Mid-Market Digital Transformation – Transcript
Hermann Waschefort:
If you think about leading multinational performers, they’ve always done really well from an architectural planning point of view. They’re good at identifying what are the right business capabilities and IT capabilities, because if they don’t do it, complexity takes over. This is where midsize companies need to get that light-bulb moment. There’s almost like this inflection point where they need to realize that the only way for them to get their productivity levels up is to really start thinking in that way.
Announcer:
Welcome to The Hackett Group’s “Business Excelleration Podcast.” Week after week, you’ll hear from top experts on how to achieve Digital World Class® performance.
Gary Baker:
What unique challenges do midmarket companies have when it comes to digital transformation? How can they overcome them? I’m Gary Baker, Global Communications director for The Hackett Group, and on today’s “Business Excelleration Podcast,” we discuss this topic with two experts from our Business Services Transformation practice in the UK – Director Teresa Exton and Associate Principal Hermann Waschefort. Hermann and Teresa, welcome to the podcast.
Hermann Waschefort:
Thanks, Gary.
Teresa Exton:
Thanks, Gary.
Gary Baker:
Teresa, why don’t you get us started and tell us a little bit about what is the midmarket, and how do we define it?
Teresa Exton:
At Hackett, we consider the midmarket to be those organizations with revenue between $1 billion and $6 billion as a guide. We use revenue as a measure because it is consistently used and measured across the globe, but it’s worth noting there actually isn’t a consistent definition out there in the market, and there are a lot of many factors that go into influencing a midsize organization.
Gary Baker:
OK. Hermann, tell us a little bit about what it means to do digital transformation in terms of the work we do?
Hermann Waschefort:
In simple terms, it’s basically a process of change where technology is combined with people and process to deliver that transformation. It’s got three key elements that you need to consider. No. 1 – change. And this covers ways of working, people change, cultural change. Change is always going to be relevant. It’s a combination of people and process. Some organizations talk about process change, but it’s also about people in terms of how you look at that. And it’s about generating value, because if we’re not going to focus on value and improving performance, well, why are we doing it? So it’s really important to look at those three lenses in terms of how we look at digital transformation.
Gary Baker:
Hermann, what’s unique about midmarket companies and digital transformation? How is what they do different from large or small companies?
Hermann Waschefort:
I’ll ask Teresa to go into that a little bit in detail from a midmarket perspective. There’s some stuff that’s going to be quite generic. Whether it’s a big company or a midsized company or a small company, they’re going to have some unique challenges, and some of the uniqueness will be things like shortages of staff or skills. We know that from our recent 2024 Key Issues Study. We know that everyone is really struggling with funds for investment – so that’s quite generic – and I think we see that there’s quite a lot of organizations out there today that do have a struggle in terms of funds. And also risk – I think risk is very relevant for mid and the larger companies. So things like cyber-risk, data risk, corruption of data risk – all kinds of risks could also be similar. Teresa, what’s your thoughts on specifics when it comes to midsize organizations and their challenges?
Teresa Exton: Thanks, Hermann. I think midsize organizations face fairly unique challenges through a number of areas. One of them is the lack of economies of scale – that they have to compete globally and to compete operationally because they’re not as big as a large organization, but clearly a lot bigger than a small organization. And tied with that is a lack of good information to identify how they should do their investments. They typically have outgrown their current systems, so particularly with the increased move of a lot of our clients from on-premises to cloud systems. They’ve typically outgrown the ERPs at a small and medium enterprises and are doing the change to go to a Tier 1 cloud-based ERP, and that in itself presents a lot of challenges to them to make that change from that level of technology.
Depending on how they’ve grown and how rapidly they’ve grown, they tend to have increased business and technical complexity. They’re either going through organic growth very rapid, through M&A activities of bringing two organizations together and the challenges that that brings with both the business operations, but also the technology, or expanding into new territories and having to accommodate the local requirements. And we also tend to see through the maturity of those organizations that digital has typically been the domain of IT to drive innovation as opposed to being business-led, which you tend to see in larger organizations that are out there. Hermann, I’m done if you’ve got any points that you want to add to that.
Hermann Waschefort:
I think it’s good. I totally agree with that point around complexity and scaling. I just recently did a project with a midsized food manufacturer where we’ve noticed over the last few years, their functional costs have gone up as their revenue went up. As they added new businesses and sectors, their costs also went up, and that’s not good. So when complexity goes up and your processes and your systems cannot absorb that pressure, you will find it really challenging as a midsize company to keep up. So I think it’s important that the service delivery model allows you to scale, and digital transformation can really help you with that.
