18.11.2022

5 Critical Success Factors Leading a Digital Business Transformation

INTRODUCTION

BACKGROUND AND PURPOSE

In 2016, I published a few articles and a podcast, covering critical success factors (CSF) delivering digital business transformations.

Since then, during the last five years, I have been engaged in delivering major change for another two global, listed, mid-sized businesses.

The clients wanted to implement seamless end-to-end processes, e-commerce and new, harmonised ways of working to drive the customer experience, improve efficiency, increase manufacturing out-put, optimise supply chain and improve bottom-line.

We agreed this should be done based on best practice ways of working, globally, and using standard IT application packages (e.g. Microsoft Dynamics 365FO et cetera).

In retrospect, my initial set of hypothesis regarding CSF remain valid! However, based on success and sometimes failures, there is also an ocean of experiences and lessons learned described in this article series, hopefully providing you with an enhanced opportunity to successfully transform your business digitally.

Part one is an introduction, a brief summary of each success factor and a useful analogy walking through most CSF. The following chapters provides a deep dive into each domain.

WHY IS IT SO HARD TO DELIVER DIGITAL BUSINESS TRANSFORMATIONS?

7 September, I listed cities with buildings over 200 m tall. In China there are some 400 such high-rises, 92 in New York and 60 in Chicago (10 in London).

Globally, infrastructure projects (incl. bridges and motorways) are successfully delivered, mostly on time, budget and according to specifications. Almost all projects are completed.

Today, more and more businesses wish to transform the way they operate towards a more digital, automated and customer-centric business model. There are a large number of such major IT programs on-going and more being planned.

How come construction projects succeed, when so many digital programs fail (up to 70-80% actually, 15% risk developing into so called ‘black swans’ and only one third deliver expected business requirements and additional value)? How come? The same organisation manage to successfully deliver complex non-IT projects (e.g. completing an IPO or a major acquisition)?

5 CRITICAL SUCCESS FACTORS

Failed digital transformation projects are often missing out on one or more of the following:

1. STAKEHOLDER ALIGNMENT Ensure a clear strategic vision and complete agreement on purpose and scope

2. GETTING THE BASICS RIGHT Set up for success by securing sponsorship, correct planning, specifications and governance

3. CHANGE MANAGEMENT Ensuring business buy-in and commitment and engaging the end-user organisation in process design, testing and training

4. SKILLS AND EXPERIENCE Previous experience and ensuring adequate competences are onboarded

5. STICK WITH STANDARD AND DEFINE SCOPE BY PHASE Eat the elephant in pieces and remember that buying standard IT systems and building bespoke systems are two totally different journeys – this paper focus on standard only

THE ‘BUILDING A HOUSE’ ANALOGY

Great leaders are good storytellers. When advising on digital business transformation one can use an analogy to get across the main messages about success factors and pitfalls:

‘’Imagine you are about to build a new family home! You and your spouse have agreed you need a bigger home and you have secured a nice piece of land. You have discussed what you want to build – let’s say a three-bedroom house with two bathrooms, two stories, a large open kitchen and a veranda facing the south. Bottom line; you are aligned on a common vision and have a high level specification – you know what you would like to build.

You have also spoken with your bank, securing a loan and know what sort of money you can afford to invest – i.e. you have a financial plan.

As for options you know you could either go for a prefab home, an architect designed house or you could hire an architect to design a unique home for you – all are feasible, however the latter two are more expensive and require more of your engagement. You decide that a standard pre-fab house that can be configured to your specifications is your best option.

Now you look for an architect / interior designer and a project manager. Together you will agree the overall design and the architect will produce the final blue-print of the standard building based on the options / configurations available.

Next you contact builders who can construct the foundation and infrastructure, complete the building. This is where the project manager comes in (unless you have enough free time, you need someone to coordinate and manage the venture).

Together with your team, you will make an milestone and financial plan, and a detailed project plan including exact specifications for interior design, plumbing, electricity, kitchen, bathrooms, garden, security, Wi-Fi, materials such as wallpapers, paint and colours and so forth and so on. This is to make sure you get what you want, on time and on budget.

Once this is agreed you can move to a final contract stage. You want as fixed price as possible and a firm ‘move-in date’ with a penalty clause regarding quality and delays. The builder may want a more flexible contract, ideally invoice on time and material without penalties. You want to engage a lawyer for the contract stage.

