Originally published May 2022, updated June 2024.
More than a decade ago, George Westerman, a Research Scientist at MIT Sloan’s Center for Digital Business, and his team embarked on a quest to answer a question that had eluded them thus far: why do companies with comparable investments in technology yield radically different impacts and returns?
The resulting report was named one of the five most influential thought leadership papers of the decade. The revealing finding is that there are two dimensions to measure digital maturity: digital intensity and transformation management intensity. These two ingredients have different impacts on revenue growth and profitability. Digitally intense companies may drive more revenue from their assets, but they are not necessarily more profitable.
The difference? Transformation: mastering the deployment of technology to reshape business models, customer experiences and operating capabilities. Organizations excelling in this second dimension are 9% more profitable than their peers, while those excelling at both dimensions enjoy a 26% increase in profitability over their peers. Conversely, laggards experience a 24% gap in profitability.
It’s common for leaders to feel excited about implementing innovative technologies but less enthusiastic about embarking on the painstaking task of redesigning their business from strategy to every customer touchpoint, process and job description. This toolbox aims to simplify the latter. While digital strategy outlines “what” needs to be achieved to remain relevant in the digital age, transformation strategy defines the “how” of achieving these objectives.
Defining the “How” in Digital Transformation
The methods for crafting digital and transformation strategies differ. As discussed in a previous article (refer to Anatomy of a Digital Strategy), the “strategy matrix” offers a nearly universally applicable framework for a digital vision. It is a logical sequence, starting with a maturity diagnostic, aligning with key strategic business priorities in the “pillars,” formulating ambitious visions for digital innovation initiatives, and then meticulously planning the development of technical, talent, and execution enablers. The matrix feeds a roadmap that establishes a pace of implementation and change, which must be calibrated to the organization’s ambitions, capabilities and resources. This structured approach not only simplifies the process but also channels creative energies toward defining the “what” within the matrix.
The transformation strategy, on the other hand, is highly tailored to the target organization’s initial maturity level, aspirations, operating model, and practical constraints. Over a decade of experimentation, research, and experience by businesses, academics, and consultants has yielded a set of best practices encapsulated in “building blocks” that can be customized to suit the unique needs of individual organizations. I refer to this collection as the transformation toolbox.
Redesigning the Organization for Digital Innovation
At the heart of a transformation strategy is a constant, organic and methodical retooling of the organization. This begins with clearly assigning each “pillar” of the digital strategy to a senior executive. These executives become the champions of their respective domains, driving technology-enabled business model innovations. The Chief Marketing Officer (CMO) could be responsible for digital customer engagement, whereas the Chief Information Officer (CIO) will in most cases be tasked with the pillar of digital infrastructure.
In parallel, middle management must be organically restructured around key “macro-processes” that are pivotal for disruptive change or organic digitalization. This involves identifying processes that are ripe for digital reinvention or enhancements.
The Transformation Office: Central Command
A transformation office serves as the “control tower” of the entire digital transformation process. This centralized entity orchestrates strategic execution, oversees digital initiatives, manages change, and removes obstacles that impede progress. It is responsible for maintaining the momentum of transformation efforts and ensuring that all parts of the organization move cohesively towards the shared digital vision.
The Digital Innovation Hub: Idea Engine
The digital innovation team (more here) is the source of vision, knowledge, and experience in how technologies will transform the way a company does business. It is the heart of the transformation program and will cement the organization’s ability to innovate by identifying and adopting future technologies beyond the initial vision.
While the name may vary depending on company size and convention – Digital Innovation Center in larger corporations, Digital Innovation Team in smaller ones, Excellence Center(s) after becoming a digital leader – the purpose is similar: a compact but assertive group of specialists to lead the design and implementation of initiatives that bring Digital Transformation to life.
Agile and Fusion Teams: Catalysts of Change
Change is driven by people, and in the implementation of digital transformation, Agile and fusion teams are the established approach. Agile teams are small, multidisciplinary groups that work in rapid iterations and adapt business capabilities to change. They are designed to experiment, iterate, and deliver solutions swiftly.
Fusion teams, on the other hand, combine the expertise of traditional business functions with digital savviness. They are instrumental in embedding digital capabilities into the DNA of the organization without disrupting core operations. These teams are essential for ensuring that digital transformation initiatives are not siloed but are integrated across the business.
