How to Jump-Start a Digital Transformation

How to Jump-Start a Digital Transformation

          
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How to Jump-Start a Digital Transformation

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    In contrast to industries like media and retail, where digital technology has been a significant disruptive force, process-oriented industries such as energy, transportation, industrial goods, and health care have not yet seen its full effects. (See Exhibit 1.) For management teams in these industries, it can be difficult to know how to start implementing digital technology—or even to see the need.

    exhibit

    September 2015
    How Five Companies Launched Digital Transformations
    These case studies illustrate how companies in every industry can capitalize on digital by launching small-scale projects and building up their capabilities through real-world experience.

    As a result, many companies have yet to take action to capitalize on digital. Some of these late adopters say they are hindered by legacy IT systems or don’t have the necessary capabilities in place. Others spend months studying the market and getting bogged down in large-scale strategic and conceptual considerations, believing—incorrectly—that they need to understand how and where the journey will end before they can take the first step. The development cycles of digital technology are extremely rapid—far faster than for most traditional products and services—and this deliberate (and outdated) approach means that these companies are essentially fighting yesterday’s battles.

    Given the pervasiveness, low cost of entry, and potential impact of digital technology, it’s imperative that late adopters act today to launch new digital products and services and digitize internal processes. This means they must implement far more nimble development processes and become far more comfortable making decisions amid uncertainty. Rather than using a top-down, strategy-driven approach (which worked in the past), these companies need to innovate using build-assess-learn cycles, even when not entirely sure of the outcome. They need to focus on pilot tests and prototypes that can be developed and rolled out quickly, assessed for performance, and scaled up (or shut down) accordingly. They need to embrace the concept of “fail fast and fail cheap” and build up their digital capabilities through direct experience. And rather than making a single big, strategic bet, they need to manage multiple initiatives, trying out new business models with low sunken costs, killing off the losers, and scaling up the winners.

    Our experience with companies in virtually all industries shows that success with this kind of trial-and-error approach requires a structured transformation methodology built around three steps: securing quick wins at the outset, scaling up successful initiatives, and leading and sustaining change. (See “Three Stages of a Digital Transformation.”) Together, these steps can help management teams determine where to start, how to manage the process, and how to generate sustainable progress with their digital transformations. (See Exhibit 2.)

    Three Stages of a Digital Transformation

    BCG has helped clients in all industries launch transformations across a range of functions and disciplines. Based on that work, we have developed a three-part methodology:

    • Launch quick wins that generate financial results in 3 to 12 months, free up capital for the overall effort, and establish momentum.
    • Win in the medium term by developing the business model and operating model to increase the company’s competitive advantage and fend off new entrants.
    • Lead and sustain performance by building capabilities and designing the organization to build on performance gains over time.

    In a digital transformation, these steps are slightly modified. The process still starts with quick wins, but they are aimed at rapidly developing new digital products and services and improving the customer experience (rather than freeing up capital to fund a longer journey). The second step in a digital transformation is to scale up the most successful digital initiatives and fit them into the organization in the right way. And the third step is similar: leading and sustaining improved performance over time. (See Transformation: The Imperative to Change, BCG report, November 2014, and The New CEO’s Guide to Transformation: Turning Ambition into Sustainable Results, BCG Focus, May 2015.)

    exhibit
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