Today, many companies are faced with the challenges posed by the modern world, especially in terms of digitalization. The legacy, the way companies (newcomers or industrial giants) operated, and also came closer and closer to digital transformation, are hopelessly outdated. Being digital today means offering a personalized product that requires the least amount of interaction, speaking with a customer in the native, literally digital language of “digital natives”, those who no longer think of any other way to get information, services or products other than through digital channels.
What does digital business transformation mean today? Many studies state that companies are building up their research potential in parallel with the former classic leadership (visionary), the researchers of one of the online publications write.
The research results say the following: “Digital reality changes instantly – literally in a matter of days new methodologies and concepts appear, and companies that do not want to change in this way lose their competitive advantages.” Accordingly, traditional businesses are now under pressure to move quickly to digital technology.
Banking, construction, media, insurance, real estate, commerce – all of these industries, until recently, conducted their economic activities based on familiar options: on paper and calls, with presentation sites, direct communications, bloated states, and so on. But everything changed after the 2008 crisis: if you want to be successful, digitalize. A striking example is a mobile start-up Monobank. In 2020, the app had 2.7 million customers and 2,000 employees. In the first half of the year alone, the client base has grown by 614,000 users, which is one and a half times more than that of the classic financial institution PrivatBank. 66% of Monobank cards are active, this is the highest figure among all Ukrainian banks.
It turns out that to survive and continue to exist – traditional companies will have to go through the path of digital transformation, businesses must find ways to transform their products, processes and work models using digital approaches and technologies. The dictates of the digital age are unforgiving – change or die.
The essence of digital transformation
As we can see, digital transformation is vital for all types of businesses. How can it be done? Based on what principles and methodologies? What is the essence of digital transformation?
The sequence of digital transformation in practice is simplified as follows:
- the use of digital tools for the creation and development of products;
- application of digital functionality to existing products;
- creation of a fully digital business model for the company;
- changing the organizational structure of the company for digital transformation;
- make a difficult and important choice for the company between partnership or its product development;
- implementation of internal transformation for the company’s business models;
- carrying out external transformation for products/services.
However, in reality, most digital transformations are rarely successful and fall apart at the start. According to Melinda Swift, chief digital consultant at Korn Ferry, only 16% of the transformations are successful, the other 84% are failures. In Ukraine, survival rates are even tougher – out of 400 annual digital start-ups, only 20 become stable companies, and only one or two turns into successful businesses, the international research company A.T. Kearney writes in the report “Digital-64 Entrepreneurship in Ukraine. How Ukraine can create a world-class ecosystem?”.
The need to be visionaries (seers)
Almost all market participants are motivated by disruptive mechanisms or competitors to digital transformation, whether it is a digitally managed loss settlement process or new delivery channels for cellular operators.
Many companies will only survive if they become visionaries of digital transformation.
Incapable of keeping up with the pace of technological change, incumbent operators have already succumbed to competitive pressure. Many other industries are likely to fade into the background. To avoid being baffled by business closure questions and to remain relevant, companies must find ways to transform their products, processes and business models using digital approaches.
Resource Infosys notices: in their studies, they have carefully analysed the way the digital transformation. Key digital initiatives were identified, and then respondents were asked how their companies are implementing each initiative at all stages of implementation:
- Transformation started (or in planning).
- Several proofs-of-concept completed.
- Implemented pilot transformation projects.
- The transformation is in full swing.
According to the study, market players are divided into three clusters according to their progress towards digital transformation – observers, researchers and visionaries (leaders).
In addition to segmentation, the researchers also measured progress indicators across several baseline digital transformation metrics.
These companies usually work at scale on only one or two digital initiatives, with possibly a few more in the pilot phase.
That being said, none of these members of this category has worked on a large scale using the «Internet of Things», artificial intelligence, robotic process automation (RPA), content personalization, or most cutting-edge initiatives.
Among the analysis initiatives, cybersecurity is showing the greatest progress, with more than half (54%) of surveyed observers working on a large scale. Compliance and accountability are driving many companies to invest in drones and to protect their huge and rapidly growing databases of confidential data.
Observers also invest in Agile and DevOps, with 20% making full use of them, falling slightly behind researchers and visionaries.
Digital Marketing – the only consumer initiative in which observers are making notable progress is a consequence of the fact that digital marketing is an excellent indicator for the projects focused on the customer.
Business researchers, in addition to observers, are piloting initiatives to transform to a digital business model.