The composition, management, and governance of these teams are crucial. Typically, the leads (often referred to as “product owners”) should possess extensive experience in the company’s specific business capabilities that the team aims to transform. They report to the line of business, with the transformation office (and if applicable the innovation teams) guiding the inception and vision, establishing processes, providing training, facilitating change and orchestrating governance.
Ideally, these teams will assume operational responsibility of a small fraction of the business (for example a single or a few stores or branches in a retailer or bank, a few routes in a distribution business) to test the digitally transformed models or processes.
This is why business ownership of the outcomes is non-negotiable. These change-focused teams operate in parallel to “live” functions but are not as pressured for short-term results, affording frontline and middle managers additional leeway and resources to experiment safely. However, design and testing cannot occur in isolation, nor can responsibility be solely delegated to the transformation office, innovation functions or project organizations.
Governance Model: Assigning Responsibility and Streamlining Decision Making
The governance model establishes the framework for decision-making, responsibility, and accountability. It is essential for ensuring that digital initiatives are aligned with the strategic objectives and that there is clarity regarding decision rights and responsibilities. This model facilitates effective management of the transformation process, ensuring that resources are allocated efficiently and that initiatives progress as planned.
Most digital transformation programs result in a “federated” model with centralized teams, typically innovation teams and a transformation office, reporting to a C-level executive. These teams establish and orchestrate agile teams operating within business units. The governance model formalizes the mechanics of this federated system, clearly defining leadership responsibilities, operational accountability, decision rights, and effective coordination mechanisms to manage the program, initiatives, and outcomes.
Reference Frameworks: The Blueprint for Transformation
A critical component of the transformation process is the set of reference frameworks. These are comprehensive guidelines that emerge from the digital strategy, dictating the design and implementation of the initiatives.
Customer Lifecycle
The customer lifecycle framework addresses how the organization will attract, serve, and delight customers in a digital context. It outlines models for customer engagement across various touchpoints, leveraging digital tools to create a seamless and personalized customer experience.
Operating Model
The operating model acts as the “internal cabling” of an organization, describing macro-processes in a silo-less manner. This horizontal approach to design end-to-end processes produces customer focused outcomes, efficiency and flexibility, allowing the company to respond swiftly to market changes or customer needs.
Enterprise Architecture
Enterprise architecture defines the technological backbone of the organization. It dictates how technology will be deployed to support and enhance business processes, ensuring that the digital solutions are scalable, secure, and integrated with existing systems.
A common misunderstanding is that the architecture is merely “technical stuff.” While some layers of the architecture are indeed very technical, the uppermost layers describe the business: operating model components, data domains, customer touchpoints, functions and end-to-end processes. Leaders, managers, and teams working on transformative projects all need to know, use, and comply with the enterprise architecture as a frame of reference. This requires a fresh approach from IT leaders and teams, elevating the scope of the architecture from wiring schematics to digitally enabled business capabilities.
The IT Delivery Model: From Services to Value
Redesigning IT delivery mechanisms from a service to a value-driven model is crucial for supporting digital transformations. This shift focuses on aligning IT efforts with the pillars of the digital strategy, success and impact of the initiatives and business outcomes, emphasizing the creation of tangible value rather than supporting business operations.
By adopting a value-centric approach, IT can better support strategic initiatives and support innovation. This transformation requires a fundamental change in mindset, processes, and metrics, ensuring that IT initiatives are directly tied to the organization’s strategic goals. We will explore this topic in greater detail in a future article, discussing practical steps and best practices for achieving this enabling transition.
Digital Transformation Dashboard: Measuring Progress and Impact
Lastly, a digital transformation dashboard is indispensable as the single source of truth to track the transformation journey’s advances. It provides a holistic view of strategic and operational gains, measuring key performance indicators (KPIs) and tracking milestones. This dashboard is crucial for keeping leadership informed and making data-driven decisions.
Conclusion
Digital transformation is not a destination but a journey of continual adaptation and growth. A robust transformation strategy provides the “how” to navigate this journey, ensuring that the organization remains nimble, innovative, and resilient. It requires an orchestrated effort across all levels, a commitment to agile and collaborative ways of working, and a dedication to a customer-centric approach in a technologically advanced business environment.
By embracing these principles and putting in place a structured approach to transformation, businesses can achieve the digital excellence necessary for success in today’s dynamic market landscape.
Digital Transformation: A Framework 