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Transforming an established company into a digital business isn’t rocket science
It isn’t easy either… but get a few basics right, and you'll be on a surer footing.
Even the most traditional organisation can adapt to the digital economy successfully — and avoid a whole heap of expensive pitfalls — by following this simple, pragmatic approach.
Digital transformation is a topic on the agenda of most established companies today: there are few leaders who would not recognise the imperative to adapt their companies to better compete in the digital economy.
The process of digital transformation is generally focused on what I’d call ‘technology and operations reform’. Retire old tech, implement agile, make the company’s processes as digital as possible using modern tech.
The question that few can answer convincingly is ‘what are you transforming into?’ I get answers like “a more customer-centric organisation” or “an agile organisation” or “a business better able to service the needs of future customers”.
Haven’t businesses always needed to be these things? What about any of these statements is likely to make me confident that these companies will become thriving digital businesses?
The end goal for any established company today should be to become a business whose answer would start more like “we’re becoming a digital business that…”. Becoming a true digital business demands that you run the entire company with a digital-first mindset — but does not, and this is a common misunderstanding, demand that everything you do is digital.
To operate confidently with a digital-first mindset you need a series of core strategic components that are understood by everyone in the organisation and committed to fully by its leadership.
The Company Core.
Let’s start with the essential company-level components: purpose, vision, values, and domain. I call these the Company Core because they literally sit at the centre of everything the company is and does. These are the components that the leadership team need to understand above all else when driving any form of digital transformation.
Is the company’s purpose digital-ready? Purpose — the ‘why?’ of a company — has been a hot topic for years. Most established companies need to restate or reframe their purpose, even if they already have one defined, to give them the foundation they need for their future business.
What is the vision for what this company will achieve as a digital business? It’s hard to change an established company into a digital business without a clear view of what that future business might look like, and it’s unlikely to be successful unless that vision is ambitious, exciting and achievable.
What are the principles that define how the company behaves? Modern values should be a combination of the best of what the company has always stood for plus some that give it both license and imperative to behave in new ways.
Finally, where does the company have license to innovate and compete? This is unlikely to be the same as its historic marketplace, but is even more unlikely to be a radical departure from it. This is built from the proceeding points and is an essential way to both license and control innovation efforts.
No Agile, no tech?
Those are the essential components of the Company Core that I believe every company needs if it is to become a successful digital business.
Don’t underestimate how important these components are, or how powerful they can be when done well. I’ve seen a reframed and rewritten purpose statement alone transform the ambition and behaviour of an established leadership team. When they’re properly formed — and used well — these core components underpin every aspect of the company’s behaviour as a digital business.
You’ll note that there is no mention of Agile or Lean or technology anywhere here. That’s deliberate and important: too many companies are lured into thinking that approaches like agile are their silver bullet. They’re not, and it’s critical that leadership teams recognise this and get their strategic core components well defined before implementing any substantive changes in approach. If the exec team isn’t confident and aligned behind the core components, innovation initiatives will lack imperative at board level and are almost guaranteed to underperform or underwhelm. There’s a reason the core components are framed in the language of business.
A robust company core enables the more experimental transformation and innovation initiatives needed to enact change.
Define key transformations.
For an established company, the process of defining its Company Core always leads to a set of essential transformations: the characteristics of the company that need to change to help it move from where it is today to where it will be in the future. These are wrapped up in transformation statements that can be used to drive change across the entire organisation.
We always write transformation statements in a ‘From > To’ format, keep them as short as possible, and aim to have no more than a handful that the company should focus on. Each has a short accompanying rationale.
Here’s an example, from a data company:
From: End of day delivery
To: Real-time access
Why? Our customers make decisions on a real-time basis, and we maximise our value to them if we can support them exactly when they need us.
Here’s another, from a financial services company:
Why? We have a huge impact on our customers’ lives. The less we think about siloed transactions, the better we can understand and support the people involved in them.
These are real examples (I’ve amended both to anonymise them). I hope they illustrate why they’re such useful tools, because it’s not hard to see how they can inform decisions about everything from business models to technology architectures.
This is one of my favourite things about transformation statements: you can measure progress against them, and they can be particularly useful in focusing the transformation activities of long-established companies and high-earning legacy services.
Innovate at a service level.
Once the Company Core and key transformations are agreed all of the company’s innovation efforts can focus on service-level initiatives. This provides both the flexibility essential to digital innovation and the security of not betting the farm in one go.
One of the main reasons that conventional strategy doesn’t work well in digital businesses is because it tries to define too much at the level of the company. Service-led strategy overcomes all of the conventional shortcomings and enables traditional businesses to transition into digital businesses pragmatically.
Native digital businesses do this naturally — allowing Google (or Alphabet) to run its Android service in one way while its search service is run differently, or Amazon to operate its e-commerce service alongside its AWS web services. Different services, using optimal models for each, operating around one Company Core is the way digital businesses succeed.
Even single-service companies should think this way because otherwise they’re putting themselves in handcuffs, limiting their ability to innovate in the future.
A simple, powerful approach.
This is of course a very quick summary of the approach an established company should take, and the amount of work needed to transform an established company into a digital business varies enormously. However, it’s important to say that the approach I’ve set out here is appropriate for and achievable by any type or size of company.
I’ve seen this approach work well in an incredibly diverse range of organisations. It works because it’s practical and simple. After the core components are defined up-front — which can often be accomplished very quickly — a company can start to innovate and transform with confidence at a service level. It’s highly rigorous but fast, and it doesn’t waste effort or money on activities that have little or no value in defining a digital-first future for the company.
Transforming an established company into a digital business isn’t a walk in the park, but it isn’t a flight to the moon either. The approach I’ve set out here can help even the most traditional companies regenerate as businesses fit for a successful life in the digital age.