Gary Baker:
Teresa, how do midmarket organizations address these kinds of challenges?
Teresa Exton:
Good question. We at the Hackett have what we refer to as our Digital Transformation Framework. And, in general, there are some key things really that any business should really undertake, and we define these as the business strategy objectives, the business capabilities, and the IT capabilities – all focused around digital. So when you’re looking at your digital business strategy objective, you are looking at how are you going to maximize customer value? How are you going to be innovative around your products and services? Linking back to Hermann’s point, how do you evolve and innovate your business model, and also keeping costs down? So, it’s around defining the digital business strategy. What is your vision for the future digital business model? What are your strategic objectives to achieve that vision? And what initiatives do you need in order to execute those and achieve those objectives? And what resources are required to deliver the model, linking back to some of the challenges that Hermann spoke to a little bit earlier?
And then once you’ve got that strategy defined, what business capabilities do you need to deliver that strategy? And we at Hackett, we’ve identified five key capabilities that are required to deliver digital transformation.
The first is around digital customer engagement. There’s lots of terminology and papers and thought leadership around design thinking and those things, so it’s really around being very customer-centric in what you do. It’s around, in retail, there’s a focus on personalization. And for your customer, it’s around how do you really integrate and expand your channel? And some of the things you’re looking at is your customer journey mapping – so how do you make the experience of your customer enjoyable that they want to come back and procure or do business with you in the future?
The second capability we’ve defined is around that digitally enabled workforce. COVID has actually caused quite a benefit for many organizations because it forced a lot of organizations to become more digital, and for some organizations, actually gave them the reassurance they can operate, particularly through virtual teams. So you’re looking at how you enable that digital worker, how do you manage your knowledge, and then how do you also facilitate collaboration and workflow in a virtual world?
The third capability that we identified is around what we call digital service optimization, which is really focused around business process automation. So, smart automation in particular, but also, how do you digitalize content and your processes in what you do on a day-to-day, and then how do you actually deliver that?
And then the fourth element around that is the actual ecosystem, so your knowledge networks – your business-to-business networks. And this is where the Internet of Things really comes into play in connecting a lot of manufacturing and linking it all up so you can manage that. So the digital ecosystem is very, very key.
And then the fifth one, which underpins all of these is around analytics, using that to drive your business insight. And that’s across market analytics – your customer analytics. So how profitable are your customers? The operational side and obviously the financial analytics. And this analytics obviously revolves around data, and that’s actually really key to support the other four capabilities.
The third area is around digital IT capabilities, and Hermann, I don’t know whether you’d like to talk to these areas?
Hermann Waschefort:
Yeah. I think in terms of technology, IT in particular, innovation is critical. I think there’s a need from the IT function for them to come out of their box and to drive that innovation and that discussion, but also to play a role at driving the architectural discussion and to bring different functions and teams together. I think for me that’s absolutely critical that they play that role. If you think about leading multinational performers – organizations that’s done really well from a performance perspective – they’ve always done really well from an architectural planning point of view. They’re good at identifying what are the right business capabilities and IT capabilities that we need.
And it’s a necessity. They have to do it. There’s no choice, really, because if they don’t do it, complexity takes over. I think this is where midsize companies need to get that light-bulb moment. There’s almost like this inflection point where they need to realize that the only way for them to get their productivity levels up is to really start thinking in that way. So that’s my perspective, and I think the IT function has a big role to play in terms of that.
Gary Baker:
Teresa, what can you tell us about where the midmarket often gets us wrong?
Teresa Exton:
Link back to our previous point where digital has typically been the domain of IT, a common approach we see unfortunately is IT focusing on buying the technology without engaging the wider business, so very much focused on what I call bright, shiny toys. And the people and process element are forgotten – the business value is overlooked because their focus is I have a problem to solve and this piece of technology will solve that problem. And quite often they go down the path of procuring the technology, deploying the technology, and then wonder why no one adopts it because they actually never engaged anyone in the process of putting the technology in, particularly around business and operations. And we’ve seen that in quite a few clients that we’ve been working with.
The other one that I’ve seen very linked to that one again around how it’s delivered is a lot of organizations treating the move to cloud, which is a very big focus at the moment, particularly for those on-prem ERP solutions. It is treating it as a technology deployment, and by that I mean it’s basically lifting and shifting what we do today and simply doing it in a cloud environment. And what that does is actually ignore the value that can be generated from transforming the people and the process that actually use that technology. We are working with a client that’s been down that path at the moment and initially started to lift and shift, and then decided to take a step back and say, “Actually, we can release a lot more value in terms of getting some standardization across our different parts of our business, becoming more effective and efficient in terms of what we do, but also improving the experience of our customers in purchasing from us, our employees in working with us, and our vendors in terms of engaging with us.”
