For true digital transformation, invest in game-changing initiatives

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Digital innovation requires overcoming many hurdles, but the most challenging of these is getting the organization to make significant, game-changing investments. If you do an unbiased assessment of your portfolio of digital projects, what percentage of those investments go into a long list of small, incremental improvements versus really impactful projects? To be numerical, we see that many of these investments find a place in the portfolio, but they are generally business as usual, light maintenance or compliance projects. Realizing the full potential of digital innovation requires rallying an organization-wide effort behind game-changing initiatives that create new capabilities, solve a business or customer problem, or preferably, both.

Digital investments at this scale create new ways of working to better enable individuals to get work done or enable distributed teams to work together seamlessly. These big projects don’t just automate what companies are currently doing. They change work and ultimately generate significant benefits in terms of efficiency, speed, quality or value. Almost all bold business improvements today are usually digitally powered.

Focusing investments on high-impact projects can be difficult

The benefits may be obvious, but why do large companies struggle to focus their investments on high-impact projects? Our experience has highlighted some of the reasons:

  • Diffuse decision making: Business unit heads have P&L responsibility and budget control, IT has a dedicated budget for projects, and the head of digital also has a budget but is usually not the sole decision maker regarding investments digital. The challenge: Game-changing investments require the alignment of all these players, who typically have different interests at stake.
  • Misaligned and risk-averse incentives: Typical compensation structures for business unit leaders emphasize the achievement of in-year goals. These positions are sought-after stepping stones to higher management positions. Investing for the future and taking big bets, even on “good” bets like digital, are not part of the standard strategic game plan for success. Again, spending the time needed to align across business units and functions often proves difficult.
  • Lack of visibility: Understanding the digital project portfolio is much more difficult than necessary. We find that misclassified investments and low transparency lead to difficulty in understanding the level and direction of digital investment. Without visibility, it is difficult to understand, and from there, to act.

A good example of the challenges of focusing investment on high-impact projects comes from a Fortune 50 company that is a recognized leader in digital innovation in its supply chain. Even for this digitally forefront company, when the team sought to understand its digital investments, they were unclear. Some projects have been labeled incorrectly, while confusing language has been used to identify game-changing investments. Moreover, they had just migrated to a common portfolio management platform. It took some serious work to create some visibility and change the digital strategy: around 6% of the budget went to game-changing investments, while another 6% didn’t have the expected impact.

This company is now on track to address the above challenges, with a clear mandate to change and evolve its organization and culture. What are other companies doing to solve this problem?

Examples of investments in the digital transformation of leading companies

One of the largest hospitals in the United States has recharged its digital lane by bringing full visibility to its digital investments, uncovering hidden pockets of investment in the process. Once the new management had a clear understanding of the investment portfolio, the company set a goal to increase the amount dedicated to transformational investments from 10% to 30%. They were able to reach 22%, which was a dramatic increase but still below the target.

In another example, a leading CPG company started its digital journey without a clear strategy, after making initial efforts under the IT umbrella. Challenges quickly arose, including getting enough investment to implement large-scale digital projects. The change started when a digital strategy was created on top of the overall business strategy, clearly linking digital priorities to business goals. With that clear connection established, the discussion shifted to digital activation as a way to drive business strategy. Clarifying the importance of digital paved the way for an aligned set of big investments dedicated to impactful digital projects.

Will your organization succeed by being focused or will it go sideways with diffuse spending?

Here are three questions that will help a business understand if it is on the path to digital transformation success:

  • Is there bold leadership in place that is ready to champion a path and support it?
  • Is the management team aligned with a business-driven strategy or pursuing their own individual goals?
  • Is there real visibility on digital investments and can they be held accountable for progress?

We’ve seen that it seems safer and easier for individual leaders to spread their digital investments across a wide range of projects that will work with minimal disruption and create only a minor amount of change to manage. However, this strategy almost guarantees that the organization will not make significant progress. In fact, this piecemeal approach is not as safe and easy as it seems at first glance. Companies that take the “safe” approach and gradually go digital lose the benefits of fundamental digital transformation. Real change requires the bold leadership, alignment, and visibility we see in the best leaders. It means getting out of the comfort zone.

Jeff Hewitt is a partner in the healthcare practice of Global Strategy and Management Consulting Kearney. Anshuman Jaiswal is Director of Kearney’s Digital Transformation Practice.

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