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What CIOs need to watch out for in digital transformation

IT head honchos will need to consider new performance indicators, adopt an embedded digital business model and build up an enterprise-wide digital platform to avoid digital deadlock

Digital transformation is no longer something to consider for organisations in Southeast Asia – it is happening.

Since IDC conducted its first regional digital transformation maturity benchmark in 2016, the number of organisations to have digitally transformed has multiplied. But although they are running digital projects and making progress, many are not achieving an organisation-wide impact.

In 2017, IDC surveyed 1,138 organisations across 12 countries in Asia-Pacific excluding Japan (APEJ) and found a significant reduction in the number of “digital resisters”, down from 45.4% in 2016 to 24.8% in 2017.

Now 39.9% of APEJ organisations are “digital explorers” and have initiated digital transformation projects. Also, more organisations have focused on the leadership, omni-channel experience and information dimensions of digital transformation.

But many organisations that have made progress are stuck in a “digital deadlock”. Although organisations embracing digital transformation have been quick to initiate siloed digital projects, many now face a challenge in extending these initiatives across the organisation to achieve truly transformative results.

From the beginning, many obstacles have stood in the way of digital transformation, including legacy culture, process and financial incentives. Some of these challenges are still applicable to many organisations.

For example, IDC’s Asia-Pacific 2017 C-suite barometer shows that 78% of organisations lack a digital mindset, with change management, lack of executive commitment and limited organisational capabilities hindering their ability to accelerate digital transformation.

In addition, a new set of key challenges have emerged that only manifest themselves after an organisation has begun its digital journey. These include outdated key performance indicators (KPIs), siloed organisational structures and innovation silos.

New KPIs for the new digital enterprise

IDC research shows that at least 67% of organisations in Asia-Pacific are using only lagging and/or traditional indicators. Traditional metrics – such as revenues, cost efficiencies and other indicators that track past performance – are no longer enough to measure success, given the agility required to succeed in the digital marketplace.

The tools an organisation uses to communicate its digital success to employees, investors and board of directors do not necessarily reflect the way in which a digital enterprise operates. Organisations need KPIs that can communicate the real-time nature of future enterprise. For as long as organisations use traditional KPIs to measure new digital businesses, their investors will penalise them.

To communicate effectively and successfully with employees, investors and partners, a new set of KPIs that capture the capabilities of a digital enterprise are in order. The new digital KPIs need to include financial, business and operational KPIs, and they need to be developed for each part of the new digital business. Categories of KPI could include:

  • Leadership represented by KPIs associated with innovation rates.
  • Customer engagement represented by KPIs focused on customer advocacy.
  • Information monetisation represented by KPIs focused on data capitalisation.
  • Operating model represented by KPIs focused on business operations.
  • Workforce transformation represented by KPIs focused on the workforce.

Digital is business as usual

One of the fundamental challenges of digital transformation is the need to change legacy culture and processes, which are embedded in the organisational structure. Companies are experimenting with a multitude of structures.

A recent study by IDC reveals that digital organisation structures need to evolve to keep transforming the organisation. Digital transformation organisational structures can be categorised into the following archetypes:

  • Digital special projects team: For organisations that are just beginning their digital journey, this team is a central group that typically reports to the CEO and is exploring digital for the company in a structured and formal way.
  • Office of digital transformation: For those ready to move their digital strategy to the next phase, they put together a more formal centralised group that typically reports to the CEO and is focused on providing governance around digital strategy.
  • Embedded digital business: This archetype embeds digital resources into the various lines of business that are digitally transforming. Typically, there is still a central “digital” group that orchestrates digital initiatives for the company and provides common core platforms and digital expertise.

Ultimately, enterprises need to evolve to the embedded digital business model, which moves an organisation to a state where digital is “business as usual”. Embedding digital capabilities into lines of business gives the organisation a greater sense of ownership around its digital strategy.

As well as these archetypes, some organisations have a separate digital business unit, and there is an archetype for that. However, it only occurs in less than 7% of organisations in Asia-Pacific (10% worldwide) and is focused on creating disruptive and innovative offerings as opposed to transforming the organisation.

IT organisations need to embark on their own journey of transformation, evolve to understand the needs of customers and rapidly develop innovations. If the IT organisation is not evolving, it may wind up impeding the organisation’s overall digital transformation.    

In one study, IDC found that IT organisations in companies that are just beginning their digital journey still exhibit many of the traditional qualities of IT: they primarily employ waterfall practices; their biggest challenge is finding partners to work on digital transformation; and they still measure the length of projects in months, not weeks.

In contrast, IT organisations working in companies that are further along their digital journey have transformed significantly: they primarily employ agile and design thinking practices; they are focused on creating new digital transformation business models; and they measure their project lengths in 90 days or less.

Data-centric digital platform

The lack of a single technology architecture is holding back many enterprises’ digital transformation. This is mainly driven by the fact that digital IT environments are often established separately from the traditional enterprise IT platform. IDC is expecting a large build-out of digital platforms in the next three years.

But before this takes place, technology executives should rethink their approach and develop a technology architecture that is integrated and spans IT, digital and business domains. In fact, by 2020, 50% of all enterprises in Asia-Pacific are forecast to have fully articulated an organisation-wide digital platform strategy, and will be in the process of implementing that strategy.

If the ability to transform data into insights and actions is going to be the means for competing in the digital economy, then the digital platform must be optimised around this task.

At the heart of a digital platform should be the “intelligent core”. This is where the algorithms, the code and the models live, enabling the organisation to turn data into insights and actions. The foundational services do not go away – IT governance, architecture, integration and development services are enablers for this new digital platform.

Beyond the digital deadlock

The next two to three years are expected to be an internally focused period when organisations will focus more on internal systems, processes and culture to “get digital done”. Once they move past this, they will be able to recognise the benefits of innovation. By 2022, 40% of organisations’ revenues in Asia-Pacific is expected to come from digital offerings.

Digital transformation is a 10-year journey, and the digital transformation of 75% of Asia-Pacific enterprises will take until 2027. It is important for an enterprise to keep pace with the major milestones that its peers are hitting.

If you are like most organisations, you are making progress in your individual digital programmes but not on the greater goal – to digitally transform the entire enterprise. Focus on the digital deadbolts discussed here to identify which areas are slowing down your digital transformation and start taking steps to address them.

Read more about digital transformation in APAC

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