And one of the key things that also comes out of that in terms of value is not just about effective efficiency, but also being able to harmonize data, because data is a very big output in terms of moving to the cloud, but it enables so many other things around the analytics that we were talking about just before, and enabling a lot of the actual technology. So getting into more of the advanced technologies such as AI and generative AI. That’s the buzzwords at the moment. Hermann, do you have some that you want to talk to?
Hermann Waschefort:
Well, for me, I always go back to vision. Why are we doing something? What’s the case for change? What’s the bigger picture in terms of why we do things? I think midsize companies aren’t very crisp. They’re not very clear sometimes in terms of why they’re tackling certain things. I still see too many companies that have implemented an ERP and then after the implementation, the adoption levels goes down pretty badly and people are not using the tools efficiently. And it’s really because they didn’t always have a clear vision. So vision is important. I think I’ll always say, get your vision right – get clarity in terms of that. And then I would say, really focus on change management. We see too many organizations that just don’t get all the value, and it’s because the change aspects aren’t tackled properly. People aren’t prepared for what’s coming. It’s fantastic new technologies out there – all the features in the world with some of the latest ERPs that we’re seeing today. It’s just a shame that the change angle is not well-addressed in many of these cases.
Gary Baker:
Hermann, what can you tell us about best practices for midmarket companies – how they can get it right, and what they should focus on?
Hermann Waschefort:
I would start by establishing a clear baseline. Make sure you understand where you’re at. Make sure you understand your problems, your challenges, what the odd of the possible is. Do your research. Get out of your box. Make sure you understand what your options are, and thoroughly spend enough time planning. Don’t just go into a dark room and select a tool and go. I think it’s about – thoroughly understand the bigger picture again at an early stage, and also to take the time to get stakeholders on board, get the leadership on board, make sure that the key stakeholders functionally are aligned. Spend time on change, get a proper change strategy in place that really articulates how are we going to communicate? How are we going to train our people? How are we going to drive maximum adoption of these very expensive investments we are going to take. So I think that’s probably the two that I would say start with – get that clarity on baseline and how are we going to progress, and change management. Teresa, any other thoughts on that one from you?
Teresa Exton:
Yeah. I think one of the key ones that we see time and time again is actually resourcing the project correctly with the right resources, and having the actual capability in terms of program management, but also subject matter expertise and IT support, to really help drive some of these transformation programs. As I said, we see many clients, and it is very much a challenge of your midsize organizations. They sometimes don’t have the capacity within their existing resources to undertake transformation, and they try to borrow part-time people from business-as-usual activity, and it simply doesn’t work. So having a dedicated project team focused on the transformation activities you’re undertaking, covering project management, subject matter expertise, the technical elements that you need from IT, as well as the change management and the communication capabilities, I think is absolutely key. And linked to all the points you’ve been saying and what Hermann touched on before is, don’t underestimate the scale of change.
Even the process and moving within the same vendor, so moving from on-prem SAP to cloud SAP, on-prem Oracle to cloud Oracle, even those where you’re still using a similar product, migrating to cloud and using a lot of cloud technologies is very different. The rate of innovation that’s been deployed to these tools is much more rapid. You’re getting updates and improvements constantly, sometimes every three months, and being able to embrace and really utilize and get the maximum value out of your investment is absolutely key, and you need the change elements in there. And the other that sometimes ironically gets forgotten is IT. So a lot of technologies, and this move to cloud. They’re going from a very traditional on-prem where they’re used to being the go-to person to sort out all types of IT issues.
And a lot of that in the cloud products disappears because they are very robust products. But instead, you’re really dealing on fairly rapid and regular updates and enhancements and improvements to the tools that you’re using, and there’s also a shift away from it being a very IT-managed and led application to be more business-led and driven by business needs. So quite often when we see these programs, even where there is the right level of change support in place, it’s very focused of the business, and it does actually ignore IT, which we encourage IT to actually be included in it because it’s quite a big change for them. And related to that is making sure that you have the right level of change support, not just through the transformation, but also subsequent to the transformation to ensure you get the right levels of adoption of your technology. I think those are the two key things.
Gary Baker:
Great stuff. Great stuff. Hermann, Teresa, thanks so much for joining us today. Listeners, you can find more information on The Hackett Group digital transformation capabilities on our website. Under the solution section, we have a page on digital transformation. And thanks for listening.
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