While the pandemic may have seen a huge increase in the number of digital transformation projects undertaken by organisations of all kinds, it seems their success rate is no better than it ever was.
According to a recent Microsoft survey, many UK business decision-makers believe digital technology is vital to their company’s ability to prosper in 2023. But a massive 71% are worried they have failed to deliver on the promise of digital transformation. A further 72% respectively say the business has no clear path to reach its digital transformation goals and is moving too slowly to make any meaningful change.
So, what is going on here? Why are such initiatives continuing to fail to live up to expectations despite the issue having been debated for years, and what can organisations do to alter the situation for the better?
Chris Daplyn is managing director for north-western Europe at business transformation specialists Valtech. In his opinion, initiatives do not go awry as the result of any single issue but rather a combination of factors. A major one is a failure to link the company’s digital transformation strategy with its business strategy and goals.
“There’s a big difference between digitisation, which is about improving systems, and digital transformation, which is changing the way the business operates to serve customers better,” Daplyn explains. “So things go wrong if the business comes to IT and says, ‘improve our digital ability and digitise what we’re doing,’ but see it as IT’s job, which means it’s not tied to return on investment or business process change.”
A key problem in this instance is that such initiatives are then often viewed as a “necessary evil” and expense rather than a “path to value”. In this instance, they are all too “easily cut or subject to budgets being reprioritised”, he adds.
Considering the human side of digital transformation
But the more an organisation has no clear idea of what it is trying to achieve and how tech could enable this vision, the more likely such a situation is to occur. Simply becoming "more digital" is not enough in this context, particularly if traditional silos continue to exist within the organisation as they all too frequently lead to turf wars.
“Everyone wants change as long as it doesn’t impact them, but the danger is that if organisations retain existing departmental structures, the lack of collaboration and visibility between them can be a big hindrance,” Daplyn says.
In other words, finding ways to deal effectively with the “human side of transformation” is imperative. This involves not only implementing appropriate communication and change management processes but also ensuring initiatives are properly resourced.
The business wants shiny new things, which is the right thing to do, but CIOs have to face into how they’re going to integrate them with back-end systems that will get less investment over the years - and it’s a fine art
Neil Holden, Halfords
“Allocating time and specific resource to manage transformation is fundamental, as is buy-in from the top table as that filters down throughout the organisation,” Daplyn says. “Change is hard and people often default to what they know, not because they don’t want to do new things through malice but because of a lack of understanding of what to do and how to contribute.”
Patrycja Sobera, global vice president of workplace solutions at IT services and consulting firm Unisys, agrees: “It’s taking people on a journey and clarifying the ‘so what?’ factor that makes or breaks digital transformation projects,” she says. “No initiative can succeed unless it’s accepted and adopted by employees so it’s mainly about dealing with the human aspects.”
While clear communications play a crucial role here, it is also important to create a “network of change champions”. These voluntary staff members focus on helping others adapt to any changes in working practices, which includes providing digital skills training to “make the tech more accessible and less scary”, Sobera adds.
Balancing long- and short-term requirements
Another key pitfall though, is failing to put adequate project funding in place.
“People often focus on their software licence and infrastructure budget but don’t necessarily think about organisational change management costs, which causes problems further down the line,” Sobera says. These costs include communication campaigns, training and the use of third-party services.
From a technology point of view, meanwhile, a big challenge entails balancing the long-term requirements of a strategic digital transformation programme with the often more tactical demands brought about by ongoing customer and technical change. The goal here is to ensure activity does not fragment or the long-term vision become subsumed by short-term aims.
This means putting the “fundamentals” in place at the outset by consolidating, standardising and simplifying the organisation’s tech infrastructure, rather than simply building on top of it to create a complex mass of “spaghetti”, says Daplyn.
But he acknowledges this situation can result in IT leaders having to take some “brave decisions when different teams and departments are saying ‘we want this now’”. Because refusing can lead to the perception that change is not moving fast enough, “getting the balance there is key”, Daplyn points out.
The best way to address this issue is to create a central tech steering board for governance purposes. This board is responsible for prioritising requests from different parts of the business based on the company’s digital transformation roadmap. It also ensures that new technology integrates with the rest and that effective metrics are put in place to measure success.
“It’s about having a north star so the vision remains constant to ensure everyone’s going in the same direction, while also still being able to pivot and respond to new demands,” Daplyn says. “That way you ensure everything isn’t single use but can be deployed in different parts of the organisation to drive efficiency, cut costs and the like.”
The significance of product thinking
Another emerging approach is to go down the "product thinking" route, which Daplyn describes as “post-agile”. Its emergence, he believes, is tied to the rise of composable best-of-breed platforms, which are linked together using application programming interfaces. This means that, unlike traditional monolithic platforms, individual components can be swapped in and out as desired.
“Product-led thinking is part of the transformation itself into becoming a more digital business,” he says. “Most tech teams in traditional organisations are set up in departments, but product teams are leaner and more purposeful as they focus on different elements of the business or consumer journey.”
These “different elements” are treated as a “series of products that are continually developed and optimised”. As a result, in an e-commerce journey, for example, product teams - which include a mix of skills, such as back-end developers and user interface specialists - might work together on the basket or product pages to enhance the overall consumer experience based on input from the business.
Therefore, says Daplyn, a key advantage of this approach, is that it helps build stronger links between the business and IT as they “are constantly connected in an ongoing development cycle”.
Read more about the successes and failures of digital transformation
Two IT organisations that have worked closely with the business to ensure the success of their digital transformation activities are Halfords, which provides motoring and cycling products and services, and fast food restaurant chain, KFC.
Although at the time the 131-year-old company was more known for its cycling-related offerings, the aim was to take a larger chunk of the then fragmented motoring services market as it presented greater opportunities for growth.
