The Digital Capabilities Your Company Needs

New research suggests that digital transformation will require companies to draw from a core set of four digital capabilities: a unified digital platform; solution delivery; analytics capabilities; and business and IT integration.

Image courtesy of Flickr user iriss.org.uk.

In today’s business environment, digital capabilities are a fundamental building block with which companies can transform customer experience, operational processes and business models. Although CIOs and existing IT departments in many companies have the skills to lead some digital initiatives, most companies find they must hire extra skills or implement separate units to coordinate digital transformation. In fact, 77% of executives we interviewed mentioned skills gaps as a hindrance to driving digital transformation. The skills needed go beyond pure IT to include specific technologies such as social media or mobile, as well as the analytic skills to drive value from big data.

Our in-depth interviews with 157 executives in 50 large companies found that the most fundamental technology requirement for digital transformation is not particular skills or particular technologies. It is a core set of four digital capabilities. These four capabilities revolve around technology but typically not all of them reside in the IT department.

1. A Unified Digital Platform

The most fundamental technology enabler (or inhibitor) of transformation is a digital platform of appropriately integrated data and processes. Many large successful companies have historically operated in silos, each with their own systems, data definitions and business processes. Generating a common view of customers or products can be very difficult. Without a common view, advanced approaches to customer engagement or process optimization cannot occur. Unfortunately, many executives blame their CIOs for problems with a disconnected legacy of systems; fifty percent of our interviewees cited ineffective IT as a challenge.

The difficulty of operating without such a digital platform becomes greater as companies engage in multi-channel operations. Many companies, for example, cannot link customers’ activity in stores or bank branches to their activity on the Web or via mobile devices. An executive in one company, echoing statements by many others, said “data integration is the biggest challenge in setting up our digital services.”

One reason that Web-based companies are often able to gain advantage through analytics and personalization much more readily than traditional companies is that the Web-based companies have unified data and process. For many traditional companies, the first step in preparing for digital transformation is to invest — sometimes heavily — in integrating data and processes across the enterprise. In this respect, companies that have already implemented ERP and CRM systems are a step ahead of others.

Unified platforms can also help to manage the centralization/decentralization challenge inherent in globalization. For example, properties in a hospitality company can use centralized platforms to deliver locally customized information while not having to support the technology. A media company’s common technology platform allows the organization to share content at worldwide level, so that, for example, video of a soccer match in Africa can immediately be reused in South America and a celebrity’s interview in Spain can be easily published in other markets and formats.

2. Solution Delivery

Companies also need the ability to modify their processes or build new methods onto the data and process platform. Such solution delivery requires effective methods and strong skills. Most IT departments have solid development methods in place. However, those methods are often geared to well-defined requirements and mature technologies but not to emerging digital technologies and practices. Mobile and social media, for example, often require iterative approaches to learn about what will work in the market or workplace. Such initiatives also use technology that may not be commonly available in enterprises. Analytics activities often require specific knowledge and temperaments that typical IT developers do not possess.

Some IT departments have established special units to build emerging technology skills and methods. Others have innovation units to identify how new technologies and practices might change the business. Still others look outside the organization for help. Seventy-eight percent of the companies we interviewed hire vendors to address large projects or those that require advanced technologies.

Vendor partners can be very effective, but some executives expressed concern about overreliance on vendors. An executive at a hospitality company said that knowledge of key emerging technologies is spread across silos of external vendors, making integration difficult. Several executives described knowledge gaps that existed after they ended a vendor relationship.

3. Analytics Capabilities

In our research, information management and analytics were highlighted as major goals by executives across industries. Several companies echoed the statement of an executive who stated that “It’s time to harvest the data and turn it into insights.” Combining integrated data with powerful analysis tools is seen as a way to gain strategic advantage over competitors.

Companies are engaging in analytics at varying levels of intensity. Some are just beginning to make better use of the data available from transactional systems. They are making more informed and better decisions and reacting more quickly to changes in their operations. Companies with integrated data are able to engage in more powerful analytics strategies. An insurance company is able to do predictive sales, helping salespeople to target products that a specific type of customer is likely to buy and to avoid products that that customer will probably never buy. A hospitality company and a restaurant company are using analytics to target promotions and conduct pricing experiments. A media company is using Web analytics to provide real-time key performance indicators to customers in order to demonstrate the added value of the company’s products. Many insurance firms are using analytics to underwrite policies, enabling better pricing and reshaping the companies’ risk portfolios. However, executives also mentioned that building analytics capability was difficult, requiring skills and culture change in addition to investments in information technology.

4. Business and IT Integration

Digital transformation, more than other business changes, requires strong integration between technology and business executives. Companies with a history of strained IT and business relationships are handicapped when trying to conduct digital transformation. These companies often have issues common to those that do not govern IT well — namely complex IT architectures, unintegrated data and processes that are not well-enabled through technology.

In contrast, companies with a solid IT/business relationship are in a better position to begin digital transformation. As one bank executive put it, “IT has been brought closer to business during the last five years. It is very important to success because many of the important transformations in our business [are] enabled by technology.”

With trust and shared understanding, IT executives can help business executives meet their goals, and business executives listen when IT people suggest innovations. Where strong relationships exist, executives on both sides of the relationship are willing to be flexible in creating new governance mechanisms or digital units without feeling threatened.