Digital Strategy Methodology: An Insider's Guide to Digital Transformation Success

Written By: Eric Kimberling
Date: May 15, 2023
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When defining a digital strategy for an organization, it is important to align it with the business needs and objectives. This strategy should ultimately enable successful digital transformation. In this article, I will address the key elements that should be included in a digital strategy.

One of the initial engagements we typically have with our clients is assisting them in defining their digital strategy and roadmap. Often, organizations focus solely on technology and outlining a technology roadmap when defining their digital strategy. While technology is an essential component, a successful digital strategy encompasses much more. It involves considering strategic implications, operational aspects, organizational factors, and other critical components that contribute to a successful digital transformation.

Today, I will introduce a digital strategy framework that we utilize with our clients. This framework helps organizations and project teams understand the various factors they should consider, address, and think about when defining their digital strategy.

Business Process Management

When defining a digital strategy, several workstreams need to be considered. The first one I'll discuss is Business Process Management (BPM). While these workstreams may not occur sequentially, I'll begin by focusing on BPM, which is crucial for developing a digital strategy aligned with our organization's current and future state.

To achieve this alignment, it's essential to concentrate on both the current and future state of our business processes. For our purposes today, I'll emphasize the importance of starting with the current state to understand your starting point, identify strengths and weaknesses, and define the desired future state of your business processes.

Once you've completed these activities, you can explore potential business process improvements. In some cases, you may even begin implementing these improvements concurrently with the selection and deployment of technologies. In other words, you don't have to wait until you have new technology in place to make process improvements, although many improvements will be enabled by new technologies. You can make incremental improvements to your processes to realize immediate value and set the course toward your future state. Additionally, this approach provides a roadmap and future state that can serve as the foundation for your entire transformation plan.

After defining the gap between your current state and future state, Business Process Management becomes a critical component of any digital strategy you need to define.

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Organizational Change Management

The next workstream worth discussing in the context of digital strategy is organizational change management. Many organizations mistakenly believe that change management is something to address later, after selecting technology and initiating training. However, this approach is a significant mistake. To truly comprehend your digital strategy and determine the most effective approach for your organization, it is essential to understand your current organizational landscape. This includes understanding your existing cultural identity, identifying the strengths and weaknesses of your culture, envisioning the desired future culture, and determining the ideal state for your organization and its people in the future. Without conducting this analysis, your digital strategy and transformation will lack clarity, leaving you to make uncertain decisions.

Starting the change management process during the digital strategy phase is crucial. However, not all aspects of change management need to be addressed upfront. Instead, focus on the early stages of change management. This includes conducting an organizational assessment to examine the culture and strengths of your current state. By doing so, you can identify potential pitfalls that may hinder progress in your digital transformation. Additionally, you need to evaluate the organizational impact that will arise from transitioning to the future state of the defined business processes.

As we progress through this process, we are simultaneously defining process improvements and exploring enterprise applications. Additionally, we are beginning to explore different technologies to gain a clearer vision of which ones can enable our transformation. Understanding the potential technologies informs us about the expected organizational impact. It is crucial to determine the scale of the impact, whether it involves significant changes for our people or more moderate ones. This degree of change will drive and determine the overall structure of our digital strategy and deployment plan.

In the early phase of the digital strategy project, after completing the organizational assessment and assessing the organizational impact, we can proceed to develop a tailored organizational change plan. This plan will be specific to our organization's identity and the desired direction we aim to achieve.

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Enterprise Applications

A third workstream that runs parallel to business process management and organizational change management is the enterprise applications workstream. This workstream focuses on the technical and software-oriented aspect of our digital strategy. It is particularly intuitive for CIOs or IT professionals, as it involves tangible elements that can be seen, touched, and experienced. Engaging with vendors, requesting demos, and exploring technology options play a crucial role in this workstream.

Initially, we define our digital strategy and examine the landscape of the software industry. At this stage, we primarily identify high-level alternatives without delving into detailed software evaluation or selection. For instance, one option could be a tier one ERP system like SAP or Oracle. Another alternative might involve adopting a best-of-breed approach, selecting specialized solutions such as financial and accounting software, work management or warehouse management software, and CRM or HCM software.

