In Digital Transformation, the “Transformation” is the important part

Digital Transformation for the betterment of your business can be a daunting task. Check out our key insights from our AIM Power Consulting Partners

Power Generation Expert

By Craig Nicholson

The pressure to “Be Digital or be a Dinosaur”

Current thinking is that in order to sustain a competitive advantage your business needs a digital strategy. But is this driven by the promise of efficiency and effectiveness or by the fear of missing out and becoming obsolete? What should your strategic goals and objectives be and what are the downside risks? Furthermore, are there parallels or a precedence that can be drawn from?

One example: The ERP story

The general promise of a digital transformation is to provide better access and usage of company data to improve specific business outcomes.

In this regard ERP systems checked multiple boxes. Standardization of reporting, structured workflows, access control ensuring segregation of duties and automation of the entire financial system. All strategically logical and prudent for a company to undertake.

But it hasn’t been a smooth ride. In fact, at times it has been a disaster. Take for example the US Air Force’s abandoned ERP implementation after $1 billion and almost 10 years, or the UK national health system’s $12 billion ERP system which was scrapped, and Hewlett Packard’s ERP switch which ultimately cost $160M in backlogged orders and lost revenus, five times more than the cost to implement.

“Businesses have boundaries with bottlenecks and inefficiencies, which form the basis of the structural integrity of the organization

Underlying current #1: Company Organics

Simply put, businesses are organically grown and generally build new things on top of old things. Further, within any mid to large sized organization there are disparate groups and subcultures that operate with various levels of independence and interdependence. Typically, the balance of interfacing between groups are such that each group can interact to meet or exceed corporate expectations (interdependence) while maintaining levels of autonomy and locus of control (independence). In other words, businesses have boundaries with bottlenecks and inefficiencies inherently driven by historical and human factors. More importantly, these boundaries form the basis of the structural integrity of the organization.

Underlying current #2: The Human Factor

At an individual or group level, change is hard at the best of times. However, if a digital transformation project is perceived to have a negative effect on either independence (I can’t do my job as well as the old way) or interdependence (I now rely more on others to my detriment) with little perceived benefit for those affected, the project is likely to encounter bands of structural resistance. Think of these boundaries of independence and interdependence as the frame of a house and digital transformation is network wiring of the entire house. One can fish wire through drywall or drill through 2×4’s, the latter is significantly harder and removal of too much material may affect the structural integrity of the house.

If Uber and Lyft were more expensive or less accessible than taxis would we use them? If Amazon products cost more than brick and mortar store products would we buy them? If a digital technology in a company adds to an employee’s daily burden, it should be dead right out of the gate regardless of the benefits for the management team. Sometimes this death takes a long time to be realized before the project is abandoned.

Underlying current #3: limits of technology

Technology alone cannot change human behavior. As we look forward to future innovative technologies driving strategic objectives, the key takeaway is digital transformation at is core, is a form of process and organizational disruption for employees.

As mentioned, disruption that materially changes intragroup autonomy, independence or work burden with little perceived benefit, will be met with resistance. Further, a prerequisite for interdependence is independence, in other words, a group’s ability to act for the collective good of the company is a function of intragroup autonomy. Such changes risk tearing at the structural integrity of the company. As in the highlighted ERP cases, such attempts to disrupt these dynamics with technology alone turned out to be very costly having a negative impact on business. Furthermore, most of the effort is focused on functional product implementation rather than the user. History has shown us organic bottlenecks and organizational inefficiencies driven by human behavior cannot be abated by technology alone.

Winning the transformation game

Change management begins with engaging the people involved in the new process. As we’ve highlighted in prior blogs, successful digital transformation starts with intimate knowledge on how the business makes money and how digital transformation will improve on that position. Next is seeking feedback and developing a deep understanding of how the area of a business being considered for transformation truly functions including actual processes, norms and intra group interactions inclusive of bottlenecks and inefficiencies. Just as important is understanding why such latencies exist and how any digital technology may assist in mitigating such latencies as part of a holistic solution.

During the process of understanding current state, underlying assumptions in the transformation strategy will be challenged and unintended consequences realized leading to modifications and improvements to the plan, perhaps addressing organizational inefficiencies in their analog form or possibly abandonment prior costly implementation. Digital transformation is disruptive in nature and change is hard in human nature, during any such disruptive change, perhaps the last piece of any digital transformation should be the digital technology itself.

For additional discussion

eric.kauffman@aimpowerconsulting.com

bill.ray@aimpowerconsulting.com

craig.nicholson@aimpowerconsuting.com

www.aimpowerconsulting.com

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