Despite a growing business case for digital transformation – according to our recent analysis, the return on investment could be as high as 600% – progress has been measured. Until last year, that is. The pandemic triggered the digital wake-up call that many organizations needed. Companies made massive changes to maintain business and operations through digital channels because they had to. Now, we have to maintain that momentum while working from a proactive rather than a reactive position. This is particularly important for technology organization leaders who face the dual challenge of enabling the transformation of their own function, as well as the enterprise. The way to do that is to focus on building five core digital capabilities.
The mandate has strengthened
The experiences of 2020 underscored the value of a digital operating model and solidified perspectives about the role of digital transformation in the next normal. In our 2021 Key Issues Study, approximately 73% of respondents said they expect acceleration of digital innovation to be a permanent characteristic of the business environment after the return to stability, and 72% expect an enduring shift to digital delivery channels.
Not surprisingly, enterprise digital transformation catapulted to the No. 1 priority for 2021, up five spots in the ranking from the previous year. Technology executives ranked digital transformation fifth – however, digital is critical to advancing many of the other items on the 2021 technology organization and enterprise agendas.
A framework for accelerating digital transformation
Today’s technology landscape is broad, with rapidly evolving tools and players, and ambiguity that still surrounds the potential benefits and return. With the stakes high and investment dollars limited, how can you be sure you are making the right moves?
We have found it effective to focus on building five essential digital business capabilities (Fig. 1): digital engagement, digital workforce and organization, digital service optimization, digital ecosystem, and analytics-driven business insight.
FIG. 1 The Hackett Group’s Digital Acceleration Framework
To illustrate these digital business capabilities and the technologies that enable them, we gathered examples from across our work with various technology leaders.
- Digital engagement
A flood of technology innovations has transformed the way companies and business services functions engage with customers, suppliers, partners and other stakeholders – and the field is still rapidly evolving. These technologies can optimize stakeholder experiences by digitizing and integrating interactions across channels and leveraging data.
Development of digital engagement capabilities should focus on knowing customers – external customers, as well as business leaders, other functional teams, employees and third-party partners – across the journey, customizing interactions, enabling customers to access services or information in different ways (web, phone, app, email, etc.), ensuring consistent interaction across channels, and providing analytics and insight in real time.
Examples of the digital engagement capabilities that technology organizations are developing
- Seamless multichannel engagement
- Customer persona mapping
- Customer data privacy and security
- Intelligent agent-assisted self-service
- Chatbots/intelligent agents
- Customer relationship management systems
- Self-service systems
- Systems integration
- Role-based/attribute-based control
- Speech/text analytics
- Digital workforce and organization
Technology has changed the nature of work by automating routine tasks, digitizing workflows, connecting co-workers in virtual teams, and untethering and empowering knowledge workers with personal productivity tools. These capabilities use digital tools and platforms to maximize productivity, intellectual property creation, and the value contribution of both individual workers and the teams in which they work. Most of today’s digital capabilities enable workers through remote access to applications and self-service provisioning: knowledge management tools; workforce collaboration platforms such as Microsoft Teams, Zoom and Slack; and other means of communication and engagement.
The next wave of digital transformation will have an even more profound impact on the workforce than traditional automation and, for many roles, will change the nature of work beyond recognition. This will be the result of a perfect storm: the entry of a digitally native generation into the workforce, the mass adoption of traditional technologies that eliminate most repetitive tasks, and the rapid maturation of cognitive technologies.
Examples of the digital workforce and organization capabilities that technology organizations are developing
- Secure user-centric interfaces
- Mobile enablement
- Enterprise content management
- Online on-demand training
- Multichannel employee access
- User-centric UI/UX design
- Self-service, artificial intelligence (AI) assisted service desk
- Knowledge management systems
- E-learning and coaching
- Virtual collaboration tools/enterprise content management
- Cloud-based applications and data
- Home office provisioning system
- Zero trust and role-based security
- Video conference systems
- Digital service optimization
Historically, business process automation has never fully lived up to its promise due to the inherently dynamic nature of business processes and operating models, and the inability of business applications to adapt to changes at the speed at which business operates. Without a major overhaul of technology platforms and upgrade of the technology organization’s capabilities, this agility gap will only widen. Digital service capabilities center around the use of content and process digitization, business process management, automated workflows and approvals, robotic process and cognitive automation to maximize the efficiency and effectiveness of business services, and the execution of underlying processes.
