Digitalisation 101: a practical guide to #DigiShift

As published on LinkedIn Pulse

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 all the hype, and end up without the results you had hoped for.

This article aims to steer clear of the hype and instead provide an approach for understanding and leveraging 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 we get carried away, let’s 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 Strategy Illustration with Chalk on Blackboard
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 fulfill 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 portfolio framework and is straightforward, quick and efficient enough to be used and repeated whenever the situation changes.

The 4 steps to #DigiShift are:

LI - 4 steps 4

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

1. Key capabilities identification

LI capabilities textStrategic 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

(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 extensively does the capability fit 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.)?LI Graph 2

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. Plotting your options on a digitalisation axis helps to place the 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. LI Digi Axis

Digitalisation options can be identified from many sources, including media, IT research, competitor analysis and R&D. 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 rules 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.

The next step is the key to preparing for your digital journey. You need understand where you currently are, so that that you can identify the starting point and how far you will need to go. 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).LI digishift current state

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

And now to the target curve, this is where the innovation and brainstorming really start. How flexible is your capability in changing the execution methods? What methods are possible? Where is the competition going and are there parallel markets/industries you can look to? Analyse each idea and 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, if they fundamentally change the strategy, analyse them in a separate strategy stream.

It is also good to look across capabilities for commonalities: an execution method such as a predictive production algorithm for a capability such as producing goods could be used for another capability e.g. a predictive inventory 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, if they fundamentally change the strategy, analyse them in a separate strategy stream. LI DigiShift

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 underrepresented or is overlapped, then adjust and update the curves accordingly. Visualising the journey 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 few 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) andLI journey 2map onto portfolio matrices. The amount of DigiShift can be used as a measure of change impact. These analyses indicate the relative priorities, so that the initiatives can be, based on dependencies and technical impact, consolidated and placed onto a project roadmap.LI - Portfolio 3

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 for delivering on it.

The end result should be a viable digital strategy that supports the business strategy with a valid execution roadmap for delivering on it.

Try your IDEA

Illutas has developed the Illutas Digital Ecosystem Accelerator (IDEA) to help you to digitally exploit your company’s core strengths, avoid those pitfalls and accelerate your digital journey. IDEA applies this DigiShift approach in a limited number of workshops, supported by pre-configured capability models, templates and tools, allowing you to document your digital journey in a few rapid, risk free and cost efficient steps. Contact info@illutas.com for more information. 

Icon

IDEA: Illutas Digital Ecosystem Accelerator (DE) 1.08 MB 100 downloads

Der Illutas Digital Ecosystem Accelerator (IDEA) wurde entwickelt, damit Unternehmen...