Given all the attention that “digital” is getting at the moment, you would be forgiven for thinking that it is somehow new. In fact, the relentless drive to embrace digital technologies has been ongoing for many decades.
What also seems to have been forgotten are the lessons from these earlier attempts to leverage IT (remember that IT is a digital technology). Unfortunately, the history of IT investments in most organizations is far from stellar: Research over the years suggests that the overall failure rate of IT projects is around 70%. We know that when IT projects fail, it is usually not because the technology didn’t work (although this can sometimes be the case), but because the changes required at an organizational and employee level weren’t managed effectively. Quite simply, adding technology does not automatically confer expected benefits; these benefits have to be unlocked and this can only happen through achieving organizational changes.
Consequently, it is useful to think about investments in digital as essentially investments in change. It includes changes in how an organization interacts with its customers, citizens, or patients; in operational processes; in business models; in supply chain relationships; and in how employees use information to generate insight.
One tool that I have used to great effect to improve the likelihood of a successful result from digital investments is the benefits dependency network (BDN). This tool seeks to get managers to identify and map all the changes that they will be required to make if expected benefits and outcomes are going to be delivered. It also illustrates very clearly how this change will be enabled and shaped by digital technologies. The resultant network shows how each of the expected benefits will be delivered through a combination of technology and business changes and how these are related to each other.
To develop a BDN, you work backwards, or right to left, from the agreed investment objectives and the expected benefits, and map the required changes to structures, processes, work practices, and how staff would need to work through to the new technology necessary to enable and sustain those changes. To ensure the digital transformation initiative has momentum, the investment objectives should be closely aligned to critical business drivers.
Doing this ensures that digital investments are driven by business demand, shown on the right-hand side of the network, rather than technology on the left, which has traditionally steered many projects. The heads of the arrows between the network elements signify the direction of relationships. The technology, for example, enables the changes that must happen before other changes can occur or can shape the changes leading directed to achieving the expected benefits. If those linkages cannot be developed, then those investments should not be pursued.
Changes can typically be catesgorized into two types: sustaining change and enabling change.
Sustaining changes are permanent changes to working practices, processes, or relationships that will cause the benefits to be delivered. They cannot normally be made until the new IT system (e.g., devices, software, infrastructure) is available for use and other necessary enabling changes have been made. Enabling changes are typically one-off changes that are prerequisites for making the sustaining changes or bringing the new system into effective operation. Examples include defining and agreeing on new work practices, creating a blueprint for business processes, agreeing on changes to job roles and responsibilities, establishing new performance-management systems, training in new business skills as well as the more obvious training and education in using the new system, and so on. They often have to be made before the new digital system is introduced.
Once the initial BDN has been constructed, measures for each of the benefits and responsibilities for all of the benefits and changes must then be assigned and time scales established. Assigning ownership increases accountability for both achieving the desired outcome and carrying out the activities needed to get there. In a major U.K. bank, for example, managers had to personally sign the business case for each benefit they were claiming a new CRM system would provide in order to show their commitment to realizing them. These benefits were then included in their personal performance targets.
I have successfully used the BDN with many organizations in a variety of industries. The initiatives included streamlining patient administration in a hospital, implementing a customer-relationship-management (CRM) system in a financial services organization, rolling out a global enterprise-resource-planning (ERP) system for a pharmaceutical company, and promoting collaboration in a technology company.
Consider an IT investment that one European retailer was pondering.
In the apparel industry, the benchmark for inventory accuracy is somewhere between 60% and 70%. However, the implications of inaccuracy are significant. Inventory data drives replenishment: Inaccurate stock data results in some items being overstocked (when inventory is understated in the system) and other items being understocked (when inventory is overstated in the system). It also leads to customer disappointment if items are thought to be in stock but in reality are not available. Markdowns also increase as a store may be carrying surplus stock as items reach end of life. To address this problem, this retailer planned to tag products at the item level. This would allow it to uniquely identify every product, even distinguishing fashion items by size and color, as well as proving information on its location.
Radio Frequency Identification (RFID) would be the key technology used to uniquely identify products. Each item would have an RFID inlay — essentially a microchip that stores an electronic product code (EPC). RFID has significant benefits over barcode laser scanning — most notably that multiple EPCs can be identified per second, line of sight is not required, and RFID passes through plastic packaging and storage containers. As the technology is able to identify products in such an efficient manner, inventory can be updated in real time and the data can be used to inform targeted replenishment and merchandizing decisions.
However, merely attaching an RFID tag to each item, installing RF antennae, and deploying new software would not automatically deliver a return on any expenditure. To identify what the company would need to do differently if the investment was to be a success, it built a BDN. A team consisting of staff from the stores and warehouses as well merchandizers, buyers, supply-chain specialists, and logistics professionals came together and over a number of weeks constructed a complete network.
Key drivers for the investment were to meet the retailer’s key customer pledge of “always available” and the enablement of true multichannel customer engagement (particularly with its “click and collect” proposition). Objectives for the investment were improved accuracy of inventory, reduction in inventory holdings, reduced cost of markdowns, less theft, and better merchandize planning. The expected benefits included improved working capital, an uplift in sales, reduced buying volumes, and a reduction in the backroom inventory at each store.
The enabling activities that were identified included supplier engagement and training (employees would have to attach the tags), writing new supplier agreements, and approving new package designs. Sustaining changes included implementing new reordering processes, new procedures for ordering stock at store level and for managing incoming stock at regional distributional centers and its subsequent distribution to stores, the elimination of contingency buffers in forecasting and buying processes, and the halting of in-store physical stock checks. These changes would then be supported by the technology that it was considering implementing.
A tech company that I worked with rolled out a suite of collaborative tools on employees’ desktops. With a young and tech savvy workforce, its leaders naïvely assumed that collaboration would immediately improve. Six months later, with no improvement in sight, they constructed a BDN and realized that considerable change would be required if an increase in collaboration was going to happen. For example, many of the administration processes would have to be redesigned, particularly to facilitate delegation of approval procedures and for employee self-service. A significant cultural change was also going to be needed, especially around information sharing and cross-cultural work. The resultant network of needed changes led to a 36-month program of work.
The power of the BDN is that it forces managers to understand and map out the changes that will be required for the transformation and to allocate accountabilities, significantly increasing their understanding and buy-in. It is also visually very powerful as it clearly shows that achieving digital transformation will require more than just deploying technologies like cloud computing, social media, or mobile. When presenting it, flip it around so people read it from left to right and see that the initiative is being driven by clear business drivers, not technology.