Transformational success requires a strong focus on the customer, building key capabilities and learning faster than others.

Transformations are hard. Digital transformations, we know, are as much about cultural change as they are a technical one. They are effectively about finding better ways to serve customers, create new value and do it more efficiently within.

Executives have had to become more focused on cyber security given the increase in applications and data in the cloud. Covid has created massive challenges in workforce supply, and this now occupies more executive headspace than anything else1.

What impact does this have on progressing transformative activities when there is barely the bandwidth to keep up with BAU? It’s hard and whilst businesses have had to continually build muscle in doing more with less, the current environment amps this challenge up even further.

The current and 4th industrial revolution demands focus on the customer experience. Whilst there is little disagreement by executives of this as priority, there are often tensions created by the pull on operating more efficiently and therefore what digital activities should take priority.

At the recent CIO Edge conference in Sydney, Dr Peter Weill, Chair of MIT CSIR, spoke to the difference between value creation and value capture from digital for firms.  Peter’s work is based on extensive studies across the globe in following digital transformations and initiatives which summarised digital activity into the following key areas of value.

value creation from digital for firms

The actual value captured from digital activity explains 38% of revenue growth and 24% of profitability is explained through digital creation activity.

digital creation activity

Interestingly when >130 CIOs were asked to rate their firm in terms of value capture from their digital activities, there was a very high optimism in Australia compared globally. This is calling out that executives thought that roughly 95% of value creating activity was actually captured.

Pre-event survey: Local comparisons = Australians overconfident in value capture

Note the high expectations of value created from operational activity and similarly the high degree in which these executives estimate value is actually being captured.

The ‘survey says’ response is likely very optimistic given the global research identifies the increase in digital value captured as up to 45% in customer focused activities however much lower in operational activities (15%) of profit.

The impact of operational process activities, although often a necessarily baseline, is not as impactful to the bottom line. There are several reasons for this including failure to efficiently manage out legacy systems and embedding old and outdated processes into the operational digitisation.

Most critical to value capture is in customer oriented digital creation activity.

customer oriented digital creation activity

This is important to consider when prioritising initiatives. Especially transformational activities, as creating improved customer experience will not only deliver more value but may also reduce the opportunity cost of investing in operational processes. The kind which may not deliver or drive your organisation into the future at the same speed.

When considering the ‘how’ to create and capture more value from digital transformation – Peter’s work deems the below 10 future capabilities critical for success.

How to create and capture more value from digital transformation

Note the importance of common drivers which include thematic of organisational alignment and to become a learning environment.

Lastly, Peter spoke to the importance of dashboarding for value capture. Transparency of progress is key to keep focus. Organisations who invest in this area see higher returns on their digital transformation investments.

the importance of dashboarding for value capture

The key methods which lie behind this success down to the ABC of change:

a.    Align – your organisation and they key priorities at the executive level

b.    Build – consistent tools, methods and frameworks for the organisation to deliver at an accelerated level (learn fast)

c.    Commit – through the right measures, communication and dashboarding to keep adapting and iterating throughout the journey

To do more with less requires takes a disciplined and well-informed approach to investment decisions in digital transformation.  The three key takeaways from Peter’s work at MIT CSIR are:

1.     Assess Value Creation and Capture (What)

•        Value from customers is most impactful

•        Value from ecosystems is the future

•        Value from operations is baseline

2.     Track Future ready capabilities (How)

•        Develop 10 enterprise-wide capabilities needed to become future ready and drive value creation

3.     Build a dashboard (transparency)

•        Capabilities, value achieved, challenges and firm performance

•        Show your progress in digital transformation

Focusing from the customers view has been the key in organisations who successfully transform. Creating a learning environment where we teach our teams about agile ways of working, customer led design, digital capabilities and upskilling middle management in transformation skills are also attributed to strong outcomes.

Building the future organisational muscle to learn faster than competitors and moving away from the expectation of BAU to CAU ‘change as usual’ will contribute positively to this transformation success.

 

1 Insights from surveys conducted across ~150 CIO’s at Adapt CIO edge

Top Business priorities for 2022

1.    Attracting and retaining talent

2.    Building a secure and trusted organisation

3.    Improving operational effectiveness

4.    Creating a data driven organisation

5.    Acquiring and retaining customers

Top Business priorities for 2022