Not All Great Ideas Are Financially Viable for Organizations to Pursue
The term Digital Transformation has evolved from an exotic, vaguely understood phenomenon years ago to today’s common-place strategic focal point. The subject has received increased focus from researchers, organizational practitioners and academics alike. However, this “common-place” initiative in the current digital era may be masking some harsh realities that are involved when taking advantage of new technologies to transform business processes.
This “go digital” fever has engulfed c-suite executives, middle managers and employees of all walks across operational areas of companies. The reasoning behind this entails a number of factors, which include the idea of creating a competitive advantage or at least maintaining competitive parity in light of shifting consumer demands and opportunities. Success stories receive ample hype and appear almost magical and quickly draw the attention of market players. New technologies that enhance data creation and analytics, communication, and information access, retrieval and dissemination, along with routine replication capabilities of AI are bewildering organizations to make use of these incredible resources.
The pulse is so strong that an evolving research topic that is gaining worldwide attention refers to the “future of work”. This phrase refers to the skills of employees, worker-team diversity and collaborative techniques that are essential to achieving digital success. Skills that are receiving heightened focus involve social sensitivity factors and creativity along with digital skills such as data science and technological capabilities. However, before the market gets ahead of itself, strategic focus should also intensify on classic management concepts. Reality is that many digital endeavors are experiencing lower than expected financial performance.
A Reality Check on Digital Successes
Despite the increased hype of successful digital projects, reality is that true success (profitability) from digital roll-outs may be more difficult than many organizations have expected. Consider research from McKinsey1, which revealed that recent digital projects stand a 45% chance of delivering less profit than expectations. Other research has illustrated a number of sub-optimal results in early digital initiatives by some major organizations including GE, NIKE, Sears and others. In fact, one the leading examples of a major organization’s digital transformation (referring to that of Lego), which despite recent success, experienced a bumpy road for a number of years in their technologically based strategies.2
Focus has been on connecting with consumers to better understand market needs and lean innovation to release products in a timely way to preserve first-to-market status. A major problem arises when products and services become commercialized. The drag on internal resources and processes may be beyond a firm’s capabilities where ultimately costs rise. In other words, the demands from introducing and maintaining new products to the market begin to disrupt production, distribution and supply chain networks and human resources. So despite the attractiveness of new product ideas, reality is that organizations may not be equipped to fully facilitate commercialization.
Back to Basics and the Balanced Scorecard
The complexities of digital transformation requires management to not only consider the most current techniques (e.g. agile PM, crowd sourcing, lean production development) but balance these with “age old” principles to ground initiatives in reality. At a high level, companies must consider some basic factors:
- Understand market needs
- Design prototypes to meet those needs
- Determine if the organization has the capabilities of producing/supporting the full scale roll-out of those prototypes.
Do these concepts sound familiar? They should, since they are basics of Management 101. An age old business model that provides a solid underpinning to this process involves the Balanced Scorecard approach, which is a strategic planning and performance management framework. The model involves four major components that must be balanced against each other. It equates products and services to satisfy consumer demands and the operations that are involved in producing them, which are ultimately balanced against the financial status of the firm.
The core to any organization is to provide a product or service to meet a market need and strategizing is the focal point to this process. Organizations need to monitor and manage the customer perspective which addresses the question…are customers satisfied with products, services and complementary issues such as customer support, delivery etc., where competitor information needs to be considered. They must then identify the capabilities of operations to facilitate the production and rollout of products and services. Organizations then need to learn from processes and monitor changing market needs and pursue innovation to meet ongoing consumer demands. However, all of this needs to be balanced with the financial health and status of the organization that involves analysis and understanding of process metrics (e.g. KPIs) and higher level measures such as revenue and profit.3
Given the evolution and vast opportunities introduced by new technologies of the digital era, organizations should not only consider the most innovative strategic tactics to thrive, but balance new ideas with core principles that have stood the test of time.
1 J. Bughin, J. Deakin, B. O’Beirne,“Digital Transformation: Improving the Odds of Success”, McKinsey Quarterly, October. (2019).
2 Davenport, T and Westerman, G. “Why so many High-Profile Digital Transformations Fail”, Harvard Business Review, 2019.
3 Perkins, B. “What is the balanced scorecard? A framework for organizational success” CIO Magazine, IDG Communications, 2019.
Stephan Kudyba is founder of the analytic solutions company, Null Sigma Inc., which focuses on providing strategic analytic solutions for organizations across industry sectors. He is also a professor in the management department at New Jersey Institute of Technology where he teaches courses that address the utilization of IT, advanced quantitative methods, business intelligence, and information and knowledge management to enhance organizational efficiency. He has published seven books and numerous journal and magazine articles on strategic utilization of data, technologies and analytics to enhance organizational productivity and has held management and executive positions in leading organizations. Dr. Kudyba holds an MBA from Lehigh University and PhD in economics from Rensselaer Polytechnic Institute.