Digital transformation is the kind of radical change that happens when an enterprise taps the potential of emerging technologies to reinvent its business, enhance customer relationships, redefine the user experience, better manage supply and demand, or introduce new products or services. Digital transformation brings not only technical and business change but far-reaching cultural change that has implications throughout an enterprise.
Digital transformation today is impacting every organization. And CIOs are feeling the pressure to deliver new and advanced capabilities. In the meantime, service providers are making significant investments in the way they deliver digital services for their customers. Many are approaching enterprise CIOs with unsolicited proposals that leverage digital services and promise to transform their business.
The challenge for the CIO is to determine if such a digital transformation bid is structured in such a way that exhorts the service provider to contribute directly to business outcomes and share in both the risk and the reward. A CIO assessing a bid for digital transformation should keep these Top 5 principles in mind:
- The contract and its proposed solutions must point a bold arrow to business outcomes. Be sure you fully understand the nature of the digital solutions and the transformation they promise. It’s easy to fall into the arms of a digital evangelist who can talk a blue streak about technology but may or may not be able to help you achieve your goals. Find a service provider that knows enough about your business and its specific problems that it can articulate exactly how “going digital” will solve them.
- Understand and mitigate the risks. Consider contracts that stipulate shared risk and reward for the service provider; they need to demonstrate they are willing to put skin in the game. A reasonable portion of the service provider’s revenue should be linked to the business’ key performance indicators (KPIs)—not just IT results. Find out how the proposed digital transformation will impact these KPIs—productivity, revenue growth or increased sales—and be prepared to measure them through a due diligence exercise.
- Don’t underestimate the long tail of change. True digital transformation reaches far beyond IT. It involves applying digital solutions to change operations, processes, analyses and decision making. Success depends on adequate training, consistent communication and a cultural shift among users. Look to the service provider to provide the desired level of support for change management and make sure the contract clearly defines roles and responsibilities for making the change as smooth and effective as possible.
- Ensure fully justified return on investment for the transformation. Before you invest millions of dollars in digital transformation, create a business case that traces how “going digital”―either internally with business processes, platforms and measurement structures or externally with your customers―will pay off over the long term. It may be tempting to simply follow the latest shiny, new technologies, but knowing exactly what you can expect to gain from investing in a service provider’s capabilities is the right first step.
- Don’t ignore governance. Most corporate CIOs tend to overlook vendor governance, and most digital transformation bids fail to address it. But the trend toward partnering with multiple best-of-breed IT service providers makes governance and service integration especially complex. The buy-side enterprise is the one that feels the pain of a weak governance structure in the form of delays in projects, overextended budgets and opportunity losses. Use the contract to establish a clear governance framework up front so everyone understands how the relationship will work from the start, how the transformation will take place, when it will be completed and what the results will be.
ISG can help your company assess the right way to undertake and survive a digital transformation. Contact me to discuss further.