Digital Maturity

Getting AI Right: Focus on What Matters

| Charlie Ranalli

The article I shared in October provoked some interesting conversations. Customers, colleagues, and executives came with questions, pushback, and — more often than I expected — relief. Relief that someone was saying out loud what many were sensing: AI is real, but the timeline to impact is longer than the noise suggests.

Impact continues to trail hoopla

The loudest voices in AI right now belong to the people building and funding it. Altman, Huang, Pichai — their message is consistent and urgent: transformation is imminent, disruption is sweeping, the window to act is closing fast. This is not analysis. It is positioning. Their valuations, their funding rounds, their market narratives all depend on the world believing that AI will reshape everything, soon. They have every structural incentive to compress the timeline.

The disciplined research tells a different story. McKinsey’s latest global survey finds that more than 80 percent of companies are not yet seeing bottom-line impact from their AI investments — despite widespread experimentation. A cross-country study by the Bank of England and research partners surveyed nearly 6,000 executives across the US, UK, Germany, and Australia: over the past three years, AI has had “essentially zero” impact on employment, with more than 90 percent of firms reporting no measurable effect. The Economist’s analysis shows that tech employment has stagnated since 2022, but the cause is post-pandemic correction and interest rate cycles — not AI displacement. Oxford Economics found that AI was cited in fewer than 5 percent of US layoffs in 2025. The firm suspects companies are “dressing up” routine cost cuts as AI transformation because it plays better with investors.

What many executives are actually doing is simpler than the rhetoric suggests. They are using AI as strategic cover for cost restructuring — cutting headcount not because AI is delivering productivity gains, but because they need to free up capital to invest in AI, and because “AI-driven transformation” is a better story than “margin pressure” in an analyst meeting. This is rational behavior, not cynicism. But it creates a haze between preparing for AI and benefiting from it. Organizations that mistake one for the other will over-commit before their foundations are ready.

So what does deliberate preparation actually look like?

First, what it should not look like: elaborate programs, heavy governance structures, multi-year roadmaps with dozens of workstreams. McKinsey’s own researchers warn of organizations ending up with “more pilots than Lufthansa” — AI everywhere except in the profit-and-loss statement. The complexity of this challenge requires extreme simplicity in the approach. What works is a small number of clear choices, executed with discipline and very few moving parts.

Start from Value, Not Technology

The first instinct most organizations have is to ask “what can AI do?” The better question is “where would better decisions, faster processes, or sharper insights change our results?”

AI opportunities are not equal. Some reduce cost. Some accelerate growth. Some open entirely new ways of competing. McKinsey’s research shows that companies seeing the most value from AI often set growth or innovation as objectives — not just efficiency. Most organizations default to cost plays because they are measurable and safe. But growth and innovation opportunities are where the disproportionate returns are — and the only strategic insurance against disruptive newcomers. Ignoring them is how you optimize a business into irrelevance.

Practically, this does not require months of analysis. A couple of well-designed leadership-sponsored workshops yielding a one-page map of where AI fits across cost, growth, and innovation is enough to create focus. Customer service, back-office processes, and parts of supply chain are areas where standing still already means falling behind. Others depend on foundations that are not yet in place. Making that distinction visible keeps the plan honest.

In one engagement, a multinational consumer group asked a precise question: can AI turn commercial knowledge into growth while managing risk? We designed a multi-agent sales assistant — with agents handling order recommendations, revenue optimization, and policy enforcement. It achieved over 95% precision versus expert advisors, 65%+ adoption, and a significant lift in sales productivity, touching revenue in the hundreds of millions. The technology mattered. But what mattered more was starting from a business question.

Accelerate Architecture Modernization

AI deployment spans a wide range — from giving teams a Copilot to embedding intelligent agents deep inside business processes. These require very different levels of technical investment. Conflating them is a common mistake.

Even a Copilot rollout is not trivial. Deciding which documents and knowledge sources ground it — and which do not — is a real governance challenge. Get it wrong and you either expose confidential material or produce generic outputs that nobody trusts. But the alternative is worse: people quietly using consumer AI tools with no guardrails, feeding proprietary information into public models.

