This is a high level guide to achieve a true digital transformation for an established business:
1. Determine whether you need to transform your business or just add digital to it
Going through a true digital transformation will be a very painful process. It will require changing your DNA. In the end your company will not be the same anymore. This is feasible, if you apply a very modern and tech-driven approach to change management, but it’s not something you do unless you are really sure about it.
Ask yourself one crucial question:
In the long run, will my business model still create value for customers?
If your answer is “probably yes”, you should look at digital as something to improve your business processes, products, services, and consequently value creation. This is the case if you have steady or growing revenues, have a specialized value proposition in an industry that is itself not in immediate danger by technological disruptions. In this case, you should NOT go through a full fledged digital transformation but rather think about enriching your value proposition with digital.
> Read on with step 3 below.
If your answer is “probably no”, your business will most likely not have a “raison d’être” sooner than you can imagine. In this case, a true digital transformation should be your top priority. This is the case if you find yourself facing steadily declining revenues, having a broad, non-specialized value proposition and are facing an environment that is heavily disrupted by technology-driven companies (such as the tourism, media, retail or telecommunications industries, and soon also financial services).
> Read on with step 2 below.
2. If required: Reorganize around homogenous business models
For any transformation to succeed, you ultimately need to start from a structure, that is actually transformable. In order to be transformable, differing business models must be isolated in different organizational units with dedicated responsibilities.
Different business must be in different units before you start the transformation.
It is very common for established companies that their organizational structure is not reflecting different business models, but is instead a complex structure of historically intermingled businesses and responsibilities. More often than not in such cases, top manager’s power is the driving factor behind business structures (and not what makes most sense for a company).
You really must first clean up the mess, otherwise you simply will not succeed transforming your business.
This, of course, is anything but an easy exercise in itself. It means cutting through historically grown structures that are very resistant to change, and your managers will hate it because they will probably loose power. But it is absolutely necessary.
I have seen substantial transformations going terribly wrong because of such governance issues (see the Kuoni case).
But once you do have a proper setup, you’re through the worst part and you can start the actual transformation process. There is one upside in the downside of going through a reorganization first: Afterwards your organization will be in change mode anyway, so just go on and use the momentum to do the digital transformation.
The good thing about reorganizing: The organization will be in change mode now. So you should use the momentum.
You must run through the following steps with each business unit (i.e. business model) individually:
3. Design a comprehensive value proposition per business unit
The strategic center piece for the transformation process should be a well designed value proposition.
A value proposition is not the same thing as a product nor is it necessarily what you use as selling propositions.
The value proposition is the actual added value that customers perceive from using your products or services, compared to your competition or substitutes.
From a strategic point of view, it’s your competitive advantage.
The value proposition must combine the crucial elements of what is value creating in the business already with what will be adding value from digital features.
The value proposition serves as the blue print for product and service development.
If you do it right, it can even serve as your vision!
In fact, for most startups the value proposition is equal to their vision. It’s what they are going to change in people’s lives. This also works for (much) bigger organizations. Well designed, the value proposition will therefore make many things much easier, such as giving orientation to employees, customer focussing and, this can’t be underestimated, a sense of purpose and hence motivation.
If you do it wrong however, you might loose what is crucial for your success and put your existing business at risk.
Concept-wise, this really is the most important and demanding part of the whole transformation because everything will be built upon it. The good news though is:
Once you have got the value proposition, designing the business model around it will be like a walk in the park: You take what is good from your organization and you add what is missing to build the ability of delivering on the value proposition.
4. Derive a product and service MVP from the value proposition
This might sound more of a task that you can delegate down to some product manager, but it really is a strategic one.
The value proposition needs to be poured into the simplest possible product, know as a Minimum Viable Product (MVP) to the 2.0 world. However for established businesses, this is more complex than the single-focused MVP that you would find in your typical startup. Contrary to a startup, which must focus on one singular aspect to have a chance of success, an established business must play a wider keyboard:
The MVP of an established business must contain all (or most) of the elements that are delivering the value proposition already, combining them with new features.
Think of it as the difference between a flower and a bouquet: A startup is like a flower. To succeed, they need to grow a beautiful flower and sell it. By contrast an established business is like a bouquet: You need to arrange many different flowers and pieces of greenery, both existing an new ones, to achieve a great overall experience.
5. Do it. Test it. Re-iterate.
You then need to develop your MVP and push it to the market, as soon as possible.
Be lean, be quick, be cheap.
Try and run, instead of building huge flagship projects.
Whether you try doing the required innovation and development all by yourself or whether you are getting it in from the outside really depends on your particular situation (but, as I outline in the success factors, most organizations are not capable of doing it on the inside).
Once you’re out, get the feedback in.
The most important feedback will be on the Sales side: You should see improvements very quickly, otherwise your MVP didn’t meet a true demand and you need to re-work it. You will need very short, closed customer feedback loops for this to work properly. Without this qualitative feedback, you won’t be able to identify what exactly is good and bad with your MVP.
Then tune your MVP and your business model based on the market feedback, and re-test it in the market.
6. Build a lean and flexible business system
Once you’re in the process of testing and tuning, you’re basically there: You have achieved a proper digital transformation!
You just need to make sure that you really render your business sustainably lean in the course of the transformation. This is possible, even when dealing with the least flexible legacy systems and most change-resistant employees (some of which you will probably need to let go).
Key to it will be the correct governance setup:
Provide orientation, not direction.
After the transformation, your organization will be much more of an organic business system, rather than a rigid structure. Such an organic system is able to reflect dynamically changing market conditions all by itself.
This is exactly the competitive capability that you need these days and where “old-fashioned” business structures ultimately fail.
This is why you should dare going through a true digital transformation.
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