Digital transformation is a long-standing buzzword that means different things to different people and organisations. The reason it can be ambiguous is different strategies drive different transformation types. My goal in writing this blog is to introduce three common types of transformation and their goals and challenges. I’ll also share some insights on how to prioritise transformations around customer value and experience.
Who am I? I'm a digital architect, product manager, and startup founder who has seen over 2.5 billion spent on transformation of enterprise and government. These days, I'm quite passionate about building and improving the 'digital factory' that creates, manages and operates 'digital offerings': the subject of another blog. I've seen transformations of the back office, customer experience, and big data and cloud enabled transformations. Hands on, I focus on three things: 1) improving customer and citizen digital experiences across all digital channels, 2) improving and digitising business processes and 3) integration of business processes across many applications and web/mobile channels.
Why do we transform? Organisations are value creating machines which take inputs, use resources and processes to add value, and then provide that value added 'offering' to customers or citizens. This machinery becomes outdated or expensive to operate. This causes the customer/citizen experience to erode and competitive strength to diminish. Worse, regulated organisations can face sudden compliance events which trigger immediate payment of transformation debt (E.g. The Financial Services Royal Commission). Whether it's to lead the market or to catch up, transformation is what executes the strategy to change.
What do we transform? The common types of transformations are.
- Business process transformation. Preceded by business process re-engineering (BPR) from the 1980s, this approach analyses existing processes with a goal to changing and improving them. BPR evolved and new methods and tools emerged to better achieve this (BPM, BPMN,SOA, etc). Later I'll describe three main sub types of business process transformation, value enabling, core value, and back office processes.
- Customer experience transformation. This focuses on the layer between the customer and organisation and includes the customer journey, digital channels, and brand management. The experience is both enabled and limited by the maturity of an organisations business proceses. A great experience can mask weak processes, but only so much. I view the customer journey as a specialised type of process that's a horizontal, linear or circular journey across that consumes business processes. It should identify customer tasks, pains and gains.
- Business model transformation. Transformations of the business model deliver new products, new markets, or shifts in how revenue is earned, e.g. from once off sales to recurring revenue. It can also include adding digital services to existing tangible products, or creating new purely digital, intangible products. A consequence of a new business model may be further transformation of existing business processes, ie a business process transformation. The disruptive nature of business model transformation and blue oceans is something that excites me.
What about process resources? Process resources fuel and drive business processes – they include people, machinery and technology. Changing or restructuring existing resources, without adding new resources to automate old tasks, or not re-organising tasks isn't really transforming anything. Increasing or decreasing the resources won’t change the process, it only affects the output volume, quality, or quantity; the process is unchanged. A change in the sequence of tasks, or different resources performing or automating the task is the basis of transformation.
Is data a resource? Yes. A couple of years back I helped productise/industrialise a data lake for a global mining company. One of the goals of the organisation was to become a “data driven” organisation. The data lake was central to this as it allowed all data to be made available to anyone, on demand, excluding sensitive data. This allowed employees, processes, and connected devices to “dip into the lake” to be better informed – to gain insights during and after processes execute. The lake did not change existing processes, rather it fueled them with data, making them more informed. Because processes don't change, I am not including 'data driven' as a transformation type.
Is going to the cloud a transformation? Only if the process changes. The early reason to go to the cloud was the hope of reduced infrastructure costs. It was about shifting resource costs, not process improvement. Today cloud computing offers new possibilities to transform value in new ways – but the process being innovated comes first, not the technology.
Earlier I mentioned three types of operational processes that can be transformed (described below). Which ones to target for transformation depends on strategy. If the strategy is to be more customer centric, then the processes that create and deliver the highest customer value should be prioritised. This requires the customer journey to be modelled to expose customer tasks, pains, gains, and prioritises them. These are then mapped to the value creating processes that enable the journey in a visible, transparent, manageable way (This requires new methods and tools, which will be the topic of another blog).
- Back office processes. These processes don’t interact with customers and transforming these reduces costs, improves efficiency, productivity or compliance; but won’t create direct customer value. Back office processes are common amongst most organisations and support the value chain.
- Value chain processes. These processes take external inputs and create the core value of the business. Think of Google’s crawl, index, search, advertise processes; or, a mining company’s explore, build, mine, refine, transport value chain. These types of processes are specific to an industry or organization.
- Customer experience enablers. These deliver the core value made in the value chain to the customer experience and (hopefully) are available via digital channels. These processes help enable customer experience value, and can add secondary value (eg. integration with vendors via microservices). Think of insurance claims, accessed by a claims portal (customer experience) which realise the value in an insurance policy. Another example is order tracking which inform customers of the product (main value) they have purchased.
Shown below are all transformation areas I have addressed. It shows the customer experience consuming core value delivered via enabling processes, supported by back office processes. It also shows business model elements. When choosing what transform, consider the strategy. Is it cost, productivity, new value, quality, or direct customer value? If it is customer value, is ‘above the line’ innovation being created which makes the customer think “wow, I didn’t know that was possible”, or, is the value being delivered going to result in “finally, you did what everyone else offers”. I recommend balancing above the line and below the line, even if your organisation is a follower.
What does each transformation type get you? I have described three main transformation types, with business processes split into three sub-types.
The table below outlines these, restates the focus of each, and what they should give you.
Finally, here's a a few things to consider for transformation.
- Baseline existing processes. How do you manage, let alone transform something unmeasured? This is the single most important mistake and challenge I have found in all transformations I’ve worked on. Capturing current state, including process metrics is a must as it inputs to all transformation stages: business case, new process design, new journeys, new business and system requirements, new work instructions/change management, and calculating return on investment.
- Focus on the customer journey, customer pain, and customer gains. Balance above the line experience with below the line. Invest in good experience design tools that can show journeys, market specific journeys, customer tasks, pains, and gains, and can integrate with development and ticketing tools (Atlassian, Jira, etc). This goal is transparent, measurable, manageable customer value creation.
- Implement business process technology for core value chain processes that capture process meta data. BPM systems do this and have existed for decades but are not well understood nor implemented. Deploy microservices to deliver core value to the journey.
- Have a data strategy to capturing and fuel processes and resources with data (people, AI, sensors, etc). The goal is universal data capture, refinement, and delivery on demand: this enables insights for people, processes and machines.
- Invest in good integration capabilities to integrate business process and application. This will plumb up the business processes so they can operate in real time across systems, organizational boundaries, and with the customer experience. Invest in ESBs, microservices, and experienced integration developers who can expose data and processes to the customer, supplier, and employee experience.
- Craft a 5 year vision and 2 year goal centric plan with iterative roadmaps – be persistent and prepared small to medium sized shifts. Transformation and disruption take time. Amazon spent over 5 years with investment in warehousing and logistics before their online store could take off – the value chain processes need to be built so the customer experience could be delivered.