The deeper challenge is process architecture. The real barrier to AI at scale is not data alone — it is the ability to blend human judgment, AI agents, and data-driven insights inside day-to-day work. McKinsey describes this as moving humans “above the loop” — supervising AI-driven workflows rather than executing tasks within them. That shift demands flexible, modular platforms. Most organizations do not yet have them.

The practical approach is not to modernize everything at once. Identify the one or two integration points where rigidity is actually blocking AI, and start there. Accept tactical workarounds where the learning justifies some technical debt — but register it and use the learning to prioritize structural modernization. Temporary shortcuts that become permanent wiring are exactly how complexity becomes gridlock.

Activate the Organization

Strategy and architecture do not execute themselves. People do. The organizational side of AI is where most efforts stall.

It starts at the top. AI is a change effort, not a technology project. If the senior team is not visibly committed — setting direction, removing obstacles, orchestrating investments — the rest of the organization will read the signal and wait. Without executive sponsorship, transformation dies in the middle of the org chart.

But commitment at the top does not automatically reach mid-level managers — directors, process owners, team leads — where AI either gets woven into real work or stalls in pilot mode. These people are usually rewarded for stability, not experimentation. If you want them to change how their teams work, change the incentives. Make experimentation rational, not heroic. In areas of strategic importance, consider ring-fenced teams whose job is to experiment — with lower operational pressure and clear goals.

McKinsey’s research suggests 75 percent of roles will need fundamental reshaping in the next two to three years — including people leading teams and those who report to them. Nearly half of leaders already see skill gaps. Have an honest conversation across the organization about what AI means — the opportunities and the disruptions. The real talent threat is not AI replacing your people. It is your competitors’ people becoming dramatically more capable than yours. Offer training that connects to actual roles and real career paths — not a generic AI awareness program, but targeted skill building that helps people see themselves in the future you are describing.

Make Change Possible

Most organizations already have change processes — planning cycles, decision gates, business cases. The problem is that these mechanisms were designed for predictable, large-scale programs. AI does not work that way. Some initiatives fail fast. Others surprise. Governance needs to keep pace without suffocating progress.

One approach that works: set aside incubation investment — a defined pool of funding with lightweight access, designed to get qualifying initiatives moving quickly. Reward not just results but discipline. When people see that following the guardrails is the fastest path to resources, the guardrails reinforce themselves.

What matters most is a simple rhythm: regular review, rebalancing, and honest assessment of what is working. Not a transformation office with a 20-person staff. The value map informs where to invest in architecture. The architecture reveals what is limiting speed. The organizations that govern these as a connected system, with the lightest mechanism that works, are the ones that turn experiments into lasting advantage.

How to Start

You do not need to solve everything at once. Start with an honest view of where you are: what is ready, what is not, where the real opportunities sit, and how fast the organization can absorb change. Build a plan that balances ambition with realism, sequenced so early moves build confidence and prepare the ground for what follows.

As I argued in October — and as growing evidence confirms — the winners in AI will not be the companies running the most experiments or the most elaborate programs. They will be the ones that build the simplest system capable of learning and adjusting.

I work with leadership teams on exactly this — translating AI ambition into a practical roadmap that aligns where you want to go with what it takes to get there. If you are working through these questions, I would welcome the conversation.

References

Some articles may require paid subscriptions.

The State of AI in 2025: Agents, Innovation, and Transformation
McKinsey & Company, 2025
https://www.mckinsey.com/capabilities/quantumblack/our-insights/the-state-of-ai

The Agentic Organization: Contours of the Next Paradigm for the AI Era
McKinsey & Company, 2025
https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-agentic-organization

AI Is Everywhere. The Agentic Organization Isn’t—Yet
McKinsey & Company, 2026
https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/ai-is-everywhere-the-agentic-organization-isnt-yet

Five Trends in AI and Data Science for 2026
MIT Sloan Management Review, 2026
https://sloanreview.mit.edu/article/five-trends-in-ai-and-data-science-for-2026

Firm Data on AI
NBER Working Paper 34836, 2026
https://www.nber.org/papers/w34836

