What enterprises will focus on for digital transformation in 2018

Up until this year, organizations could often afford to overlook the bigger picture for various digital upgrades, improvements, and modernization. In 2018, these threads will now become so connected that increasingly holistic digital transformation efforts will focus on more customer and worker-centric models for better organizing how they function to avoid disruption while creating value faster and more effectively.
Written by Dion Hinchcliffe, Contributor

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As technology and business leaders prepare their final tweaks for their digital plans in 2018, there is certainly evident some pace fatigue, combined with a growing sense that digital change is now nearly inevitable and/or omnipresent in both the enterprise and society today.

Last year saw what was perhaps the highest water mark for sense of urgency and desire for faster delivery on results when it came to digital transformation: Customers, internal and external both, are demanding much more these days, with the bar set by the customer experience leaders like Apple, Amazon, and Google. What's more, customers want their expectations to be delivered on far more rapidly that ever before.

All of this has put increasing pressure on IT and business leaders to scale up their ambitions this year while beginning to tackle the end game, or more accurately the end-of-the-beginning game: Truly reorganizing their traditional business models from the ground up into a more coherent and effective set of digital products and services that will grow faster than the traditional line of business. Now the urgency is to get there in the next year or two, before potential disruption by a startup or newly transformed competitor.

The data shows that businesses have gotten the message and there is vast investment currently being made in large-scale technology change: IDC recently determined that spending on digital transformation efforts, including technology and services, will grow by 42% by just next year, to over $1.7 trillion.

In the past I've been critical of the staid pace of IT spending growth in the non-technology sector, because of the years of limited development of a strong digital foundation and accumulation of pernicious and hard-to-shed technical debt. How could digital transformation laggards follow the leaders if the leaders have been out-investing them for half a decade or more?

The Digital Enterprise in 2018: Transformation of Customer, Worker, Employee, Supplier Experience

The oft-cited poster children for digital leadership, including the likes of Burberry, Travelex, Nordstrom, and Tesco have managed to engineer combined technology and cultural change for the digital era. But they've also outspent in their industries for years as well. Thus with today's corporate urgency for improved, modern, and seamless customer experience, which has been tied to quite a bit higher business performance overall, it was much needed good news from my perspective that a rearward look at IT budgets of 469 CIOs for 2017 finally showed an astonishing 20% overall increase (at least based on a percentage of revenue basis), according to recent data from SIM International. If this data holds, it's one of the greatest increases in years.

One way to read this sudden growth in IT budgets: Organizations are finally gearing up to tackle the scale of digital transformation.

This then frames up the focus for digital transformation 2018: Speed, spending, and scale are on the top of most tech transformation agendas, with growth being the top business motivation for doing so according to a new Gartner survey of over 2,600 IT leaders. But it's not just these factors in a vacuum. Scale means transforming the top functions of an organization together across silos, and that's at all not easy to do. In fact, most organizations have long avoided big bang change efforts because of the famously high failure rate of such initiatives, or about 70% of them by last estimate according to the Harvard Business Review.

Three Emerging Top Level Domains for Digital Transformation

It's not been lost on many observers that the structure of today's organizations is based on a functional model that is designed for specialization and efficiency in an industrial era, instead of one focused on the major seams and intersections in the organization across which value is created. The latter model was a priority in a world that didn't change very quickly and for which there was high variability and low competition in available services due to geography and other similar factors.

However, with the rise of the Internet and the digital world, change has become the norm and formerly dominant discriminators, like physical location, have dropped sharply in significance in many cases, making every organization compete almost head-on with every other. (Though, there is some evidence however that where your actual digital business is located can matter.) This has magnified the importance of investing where it matters most to differentiate from competitors.

More recently this has had the effect of throwing the customer experience into sharp relief as the most evident and now top factor in attracting and retaining customers. Those that make it much easier for customers to find, buy, use, and get help for their products and servers get an outsized advantage, since switching to a competitor is just a click or tap away. IBM's recent 2017 customer experience study found that of top rated orgs in the category, 80% engaged customers personally, 76% offered customized experiences, and 96% offered omnichannel fulfillment. This is in sharp contrast with those that aren't leaders.

However, even today sales, marketing, operations, customer service, and innovation/R&D are still not organized around a single, consistent customer experience, despite evidence showing that market leaders tend to have high quality, well-integrated customer experiences, much of which is already largely digital today in most organizations.

