Avoid the Trap of Mistaking Modernization for Digital Transformation
It is now quite common to hear or read about an IT project or product that is positioned as evidence of an organization’s digital transformation journey. Often the project is based on the modernization of some legacy system or application and while there may be obvious justification for the initiative, I am seeing more and more instances where the association with digital transformation is a bit dubious and the outcome isn’t meeting the right expectations. There is certainly an eagerness to join the digital transformation wave, but I believe there is also a misdirected understanding that digital transformation is simply the adoption of modern technology. While there are cases when the alignment between modernization and digital transformation is real and appropriate (either by coincidence or intention), this is not a given and is becoming a common trap that leads to a lot of missed opportunities and misguided investments by organizations.
In my last article, I laid out a case for why digital transformation is a real phenomenon that is happening with or without your organization’s participation. However, this also means that digital transformation isn’t a strategy any more than virtual offices are a strategy. There is admittedly a fine line between dismissing and pandering to “digital transformation” and either extreme can have significant consequences. To strike the right balance, you should start by assessing how this phenomenon should impact your strategy and its execution. These impact areas align to the offensive and defensive zones referenced in “Zone to Win” by Geoffrey A. Moore. Depending on your company’s current situation and culture, you may focus on how digital impacts your ability to optimize the execution and operation of your business. Examples of this would be utilizing different channels to improve customer support, collecting and analyzing more information to streamline processes, or implementing automation to increase delivery throughput. These are low-risk propositions that when properly executed will demonstrate positive returns.
If your company is already disrupted by digital or has a bigger appetite for change, you might choose to tweak your strategy to better position itself for the long term. This doesn’t necessarily mean a complete shift of your business model, but might represent a disruptive change to how you conduct business. If you manufacture goods today, you aren’t going to suddenly start developing mobile games, but you might determine that you can enable direct customer sales instead of going through a distribution ecosystem. That may not have been a realistic option in the past but the digital transformation phenomenon may now make that a possibility, albeit with significant ramifications to what has been successful in the past. These are higher-risk propositions because, even when you properly execute the change, a positive impact on the business is far from guaranteed.
This entire decision process precedes any IT investment decision or initiative which indicates that digital transformation cannot be an IT-driven journey. Notice that I said “driven” vs. “led” – I’ll come back to that.
Modernizing systems is an IT-driven initiative that often occurs because it must – either support is running out, becoming problematic to source, and/or becoming cost-prohibitive. Sometimes the modernization of the system will include additional capabilities or benefits that are presumed to add value to the business, potentially enabling their digital transformation. This might in fact be the case but occurs much less frequently that people would like to believe.
You don’t have to look too hard to find numerous examples of how this process can lead to issues down the road. One common scenario is the organization looking to upgrade or consolidate their web properties and choosing complex systems with e-commerce or personalization features that will likely never be used because of their current business model. Another scenario is the organization looking to reduce their costs by moving applications they have today as-is off legacy mainframe or data platforms to the cloud. They believe this will position them to innovate or “transform” but they are investing a lot of money to move capabilities that are inadequate, or even outdated, which will likely lock them into a status quo situation for many more years. These well-intentioned decisions are made based on an IT-centric perspective and those associated outcomes.
The key to aligning such investments to your digital transformation journey, and potentially securing the necessary budget to do it “right”, is establishing success criteria that fall outside of standard IT criteria such as cost, performance, feature sets, and scale. However, establishing the success criteria for your digital transformation becomes problematic because there is no meaningful way to measure its success. Yes, you can find numerous articles about evidence and indications of progress but I would challenge you to find someone who was willing or able to list “Digital Transformation” among their KPI’s or scorecard. This reinforces the importance of recognizing that digital transformation isn’t an objective.
This brings us back to the decisions needed around your business strategy and execution and why this cannot be an IT-driven initiative. IT can provide the necessary leadership to enable the digital transformation journey but it can’t be the owner because it isn’t their outcome to define. The definition of success for the business strategy and its execution must be established outside of IT and can be easily measured in multiple ways: revenue, profit, market share, customer retention, etc. The organization’s executives must identify which measures they want to focus on, what goals to set for each, and then identify how digital could or already does impact those results. At a minimum, IT leadership should play a role in the impact identification and could certainly lead the execution of the journey.
If your modernization initiatives can help enable that journey you have a great opportunity to align and drive demonstrable changes for the business. In some cases, this should cause you to rethink what might be a more tactical approach, reconsider the current modernization priorities, and reassess decisions around buy vs. build, sunset vs. modernize, or re-design vs. re-platform. This perspective makes these decisions more complex but it can prevent you from throwing good money after bad, handcuffing your organization down the road, or bypassing great opportunities to innovate.