Once the contracts are signed (based on the blueprints, time-plan, budget and specifications), and then only, will the builder start construction.

As sponsor (whoever is paying the bills) you want to visit the site on a regular basis. Once the foundation is in place you may want to have weekly meetings with the architect, project manager and builder to make needed decisions and stay in control. Once the house is in place, moving into interior design and fittings, you may want to have daily meetings on site.

Regardless of how well you have planned, there will be changes due to unforeseen issues and things you may want to change or adjust. However, you would not ask the producer of a prefab house for any major changes outside the agreed ‘configurations’ and floorplan. Nor would you install open fireplaces just because your spouse realised these would be nice to have (as it simply would be too late and expensive at this stage).

Eventually, the house is completed. By now you have sold your old house and contracted a house mover to help with the move. Your family, who has been involved from day one, are all looking forward to the new life, new schools and friends for the children and so forth.

Before moving in (i.e. go-live), you and your spouse (possibly also an independent firm) will inspect and test everything is up to specifications. You will get acquainted with the alarm, appliances, boiler et cetera, studying user manuals, i.e. end-user training. The builder will sort final adjustments as needed. Then, and only then, will you pay the final, remaining invoices…’’

Pretty straightforward and simple? Absolutely! This is exactly how we should plan, decide and execute digital business transformations as well!

1. STAKEHOLDER ALIGNMENT

Successful digital business transformations are rare. Harvard Business Review and McKinsey both suggest that only one third are completed as planned, delivering value to the business.

The first, and most important, success factor is for senior stakeholders to be aligned and help ensure that a clear vision, complete agreement on purpose, scope and objectives are agreed and communicated. Without this clarity, subsequent steps will be hard to manage, as lacking a vision or ambiguous objectives tend to generate uncertainty, instead of building drive and motivation, in the organisation. This is where the ‘BIG WHY’ comes in.

The earlier the organisation, including line management across functions and geographies, understand and accept that, why and how the transformation will take place, the easier the following steps (e.g. change management, communication, business process optimisation and training – more about this later). Examples of key questions and messages:

The BIG WHY! Why are we doing this?
Exactly what will the new ‘new’ look and feel like?
When and how will this happen?
What is in it for my function?
What is in it for me as an individual?

A digital transformation should be governed like any other strategic venture (i.e. an IPO, an acquisition or an investment in a new plant) with the Board reviewing, approving and overseeing the investment and with the CEO (CFO, CIO or COO) sponsoring the program.

Finally, referring to the building analogy, one reason digital transformations fail is related to the high level of abstractness regarding final outcomes, comparing with a high-rise building, such as the Shard, which can easily be modelled, visualised and described in detail. This puts a huge demand on senior stakeholders and program management agreeing on and conveying the organisation with a crystal clear picture of something fundamentally abstract.

SOME PITFALLS TO BE AWARE OF

Lack of public, continuous, support from senior management

Today most executives understand IT and the importance of digital, cyber security and so forth. Still, it is vital that Executive Management are publicly committed, engaged and supportive rather than ‘abdicating’ because it is an investment largely in technology. The CIO plays a key role speaking ‘IT’ in business terms, supporting executive peersand supportive rather than ‘abdicating’ because it is an investment largely in technology. The CIO plays a key role speaking ‘IT’ in business terms, supporting executive peers.

Steering committee

A steering committee (SC) control and support the program. Ideally, this is the management team with the CEO as sponsor and chairman (or a subset of CXOs if the transformation isn’t enterprise wide). The SC meet monthly for control, strategic decisions (e.g. scope changes or mitigations) and play a role as ambassadors for change and in business-wide communication. The program director reports to the SC and global BPOs should participate in these meetings.

Program sponsor

The sponsor should invest sufficient time supporting the programme – a lot can be delegated to programme management. However, full commitment and frequent engagement from the sponsor is vital, and, he/she should have program success as a key performance metric.

Changes to top management or priorities

It is likely there will be changes among executive management during a transformation cycle. Onboard new executives and seek their support as early as possible. The sponsor also need to ensure that consequences on the program are taken into consideration and adjusted for when ‘conflicting’ business decisions are made.

