⚠️Business DTx Risks & Challenges - Plus Tips To Manage Them
An overview of some of the most common risks in digital transformation, how they emerge, and why it is important to manage them. We include 10 tips for ensuring a smooth DT Journey.
Digital transformation (DTx) is a critical undertaking for businesses today. It's the the turbocharger for a company's growth engine. It's also a tool that can consistently boost competitive edge.
But like any significant endeavor, DTx requires careful planning and execution. There are 100,000s platforms and systems that DTx takes advantage of for all the different roles, departments, operations, and industries that use them.
While the potential rewards are vast, the risks are, too - if not approached strategically. By understanding these challenges, businesses can navigate their transformation journey effectively and sustainably.
Strategic Challenges in DTx Journeys
Building a successful DTx operation relies on a well-defined strategy and the right team to execute it. The majority of risks apply to both in-house and using contractors for DTx.
In-House vs. Contractors with Digital Transformation
The digital talent gap for in-house DTx can be a chasm between talent needs and budget - it can be very challenging for supply and demand forecasting to find an ideal balance on how to structure a team.
Recruiting and retaining the highly skilled professionals needed for DTx is a fierce competition. Specialists with business knowledge, like business/ops architects and solution/technical architects are relatively hard to source. This significantly drives-up costs and time to build a robust in-house team.
Conversely, the DTx contractor and vendor market has its own version of this issue where most providers fall into 1 of 3 camps:
There are providers requiring large, bulky systems, and they require exorbitant contract terms. Additionally, they are often reliant on legacy tech, overhead-heavy commitments, and training. This requires large amounts of money and time for things you likely won't directly benefit from.
There are specialists that focus on a specific area of transformation, either by hyperspecializing in one area very deeply, or covering only a limited range and depth of DTx capability overall. This results in DTx that are at the low-end of ROI because the implementations are almost never optimized for general business ops prior to specialization.
There are generalists or specialists with a cookie-cutter approach and a generally limited capability to provide quality, deep, insightful DTx solutions. This unfortunately makes up a significant proportion of failed DTx case reports.
A fully in-house DTx operation will virtually always be more expensive than a hybridized approach due to the wide range and specificity of talents needed for all the different benefits DTx can bring to most businesses.
NOTE: Optimai utilizes a hybridized approach which suits your org's needs most flexibly.
Top 10 Critical DTx Risk Signals
Building a strong DTx strategy requires diverse leadership with a clear vision and the ability to navigate the ever-changing digital landscape. But all of this must be based on a "business-first" perspective to maintain a clear understanding of how every aspect of DTx is supposed to provide direct and measurable benefit for business KPI.
Imperfectly aligned Digital and Business strategies have consequences. Development will be no longer optimized, which produces a significant loss of potential impact, and increases its chance of developing superfluous functionality, which in turn cause an increase in technological debt, and so the systems and workforce become less efficient.
Getting it wrong can stem from a lack of simple, integrated modeling between business and digital strategy. It can also stem from missing important KPI to target, which comes from erroneous operations modeling. A sound strategy must come with ops modeling and clear goal-alignment between all the necessary decision-makers.
Neglecting a more hands-on deep assessment, and/or strategic architectural preparations to avoid implementation delays prevents good strategy from ever being realized. If development continues without a sound core foundation, costs and risks go up as well.
Ultimately, these strategic decisions are driven by first principles. Time all but guarantees a restructure and refactor in scenarios without these principles, and adequate strategic preparations prevents this or mitigates against its consequences.
The real solution is detecting bad strategic prep in the first place. One simple tip that can prevent windfall: The line of business logic drawn from any particular solution and impact should be clear, and if it isn't, your provider should be able to elucidate solutions to any concerns you have.
DTx Solutions should be holistic, and the objectives it has should be organic. These are operational terms.
Holistic - A comprehensive mapping of the operating model and systems is necessary. (This can still be done iteratively.)
Organic - Solutions must naturally fit into live ops with respect to different cycle times, upstream and downstream consequences, and workforce needs among others.
Naturally - The minimum change management needed with respect to its priority and expected impact. (i.e., requiring excessive change for a relatively small impact must be avoided.)
DTx is not just about technology; it's about using technology to tap into an already-operating complex system with real people doing hard stuff that makes money, and then getting it to make more money. Transformation involves an understanding of complex systems dynamics from an operational point of view. Setting unrealistic goals without considering the intricate web of systems, processes, data, and work experience involved can cause implementations to be hard to un-implement.
Skilled DTx providers use principles of operations and technology to map, model, and understand any given operation so we can strategically implement the right solutions at the right time that feedback in the right way. Good strategic preparations found solid architecture and ensure implementations go in the right direction.
It also creates the need for business process management (BPM) to keep the operation running in tandem with all the other moving and evolving parts. Make sure your provider has this covered!
BPM needs to be aligned with DTx strategy and modeling; it must encompass solution architecture well enough to manage its transformed business processes. Solutions don't just have to be built and setup. Once they're connected to a live DTx production with control functions, BPM becomes vital to ensure activity is at or above expected performance and quality levels.