Organizations have passed the stage of applying digital tools to create and develop products. However, the transition to a new digital business model has not yet been made due to old products or management systems.
Cybersecurity is also showing progress for researchers as it is a leading area of fundamental initiatives. Researchers and even observers have done better at cybersecurity than visionaries (who focus primarily on generating ideas).
Previous investments in business intelligence have laid the foundation for using BigData and analytics as a new digital information-driven tool. Researchers are making the same progress here as they are using digital tools to create and develop products.
Research companies have also made more progress in digital marketing than other consumer initiatives. This rule-based, profit-driven initiative typically provides a clear business case for transformation, primarily through increased sales.
A little ahead of their colleagues, they have already freed themselves from old approaches (Legacy) and understand that transformation is not an endpoint, but an ongoing process.
Visionaries have either completed pilot projects or have achieved success on most key initiatives, except for the most advanced projects such as Artificial Intelligence (AI), Virtual Reality (VR) or Augmented Reality (AR).
The overall progress across all initiatives shows that achieving leadership requires an integrated approach. It also implies possible synergies between initiatives, where success in one area, such as BigData, can provide the basis for another initiative, such as the Internet of Things (IoT). It seems incredible, but true – for example, the German dental insurance company Beam provides its customers with toothbrushes connected to the Internet and then uses this data to provide discounts on autos and health insurance.
Even in the first category of market participants, where progress is understandably less developed than in the rest, there is still a relationship between initiatives. That is, the implementation of one of them automatically ties up the need to implement other digital options. It’s worth understanding: today’s cutting-edge technology has already become a vital part of the management systems of the future.
As global businesses move towards digital transformation, they tend to focus on projects of all kinds. Observers are simply trying to create a foundation for their digital transformation, so they are unlikely to have enough bandwidth to launch major, customer or cutting-edge initiatives.
It is important to understand that over time as companies move through the digital transformation stages and shift their focus to a broader range of digital initiatives such as BigData and analytics, private clouds, core initiatives such as content personalization, digital product development, and digital marketing. also remain important for the implementation of transformation and researchers still need to devote time to scaling them (infrastructure modernization, development of integration interfaces (API) and business process management (BPM)).
What could be a barrier to digital transformation?
Businesses often underestimate the difficulty of mastering the pilot option. According to Alok Unial, vice president and head of the department of Agile and DevOps editions Infosys, companies will have to undergo significant cultural changes to learn how to perform these tasks quickly. The caveat, however, is that significant cultural shifts rarely happen as quickly as we would like.
At the same time, survey respondents believe that most of the obstacles to digital transformation will ease over time, however, concerns about outdated management systems remain one of the main risks.
The researchers argue that the inability to change, to take risks are the biggest obstacles to business digitalization. Moreover, the digital infrastructure simply does not keep pace with corporate changes. More than a third of Infosys surveyed respondents (38%) are concerned that their companies lack the pilot capacity needed to test supply and demand potential for different audiences and customers.
Insufficient funding, fear of risks, outdated management systems, inability to outsource and diversify tasks, lack of cooperation between IT and business management, lack of necessary skills and abilities, lack of corporate digital strategy, lack of flexibility in management – these are the main reasons for the stalling of most digital transformations.
Besides, few enterprise businesses with an outdated operating model adopt agile standards to develop agile management systems. But this significantly speeds up the passage of the production chain: from decision-making to implementation to adapting the product to the market.
How to leverage the digital transformation journey?
4 main accelerator capabilities help companies accelerate their digital transformation:
- Agile and DevOps
- automation and artificial intelligence
- Reference architecture and design
Essentially, these core options are digital transformation. All this makes it possible to apply digital tools to create and develop products, and digital functionality to existing products, plus, create a fully digital business model for the company.
Why is the flexibility of the product management and implementation system good? This is the maximum acceleration of the workflow and the product launch to the market. Agile is one of the most successful digital methodologies in existence today. What does it prescribe?
- fragmentation of tasks and their distribution by teams,
- delegation as a management approach,
- reduction of development to a series of short iteration cycles that last a couple of weeks. Each iteration is a miniature project and includes all the tasks required to increase functionality: planning, requirements analysis, design, programming, testing and documentation. At the end of each iteration, the team performs a development priority assessment (retrospective).
Agile methods are carried out through direct face-to-face communication of all participants in the digital production process, primarily business management, therefore one of the main organizational tasks here is to change the management culture so that the business is integrated with IT from the very beginning.