Why AI Won’t Wipe Out White-Collar Jobs
The Economist, 2026
https://www.economist.com/finance-and-economics/2026/01/26/why-ai-wont-wipe-out-white-collar-jobs

The Tech Jobs Bust Is Real. Don’t Blame AI (Yet)
The Economist, 2026
https://www.economist.com/finance-and-economics/2026/04/13/the-tech-jobs-bust-is-real-dont-blame-ai-yet

The Hard Job of Driving Value from AI

| Charlie Ranalli

Generative AI arrived quickly, with bold promises dominating headlines. But anyone who has lived through past technology shifts knows the real story: the hard job of driving value is not proving it can work – it is adopting it to transform how companies work. Just as with PCs, e-commerce, or mobile, impact will not be fast or easy.

Customers, colleagues, and friends — nearly everyone I exchange perspectives with is already using GenAI to work faster, smarter, and better. That matches findings from a recent paper by Andrew McAfee and colleagues, which shows the technology delivering rapid productivity gains across many occupations. (And yes, I used GenAI tools in researching this article.)

The challenge is that individual gains – especially in knowledge-based work – don’t automatically scale into business or economic impact, at least in most sectors. To matter, they must flow into optimized processes, unit economics, and value levers like prices, margins, or productivity in high-volume workloads. As McAfee and his co-authors note, that means “complementary innovations and organizational reinvention.”

The good news is we finally have some evidence to work with. Early experiments show where AI can create traction and where it tends to stall. They also make one thing clear: getting value out of AI means tough choices and visible commitment from the top team.

The Road to Structural Gains

Across industries, AI pilots are everywhere – copilots for coders, chatbots for service, tools to automate routine tasks. They show what’s possible, but most remain stuck at the pilot stage. Local productivity improves, yet the broader structure of how work gets done stays the same.

This is familiar. Every major technology shift follows a pattern: early enthusiasm, a rush of experimentation, and only later the hard work of embedding new tools into the fabric of business.

The PC revolution is a widely researched case. Email, spreadsheets, and collaboration tools became available in the 1980s. Yet measurable productivity gains only showed up in the mid-1990s, once workflows were redesigned, people retrained, and cultures changed. It took 15 years before the technology showed up in macroeconomic statistics.

E-commerce followed a similar path. Despite 30 years of innovation, investment, and exceptional consumer convenience, only about 16% of U.S. retail spending is online today.

Gartner’s 2025 Hype Cycle places generative AI just past the Peak of Inflated Expectations, signaling that today’s surge of pilots and proofs of concept will only translate into value once organizations take on the harder work of reinvention.

Generative AI is best understood as a general-purpose technology, much like electricity, PCs, or the internet: broad in potential, but dependent on complementary change before its impact can be fully realized. Research by Andrew McAfee and colleagues suggests this wave could diffuse faster than earlier ones because the infrastructure is already in place, tools are widely accessible, and adoption often requires less retraining. Yet the speed of progress still depends heavily on an organization’s own maturity – some have ways of working and modern tech stacks ready to absorb AI, while others face years of groundwork before they can capture meaningful value.

Early signals remain ambiguous. A Stanford study found that workers aged 22–25 in AI-exposed roles saw employment fall by about 13% since 2022, while more experienced peers held steady – suggesting the first effects of AI might be showing up in hiring rather than productivity. A more recent analysis from Yale’s Budget Lab offers a different lens: instead of losses, it examines shifts in the occupational mix – which tasks are being automated, which are being augmented, and how work itself is changing as AI spreads. Apparent declines in some roles may instead reflect a reallocation of tasks. The evidence remains faint — more about changing work than vanishing jobs.

As a technology executive and entrepreneur who lived through the dot-com wave, the rise of e-commerce, mobile, and social media, I’ve seen this pattern repeat: first the hype, a dose of disillusionment, and finally the long, grinding work of structural change. Generative AI may spread faster than past waves, but the hard job to generate value will be the same.

Why AI Value Will Be Slow to Materialize

Integration Matters More than Deployment

Customer service bots, document summarizers, and coding copilots are easy to deploy. They spread fast but don’t transform most industries. The next step is Agentic AI – systems that combine business logic and different types of AI to perform multi-step workflows, interact with humans, and span business functions.