2. GETTING THE BASICS RIGHT

This is about ensuring that the fundamentals are in place before the actual transformation kicks off. If not, it would be like starting to build a house without having permits, blueprints, budget, requirements, time plan, a builder and contracts in place.

Most critical success factors are interdependent during a program cycle. However, ‘the basics’ should largely be defined and agreed before the program starts. During this initiation phase, the early high-level concept is developed further, resources and partners secured and prerequisites are taken into consideration.

To have everything planned sounds like a great idea, but is not realistic as there will always be ‘unknowns’. As Dwight D. Eisenhower put it; “plans are nothing, planning is everything”.

Address the following, ensuring that most aspects and dynamics are considered, before a final go-decision is made:

1. Governance – how to steer, control and execute the transformation
2. Planning – budget, milestones, time, resource plans and status reporting
3. Business operating model, blueprint, specifications and change process
4. Change management, communication and training
5. Organisation (e.g. partners, internal / external competences, business process owners)
6. Project- and development methodologies and test strategy
7. Enterprise architecture, master data, information and cyber security
8. Application management, test cycles, release planning and systems performance
9. Business- and success metrics – how do we know we are winning the game?

The list is indicative only. Some ‘basics’ may be developed further during the implementation phases. The purpose of ‘getting the basics right’ is to avoid any ‘missing pieces’ which otherwise may require unexpected investments. NB: this article focus on 5 critical success factors and does not cover every apect of a successful digital business transformation.

SOME PITFALLS TO BE AWARE OF

Business process ownership and organisation

Ensure there is a BPO organisation and BPO governance in place before the transformation begins – see 3. Change Management for more details.

Master data and other complexities

Ensure that master data is harmonised before initiating the transformation. One client discovered that two business critical applications were based on different information models making integrations very complex and expensive. Another client decided to drive a radical SKU reduction just before go-live of a major ERP implementation. Key words include global pricing strategy, harmonised terms and conditions, labels / QR codes and so forth. Try to identify and reduce such complexities by running pre-program projects. This might delay the program start, but may also radically reduce time to market and overall investment.

Application management

Moving to a cloud based ERP platform, such as Microsoft D365FO, will require investing in resources inhouse or contracting an application management partner to ensure a secure and reliable IT service, as well as, preparing for and carrying out regular system upgrades (typically 3-4 version upgrades per year and instance).

Testing

Linked to application management; quality assurance and testing is an important part of any digital transformation and often underestimated with regards to planning; time, resources and money. Be prepared to invest in a specialist test team, an experienced test manager and ensure that the end-user community is engaged in developing relevant test cases and being part of any pre go-live testing as well as regular (monthly and quarterly) system upgrades.

More about testing

Ensure there is ample time after UAT (user acceptance testing) to fix issues which otherwise will be carried forward as part of the live system. Early engagement and onboarding end-users as resources is also key.

3. CHANGE MANAGEMENT

Lack of line management’s buy-in and not engaging the end-user organisation early in the transformation are all too common. (This is like building a new family home without engaging the spouse, or the children, first).

Regardless of where the initiative comes from, unless all stakeholders understand and buy into the objectives, there is likely to be push-back instead of buy-in and engagement.

It is equally important to engage the future end-users from day one – as they will be more likely to accept, agree to and even help develop, new, better ways of working. They also form a core team in testing, end-user training and optimising new ways of working.

Get everyone onboard! (McKinsey refer to this as ‘mass-mobilising’ to create a culture of executing excellence). Create regional, cross-functional teams within the Business Process Owner structure which can identify best practice, improved ways of working (look in-house, at suppliers, competitors, market leaders and so forth), value drivers and quick wins when laying out the Blueprint (end-to-end processes across functions and regions).

Ensure there is a defined BPO organisation and BPO governance in place before the transformation begins. The BPO community own the future state, identifying value-drivers, quick wins and designing the new business operating model.

BPOs need to work cross-functionally and cross-geographically to ensure that e.g. seamless end-to-end, customer-centric and automated processes will be accepted and deliver the value sought for. The BPOs are also responsible for change management and training strategy / planning well before go-lives.

SOME PITFALLS TO BE AWARE OF

Communication

Do not underestimate the importance of regular communication across the enterprise, using various channels from start to finish of the program. Appoint a communication manager or team to support regular newsletters, stakeholder interviews, videos and ‘open’ townhall meetings to help building awareness and buy-in. Remember to celebrate success!