Therefore, to respond to changing markets and the ability to offer better products and services, companies need to have a culture of rapid development, prototyping, and viability testing. To do this, you will have to build a visual model of the value chain. And this is a serious problem for organizations with outdated management systems, in which the creation of a full cycle of such chains is unlikely.
Artificial intelligence (AI) and automation. They are changing existing business models and opening up new opportunities. For example, Netflix moved away from the old-fashioned rental model, started streaming video to the network, and this completely changed the company: from creating a new digital product (video instead of DVD) to producing its content. Additionally, AI is used to compile videos at the request of the viewer. Thanks to the competent scaling of services, Netflix has long surpassed many media empires in terms of audience reach: the service alone has over 200 million subscribers.
Another option for a successful digital transformation is reference architecture and design as the basis for the effective division of large projects into small teams of highly qualified engineers, using the reuse of application modules (not just source code libraries). This approach reduces the development time of a concept to a few weeks, and thanks to this, companies can solve complex problems faster and reduce technical debt. How does it look in reality? In 2003, 19-year-old developer Matt Mullenweg wanted to share photos from a trip to Washington with friends. He made several changes to the open-source blog platform Cafelog, posting his pictures there. After working on it for a couple of months, the programmer decided to create his improved platform, which he called WordPress. Today, 25% of all sites are created on this platform, about 50,000 new resources are generated there every day.
Digital maturity in selected industries
The Infosys study found significant differences in digital maturity across industries. It found that tech, manufacturing, telecommunications and finance companies are the farthest on the road to digital transformation. Digital Maturity Index scores were significantly lower in other industries such as consumer goods, logistics and healthcare.
In both insurance and financial services, traditional businesses face strong competitive pressure from start-ups, big tech companies, mobilizing the sector.
Let’s take a look at the most important accelerating options for successful digital transformations.
Reference architecture and design are the categories of digital transformation whose significance does not need additional argumentation. Only now the design is moving beyond its classic functionality and will permeate more and more business tools. The speed of changes that enterprises face, the need to constantly adapt to new realities guarantee that the transparency of the Reference Architecture and design will ensure the speed of business adaptation to these changes, including by minimizing the time for training new employees.
How does it look in reality? When the leading Ukrainian telecom operator Kyivstar faced the task of urgently replacing one of the main BSS systems within 9 months, a team of Ukrainian engineers decided to apply an innovative Reference architecture based on a flexible composition, which made it possible not only to complete an important part of the digital transformation project by different teams into unrealistic terms for the enterprise but also ensured the quick launch of new marketing activities for the options “Home Internet” and TV.
Digital Transformation Accelerator: Agile and DevOps
Agile and DevOps concepts enable companies to outperform the competition by automating testing, experimenting, validating ideas, and scaling leading-edge solutions, delegating authority to teams, ensuring flexibility and high productivity. DevOps is more about automating the agile software development lifecycle, allowing companies to deploy new features on an agile basis on an almost ongoing basis.
If companies can change their culture and mindset to enable early business and IT collaboration, they will dramatically increase the likelihood of Agile and DevOps success.
In addition to cultural change, businesses also need to make sure their employees are trained in new ways of working. Such refresher training should extend to the entire organization so that all stakeholders are well aware of it.
Methods Agile and DevOps are extremely useful in certain industries, such as in the branded consumer goods, where speed is crucial to successfully keep pace with the rapidly changing trends. In other industries such as banking, insurance, and airlines, there are regulations, SOX risk controls, and auditing that can hinder efforts to implement and scale up Agile and DevOps tools.
Digital transformation accelerator: design
Design skills enable companies to rethink every aspect of their business, from internal operations to external customer service. Businesses with modern Reference Architectures use technology to find new solutions to meet human needs. What kind of “solutions” can these be? For example, developing new digital products, personalizing content, etc.
System design plays an important role in the digital age. The best developers are engineers with years of digital experience. It should be noted that these personnel are in high demand in the market, which exacerbates the already difficult work on the digital transformation process. The good news, however, is that digital transformation teams with expertise in one area, such as telecom, can apply their knowledge to others. The reference architecture, for example, that is based on a flexible exposure is quite versatile, and can be useful in the development of software for banking, health care, etc.
On a practical, operational level, Infosys research confirms the effectiveness of splitting large projects into small teams of highly skilled programmers solving the most complex and important problems, with different iterations. Using the example of project implementation in the Ukrainian division of VEON, the Kyivstar project management decided to divide the project functions between three teams to meet tight deadlines – a local development team and 2 external small teams were able to implement the project on time, including thanks to the correct reference architecture and delegation of authority, where the Agile approach was taken as a basis.
