Digital Transformation

Digital transformation is the rewiring of an organization, with the goal of creating value by continuously deploying tech at scale. A clear digital transformation strategy focused on specific domains and enabled by a set of specific capabilities is critical for organizations to not only compete but survive. Digital transformations are not a one-and-done project; most executives will be on this journey for the rest of their careers.

Digital transformations have a much improved probability for success when teams focus on changing entire domains (for example, a customer journey, process, or functional area) rather than only on use cases (a single step within the domain, such as answering a customer-service call). A focus on domains is conducive to effective change because it encompasses all related activities to deliver a complete solution. So instead of focusing on just one step of a process—such as creating the process for a customer to open a bank account through an app—the domain would also include all the other activities (account setup, verification, workflow automation, etcetera) required to open the account. Reckoning with all those other activities is what allows a solution to deliver its value. A domain should be large enough to be valuable and noticeable to the company but small enough to be transformed without relying too much on other parts of the business. Managing the interconnectivity of use cases and solutions within a domain is one of the keys to transformation success.

AI, and particularly generative AI(gen. AI), is upending how companies operate and build value, presenting huge opportunities  for value creation. But it can be easy to get distracted by shiny new toys. Digital and AI transformations, says McKinsey senior partner Eric Lamarre, “should always start with the business problem you want to solve.” The lessons of past technology innovations still apply: value comes from having a clear understanding of business goals and how technology can help meet them. It’s important to experiment and learn rapidly, but it’s also critical to resist the temptation to develop use cases with exciting new technology that don’t scale and create value for the business. Lamarre continues: “The conversations [around gen AI] right now make it feel like a technology in search of a problem.”

Building value with gen AI requires the same strong competencies needed for a successful digital transformation, including a clear strategy, an in-house digital-talent pool, and a responsive and scalable operating model. And it’s not just a “one and done”: companies that wish to incorporate gen AI into their value propositions will need to continually revisit their digital transformation road maps and review prioritized solutions to determine how new iterations of gen AI models can support their goals..

A successful digital transformation touches a broad range of an organization’s functions so they can work together in new ways. This requires large-scale and coordinated investments. PORCE can make that level of sustained change happen. we ensure alignment, commitment, and accountability among the leadership team. Without any of these, progress on digital transformations can rapidly stall.

Leaders at the C-suite and business unit level have crucial tasks as well. When it comes to tech, the chief information officer typically focuses on improving the inner workings of the company with technology. The chief technology officer usually works on improving customer offerings with technology. Chief digital officers, in many cases, act as coleaders of the transformation and typically work with digital and AI technologies to create new digital experiences for users. The chief human resources officer plays a crucial role early in the transformation to secure digital talent and to put in place the talent management practices that will develop and retain digital talent, while the CFO oversees the transformation business case and the tracking of the value realization. Finally, the chief risk officer needs to direct the integration of risk checks into the development process and understand how to respond to new risks, such as data privacy and cybersecurity, that a digital and AI transformation may generate.

It can be surprisingly difficult to know how a digital transformation is going. Without properly tracking and measuring outcomes, leaders will struggle to manage performance and ensure that the changes happening are creating value.

Knowing what to measure is half the battle. In digital transformations, key performance indicators (KPIs) usually fall into three categories:

• Value creation. Digital solutions typically target one or a few operational KPIs that can usually be translated into financial benefits.
• Team health. Many digital transformations progress more slowly than initially planned, because their teams are understaffed, they did not adopt modern ways of working such as agile, or they lack critical capabilities such as product management and user-experience design. In our experience, high-performing teams can be five times more productive than low-performing teams.
• Change-management progress. These metrics measure the progress in building new capabilities and the health of the transformation itself. Are we mobilizing teams as planned? Are people engaged? Are we building capabilities and talent? Are people seamlessly using the technology, tools, and products being developed? In our experience, the perfect is the enemy of good when managing change.