One alternative is adopting a best-of-breed approach, while another consideration is whether to purchase or develop custom solutions. There are numerous options to explore. At this stage, our focus is on identifying high-level paths and alternatives. The goal is to assess the pros and cons of each option and determine which one aligns best with our corporate or organizational strategy. Strategic alternatives and roadmaps are evaluated, taking into account implementation timeframes, budgets, risk profiles, potential business value, and ROI. It is important to note that at this high-level stage, we are not yet engaging in software demos or in-depth discussions with vendors. Instead, we are evaluating the advantages and disadvantages of the various alternatives. Once we have completed this assessment, we can narrow down the options and create a shortlist of specific alternatives to explore further. These alternatives may be part of our digital strategy or might require a separate software evaluation and selection process, depending on the organization's priorities and timeline. When moving into the shortlist phase, we begin to delve into technology recommendations and develop an implementation roadmap and plan. It is worth mentioning that this phase can be treated as a separate software evaluation if there is uncertainty regarding moving forward with the digital transformation.

It is possible to delay this step until there is alignment and approval to proceed with the transformation. However, more often than not, organizations include their software recommendation, implementation timeline, and cost as part of their digital strategy. Therefore, it is important to consider and evaluate these aspects within the technical enterprise application component of the digital strategy.

Another component to address is the solution architecture. It involves determining how the technical solutions identified earlier will fit into the overall architecture. This includes considerations such as system integration, data management, and business analytics. The goal is to establish a technology roadmap and strategy that ensures the various components work together seamlessly within the digital transformation or digital strategy.

Some organizations may think that they don't need to focus on this aspect because they plan to select a single ERP system. However, it is still essential to consider solution architecture and how the chosen ERP system will align with the broader technology roadmap.

If an organization is able to achieve a single ERP system without any additional systems or legacy systems, they are part of a small fraction of organizations that can accomplish this. However, most organizations end up with multiple systems, even if their intention was to have a single ERP system. This could be due to the presence of legacy systems or third-party bolt-ons that are necessary for regulatory compliance or to fulfill specific needs that the integrated ERP system cannot handle. Even if a single ERP system is implemented, it is typically done gradually, with the decommissioning of existing systems and a phased transition to the new system.

Considering these factors, it is crucial to have a clear technology roadmap that includes solution architecture. This involves analyzing the current architecture, understanding the impact of the future state, and identifying the technology initiatives, work streams, and tasks required for detailed implementation planning (which will be addressed later). The recommended architecture encompasses the change plan and associated costs from a technology perspective.

It is important to note that when evaluating the current architecture, architectural impact, and recommended future state, it is not limited to physical architecture alone. It also encompasses the assessment of IT department skills and the organizational infrastructure necessary to support the digital transformation and future technology needs. Identifying the existing skills and infrastructure gaps allows for considerations such as reskilling current staff, hiring new staff, or engaging a managed service provider with the required competencies. Therefore, solution architecture encompasses both physical and organizational infrastructure and architecture.

Business Intelligence/Analytics

A digital transformation's value lies in the information and insights derived from new technologies and processes. That's why it's essential to emphasize the significance of business intelligence and analytics as a separate work stream. Particularly in today's era of artificial intelligence and predictive analytics, there are remarkable tools available to leverage and harness the power of accumulated organizational data. Therefore, placing a strong focus on business intelligence and analytics is crucial.

To begin, we identify our analytical requirements by assessing the current state. This involves determining the reports necessary for current business operations and identifying any missing information. Additionally, we envision the ideal reports that would provide real-time visibility and valuable insights. This is an opportunity to think creatively and envision substantial improvements with the integration of AI, predictive analytics, and similar technologies. By doing so, we can enhance our business intelligence and analytics beyond what was previously possible.

Next, we define the future state requirements, including predictive analytics and data needs, while considering technology best practices. Ultimately, we establish an analytics roadmap that outlines the costs associated with leveraging the business intelligence capabilities of the deployed technologies or any standalone BI or analytical toolsets. It is essential to outline the software requirements and deployment plan for the chosen toolset, similar to the enterprise application work stream discussed earlier. Both of these work streams share similarities, but the focus here is on overall analytics, BI, and reporting capabilities. It is important to highlight these aspects because they are often overlooked, and organizations tend to concentrate solely on the core technologies in the back office and workflow processes, neglecting the BI and analytical reporting aspects of their digital transformation.

