Digital transformation has emerged as a catchall term for efforts to use digital technologies and digital-era thinking to help an organization evolve. For some companies, digital transformation could be as simple as updating tools to make various operating units more efficient and effective. For other companies, digital transformation might entail creating entirely new divisions or whole companies based on digital-era business models.
While it may sound like a counterintuitive assertion for a technology company to make, the “digital” aspect of digital transformation is actually less interesting than what’s made possible by the technology. For example, high-speed networks and collaboration software are certainly impressive tools. Still, the ability for companies to collaborate across the globe in real time and have access to global talent on or off the payroll has reshaped the entire economy.
Unfortunately, many organizations regard digital transformation as a discrete event. Like updating an enterprise software package or deploying a new online store, they create a digital transformation “project” with a defined start and end date and consider themselves “transformed” when closing down PowerPoint after the project’s final presentation.
True Transformation Never Ends—and that’s OK
Perhaps it’s human nature that we strive for a discrete start and end to what are ultimately ongoing journeys. We celebrate birthdays and anniversaries as if they represent a discrete end and beginning to constantly evolving lives and relationships. It seems we’re innately designed to reach a destination so we can check another thing off our list and move to the next.
This can prove helpful in terms of accomplishing discrete tasks as it maintains momentum and focus on a goal. Launching a new technology-enabled product without an end date or discrete objective would likely be a disaster. However, transformation is an ongoing process, and your objectives today are unlikely to be the same in 6-18 months—if you’re doing transformation “right”, that is.
So if transformation is a never-ending process, how does one measure success? One of the most effective techniques is benchmarking, both internally and externally.
Internal benchmarking involves identifying some key performance indicators, emphasizing “key.” Your selection of indicators may change over time but avoid the temptation to capture dozens of them. This might make for a pretty dashboard report and the opportunity to find at least some positive indicator at any given moment. Still, too many metrics create such a lack of focus that they’re no longer helpful after a short while.
When you consider what metrics are relevant to your digital transformation efforts, try to drive qualitative metrics to something quantitative. For example, if a critical element of your digital transformation is improving employee engagement, that could be measured through retention or the percentage of accepted offers. If you’re attempting to drive innovation, consider measuring the number of new product launches or revenue in “non-traditional” areas outside your current business lines.
As a runner, I find fitness analogies useful. For example, if my qualitative goal is to “get faster,” I could use my mile pace as a more quantitative metric. If I was focused on improving speed and endurance, I might look at the average pace in the last 5 miles of a marathon. These straightforward and easily-measured KPIs reflect several complex factors ranging from nutrition and recovery to strength. With some creativity, you can likely find a qualitative KPI that captures several nuanced elements of your transformation.
Over the life of your transformation, these metrics should be revised and updated. My running pace has improved significantly since I started my “running transformation.” And just as I update my goals each year to reflect where I am in my journey, so too should your digital transformation targets be evaluated and recalibrated.
External benchmarking has long been a tool for assessing the goals and impact of transformation efforts, and it’s also useful for digital transformation when used intelligently. There’s a tendency to look to “digital natives” as a starting point for benchmarking, which can be a frustrating exercise.
Just as Meta (Facebook) would benchmark so unfavorably as to be laughable if assessing its ability to perform oil and gas exploration compared to a major oil company, so too should the oil company avoid comparing itself directly to Meta in terms of digital capabilities.
Look to industry peers or analogous industries that might be further along in their digital journeys. If their industry is largely similar, an auto manufacturer might find a suitable peer set in medical equipment manufacturers. Identify companies and sectors 6-24 months ahead in their transformative efforts rather than a peer set that’s years or even a decade on, as are many of the “digital natives.”
You can certainly learn from advanced companies and apply the lessons and methods they’ve developed after years of practice, just as any athlete can learn from some of the techniques and practices of professionals. However, just as a brand new golfer wouldn’t evaluate their swing against a tour professional, neither should your company look to digital natives as direct peers for benchmarking.
Similarly to constantly evaluating and recalibrating your KPIs, you should adjust your external benchmarks at least annually. You may discover emerging industries doing something interesting in their accelerating transformations while your current peer set slows or matures.
You might even find that you’ve pulled ahead of your peer set and need to select a new group against which to evaluate your performance.
Refocus, and repeat
Organizations that consistently outperform in digital transformation generally focus less on using a particular technology and more on developing digital “muscles” that allow the organization to rapidly adapt and use whatever new technologies emerge. As you advance your digital transformation effort, you will find that your company’s ability to identify and productively use digital tools and methodologies improves.
While an early focus of your digital transformation might have been cost savings and operational efficiency, with your developing strengths you may want to refocus your efforts to drive innovation or advance your corporate strategy. A key benefit of assuming that your digital journey is an ongoing evolution rather than a time-boxed project is that you’ll grow capabilities that benefit other areas of your company, not just end up with some neat new tech.