Digital transformation: The difference between success and failure

Digital technology -- encompassing end-user devices, local and wide-area networks, cloud apps and services, data analytics, the Internet of Things (IoT) and much more -- has profoundly changed the way businesses operate. However, 'digital transformation' is, in many ways, an imperfect term, as it implies that some magical technology intervention can propel an organisation into a new, more efficient and more profitable state. Of course, with faultless planning, piloting, production deployment and operational management, such a rapid transformation may well be possible. But for many businesses there will be false starts, wrong turns and failures along the way, making for more incremental digital development.

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No surprise, therefore, that at any given time, businesses will vary in their digital maturity, depending on the sector they're in, the quality of their leadership and business planning, and the agility with which new business processes -- both customer-facing and internal -- can be developed and implemented.

The pandemic effect

The social and economic upheaval associated with the COVID-19 pandemic has provided an unsought means of evaluating the role of digital transformation in business. For example, have digitally mature businesses weathered the lockdown and recession better than those at an earlier stage in their digital transformation? And has the pandemic given digital 'laggards' the impetus to throw caution to the wind and adopt more digital technology?

On the first question (differential weathering of the pandemic), researchers at the London School of Economics (LSE) have been examining how businesses have responded to the current crisis, and the role played by digital technologies. (Usefully, comparable survey data are available from the economic downturns of 2000-2003 and 2008-2009.)

The LSE researchers identify four crisis-response scenarios: Sweat the assets (maintain the status quo, work staff harder, shelve IT investments, outsource), which was adopted by 30% of surveyed organisations; Underpin today's business (focus on retaining and recruiting customers, and minimising costs, with technology and other spending limited to supporting these goals), which was adopted by 35% of organisations; Slow the strategy (modify the timescale of the business strategy, adapt it to a less predictable business environment, and maintain planned technology investments at a slower pace), which was adopted by 20% of organisations; and Adapt strategy and build resilience (invest in process, technology and people to ride out the crisis, shift business strategy and gain competitive advantage on a five-year horizon), which was adopted by 15% of organisations.

Compared to previous downturns, there is a high level of short-termism (Sweat the assets/Underpin today's businesses) in 2020/21, but also more long-termism (Adapt strategy and build resilience). The latter observation was attributed to organisations that entered the crisis in good shape or were in 'winner' sectors, with digital transformation a key contributory factor.

In particular, the LSE researchers noted that: "In the recovery, organisations will emerge more technologised than ever before, but some will be much better placed competitively than others, perhaps irreversibly so, partly because of their technology policies before and during the crisis, and their good luck in being in the right sector at the right time. In this respect, the COVID-19 period may turn out as a significant turning point in the history of corporate digital transformation, exacerbating a pre-existing digital divide."

On the second question (pandemic-accelerated digital transformation), a July 2020 survey by Studio Graphene of 502 senior decision-makers in UK organisations revealed that about half of respondents' businesses had added new digital solutions that they were previously hesitant to embrace, while the same proportion had adopted solutions to enable them to continue delivering a product or service:

In addition, 47% successfully migrated their offering from in-person to online, and 39% invested in a technology they had never previously used. These COVID-related digital developments look set to persist, too: nearly two-thirds (65%) of respondents said that the technology adopted during the pandemic will become a core part of their operations and offerings going forward.

Naturally the technology-related response to the pandemic varies across sectors. It's no surprise to find health leading the way when it came to embracing new digital solutions; education, finance and sales/media/marketing were also prominent in this respect:

Commenting on the survey, Ritam Gandhi, founder and director of Studio Graphene, said: "They say necessity is the mother of invention, and the pandemic is evidence of that. While COVID-19 has put unprecedented strain on businesses, it has also been key to fast-tracking digital innovation across the private sector.
 
"The research shows that the crisis has prompted businesses to break down the cultural barriers which previously stood in the way of experimenting with new digital solutions. This accelerated digital transformation offers a positive outlook for the future -- armed with technology, businesses will now be much better-placed to adapt to any unforeseen challenges that may come their way."

Internet resilience

Digital transformation, whatever precise form it takes, is built on the internet and so, even in normal times, internet infrastructure needs to be robust. In abnormal times such as the current pandemic, with widespread remote working and increased reliance on online services generally, a resilient internet is vital. So how did it hold up in the first half of 2020?

This was the subject of the Internet Performance Report: COVID-19 Impact Edition from network intelligence firm ThousandEyes (which was acquired by Cisco in August 2020). For ThousandEyes, 'the internet' encompasses ISPs, DNS, CDNs and cloud networks, from which the company's global sensor network collects and aggregates telemetry data to detect outage events.

The verdict from ThousandEyes' extensive analysis of the telemetry gathered during the first half of 2020 was encouraging:

"Despite an increase in network disruptions post-pandemic, the state of the Internet is healthy. The networks of services critical for modern application delivery, such as CDN providers, continued to be highly available, mitigating the load on Internet backbone infrastructure. ISPs implemented network changes to meet service needs, while in many instances minimizing the disruptive impact of these changes on businesses. Overall, Internet-related infrastructures have held up well, suggesting overall healthy capacity, scalability, and operator agility needed to adjust to unforeseen demands."

