Is your organization managing to the speed of emerging technology? Is its business model at risk of digital disruption? Is the company a disrupter or one of the disrupted? If the board and executive management aren’t sure, it’s time to assess digital readiness. Jim DeLoach discusses.
Before the advent of the COVID-19 pandemic, the northbound train that is the digital revolution was transforming the world in which we live at such a breathtaking pace that many directors and executives were concerned their organizations would be left at the station. When the pandemic hit, necessity became the mother of invention. It was amazing how many companies compressed time to market from years and months to weeks and days – it was innovate or cease to operate. And one characteristic that distinguished companies most successful in navigating the choppy waters of COVID-19 was digital maturity.
Now, with vaccines becoming available, the hope of putting the pandemic in the rear-view mirror emerges. But the quest for innovation and digital transformation continues. Innovations such as robotics, artificial intelligence (AI), machine learning, wearables, drones, autonomous vehicles and nanotech are just a few examples of the drivers of change over the next several years.
Consider AI, for example. The landscape for the use of AI is changing dramatically as companies realize significant gains in profitability, productivity, revenue and shareholder value from improved planning and decision-making, accelerated time to market, more effective risk management, reduced costs and creation of new business models and channels.
Most organizations recognize that digitalization is one of the biggest risks they face over the next several years. Prior to the pandemic, many did not fully grasp that time is of the essence in meeting this threat. But the pandemic offered clarity as digital channels enabled new revenue streams, lockdowns necessitated an acceleration of workplace redesign and supply chain failures forced a revisit. The pace of change required to survive and thrive during 2020 triggered the creativity and out-of-the-box thinking and fast-track implementations the likes of which few have seen. Going forward, the questions facing executive management and the board are deceptively simple:
- Can we continue to innovate as we have during the pandemic, or are we going to revert to old habits?
- Are we capable of thinking like a born digital company?
- Do we have the competencies we need to compete?
If an organization can learn to think like a born digital company, it will naturally embrace the latest technology and other innovations. However, trying to force technology on a company that is not ready to embrace it will almost always fail.
5 Levels of Digital Maturity
The competencies driving digital capability are arrayed along six broad categories:
- vision, mission and strategy;
- management and employee culture;
- organization, structure and processes;
- communication, marketing and sales;
- technology innovation and development;
- and big data, analytics and automation.
Years of research have resulted in Protiviti identifying 36 competencies at which organizations must excel to compete effectively with digitally born companies. Companies should assess their readiness using a suitable framework, whether it is Protiviti’s or someone else’s. Protiviti’s online, proprietary digital assessment tool is available at no cost for companies to benchmark themselves to ascertain in which of five levels of digital maturity they fit:
- Digital Skeptic – At the scale’s low end, these companies are laggards reacting to innovations happening around them. They know they need to match the capabilities their digital competitors are offering the market, but they have not grasped that the manner in which the latest technologies are utilized can be a significant differentiator. They are generally risk averse, let others make mistakes and believe they can play catch up. This may work sometimes, but over the long term, it can be a dangerous strategy when the pace of change is so fast and customer loyalty is fleeting.
- Digital Beginner – These companies embrace the need to change and succeed in implementing new technologies, resulting in a collection of point solutions across the business. They understand that the way they use technology can be a differentiator and, therefore, are experiencing initial successes doing things with the latest tools. However, they lack a coherent end-to-end strategy as their efforts amount to a collection of initiatives that may be valuable but are not the result of a strategy addressing how the organization will compete in the digital age.
- Digital Follower – Followers have a clear digital strategy. They make quick decisions in response to innovations and focus attention where change is needed. While they know where they are going, they still have a lot to do to execute on their strategy and to become digitally advanced. Agile followers can compete effectively in the market. Resiliency is vital to success as a follower.
- Digitally Advanced – These companies have progressed their digital transformation efforts by embracing and experimenting with technologies to achieve high levels of automation, a low-cost base and hyperscalable business models that are less dependent on people in ramping up or down to meet demand. They have a digital mindset at the core, focus on their culture and people and think and act digitally in everything they do.
- Digital Leader – The distinction between companies that are advanced and those that are leaders lies in the proven ability to disrupt industries and/or traditional ways of thinking. Advanced organizations have digitized and are using the latest technology everywhere, but leaders also disrupt. Tesla, Uber, AirBnB and Amazon are examples of organizations that have completely changed their respective industries.
Protiviti’s assessment tool is designed to quantify and assess digital fitness so that companies can determine whether they are a skeptic, follower or leader and identify the strengths they should exploit and potential weaknesses they should address. A fact-based understanding of where a company is positioned on the digital maturity continuum is important because it can lead to dialogue in the C-suite and boardroom that can drive needed change.
Despite years of dialogue about digital transformation, most companies are still in the beginning stages of digital maturity. They aspire to become more digitally mature but do not today have a digital mindset at the core of the business. As companies embrace the cloud, replace legacy applications with next-generation technologies, build customer-facing websites and emphasize digital channels, their efforts often result in a digital veneer but do not alter the way the organization thinks and acts.
True digitalization occurs at the core, transforming the organization from the inside out to maximize efficiency and resiliency. This is the key to organizing business models for speed and securing the talent to compete and win in the digital era. If an organization has a digital mindset, it is going to embrace next-generation digital tools in its strategic thinking and operational execution. This is important, as “thinking digital” is more likely to result in “acting digital,” rather than vice versa. Leaders who understand this vital distinction are more likely to attract the talent they need on their team and achieve their goals more quickly than those who give digital maturity mere lip service. And make no mistake: Talent wins in the digital era.
As companies shape and implement their digital strategies, they must recognize that a narrow view of digital transformation puts them at risk of missing out on important market opportunities. That is why the board needs to be proactive in asking the tough questions around whether management is doing the right things, doing enough and adapting and adjusting to new market realities. For organizations to navigate uncertain times and face the future with confidence, executive management and the board must ensure that their transformation programs are positioned to succeed and that desirable behaviors that drove necessary innovations during the pandemic are internalized and embraced going forward.
Questions for Boards
Following are some suggested questions that senior management and boards of directors may consider, based on the risks inherent in the business:
- Are we developing a digital mindset in the business? How do we know? Do we have access to the expertise and experience needed to drive digital thinking and execution? For example:
- Do we understand the digital economy?
- Are we embracing market differentiation possibilities in our strategic thinking and strategy-setting process?
- Are we focused on nurturing the innovation culture that facilitates attracting and retaining the talent needed to effect change?
- Have we assessed the organization’s digital readiness and identified the strengths and limitations across the business in the context of a clearly articulated digital vision, mission and strategy? If not, why not, and have we discussed the need to conduct such an assessment to address critical strategic issues?
- Are there barriers to innovation and digital transformation within the organization that require our attention from a change management standpoint? For example, barriers may include uncertain ROI and high implementation costs, cybersecurity and data privacy issues, indecision over the best digital applications, regulatory constraints and limited skills and talent. Are steps being taken to eliminate these barriers and track progress over time? How do we know?