Examples of the digital service optimization capabilities that technology organizations are developing
- Virtualization of all technology service delivery
- End-to-end process design and intelligent automation
- AI-based autonomous decision-making in technology process automation
- Automated systems management monitoring and controlling
- Cloud-based modern application platforms
- Business process management, workflow or orchestration
- Smart automation technologies
- Automated notifications and alerts
- Digital ecosystem
Traditional organization structures and value chains are evolving into networks of digitally connected resources, service providers, and consumers. The business-to-business networks, knowledge networks and internet of things (IoT) are examples of emerging digital ecosystems. Within a knowledge network, companies may, for example, crowdsource innovation, collaborate with strategic suppliers to innovate, or incorporate customer feedback into product development. An ecosystem based on the IoT may enable entirely new business models, products or service offerings.
Digital pathways that connect the business with suppliers, customers, and other partners enhance value through greater process efficiency and effectiveness, as well as a better user experience.
Examples of the digital ecosystem capabilities that technology organizations are developing
- Third-party partnering programs and governance
- Operational and information integration for supply and demand networks
- Automated value network processes
- Collaboration and innovation fueled by extended knowledge networks
- Cloud-based platforms for shared information/content
- Vendor portals
- Virtual collaboration tools
- Application programming interfaces, micro services and other integration tools
- Third-party cybersecurity services
- Analytics-driven business insight
Superior ability to mine data for business insight is an important – and for many industries, the most critical – competitive differentiator. Digitally native companies like Uber, Amazon, Facebook and Google optimize their service offerings almost in real time based on analytics-driven insight. Established industrial age firms like Caterpillar, GE and Bayer are redefining their business models, generating analytics-based revenue streams. Consumer packaged goods giants like Unilever and Procter & Gamble compete based on the analytical capability of their marketing functions.
The pressure to deliver on enterprise strategic goals is driving adoption of more sophisticated tools for analyzing rich datasets. Modernizing data management platforms, managing data as a strategic asset and applying new analytics solutions will accelerate speed to value.
Examples of the analytics-driven business insight capabilities that technology organizations are developing
- Data models and visualization strategies
- Data governance
- Performance measurement and analysis
- Smart data capture
- Machine learning
- Master data management tools
- Advanced analytics engines
- Data visualization
- Self-service analytics
Of course, your specific priorities for developing digital business capabilities will depend on unique enterprise and functional business strategies and objectives. Also, keep in mind that these capabilities are highly interdependent, with business insight as the thread that ties all of them together. Therefore, you cannot decouple and approach them as discrete concepts.
The role of digital IT and execution capabilities
While the five digital business capabilities determine how effectively organizations will operate, enabling information technology (IT) and execution capabilities that facilitate transformation (lower layer of the framework above) are just as important.
Digital IT capabilities – including technology innovation, modern digital architecture, agile service delivery, data stewardship and provisioning, and cybersecurity – are typically the responsibility of the technology organization. Your effectiveness in developing and applying these capabilities will largely determine how quickly, efficiently, and effectively the business transitions to digital operations.
In addition, all business functions must hone adequate capabilities to execute their digital business strategies. This includes capabilities for identifying and prioritizing opportunities, implementing new solutions at speed, and optimizing digital functionality following deployment.
Fast-track your technology organization’s digital journey
The following steps can help you mobilize quickly yet intelligently for digital transformation:
- Segment digital capabilities into the five categories described above.
- Determine the baseline maturity of these capabilities using an established maturity framework.
- Identify the key gaps and opportunities within your processes.
- Develop a heat map that prioritizes areas for digital innovation.
From there, you’ll begin to see a clear picture of the direction you need to take.
 Our analysis of benchmark data projects that a $10 billion company, with business services organizations operating at a digital world-class efficiency level, spends $15 million more on technology than the typical organization of its size, and it has a $106 million lower operating cost.