So, digitally mature businesses are more likely to survive the pandemic and prosper afterwards, more cautious organisations have been prompted to accelerate their digital transformation efforts, and the internet itself coped well with the increased demands on its infrastructure.

Now let's examine what was happening with digital transformation before we were so rudely interrupted.

What the surveys reveal

Many surveys take the temperature of digital transformation in business each year, covering a mix of organisation sizes, sectors and geographies. Here's a roundup of some key recent studies, the most recent of which managed to capture responses both before and during the pandemic:

Key findings
Now in its 22nd year, the 2020 Harvey Nash/KPMG CIO Survey has a two-phase aspect, with 2,791 responses from before the COVID-19 pandemic (December 2019-March 2020) and 1,428 that were received during the pandemic (May-August 2020). Highlights were:

• An investment surge and budget headaches
  "Global IT leaders reported a median additional spend of 5% of IT budget to deal with the COVID-19 crisis."

• Each industry sector is following its own path
  "Unlike previous recessions, where largely sectors 'rose or fell' with the tide, sector has played a decisive role in how organisations have fared during the crisis."

• A growing digital divide
  "While few organisations would have planned for something as significant as this pandemic, some entered the crisis in much better shape than others...when the crisis hit, digital leaders continued to invest while their peers cut back, and over time we are likely to see a growing divide over digital and business performance."

• A wave of cybercrime targeted at remote workers
  "COVID caused the mass relocation of workers from the safety of their corporate networks to studies, bedrooms and kitchen tables all over the world -- and the attack surface of organizations expanded exponentially."

• A new deal for employees
  "With 43% of technology leaders expecting more than half their staff to remain working from home, organisations are beginning to realise how different a world without location is."

• More proof that business needs diversity
  "Participation of women in technology remains stubbornly low... the research adds further proof that diverse teams promote better business performance."

• The new technology leader
  "At the center of all this lies the technology leader. Many of them emerge from this exhausted, but excited, by the challenges and opportunities of what has become a technology-centric crisis."

• Everything changed. Or did it?
  "There is no doubting the pandemic's dramatic effect on almost every aspect of business and life. But key fundamentals remain."

'Digital leaders' -- defined in the Harvey Nash/KPMG survey as organisations that self-identify as effective in using digital technologies to advance their business strategies -- outperform in each of five business measures, and also invested more in tech to address the COVID crisis:

Key findings
According to Deloitte, seven 'digital pivots' propel an organization's progress toward digital maturity: 

• Flexible, secure infrastructure

• Data mastery

• Digitally savvy, open talent network

• Ecosystem engagement

• Intelligent workflows

• Unified customer experience

• Business model adaptability

Deloitte found that greater digital maturity continues to drive financial performance, and noted that digital maturity's advantages go beyond traditional business benefits.

Key findings
'Transcenders' consistently invest in new ways of working and get significant value on their digital investments (from growth and profits to innovation, customer experience, people and more), said PwC. This 'winning 5%' do the following:

• Build resilience

• Mandate change

• Invest like you mean it

• Put people first

Key findings
Customer experience (CX) investment is set to rise in 2020 as C-suite executives become more convinced of the commercial benefits and prioritise accordingly, Adobe said.

According to Adobe, to be a successful CX leader, top executives need to answer three key questions:

• Is my technology infrastructure CX-ready?

• Am I taking full advantage of technologies like artificial intelligence (AI)?

• Am I winning the battle to attract the talent and skills my organisation needs?

Key findings
More than 60% of respondents who report stalled digital transformations attribute the problem to factors that -- with the right discipline and focus -- organisations can control in the near to medium term, McKinsey said.

According to McKinsey, three actions may help organisations overcome, or even avoid, a stalling of their digital momentum:

• Build strategic clarity and commitment across the organization

• Improve the transformation's economic model

• Lock in resources and execution capabilities

Outlook

When the business world collided with the COVID pandemic in 2020, digital transformation -- much discussed and variably implemented in preceding years -- came sharply into focus. It might be expected that more digitally mature companies -- making widespread use of cloud apps and services, with a flexible and mobile workforce, good online customer experiences, and mastery of data and analytics -- would be better equipped to cope with the crisis, and recent surveys bear this out.

Of course, some sectors are more suited to life in the 'new normal' than others, and disruption is inevitable as the economy adjusts. Although the pandemic will spark a burst of digital transformation among 'laggards', there will inevitably be casualties along the way, and affected employees will need support. On the plus side, the severe social and economic shock of 2020/21 may leave surviving businesses better prepared to cope with similar crises in the future.

See Also

• State of Sales 2020: Companies are accelerating digital transformation in pandemic times
• DocuSign CEO sees the new digital way of life outliving the pandemic
• Working from home: The 12 new rules for getting it right
• 6 steps for preparing a reluctant business to digitally transform itself
• COVID-19 widens the digital innovation gap (TechRepublic)
• IT leaders adjusting to expanded role and importance since coronavirus pandemic (TechRepublic)