The challenge is integration. Agents don’t operate in isolation. They need redesigned interfaces and workflows: decision points, exception handling, escalation rules, and system integration. As McKinsey observed after studying 50+ agentic AI builds: “It’s not about the agent, it’s about the workflow.”

“Fewer than 10% of generative AI use cases have made it past the pilot stage.”
“Only 21% of organizations using gen AI report that they have fundamentally redesigned at least some workflows.”
“Among the 25 organizational practices tested, workflow redesign has the strongest relationship with reported EBIT impact.”
– McKinsey, State of AI: How Organizations Are Rewiring to Capture Value (2025)

Reengineering Operating Models

Some industries will see direct disruption – translation, for example, where AI can deliver acceptable quality at near-zero cost. But most require operating model reinvention: reconfiguring how decisions are made, how accountability flows, and how value is created.

McKinsey’s State of AI 2025 survey illustrates the gap: “Fewer than 10% of generative AI use cases have made it past the pilot stage.” Tools are spreading, but few firms have revamped their operating models to absorb them.

No Sustainable Edge in Base Technology

Generative AI is trained on public domain knowledge and released broadly. As MIT Sloan has argued, AI itself is unlikely to provide sustainable competitive advantage.

McKinsey’s survey is blunt: “Only 21% of organizations using gen AI report that they have fundamentally redesigned at least some workflows. Among the 25 organizational practices tested, workflow redesign has the strongest relationship with reported EBIT impact.”

The edge comes from differentiated data, proprietary processes, and organizational creativity. Cloud platforms can be acquired easily; unique ways of working cannot.

The Human Factor

AI changes organizational dynamics. Vertical supervising tasks give way to orchestrating systems of people and agents. Leaders must re-skill employees, manage resistance, and build trust in AI-driven systems.

Human-in-the-loop design is critical. Generative AI introduces risks of hallucinations, bias, and IP leakage that can’t be solved by technology alone. In a Harvard Business Review article, Andrew McAfee and his co-authors argue that employees need to be trained to recognize these risks, escalate them, and build confidence in using AI responsibly.

And it’s not only frontline or entry-level roles. A recent MIT Sloan article argues that AI will increasingly automate coordination and monitoring – traditional managerial functions – while creating demand for new roles in oversight, design, and orchestration.

Adoption will be uneven. Early enthusiasts embrace new tools; skeptics push back, especially after errors. Clear accountability, transparent communication, and cultural adaptation are as critical as technical readiness.

Platform Readiness: Data, Systems, and Governance

Finally, structural adoption depends on platform readiness. AI requires clean, governed data — still a rarity in most organizations. Just as critical is the underlying architecture: many ERP, CRM, and supply chain systems are built on rigid interfaces and hard-coded business logic. To take advantage of AI, those systems need more flexible designs that can support dynamic workflows. AI can’t be simply bolted onto legacy systems.

Governance must also mature alongside technology. Privacy, compliance, and risk management can’t wait until systems are scaled if they are exposed to the outside world – they need to be embedded from the start.

The Productivity Promise Is Still Real

Despite these challenges, the long-term upside is enormous. McKinsey estimates that Agentic AI could unlock $450–650 billion annually by 2030 in advanced industries such as manufacturing, logistics, and energy.

Functions like supply chain, software development, and customer service can all be reimagined. But because the base technology is broadly available, the competition to innovate will be fierce. The winners will be those that integrate faster and deeper, building on proprietary assets.

From my experience with past technology shifts, this is where the champions pull ahead. When mobile and social networks disrupted consumer engagement, the companies that succeeded weren’t the ones with the flashiest apps – they were the ones that cleverly reimagined marketing, sales, and service for two-way, mobile-first interactions. The same will be true with AI.

From Experimentation to Transformation

The practices below reflect what I’ve seen in working with clients, along with insights from global leaders and academics. Together, they highlight what helps organizations move beyond experimentation toward real transformation.

