Digitalisation 101: a practical guide to #DigiShift

Like all major changes, digitalisation comes with opportunities as wells as risks and challenges. This article describes how to create an effective and workable digital strategy, based on your business strategy and capabilities.

Digitalisation is riding a wave of popularity. Daily blogs are telling us to get ready for the life-changing impact of blockchain, robotics, the Internet of Things and much more. Many digital approaches, strategies and interaction methods are being promoted and, somewhere along the line, businesses must decide what they are going to do about it. Like with all waves, the digitalisation opportunities come hand-in-hand with challenges and risks. It is easy to be swept along with the hype, and not end up with the results you had hoped for. 

This article aims to steer clear of hype and instead provide a digital accelerator to understand and leverage digital opportunities in a structured and measured way.

First up: digitalisation is big news: it has the potential to drive down operational costs, improve market reach, invent new products and services, change customer experiences and differentiate companies in markets and supply chains that are expecting, and even demanding, digital interactions. 

Before starting, we need to remember that promises of technological leaps to new and better things are not new.  Each of the earlier leaps included success stories which enriched our digital experiences, as well as high-profile failures which never took off. The most successful, and persistent, companies applied business models based on real needs and/or the interpretation of strategic business capabilities in a new way. 

The most successful, and persistent, companies applied business models based on real needs and/or the interpretation of strategic business capabilities in a new way.

However, it seems that some of the currently advocated digitalisation approaches ignore the key success factors of the past and leave business basics and strategic thinking by the wayside.

Business fundamentals do not change that much: customers still have a need to fulfil and companies still need to use their key strengths and capabilities to meet these, in ways that differentiate them from their competitors. Sure, the methods of execution and sometimes the business model change along the way, but the basic drivers are the same. 

Business fundamentals do not change that much: customers still have a need to fulfil and companies still use their key strengths and capabilities to meet these.

Our approach goes back to those basics and evaluates the digitalisation options against business strengths and capabilities in a structured way. It deals with uncertainty through a guided digital options and a portfolio framework, and is straightforward, quick and efficient enough to be used and repeated whenever the situation changes. 

The 4 steps to DigiShift are:

1. Identify key capabilities
2. Analyse for fit and contribution
3. Evaluate digitalisation options and calculate the DigiShift
4. Create the digital journey and roadmap

1. Key capabilities identification

Strategic goals are achieved through the execution of business capabilities. Define the top capabilities that enable you to achieve your strategy. Don't create a huge list, just define the capability at a meaningful level: not too abstract to hinder proper analysis but also not too detailed to get bogged down in detail. Use a standard capability map as a first input, there are many available online. Don't forget any capabilities or functions that currently stop you from achieving your goals - removing these blockers can really enable your strategy.

(Note: if no current formal strategy exists, a succinct statement of shareholder goals and ambitions can be used.)

2. Analyse fit and contribution

Next, you will assess the expected strategic and contribution parameters of these capabilities. These parameters set the performance guidelines, against which your digital project portfolio will be measured.  

As these parameters are only used as relative measures within the process, they can be kept simple. For each capability, you will measure the current & future state of the key parameters from 1 (not, none) to 5 (very, a lot):

• Strategic fit: how well does the capability fit and support the strategy?
• Activity: how much activity or effort does the capability require?
• Cost: what is the contribution of the capability to the company's cost levels?
• Revenue: How much does the capability contribute to revenue generation - direct (sales) as well as indirect (product development, marketing etc.)?

3. Explore digital options and measure #DigiShift

The most difficult part of digitalisation is to deal with the magnitude of digital options, methods and technologies. This can only be achieved by applying context, structure and measurement. The options indicate how a capability is executed: does it use technology, is it manual, is it a mix? Usually, each capability has a number of execution methods and options. Plotting your options on a digitalisation axis helps to place these options in a quantifiable context

This axis runs from 100% analogue to 100% digital. 100% analogue represents purely human actions, 100% digital its digital counterpart: intelligent machines. Other execution methods such as people using applications, internet collaboration, robots automating processes etc. are mapped in between these 2 poles. 

Digitalisation options can be identified from many sources, including media, IT research and competitor analysis. It is good to keep an open mind on the options as you brainstorm the ideas.

The positioning of these different options on the axis can be a little tricky. Some questions to ask are: is it more pervasive, more responsive, more logic based, less restrictive? Then it’s probably more digital. But in the end, precise positioning doesn't really matter that much, as long as it is approximately correct and there is consistency along the axis.

Now it is time to prepare for your digital journey. To plan this, you need to understand your current position, so that that you can identify how far you will need to go (your DigiShift). This involves mapping each of your capability’s current execution methods onto your digitalisation axis. Apply a grading to indicate how heavily dependent the capability is on the execution method from 1 (not) to 5 (a lot).

This creates the baseline. The further left the curve, the more analogue the capability. For instance, “ordering a meal” in a local neighbourhood restaurant is lower on the digitalisation axis than it would be at a fast food chain.

And now to the target curve: this is where the innovation and brainstorming really start. How can you change the execution methods of your capability? What methods are possible? Where is the competition going and are there parallel markets/industries you can look to? Analyse each idea then map and grade them on the axis. 

At this stage, you might also come across new digital business models which you can either add to this process or launch in a separate strategic stream.

It is also good to look across capabilities for commonalities: an execution method such as a predictive manufacturing algorithm for producing goods could be used for another capability e.g. a predictive stock holding algorithm to manage inventory. Capabilities can also be added, removed or refined at this stage. You might also come across new digital business models which you can either add to this process or launch in a separate strategic stream. 

The target curve will probably lie to the right of and above the current curve. (If not, then there is little left to do!) The difference between the 2 curves indicates the amount of intended digital shift, or DigiShift, required to get you to your target state. By mapping and assessing all your capabilities, you will be able to get a single overview of your entire digital strategy. 

4. Digital journey and portfolio

In this next step, you will evaluate how your capabilities and execution methods fit together, so that you can create your digital journey and portfolio.

Each capability usually has a defined start or input and a defined finish or output, as well as one or more intermediate stages. By mapping the execution methods onto these stages, you will see if and how they fit. If you find that a stage was missed, is over- or under-represented or is overlapped, then adjust and update the curves accordingly. Visualising the journey in this way will help with understanding the strategy. Sometimes, it is easier to start with the digital journey and then go to the axis mapping or to go back and forth for a couple of iterations.

You now have everything you need to create your digital roadmap and portfolio. To do this, you need to "package" each DigiShift point as a digitalisation initiative, which you grade for relative size/cost/complexity 1 (low) to 5 (very high) and map onto portfolio matrices. The amount of DigiShift can be used as a measure of change impact. These analyses provide the relative priorities so that the initiatives can be, based on dependencies and technical impact, consolidated and placed onto a project roadmap.

As a final step, the portfolio and the approach need to be reviewed. Some initiatives require pilots and experiments to be set up and executed according to the performance indicators from step 1. Others might require further technical due diligence or can be executed as quick wins.

The result should be a viable digital strategy that supports the business strategy with a valid execution roadmap to deliver it.

About Thomas Maes

Thomas Maes is a senior IT strategist with over 25 years' experience in making IT work for the business. Thomas founded Illutas to help companies make better use of information and technology in structured and value-added ways. This digital accelerator is an example of the Illutas approach and philosophy. To learn more or to get in touch, please visit www.illutas.com.