Training

Team up with an expert training partner unless significant inhouse resources are available.

Leadership

Together with senior stakeholder support, program management and BPO leadership is fundamentally important for successful change management. The level of passion about change will set the tone for the rest of the organisation.

Recruiting

Interview candidates before appointing them to key roles in the program. Try to assess their skills and commitment to change (someone who has managed a customer facing team for the last 25 years is not necessarily the best candidate to design the future ways of working).

4. SKILLS AND EXPERIENCE

One if the first ‘high-rise’ buildings in the western world was the White Tower, at the Tower of London. It was built by William the Conqueror during the early 1080s, i.e. almost 1.000 years ago, subsequently extended and it still stands. We have generations of skilled people and successful businesses having delivered such infrastructure projects for one millennium (not decades or centuries).

Digital transformations, on the other hand, have by definition been carried out for a few decades. Before you start or even consider your transformation, ask yourself; “what experience of delivering digital transformations do we have as an Executive Team”?

Another challenge is that businesses (read: people) skilled at e.g. process optimisation, factory automation or customer journeys are often not as skilled in information technology, and vice versa. Even if we manage to onboard the best system implementation partner in the world (most claim they are just that), we will likely not get the needed transformation skills. IT companies are technology focused and they should be!

We need different skill-sets to manage people (HR, change management, communication), process (business development, operating model, best practice) and technology (software, cloud / HW, information and cyber security). Few, if any, implementation partners can deliver a complete team covering all aspects needed at a cost most businesses can afford.

Finally, when partnering, make sure there is a truly mutual and long term commitment to deliver business benefits, and, never, ever, enter a contract on a “cost and material basis”.

5. STICK WITH STANDARD AND DEFINE SCOPE BY PHASE

STICK WITH STANDARD

Buying standard IT systems (e.g. ERP, E-commerce, CRM) and designing bespoke systems are two totally different journeys. Vendors such as Microsoft have invested significantly in e.g. Dynamics 365FO. Their software package is designed based on a set of standard and predefined ways of working (“best pctice”), configurable to your business’ needs.

Illustration: Would you consider re-arranging the bathrooms or adding a floor after buying a pre-fab home?

In reality, the number of change requests when implementing a standard IT system can be staggering – where each deviation require software development and consequently increased risks, complex version control and higher maintenance costs.

The blueprint may eventually deviate so much from original, that all the programming, new integrations and additional testing and subsequent bugfixes will cause the entire program to fail or be significantly delayed at a significant higher cost.

Therefore, define and configure the blueprint based on best practice and avoid any code changes, even if it means a lot of people will have to learn new (better?) ways of working. Hence the need for firm change control and an approval- (read: rejection) process.

DEFINE SCOPE BY PHASE

Think BIG, start small and invest time in planning the venture; “Eat the elephant in pieces”.

Start with a MVP (Minimal Viable Product) and develop or buy more functionality in future development sprints once live with release one. A transformation consists of a series of steps / projects gradually leading to the desired state.

Make sure you have a defined roadmap outlining the sequence of each phase, geographies and business functions, as well as time lines and budgets.

The roadmap and program plan should include key domains for each phase, such as:

Enterprise architecture and master data
Blueprinting / new business operating model and change control
Configuration of IT systems and integrations
IT (HW/cloud, networks, IT security et cetera)
Testing
Change management and training
Communication
Go-live planning (internal and external)

SOME PITFALLS TO BE AWARE OF

Too many (or no) architects

A dedicated enterprise architect and clear architectural principles are key. IT integrations are one example – without integration standards it is hard to implement an ERP solution.

Vague requirement specifications

It is imperative that the sponsor and BPOs take ownership of requirement specifications (imagine not engaging in the detailed design of a house until it is ready for moving in)?

Go-live

Plan for the worst! Things will not work 100% as expected from day one. Inform suppliers, customers and other parties. Train the organisation and ensure that they are ready. Rehearse the system cut overs and the go-live (and rehearse again). Stock up on inventory.

ABOUT THE AUTHOR

Bjorn Ovar Johansson is the Founder of Senior IT Executive Limited. He is active as interim CIO and advisor in EMEA, the US and APAC. Based in Manchester, he specialises in IT organisational turn-arounds and digital business transformations.