Activate the Leadership Team

Transformation begins at the top. This is not just a technology project but a significant change effort. The senior team has the credibility to ask the hard questions, the clout to mobilize resources quickly, and the leverage to remove obstacles. If they aren’t in the room and visibly committed, the rest of the organization will sense it – and resistance will dampen progress.

Map Opportunities

With customer teams, we start broad and deep. The goal isn’t just to identify obvious efficiencies, but to uncover disruptive opportunities. We map ideas across two dimensions: strategic business pillars, and the angles of innovation that AI can unlock.

This stage is about thinking differently – exploring what could change the rules of the game rather than just automate today’s tasks. It’s a step for conceiving opportunities, not a commitment to chase them all.

Invest in a Balanced Portfolio

Once opportunities are conceived, the next step is to commit to a portfolio that balances ambition with pragmatism. In practice, the portfolios that resonate most with leadership teams usually contain three kinds of bets: disruptive ideas that carry risk but could redefine value creation; quick wins that deliver visible results and momentum; and defensive moves that may not create lasting advantage but are quickly becoming industry baseline.

Start with the Questions

AI is not an end in itself. The right starting point is a business question: If I could forecast X more accurately, what would change? If I could automate Y, how much capacity would I free up?

One industrial client is embedding AI agents into a reactive B2B service chatbot. The initial aim is faster response, but the next goal is to extend into proactive commercial processes – identifying cross-sell opportunities, guiding orders, anticipating needs. The key question wasn’t an open-ended “what can AI do,” but “can AI turn knowledge into growth while managing risk up front?”

Advance Initiatives and Capabilities

Run promising use cases first but do so with discipline: set substantial business goals, track adoption and value, and be ready to kill experiments that don’t deliver. In parallel, invest in the capabilities that enable scaling: data assets, governance, orchestration technology, and workforce skills.

One of my retail clients launched a Copilot program to organize and classify knowledge. The first phase focuses on individual and small team productivity, but the explicit goal is to mature into AI-enabled collaborative innovation. Sequencing matters: early initiatives build experience and momentum, while capabilities ensure the organization is ready to accelerate what works.

Close Business, Technology, and Risk Collaboration

AI can’t sit in a technical silo. Business leaders must co-own initiatives. To build trust and ensure each step forward stands on firmer ground, risk and compliance need to be involved from the start. Governance has to be continuous, with clear paths for when agents fail.

One useful approach, highlighted in HBR and practiced by most early adopters, is to move deliberately in stages: experiment in a sandbox, then run tightly scoped pilots, and only scale once risk and governance structures are proven to hold.

The Case for Simplicity

When teams start mapping AI opportunities, the challenge isn’t scarcity – it’s abundance. The possibilities are endless, and the actions required to pursue them quickly become complex and interdependent. Without a simple top-level frame, discussions can fragment across business, operations and technology perspectives.

A practical way to bring structure is to group AI applications into broad categories, for example:

Predictive & Optimization – improving foresight and decision quality through analytics and modeling.

Autonomous Decision & Action – embedding intelligence into processes that can sense and act in real time.

Knowledge-Management & Generative – expertise, content, and amplifying human capability.

End-to-End – connecting and orchestrating workflows across functions to create compound value.

Illustrative opportunity matrix. Sanitized from project material to show structure, not content.

This structure, borrowed from a recent workshop, isn’t meant to be followed verbatim – it must be reframed based on each organization’s industry and AI posture, and paired with strategic pillars to give a full 360-degree view. It simply shows how to organize a portfolio around general concepts rather than specific technologies or use cases.

The Takeaway

AI opens unprecedented opportunities but is not a silver bullet. Pilots and use cases are necessary, but they are not sufficient. Like PCs, e-commerce, and mobile before it, AI’s real value will only come when organizations reinvent their structures to embed it deeply in business and operating models.

The winners won’t be those who run the most experiments. They will be the organizations willing to rewire themselves so that AI becomes part of the fabric of how business is done. For leaders, that means rolling up your sleeves and doing the hard job of transformation.

