There are many tools to understand your strengths and weaknesses, but only an honest assessment can help your transformation strategy succeed.
Digital transformation isn’t like flipping a switch. It’s a slow and often messy process, but for those that pull it off, it can make your business more efficient, more productive and more profitable.
I’m here to help. As the author and instructor of the Watspeed Digital Transformation Certificate Program at the University of Waterloo, I’ve studied organizations big and small to learn what makes for a successful transformation—and how to avoid problems that lead to a digital dead end.
Every month, I’ll share a new lesson on how to steer your organization through the rough waters of digital transformation. Yes, there will be homework. But if you pay attention and put in the effort, it won’t be long before you start seeing real results.
Understanding your organizational capabilities today is essential for developing your digital transformation strategy. You need to know what you are good at and where you need to improve. To do so, you need a realistic strategy that combines all of the elements that are important in transformation: human, technical and organizational. Finally, completing it well requires effective stakeholder engagement.
Today, we’ll look at how to conduct an internal analysis simply, collaboratively and—most importantly—honestly.
Why honesty is important (but difficult to achieve)
Honesty is essential. Your digital transformation strategy must be based on an accurate understanding of your internal situation and there must be a willingness to face that reality—warts and all! If you can’t do that, the strategy that results will be flawed and unlikely to be successfully implemented.
Achieving the levels of trust and openness necessary for honesty to be expressed in internal analysis is very hard. In most organizations, identification of weaknesses elicits a defensive response. People throughout the organization, including at the most senior levels, are afraid to reveal problems because their own position may be made weaker.
The following example illustrates how important honesty is. During the Vietnam war, reports from the battlefield were sent to military leaders in Washington by U.S. forces. A reluctance to admit to failed or not fully successful missions meant that decisions by the leaders in Washington were often badly flawed—a major cause of the U.S. defeat.
Creating a culture of honesty is difficult and takes time. If you don’t have it now, your strategy development will be more difficult. You can’t wait until your culture is perfect before embarking on your digital transformation journey, but you will need to place a high emphasis on basing your decisions on accurate information. Even when you do this, your probability of success will be less than if you have an honest culture.
A range of tools for internal analysis
Internal analysis is used in many ways by organizations, so there are a variety of tools used. For example, Gap Analysis looks at where you are versus where you want to be. A Strategic Evaluation helps you understand progress on your grand plan. VRIO (Valuable, Rare, Inimitable and Organized) looks at your organization resources.
These and other analysis tools structure your gathering of information, ensuring that you are focused on the aspects of company activity that are most important for the decisions you are making. They also structure the discussion that people in your organization are having.
Whatever the tool, the process must be simple. The tools I advocate in the Digital Transformation Certificate program are intended to be used by groups of people. Collaboration across organizational silos is essential in effective organizational change. Simple tools that are easily understood and applied are much more effective for this.
For digital transformation strategy, we’ll use an internal analysis tool based on one created by Deloitte: the Digital Maturity Model.
Internal analysis with the digital maturity model
This internal analysis tool is intended to focus on five key areas of importance to digital transformation: customer focus, strategy strength, technology capability, operations engagement, and Organizational and cultural commitment. Each category is rated on a scale of 1 (weak) to 5 (strong).
Customer focus
More rapidly changing products, services and markets mean that your organization needs to be more focused on your customers than may have been the case in the past. How aware is everyone in your organization of their needs, and how effectively do you incorporate customer feedback in current activity and future product development? How engaged are you with the customer? This is often reflected in their level of loyalty to you. Remember, this is about your internal capabilities in focusing on the customer.
Strategy strength
Digital transformation is continuous (you don’t just do it once). Your internal strategy processes need to be strong and able to update as needed in response to technological, market and other developments. Stakeholders should be widely engaged through close relationships. They also need to be transferred into action using effective management processes. Your strength here will influence your ability to make your digital transformation vision a reality.
Technology capability
While it is important to remember that technology is only one part of digital transformation, you need to be able to implement, maintain and improve it effectively. Is your network suitable for the changes you want to make? Do you have the capability to manage and exploit the data? Is your security strong enough?
This means having effective IT resources and effective technology skills and knowledge throughout the organization. All employees need understanding that will enable them to contribute to and be comfortable with technological change.
Operations engagement
The success of your digital transformation will depend on how effectively it’s applied throughout the organization. The relationship between your IT resources and your operational resources needs to be strong. They need to work together more than they have in the past, so tension here is a serious problem. Are operational areas ready to use the new technologies in ways that will improve performance (for example, through automation and data analytics)?
Organizational and cultural commitment
Digital transformation always requires a substantial cultural change in organizations. Levels of confidence and trust in leadership need to be strong if change is going to be supported. Innovation and continuous improvement must exist widely if new technologies are going to be effectively introduced and exploited. Are leaders capable of creating this new culture? How effective is your training activity now? It will probably need to be better.
Example: Furniture manufacturer
Let’s apply this internal analysis tool to the hypothetical example of a furniture manufacturer. The manufacturer has (honestly!) rated itself on each of the five categories and given an explanation for the rating.
|
Element |
Rating (1 is weak, 5 is strong) |
Explanation |
|
Customer Focus |
4 |
Important in this competitive market, where trends change quickly. |
|
Strategy Strength |
3 |
Regular strategy development takes place but implementation is often weak. |
|
Technology Capability |
2 |
Technology human resources are stretched thin and infrastructure is outdated. |
|
Operations Engagement |
2 |
Effective in managing efficient operations today but not so good at managing change. |
|
Organizational and Cultural Commitment |
3 |
Positive employee relationships and good management team cohesion, but weak in innovation and continuous improvement processes. |
As with all of the tools we have introduced in this series, the value of this internal analysis is only realized with extensive stakeholder engagement. This enables multiple perspectives and sources of knowledge to be combined in effective decision making. In most cases of digital transformation strategy development, I’ve found that stakeholder engagement should be stronger.
Digital transformation homework
Your internal analysis homework is to consider the question of honesty. Is this a challenge in your organization? If it is, what should be done to overcome it? If it’s not an issue, consider your plan for engaging stakeholders. Document your thoughts and apply them when you do your own internal analysis.
Ready for more digital transformation knowledge? Check out another lesson: No More Navel-Gazing: PESTLE Analysis is How Companies Plan to Adapt.
Peter Carr is the author and instructor of the University of Waterloo Watspeed Digital Transformation Certificate Program, available globally online, and focused on overcoming the challenges of successful technological change. The program is jointly offered with the Ontario Society of Professional Engineers.