BPM also ensures that systems and processes don't compete with one another, and provides a rapid response to updates, regressions, and priority bugs. There are many issues BPM is ready to handle:
Workflows can become unstable due to process changes.
Processes change due to data and automation systems, which affects dependent processes.
Others like: systems literally blocking the functionality of others, upstream and downstream effects of some combination of systems being used for work. etc.
Sometimes system competition is inevitable, but this is usually handled in a sandboxed environment and quickly solved; in other words, your provider shouldn't just have it covered, but it should be ready to handle these more obvious risks.
Digital Transformation is not just about implementing and reengineering technologies, it's about change, which invariably affects people. Companies on their digital transformation journey are changing systems, operations, and workflows that people use on a regular basis.
Therefore change management cannot be some cookie cutter process where people are simply just expected to adapt. The majority of transformations that do not leverage a change management methodology have a worse time than those that do.
Change management doesn't need to be complicated, but it does need to be designed for the workforce its providing transformation services for. A simple, iterative methodology with steady, stable releases allow people to catch on quick and upshift for greater improvements. The difference in change management can mean the difference between a positive and negative ROI.
-> 143% increase of expected ROI with effective change management programs vs. 35% with ineffective change management.
It's normal for DTx providers to be unfamiliar with certain systems needed for a specific company and time. But their job requires them to be able to quickly adapt and have the system's operations under control during the first stage of the first initiative; as well as understand systems limitations prior to needing them as their DTx Journey evolves.
-> There are 100,000++ systems ranging from highly-specialized to broad-scale ecosystems that handle large swaths of business ops.
Finding them and mapping their functions, features, use cases - which are customized in how they apply - to different businesses ops with different workforce skill levels requires they're adopted with strategic and rigorous planning.
Compliance requirements vary from extremely structured and rigid to essentially non-existent. Either way, it is still something every Digital Strategy must have included. DTx interacts with compliance in the digitization of processes, especially with processes controlling sensitive information.
Even if they don't have compliance requirements, it is ideal for all the systems in an organization to be as secure and used as securely as possible. Since DTx affects those systems, it indirectly can impact the security of business data.
As companies grow, they increase their adoption of compliance and security policies for finance, HR, IT, among others; they self-manage their own areas of compliance. However, this does not mean that business processes that use systems, and the systems themselves are compliant with each other in the way the business needs. DTx compliance is to ensure this with respect to each area's rules.
Whenever software is built, it needs to be maintained well and kept "lightweight". Further development needs to be lean, because as time goes and systems invariably change, bugs, regressions, and critical feature requirements can appear.
Technical debt is something every provider should focus on optimizing because it means the difference between smooth, continuous, and reliable DTx ops, and having sudden critical blockers, bug/feature cascades, and more costly issues if unaddressed.
In conjunction with providing a risk assessment and strategy, providers should clearly inform, with full disclosure, all relevant risks.
They should also be equipped to answer detailed questions on mitigation strategies and tactics for different scenarios. While DTx providers should strive to be biased toward action, not preparing for obvious consequences is categorically worse.
If you feel this document you're reading better summarizes potential risks than your provider, you should probably talk to us!
Distinguishing between DTx and IT functions
Understanding the distinction between DTx and IT can prevent an array of risks. Many companies adapt their IT departments or outsource services from IT teams for handling their DTx functions, and this starts a cascade of issues.
The areas handling IT often lack the various required skillsets for DTx in key areas like operations, automation, and business intelligence - especially for production-ready, live operations. In addition, IT departments are ill-equipped to carry the burden of technical debt while navigating and mining the huge landscape of tech systems so they can develop business cases that bring results.
IT is a service provider of both technical and business cases, but from a DTx perspective, they are highly focused and specialized in serving technological functions, and so they work best in tandem with an independent "Digital" team that is focused on business goals and operational KPI.
Additionally, IT and DTx have different compliance and legal requirements for which they're accountable, which can cause issues down the road if ops systems aren't implemented properly.
In cases where the company has low or moderate reliance on cloud infrastructure (most companies), if a DTx initiative is implemented for IT, it usually doesn't rely upon advanced systems, and it isn't a focus of initiatives during earlier stages of their journey.
Generally, DTx initiatives should target business operations closer to revenue channels, customer channels, or production channels to have a robust impact on strategic OKR.
It requires experience and knowledge of executive planning and cross-departmental operating models, systems, methods, and management practices.
Always ensure your provider makes sure they understand the totality of your business's goals, and have a self-consistent strategy to specifically, measurably address them.
# Tips for a Sustainable DTx Growth Strategy
Awareness is the first step to overcoming any challenge. Here are some strategies to mitigate the risks associated with DTx:
Handle DTx Risk With Assurance
By approaching DTx strategically, with a clear understanding of the challenges involved, businesses can navigate their transformation journey effectively and unlock the true potential of digital innovation.
A successful DTx journey is not just about achieving a result from an initiative, it's about leveraging the results of initiatives together to make future initiatives more effective.
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