References

The impact of generative AI as a general-purpose technology
MIT Sloan School of Management, 2024
https://mitsloan.mit.edu/ideas-made-to-matter/impact-generative-ai-a-general-purpose-technology

Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence
Stanford Digital Economy Lab, 2025
https://digitaleconomy.stanford.edu/publications/canaries-in-the-coal-mine/

Evaluating the Impact of AI on the Labor Market: The Current State of Affairs
Yale Budget Lab, Yale University, 2025
https://budgetlab.yale.edu/research/evaluating-impact-ai-labor-market-current-state-affairs

One Year of Agentic AI: Six Lessons from the People Doing the Work
McKinsey & Company, 2024
https://www.mckinsey.com/capabilities/quantumblack/our-insights/one-year-of-agentic-ai-six-lessons-from-the-people-doing-the-work

The State of AI: How Organizations Are Rewiring to Capture Value
McKinsey & Company, 2025
https://www.mckinsey.com/capabilities/quantumblack/our-insights/the-state-of-ai

Why AI Will Not Provide Sustainable Competitive Advantage
MIT Sloan Management Review, 2025
https://sloanreview.mit.edu/article/why-ai-will-not-provide-sustainable-competitive-advantage/

How to Capitalize on Generative AI
Harvard Business Review, 2023
https://hbr.org/2023/11/how-to-capitalize-on-generative-ai

Why Robots Will Displace Managers – and Create Other Jobs
MIT Sloan Management Review, 2025
https://sloanreview.mit.edu/article/why-robots-will-displace-managers-and-create-other-jobs/

The Economic Potential of Generative AI: The Next Productivity Frontier
McKinsey & Company, 2023
https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier

Transformation Strategy: An Execution Toolbox

| Charlie Ranalli

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.

More on Strategy

The New Elements of Digital Transformation

| Charlie Ranalli

The team behind The Digital Advantage: How Digital Leaders Outperform their Peers in Every Industry and The Nine Elements of Digital Transformation reflected on their influential research after surveying 1300 executives in more than 750 global organization.

Their earlier research on digital transformation identified two dimensions through which leading companies outperform their peers: digital capability and transformative leadership capability. They found that the elements of leadership capability have endured, but new elements of digital capability have emerged.

Particularly opportune is the addition of a digital architecture as a critical platform that enables nimble innovation. In my own experience, the lack if a well-designed and implemented architecture prevents the roll-out of initiatives large and small, consuming more technical resources and frustrating business partners.

The New Elements of Digital Transformation
By Didier Bonnet and George Westerman
MIT Sloan Management Review, November 2020

Digital Transformation Is Not About Technology

| Charlie Ranalli

Most business executives think – often reflected by who they bring to the room when you discuss the topic with a CEO – that Digital Transformation is about technology. It is not.

Certainly, top notch technology capabilities are a critical ingredient in all Digital Transformation success stories, but there is a lot more to it. This is the purpose and central theme of this blog: debunking the notion that technology is the most important factor in making a start-up or centuries old companies more competitive with digitally driven innovation, and expanding the field of view of executives to include the broader set ingredients that they will have to mix and match to lead their companies into the digital future.

Digital Before Transformation

Software is eating the world. In a now famous 2011 Wall Street Journal piece, technology entrepreneur and venture capitalist Marc Andreessen brilliantly made the case of why most companies were in the way of becoming software companies – across industries, from entertainment and banking to cars, retail and logistics.

“Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale” he wrote.

While banks still own branches, airlines fly planes and Amazon last year ordered 100,000 electric delivery trucks, technology is now in charge of engaging with customers, managing risk and fares, or deploying assets – and make companies winners or losers depending on how good their algorithms are.

Most of the underlying technology has been around for some time. But now its maturity, ubiquity, and affordability – and the ingenuity of the engineers, entrepreneurs and innovators deploying it – are giving it a dramatically more significant role in shaping business models and strategies. A Transformative role.

Time to Transform

Some industries and companies can be wholly reconfigured by technology – remember Blockbuster or Tower Records? – but not all. McKinsey puts is very well: “the number of companies that can operate as pure-play disrupters at global scale are few in number, and rarer still are ecosystem shapers that set de facto standards and gain command of the leverage created by hyperscaling digital platforms.”