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Project Quality Assurance

The final work stream that runs in parallel, starting with digital strategy and continuing throughout the transformation, is project quality assurance. This work stream encompasses the risk mitigation framework, project governance, resourcing, and overall quality assurance processes and frameworks. Its primary purpose is to ensure the project stays on track and remains successful. Although it becomes especially crucial during the implementation phase, it is important to establish this governance and quality assurance foundation from the beginning of the project. Building this muscle memory and understanding the importance of project charter, quality assurance, and risk mitigation mechanisms early on will not only keep the current phase on track but also contribute to the success of future phases.

It is essential to comprehend the framework's structure as you proceed with the digital transformation execution. This understanding allows you to create a comprehensive plan, project charter, and resource estimate that accurately reflect the realities of the quality assurance aspects of the deployment. Seeking assistance from third-party, independent, technology-agnostic partners like Third Stage Consulting, who specialize in these areas, can be beneficial. Such companies have extensive experience with numerous implementations worldwide and can provide an objective view of the most effective governance practices for your organization. Moreover, they can help identify and mitigate potential risks that may disrupt or derail the transformation if not properly managed.

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Implementation readiness

This section delves deeper into the various work streams within a digital strategy framework. However, it is also important to have an overview of what occurs in the downstream activities following a digital strategy project. Let's take a preview of what comes next.

Once the digital strategy and roadmap have been defined, the focus shifts to creating a detailed plan for implementation readiness. At this milestone, we transition from the digital strategy phase to implementation readiness. This stage builds upon the work streams discussed earlier. The operational aspect involves business process management, while people readiness aligns with organizational change management. Technical readiness aligns with enterprise applications, business intelligence, and architecture components. Project governance, planning, and quality assurance serve as extensions of the quality assurance work stream mentioned previously.

Additionally, strategic and executive alignment becomes a critical focus. Although strategic and executive alignment often begins in the digital strategy phase, many organizations wait until they have a clearer roadmap before defining the specifics of this alignment. This step ensures that stakeholders and executives are fully engaged and aligned with the project's objectives and the execution of the defined strategy.

When we delve into operational readiness, we focus on the business processes in more detail. We define the business requirements and further elaborate on the processes, although we do not yet delve into the transactional level details within the software. The goal is to flesh out the specific components of the business processes that will support the implementation of the chosen technologies.

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Additionally, we address people readiness. Having defined organizational readiness and change plans during the digital strategy phase, we now dive deeper into defining the change team. We identify the necessary skills and competencies that need to be developed within the organization. We also begin to envision the future state of the organization's structure and design. This includes the transformation communications plan and the design of the future organization. This aspect holds significant importance, especially when undergoing significant changes or restructuring as part of the digital transformation. For instance, if the objective is to standardize business processes and centralize certain functions within a global organization.

For example, this particular aspect holds significant importance. If we neglect to address it upfront and instead push it towards the implementation phase, it can result in excessive time and financial costs. In such cases, you find yourself simultaneously grappling with problem-solving while trying to build and deploy the technology. Therefore, the more we accomplish in terms of organizational and operational readiness upfront, the more time and money we can save during implementation.

Additionally, technical readiness is crucial. This is where we ensure that our IT organization, architecture, and data management are well-established. We also establish a center of excellence to assume ownership and control of the implementation, reducing reliance on external technical implementers. This entire phase, which occurs after the digital strategy but before implementation, allows us to build competencies and internal knowledge, enabling us to be more effective and take greater ownership of the project as we proceed with implementation.

Lastly, project governance and planning take on more detail during this phase. We develop the project charter, a detailed project plan, and ensure appropriate resourcing. It is essential to consolidate the technology proposal from our software vendor with other project elements to create a comprehensive plan. This includes a complete project charter, a well-defined governance approach, and a quality assurance strategy, all of which contribute to the project's success.

I hope this guidance helps you initiate your digital strategy and provides insight into the major components and work streams involved in your digital transformation.

If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to have a brainstorming session with you. Please contact me if you have any questions eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

Eric Kimberling

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Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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