The reasons for not doing this are many and complex, some having to do with the challenge of wresting these functions away from existing CXOs that very much want to keep them, as well as the relatively emergent, poorly understood, and unproven way that customer experience should best be actually embodied in a modern organization. Put simply, we really don't know the best way to do it yet, although the discrete and disjoint silos we have today are certainly a far cry from what we need.

SEE: How Sephora is leveraging AR and AI to transform retail and help customers buy cosmetics (TechRepublic)

The issue is that customer experience increasingly must have these critical attributes: Omnichannel (or being where most of your customers are most of the time, whether that's Facebook, in a smartphone app, or with Internet of Things devices), a consistent experience across these channels, a valuable customer journey that enables a sustained, growing, highly personalized relationship over time, and ultimately the fulfillment of a customers aspirations and dreams to the fullest extent possible.

But in order to deliver on this type of customer experience, two other closely related experiences -- oft neglected when it comes to digital transformation -- must also be included in the process or the organization simply doesn't have the capability to realize modern expectations in customer experience.

The Experience Laggards: Worker and Partner/Supplier

This is where two new industry discussions have come into play recently, focusing on two other primary digital experiences that make it possible to deliver on customer experience in a sustainable way in fast-changing times: The worker experience and the partner/supplier experience.

Together, these two additional realms of stakeholder interaction, combined with customer experience, represent the three main value streams in our organizations today: Customer experience provides value to the customer, which is what they pay for (in some way or another.) Worker experience is what is used to provide customer experience either directly or indirectly as it's used to operate the resources of the company on the behalf of customer. And partner/supplier experience is used to enable and make effective the experience that faces an organization's ecosystem. Partner/supplier experience actually forms the beginning of the value chain that ends up becoming the customer experience itself, so it's foundational.

Note: Much of the industry discussion at the moment actually uses the term employee experience instead of worker experience, yet it's quite clear that many workers today are not actually employees so I tend to prefer the latter as more inclusive. Be aware that both phrases are used today with the former being the more well known.

However, while customer experience as a concept is relatively well known now, companies are just now realizing that all three of these experiences must be developed as part of coherent and comprehensive digital transformation to a relatively high level in order to realize the promise of digital modernization. This trio of integrated experiences are then the three legs of the proverbial stool for the contemporary organization. To be clear then: Much of digital transformation is actually the process of remaking the old functional silos (marketing, sales, operations, customer service, etc.) into these three much more seamless and continuous experiences that are designed for frequent change, adaptation, and evolution.

Digital change at scale for better experiences

In the coming Experiential Economy, as value creation is dominated by how well these three experiences are delivered, the greatest discriminator will be the ease at which an experience (customer, worker, partner/supplier) meets the stakeholders needs, as well as how well it stays adapted to them. To do this, we've learned as an industry, requires us to overcome what I've called the Engagement Paradox, which observes how there are millions of stakeholders combined that our organizations must address and satisfy, each of which are coming to expect a one-on-one personalized relationship with the experiences that enrich their lives, livelihoods, and businesses.

Mass personalization and one-on-one engagement will therefore increasingly dominate our digital experiences, as will the need for local adaptation and the movement away from one-size-fits-all experiences, devices, and technologies.

In fact, I've explored in the last few years on how I've discovered that digital transformation has steadily become more decentralized as a broader portfolio of local transformation efforts that has some central coordination and cross-pollination of lessons learned and best practices (what I've called a Network of Excellence, with a growing body of examples.) DIY approaches to digital transformation have become possible and are growing ever-more popular, such as low code and citizen developer tools. These then are potential paths in terms of more safely increasing the speed and scale of digital change.

What we'll almost certainly see in 2018 is the rise of digital change agents, formal and otherwise, who are coming to understand these three major focus areas of digital transformation, use their newfound expectation to demand to drive improvement, and begin to deliver on them, restructuring the organization physically and virtually as needed in order to get two key benefits: Economies of scale and economies of change that they need to deliver on a fuller and more holistic organizational experience.

So, while you'll see many business and IT surveys showing that business growth, customer retention, artificial intelligence, analytics, Internet of Things, and other individual priorities top the list of focus areas for digital transformation this year, the real strategic conversation and focus is an entire level up:

How can we best steadily craft and maintain world class digital experiences for all of our stakeholders in a way that avoids disruption and builds a path into the future? This then will be the prime focus of leading organizations in 2018 to put them into a much better digital posture to meet their key business objectives.

Additional Reading

The enterprise technologies to watch this year

Who controls the marketing tech stack in 2017: The CIO or CMO

How customer experience drives product development

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