But even in asset or activity-intense sectors that can’t be entirely switched to digital-only experiences, modern technology is driving major change, and visionary executives the world over have taken note and quietly started reshaping strategies, business models and organizations to exploit these new opportunities. They updated their leadership styles, cultures and platforms to design and deploy entirely new ways of doing things. They embarked in a Digital Transformation.

The Impact

Academics and consulting outfits have very carefully analyzed the advances in digitization and linked them with financial performance, and the relationship is undeniable.

A seminal two-year study by the MIT Sloan School of Management analyzed more than 400 large firms and found that digitally transformed businesses are 26% more profitable than their industry competitors, drive 9% more revenue through their employees and physical assets and are 12% more valuable than their peers.

The researchers developed a digital maturity model to show how different companies are reacting to technological opportunity, and cleverly analyzed how businesses invest in technology, but more importantly, how the true leaders create the leadership and change management capabilities necessary to drive innovation, which they called transformation management intensity.

They proved that the ability to modernize strategies, organizations and processes is as – or more – important than the technology itself in the quest to be a digital leader.

Another by McKinsey found that focusing on the right digital practices, B2B companies –currently trailing B2C companies in digital maturity – can create long-term value, with the most advanced in their transformation programs driving five times more revenue growth than their peers.

Digital Leadership

Digital transformation is about Strategy, People, Innovation and Execution. Photo by standret.

So, what is Digital Leadership about then?

It is about reinventing strategies, operating models, and processes. It is about putting the customer in the center of attention of the entire organization and designing their experience from the outside in. It is about fact driven decision making and agile change management.

It is about fostering a culture of nonstop innovation and fearless renewal, of mercilessly abandoning established ways of doing things and adopting digitally enabled models.

Technology allows all of this, from the advanced analytics platforms that support decision making and action to the omnichannel platforms that support seamless customer experiences. From process automation to remote collaboration. But despite the broad availability and growing affordability, technologies alone are useless without the leadership to drive change.

Transformation is more important than Digital. And Transformation is about Strategy, People, Innovation and disciplined Execution, the components of the framework proposed in this blog.


Originally written late 2017, updated December 2020.

Digital Maturity

| Charlie Ranalli

Digital Maturity indicates the relative development of a company and organization’s competency in key areas to establish present-day standing and help identify opportunities for improvement and priorities for investment.

This is usually accomplished running a Digital Maturity Diagnostic to determine whether an organization is lagging, competitive or leading based on a set of factors: e.g. Digital Strategy, Leadership and Culture, Digital Skills, Customer Centricity, Technical Competencies, Data & Data Analytics, Project Delivery, etc.

Academic researchers and consulting outfits have developed the models, and then applied them to large pools of organizations to determine relative maturity by company, sector, geography, etc. Many provide a set of results by category and a combined score.

Digital Maturity Reports are enormously useful tools to help business executives map where they stand in the innovation race relative to their peers, identify gaps and opportunities, throttle investment, and track progress along the digital journeys.

Examples of Digital Maturity Models:
McKinsey Digital Quotient
The EY Digital Readiness Assessment
TM Forum’s Digital Maturity Model
Deloitte Digital Maturity Model

Running a Digital Maturity Assessment is a pragmatic and practical guiding step to start the development of a Digital Transformation Strategy.

Originally posted November 2019
Updated June 2020

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The Nine Elements of Digital Transformation

| Charlie Ranalli

Based on the research behind their pioneering paper The Digital Advantage: How digital leaders outperform their peers in every industry, George Westerman, Didier Bonnet, and Andrew McAfee of the MIT Center for Digital Business, identify the nine characteristics that differentiate digital leaders.

“The best companies — those we call Digirati — combine digital activity with strong leadership to turn technology into transformation. This is what we call Digital Maturity. Companies vary in their digital maturity, and those that are more mature outperform those that are not.”

Consistent with other research, leaders are digitally transforming three key areas of their business: customer experience, operational processes and business models, and each of the three pillars has three elements that are changing.

The Nine Elements of Digital Transformation
By George Westerman, Didier Bonnet, and Andrew McAfee
MIT Sloan Management Review, January 2014