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Issue 22: Part 6 - A 5-Stage process for Digital Transformation
Democratising and demystifying the process
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In trying to explain Digital Transformation to organisations that are interested in it, we technical people tend to lose sight of the big picture and confuse business leaders by burying the discussion in technical jargon, this is direct feedback I’ve received recently. In order to deal with this, I thought I’d try to demystify the subject, this is the first attempt.
On to the issue:
In the previous issues I have written down some practical examples of things to do to help you along with your Digital Transformation, but what I omitted to do, was to show you how this fits in the overall process of Digital Transformation and therefore guides you in deciding how to start.
This following few issues of the newsletter will try to rectify that.
Digital Transformation in 5 stages
In discussing Digital Transformation with a number of managers and directors over the last few months, I’ve seen a fairly common response to the topic. They typically don’t have a clear picture of what it is and more importantly, how to start.
As a result, I thought I would outline a plan to help better understand how to implement Digital Transformation in your own business. This is an issue directly targeted to those who have been charged with the task of modernising, digitising or otherwise developing digital tools in their businesses. If you know of someone in that role, please forward this email on to them and get them to sign up, as the next few issues will help them get started.
Just for a second, let’s take a look one more at one of the definitions of Digital Transformation — there are lots of them, but I find this one particularly succinct and accurate:
“Digital Transformation is the methodology in which organizations transform and create new business models and culture with digital technologies” - R Wang, Constellation Research
From this definition, as offered, we see that it is not a project, nor a plan, but a methodology by which to follow, that will have an effect on your company’s culture and its business model(s).
I generally think of Digital Transformation as a 5-Stage plan:
Audit and Analysis
Audit is the starting point. You can’t expect to define a strategic plan if you don’t know from what position you are starting from. This part requires a deep internal reflection, as well as a detailed external analysis.
The internal and external assessments, sometimes known as the micro and macro analysis respectively, were discussed in some detail in Issues 10, 11 and 13. These are not the entire story to complete the necessary evaluations of your business and market. There are several tools, some better than others depending upon your particular situation, so I'll touch on a couple here to give you a starting point.
Internal: Functional Analysis Diagnostics
A simple table helps you determine your strengths and weaknesses vis à vis your competitors. The table essentially splits your organisation up in to its component parts, Accounts, Sales, Marketing, Logistics, Technical, R&D, etc. Try to be as discerning as possible to create an exhaustive list. Once you have this list, start thinking about the criteria you wish to judge the success or otherwise of these functional units, i.e. In sales there are a number of KPIs that are important to measure, things like; number of new clients per month, sales conversion figures, profitability, etc. You’ll know what is best for your organisation of course. However, I would suggest doing some research to determine what other organisations measure in the various business units, as this might give you some further ideas.
This should produce a table with 2 columns, one for the business unit and the second with the KPIs you have just listed. Take this exercise on over a few days or weeks to give your mind time to develop ideas.
To complete the exercise, and this is the tricky part, you need to determine a scale on which to judge your organisation in comparison to your competitors. 1 to 5 is a good starting point, with 1 being poor and 5, excellent. This is very difficult because in some cases you will need to make assumptions based on your (limited knowledge) or make investigations and do the research required to gain this insight.
The end result is a table that gives you a profile of your international organisation with respect to your competitors and should show you where you are better or worse than your competition. If you’ve been following along, this should immediately alert you to the areas that need work to improve!
Internal: Value Chain
The Value Chain was discussed in Issue 11.
Internal: Strengths and Weaknesses
The next area to determine are your strengths and weaknesses from a global perspective of your organisation. Whereas the functional analysis broke it down to individual functional units, we concentrate on the broader parts of the business and the areas in which you excel as opposed to doing not so well. Using the previous tools will help you reveal areas that you consider your strengths and your weaknesses.
This could be something more transversal like your price/quality ratio; are your products and services better priced or of better quality? Can you quantify this? Do you have feedback to prove disprove this analysis?
Your reputation in your chosen market is also something to consider at this point; do you have a good/bad reputation? Do you have strong program on-boarding new clients, maintaining a relationship with existing clients?
Astute observers will notice that this is only half of the well-known strategic tool, the SWOT — Strengths Weaknesses Opportunities and Threats. The OT will be discussed in another issue, we’re not there yet.
External: PESTEL Framework
Issue 10 discussed the framework typically used to examine the external factors that have an impact on your business. There’s even a handy template you can copy to get you started.
External: Porter’s 5 Forces
Like for the PESTEL Framework, I went in to some detail on Michael Porter’s 5 Forces model in Issue 13.
Key Success Factors
One thing I didn’t mention in previous articles, is a tool that can aid in your understanding of the factors that are most important in a market, which, if you compare against your strengths and weaknesses — determined previously — you may find that you are aligned or not.
This requires some thought and research as it directly asks the question, what does the market determine is the value of a particular product or service? This can be understood through several exercises. You may have internal data that shows that prices of your products have steadily been falling (or rising) which would indicate a lowering of perceived value for the client. However, as nothing exists in a vacuum, it may be the fact that there are more competitors who have entered the market, offering the same product or a substitute that is perceived to be equivalent or better for a lower cost.
