The words digital transformation are being thrown around a lot at board meetings. It is an umbrella term for the inner need of a corporation to be ready for the digital future. And to boost efficiency through digitalisation, resulting in cost savings. Both are correct. But many times, companies approach digital transformation with a fuzzy framing.
When the need becomes evident, but the challenge appears insurmountable, the board reaches out to big consulting firms for help with designing their digital transformation initiatives. Good move. However, this process often lacks one of the main factors for digital transformation success: internal capacities ready to get aboard the train and take over the driver seat. And soon after, the digital transformation cycles back to fuzziness and unclear purpose.
I have been part of several digital initiatives and I have discovered that problems arise from the very start. When defining what they want to achieve, companies keep hitting the wall of “what the hell do we really mean by digital transformation?”. After years of struggling and learning in the field, I have narrowed it down to:
The goal of digital transformation is to provide business owners with proof that digital operations have actual, measurable impact on the business; so that business owners can scale their products to be operational in a digital environment.
That is a mouthful, but it's very important to hit on two main points: measuring the impact and scaling digital operations. Let’s dive a bit into these topics.
Measuring the impact of digital
Before a company fully embraces the transformation, they will employ a complicated set of metrics for digital projects. At the board reporting meeting, there will be a lot of discussion about page views, subscribers, NPS, App Store rating or the number of users. These are what we call vanity metrics. They are used to create an often false sense of achievement. At the end of the day, NPS can be easily manipulated and may not reflect directly on business success. When it comes down to measuring impact, simplicity is king.
I have learned that digital products should be measured through their direct and proven impact on the core business metrics of the company. In a digital environment, it's fairly straightforward to connect the dots between a specific digital product effort and the company's objective. For example, a well setup digital funnel and conversion goals could easily tell you how much money digital is making.
Your digital products should not be driven by vanity metrics like NPS, interaction speed, customer satisfaction or App Store rating. You should rather focus on how many new customers were acquired digitally (conversion), how many sales were driven through digital channels or how much service operation costs have been reduced. The Head of Sales has quite precise expectations from every sales representative, often measured in closed deals. It should be no different for digital products, you should have precise expectations from all of your digital initiatives, connecting it directly to the company's success.
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Scaling digital operations
A company's digital maturity has a direct correlation with how well business owners are capable of scaling their digital operations and building a team that is empowered to deliver business-relevant results.
In the early stages of digital maturity, digital channels are often used just to provide support for regular sales. Your digital portfolio may include a few landing pages showcasing your services and direct contact to sales associates. At this point, business owners will often focus on vanity metrics while grasping at straws trying to prove how an increase in page views is helping achieve the quarterly sales goal. Likely, the digital team does not feel motivated to push their initiatives forward and lacks the vision or focus to do so.
A better approach is to set up the right expectations from your digital products, while connecting it directly to your yearly or quarterly goal (e.g. sell 100k worth of your service). This is better achieved through close cooperation with top management. From that point, digital product teams will be regarded as important across the company and focus on direct impact, as opposed to superfluous metrics such as NPS. If they showcase what they can deliver, they will feel empowered to leverage decisions in favor of achieving business goals, as opposed to blindly fulfilling business requirements. When your team reaches this point, you've taken the next step in your digital maturity and are able to start scaling your digital operations.
Scaling is a tough process, best driven by product teams who are in direct contact with customers. The recipe for success is all about working agile and making decisions in the field, by balancing customer insights, technical limitations and business goals. Focused and empowered teams will do everything they can to get rid of useless work in order to achieve their goal.
The more successful these digital teams become, the more powerful they will be in saying what new products and services should look like. Business owners will see the results of the goals they have set up together with the teams and will start thinking more digital. They will start asking themselves: How can I design my product to utilise digital channels? Company products and services will start scaling to digital and become better optimised for the end users.
At LB*, we have believed for years that showcasing good product work in the teams would drive digital transformation within the company. And we still believe so. Unlike consulting firms, we earn our daily bread on real projects – researching, designing, teaching and developing digital products.
But the impact of the digitalisation is limited without proper goals at the managerial level. That is why we consult C-level management members to set up the right environment for the digital transformation to rock. The cascading goals model (such as OKRs) helps digital products to become real players in a corporation and to take on a real business objective, not just a vanity metric.
Driving digital change inside an organisation goes beyond great digital education, launching agile squads and changing mindsets. Setting the right goals is one of the most important levers for transformation success. With the right goals, it’s much easier to evaluate a digital product, praise it or hate it, make those decisions about scaling, pivoting or dismissing it. Also, reporting becomes much more transparent and useful.
If you have already started your digital transformation, go on delivering great product work, staying agile and striving for great CX. Once you have proof that your approach is successful, your next stop should be the C-level suite explaining why the organisational goal setting should change.
Hint: The OKR framework (Objective - Key results) are a great framework to start with.