customers—to adopt them. While the former can be remedied through thoughtful implementation and continuous training (and occasionally, the injection of new talent), the latter requires organizational behavioral change in which all employees must buy into the necessity, mission, and goals of digital transformation.
Often, this starts with tone at the top. The senior-most leaders of an organization must be able to convincingly evangelize their vision and convey why employees should engage in the process. More importantly, they should know what’s expected of them. Successful initiatives set clear, behavior-based guidelines and reinforce desired habits with positive incentives to avoid ambiguity and inaction. Our +1, Digital Adoption, is at the core of this issue to reinforce, test, and ensure business enablement and user adoption is achieved.
Board involvement is also an integral part of successful people and change management. As BDO’s 2018 Cyber Governance Survey reveals, public company board directors are increasingly recognizing the competitive advantages and necessity of embracing a digital transformation strategy. Because management naturally tends to focus on short-term wins and operations, the board of directors plays a critical role in catalyzing strategic planning for the long-term view.
Cohron: Third is culture. Like in any initiative, fostering a corporate culture that embraces constant experimentation and learning is critical. This is one that accepts failures and mistakes, as long as they are pursuant of longer-term innovation and value creation. And yet, changing corporate culture is also one of the most difficult aspects of digital transformation. Once again, the tone starts at the top.
Digital transformation leaders must embody an innovative, agile spirit and encourage new ideas and open thinking, even if they don’t fit traditional cultural norms.
Giammarco: Finally, governance. Having clear governance principles and the right leadership for your digital transformation efforts is critical. Regardless of whether your digital initiatives are headed by your C-Suite or business unit heads, having clear priorities, responsibilities, project controls, sponsorship, and metrics for accountability is a must. Organizations should consider creating a Digital Transformation Officer position, responsible for ensuring that individual initiatives are executed against the long-term vision.