This is an activity that needs to be repeated for all the links in the value chain to determine where your organisation is gaining its value. Looking at this thoroughly will help you concentrate on areas for improvement, which, by this point leads us nicely in to the next stage in Digital Transformation.
Segmentation and Targeting
Whilst mostly informative for external issues you wish to change — your product offerings, your services, fidelity programs, etc. — segmentation and particularly, client profiling are tools to better understand your customers and their aspirations in a particular market.
Segmentation is simply the process of dividing up the potential client base into logical groupings. Segmentation can be done in a myriad of ways, so I'll just give you an example. You can segment by feeling if you know your market very intimately, but I prefer to follow a few rules and processes as its tends to give better food for thought.
Detailed Market Research is a starting point I always use for segmentation purposes. Knowing the market in which you intend to operate requires a detailed understanding of its components, the people, the processes and dynamics. Some of this work you will already have done using Porter’s 5 Forces, but data is required to determine the size, the GDP, the sectors that operate in it, the growth rate. You need to understand the demographics, population statistics and current education and unemployment rates. These all have an impact on the attractiveness of your potential market.
The most effective way to come to a conclusion on the segment to target is to distil all the research data down in to a spreadsheet and score the various elements based upon your interpretation and have it checked over by an independent.
I generally create a table with the market types listed as columns. Each row then represents a criterion predetermined as important to compare/analyse — typically financial, structural, cultural, technological and opportunity for growth/development. These are just suggestions and you should develop your own, that light be more pertinent to your segment.
Score each criterion using a 1 to 5 or 1 to 10 rating, with the totals determined as the last line of the table. At this point you should have one or two clear scores that are objectively higher than the others. They warrant further verification but are strong candidates for the segments you should target going forward.
Nothing is stopping you do this exercise using differing criteria, and in fact I would encourage you to do so to give you the most information possible to determine the segments that are most appropriate.
No, this is not creepy Facebook-type data collection, rather, a more humane evaluation of your clients and their pain points that you wish to resolve through your offerings. It starts with the Empathy Map. Using the empathy map, you tap in to the mindset of potential customers you’ve identified using the segmentation techniques describes above. The goal is to get you away from the typical organisation-centric point of view that tends to lead to solutions looking for a problem. We’ve all seen the product that doesn’t actually solve a well-defined job to be done; Tim Cook once described this phenomenon during an Apple Earnings Call in 2012:
"You can converge a toaster and a refrigerator,"
He went on to say that it wouldn’t please anyone.
The Empathy Map, from XPLANE, and looks at problem-solving from a customer-centric point of view, asking simple questions and depending upon the level of detail or accuracy required, interviewing or otherwise surveying them to get a better picture from their perspective.
Broken down in to 6 parts, the Empathy Map is a concise and simple to use tool to gain insight for the direction of your next products or services and it drives your thought process beyond the simple demographics I’ve outlined in the segmentation analysis. Getting to know the behaviours, worries and wishes of your clients is helpful to development of those products and services, be them internal or external. Remember, the trick is to use this tool for each segment previously identified. Additionally, try to personify the chosen segment, by giving the person a name, age, marital status, job title, situation and further context.
Think and feel
Try to outline what the mindset of the chosen profile is, what he or she thinks, using the following questions as a starting point:
What is important to her?
What are her fears, frustrations and anxieties?
What are her hopes and dreams?
What are her needs?
Try to imagine her emotions and what affects her
What might keep her preoccupied?
Outline what it is he sees in the environment from his point of view:
What does he see in the marketplace?
Who is around him?
Who are his friends?
What problems does he see?
What does he see others saying and doing?
What is he reading or watching?
Say and do
Try to empathise with what the person might say and do in their given situation:
What is her attitude?
What is she saying to others?
What has she actually said?
What might she want to say but has not?
How does the immediate environment affect her day-to-day life:
What does he hear others saying?
What are his friends or colleagues saying?
How is she influenced?
By whom is she influenced?
Describing the pains here, gives us a good insight to the types of solutions we can offer to ease the pain:
What are her biggest frustrations?
Are there any obstacles preventing her from completing her jobs?
Are there risks that are too great fro her?
Gains indicate the things that are perhaps currently working or an aspiration on the part of the profile we’re analysing:
How is success measured for him?
What might he be doing to achieve his goals?
If some wants and needs are being fulfilled, how is this being achieved?
I hope this puts in to perspective and helps you start your own methodology. If you have any questions or want to discuss your own projects, please let me know, I’d be only too happy to see how I can help out.
Join the Slack channel to keep the discussion going.
The next issue I will cover the 5 levers in Digital Transformation for your first projects in Digital Transformation, it is here the real value is revealed.
A discussion on the importance of change-management in Digital Transformation from a HR perspective. Understanding in this domain, is critical for success in your own progress.
The Future is Digital Newsletter is intended for anyone interesting in learning about Digital Transformation and how it affects their business. I strongly encourage you to forward it to people you feel may be interested.
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