Finally, the success of design-driven digital transformation depends on the involvement of senior teams. Design helps to transform the main components of an enterprise’s operating models, but their successful practical implementation requires the direct assistance of management.
Digital Transformation Accelerator: Collaboration
Companies should structure their ecosystem and select partners for maximum innovation, speed and agility.
“Value creation happens when companies bring together teams that work continuously and in close proximity,” advises Deverre Lierman, head of the Infosys Raleigh Technology Hub.
The key is to take advantage of the best and lowest cost teams without sacrificing the benefits of collaboration. Thus, visionaries will be able to balance the logistics of global development centres with local innovation hubs. These centres can be located both within companies and with the involvement of strategic partners.
Nevertheless, even leaders such as visionaries depend on how well the tasks are distributed among the development teams and how they worked for the result. Visionaries provide these teams with effective collaboration tools and standards for assessing the quality of teamwork. To the extent that visionaries rely on global development hubs, they invest equally in infrastructure and local teams to minimize the impact of differences between global and local markets.
At the same time, visionaries recognize that there is no alternative to the very convenience of interaction between different teams, so they are ready to create fully-equipped technology and innovation centres near important partners or customers.
Practices and way of thinking – what separates visionaries from the rest
Since visionaries are one of the most effective types of executives, to become more like them, companies must develop a formal digital transformation strategy and share this plan with both employees and customers and partners. You should also develop and implement a comprehensive strategy for applying automation and artificial intelligence to human empowerment, rather than just focusing on cost optimization.
There will be more than enough difficulties here. Businesses face the issues of search and recruitment, as well as re-training, re-equipment of older legacy – systems that work on the acceleration of digital transformation and the fight against the so-called digital disruptor ( innovations that change the ratio of the values in the market, at the same time the old products become uncompetitive for some reason, and the parameters based on which the competition previously took place to lose their significance).
How to succeed here too? The truth is that established businesses need to keep up with 3 parameters at once, moreover, to do them well and at the same time:
- to create a technical basis for digital transformation.
- develop technological potential and talent
- to innovate at the speed of Agile.
There are also two ways companies can accelerate their digital transformation journey. For example, expand your existing capabilities by focusing on important projects with the greatest potential, or partner with other teams to gain access to additional skills and resources.
Surveys of CEOs in various industries show that only about a quarter of all digital initiatives are carried out and implemented within the company, more than half are carried out with the help of partners, and the remaining fifth with the help of a delegated authority.
That being said, cooperation has several advantages. For example, visionaries are more likely to form partnerships because they have the process maturity and experience needed to build and manage them effectively. For the same reason, companies investing in architecture and data management are more likely to support APIs with external services. Experienced visionaries’ value trusted partners, so they are more likely to develop and establish additional partnerships.
Accelerating the digital transformation journey
In any company, any type of manager, including visionaries, it is necessary to prioritize specific digital transformation projects to make the most of even the scarcity of resources.
How can a company know which projects are prioritized? Those that meet such tasks:
- Analyse your digital maturity level and develop a clear assessment of current initiatives and goals.
- Assess the future of your industry in the short term. What are the main risks from disruptors? What new technologies are the most promising? How are customer expectations changing? How will these factors affect business models?
- Ensure the company has a solid digital footing by modernizing legacy systems and working on APIs and business process management. Strengthening these areas will lead to success in other aspects of digital transformation.
- Strengthen and refine five digital accelerations: Agile and DevOps, Automation and Artificial Intelligence, Design, Learning, and Localization.
- Build relationships with partners whose skills and services can drive quality progress in digital transformation.
As we can see, to be competitive, and to be in a competitive environment both in the public sector and in private business today, literally means being digital and adapting to the challenges of the modern world. The global pandemic has only intensified this trend, which will be relevant in the coming years.
Instead of an afterword
It is vital for Ukrainian enterprises claiming leadership in their industries today to think about implementing digital transformation projects. Where to start this transition? Yes, at least with the choice of experts, specialists who will advise on how to determine the most optimal way of digitalization.
The more carefully you approach this issue, the better the result will be.
It is much more convenient for Ukrainian companies and local branches to interact with local teams, such as the MEF.DEV project team, whose only specialization is troubleshooting in digital transformation projects. If you are looking for a solution to the problem here and now – then you need only a team of engineers, rather than advertising solutions in the ash of their problems. Some problems are even better not to advertise, right?