Neil Holden, the organisation’s CIO, explains: “Our vision was to integrate all parts of the group to allow customers to make greater use of our physical assets and digital products and services and provide a more consistent experience. It was difficult to shop across all parts of the group, so integration offered a big opportunity.”
A key challenge here was that many of Halford’s business-critical systems, which includes its SAP ERP system, were both ageing and on premise. As a result, the decision was taken to adopt a cloud-first strategy for most “externally-consumed” systems, the majority of which have now migrated, or are in the process of being migrated, if they can be.
Digital transformation in practice
The first area to be revamped was the Redditch-based organisation’s front-end e-commerce systems. Here, the websites of individual brands were consolidated to create a single group site based on Salesforce.com’s AI-based Commerce Cloud running on Microsoft’s Azure platform.
One of the applications to result was a Motoring Club loyalty programme. The scheme, which acts as the “gateway to the group”, offers customers benefits and discounts based on their interactions with all aspects of the business to encourage stickiness.
But it also provides the company with significant amounts of data about customers’ vehicles. Therefore, a key future aim is to forecast their requirements. For example, based on whether consumers undertake short commutes or travel over long distances, it will be possible to establish when their car requires servicing or needs replacement tyres.
“So we’ll be able to talk to people not only about what they need now but also what they may need in future and curate products and services to take the stress out of car ownership,” Holden says. “From a financial perspective, it should also enable people to plan better too.”
Another outcome of Halford’s digital transformation initiative, meanwhile, was the development of its own field service management software to manage its 650 garages, 394 retail stores and 730 mobile vans. Sold under the Avayler brand to customers in Europe, the US and Australia, the system now offers Halfords a healthy new revenue stream, making the business “more resilient to the dynamics of the traditional retail market” as a result, Holden says.
Learning the lessons of digital transformation
But he also acknowledges that getting the balance right between migrating legacy systems and investing in new ones is “tricky”.
“The business wants shiny new things, which is the right thing to do, but CIOs have to face into how they’re going to integrate them with back-end systems that will get less investment over the years - and it’s a fine art,” Holden says. “So it’s vital to get buy-in from the start as it makes all the difference and that involves a lot of work explaining things in ways people can understand.”
A second consideration is taking a “hard look” at the capabilities and resources required to make digital transformation happen and undertaking careful planning. To this end, the company supplemented its own in-house team, whose focus is on the Salesforce and Microsoft systems, with staff from third-party suppliers. These include Tata Consultancy Services, which deal with less pivotal applications, and data change specialist Redkite.
“We designed the operating model before the transformation because if you don’t, you can find yourself with too many partners doing the same thing, which means it gets messy and people compete,” Holden says. “So we laid it all out for everybody – this is our direction and goals and what we want to achieve and this is what we need.”
Similar levels of communication are vital in-house too. “People are your magic ingredient and without them you’re nothing, so communicating clearly and keeping them engaged is vital when you go through a challenging period of change,” Holden says.
Key goals of the change programme were for the company to transform itself into the UK’s premier fast-food brand and make its cuisine accessible to everyone from everywhere. The three technology pillars to make this happen consisted of: becoming 100% digital; implementing AI software at scale to leverage data and create a personalised customer experience; and automating activities as much as possible.
Although the firm started the initiative pre-pandemic, the various lockdowns accelerated its activities and resulted in digital sales jumping from less than 5% to around a third of overall sales. They have since increased again to more like 50% today.
As Jatin Chandwani, KFC’s CTO, says: “We started working on our digital channels in 2018-2019 but ramped up during Covid, which is when we started getting real value out of it. And we also moved to a product-based structure just under two years ago to ensure a process of continual improvement, which includes using cross-functional teams.”
A key aim of going down the digital transformation route, he explains, was to optimise the customer experience and ensure it was consistent across all channels, which include a mobile app and restaurant-based kiosks. Another goal was to use these channels as a means of understanding consumers’ activities more effectively “so we could serve them better and add value – which is easier to do with digital”.
The upshot has been an increase in margins despite a UK-wide cost-of-living crisis. For example, by introducing kiosks and allowing customers to order in their “own space and time” rather than feeling under pressure at the front counter, order values have jumped by an average of 20%. If the mobile app is used, order values rise on average by 35%.
The benefits of aligning digital transformation with business goals
But because order volumes have also risen and KFC, like most organisations in the hospitality industry, has experienced staff shortages, another key focus was to help reduce the pressure on teams, particularly at peak periods. As a result, the organisations has provided employees with digital tools to help them do their job more efficiently. Such tools include forecasting screens so they can see what food needs to be cooked when, and digital clocks to let them know when it has been.
“Whether team members are placing an order or frying chicken, it can all be done at the click of a button. It keeps the team experience simpler, which enables them to deal with more orders and it all adds to the bottom line,” says Chandwani.
As for where AI comes into the equation, he points out that KFC is currently the “only brand that captures data from the frier to the customer tray. This means we know how long items have been in the frier, holding area and so on, and can work out how to improve operations and the team and customer experience as we understand the product lifecycle better”.
To enhance its data management capabilities further, the company is working with digital transformation consultancy Brillio to re-platform its old data warehouse.
Elsewhere, it has also been trialling proactive service management applications for just over a year. “Operational maintenance is a big thing and it’s important to ensure equipment works. So if systems can monitor it, work out potential failures and alert us to any issues, it’s potentially very useful,” Chandwani says.
Robotics systems that can fry chicken popcorn are likewise being tested. “We want to be 100% digital and we’re about 55%-60% of the way there, but there are more channels coming, such as the metaverse, and computer vision, which will help team members improve their working processes. The aim is that every transaction should provide a better experience than the last as we get to know our customers better and help our team members to become increasingly efficient and effective,” Chadwani concludes.
