In 2018, I wrote the first version of this article when the words "digital transformation" were echoing around every corner. At that time, when being in digital transformation was all the rage, I wanted to reason with the audience whether the transformation was really digital or was it a complete business transformation. Not only because it seemed to me that when the topic was discussed, reference was made to initiatives boxed in some particular technology or project, among others (mobile application, digital marketing, e-commerce and data gaps, among others), but also because I observed that these initiatives were not articulated at a strategic level and therefore did not have such a weight that they would generate what many directors in traditional companies expected, such as being the new Netflix or Airbnb of their industries. Five years have passed, and I am still hearing about digital transformation with the same force as before but in other latitudes, but now they have added artificial intelligence to the list of their transformation projects. This leads me to reflect: despite the constant discussion about digital transformation, many companies still fail to fully understand what it implies. We continue to use the term as if it were something exclusively related to technology, when in fact it is the means and not the end.
Digital transformation is not just a matter of acquiring the latest technology tools; it is a holistic framework that spans from business strategy to customer experience to organizational culture to leadership. Without clear direction, proper strategic alignment and a focus on talent, any investment in technology is destined to be just another expense rather than an investment to generate additional value in organizations. This version of the article seeks to delve deeper into these issues and reflect on the lessons I have learned over the years, keeping in mind that if true, we will boost our business value even more if we add AI-based transformation models.
What really is business transformation?
Digital transformation is just one facet of something bigger: business transformation. This concept refers to a complete rethinking of how an organization operates, encompassing planning, operations, technology, development and customer experience. According to recent studies, business transformation enables organizations to radically reinvent how work gets done, create new business models and modernize technologies, thereby unlocking new business value.
The business transformation process generally begins with a thorough analysis of how the company operates and how it can improve its key processes to better compete in an increasingly challenging environment. This analysis leads to significant changes that affect the entire organizational structure, from operational to strategic levels. In fact, a study by Bain & Company in an article published in HBR reveals that more than a third of large organizations have some kind of transformation program underway, although only 12% of them achieve or exceed the expected results, but the proportion of mediocre to failed projects has changed in recent years, going from 50% to 75% and from 38% to 13% accordingly.
This low success rate leads us to a crucial question: Why do so many transformation programs fail? The answer lies for each of the consulting companies in the lack of alignment between initiatives and strategic objectives, but each offers a different recipe for solving this problem. In my case, in addition to insufficient change management in people and corporate culture. Transformation is a multidimensional task, and without a clear vision, organizations risk getting stuck in cycles of change without tangible results. Therefore, boards of directors, owners and partners must have a strategic partner close by to provide them with an expanded vision that adds value to their respective management skills.
Technology: expense or investment?
I often hear CEOs and business leaders talk about their digital transformation initiatives in terms of new technology platforms, products or infrastructure investments, even in recent months, I have heard I want AI to modernize my processes, which ones I don't know, but do it, and the question they asked is what technology do we use? However, when asked to quantify the impact on the bottom line, or mention the expected value, the answer is often hesitant. The truth is that many companies do not know how to measure the value of their technology investments, leading to the question: Are we investing in technology or just spending on it?
To resolve this uncertainty, it is crucial to define key performance indicators (KPIs) that are aligned with the company's strategic objectives. A Deloittestudy showed that 81% of organizations use productivity as the main indicator to measure the return on investment (ROI) in digital transformation. However, productivity is not everything. There are other metrics, such as direct financial return on digital investments and customer satisfaction, not to mention customer experience, that are critical to getting a complete picture of transformation success.
If technology investments are not aligned with a clear business strategy, they risk becoming mere expenses that do not generate long-term value. As a result, companies may find themselves with a plethora of tools that do not truly optimize their operations or create a competitive advantage. The key to transforming technology into a real investment is to integrate it deeply into the organization's strategy, ensuring that all technology initiatives are aligned with business objectives.
The role of leadership in digital transformation
One of the big challenges in digital transformation today is the breadth of talent and right leadership. Have you ever seen more different names and roles than now being asked to hire? Just one example I can name among many is the Customer Journey Analyst, who maps and analyzes customer interactions to improve experiences through digital channels, where before, not long ago this was done by a business analyst, or a designer, but the complexity that we have inserted to everything digital today creates super-specializations that if not well analyzed we do not know how much we spend or what value we add to the strategy and business objectives.
Additionally, many organizations assign technology leaders the task of executing projects, transforming their hierarchical team into mere executors, without giving them a seat at the table when key strategic issues are discussed. This creates a disconnect between technology decisions and business needs. For a transformation to be successful, CIOs and other technology leaders have to be involved in the decision-making process from the beginning. Without this involvement, organizations run the risk of implementing technologies that do not meet the changing needs of their customers and competitors. Some more daring ones have created board advisory positions with extensive experience in transformation projects, technologies and strategy.
A McKinsey study highlights that organizations with strong leadership and executive-level commitment are more likely to achieve lasting results in their transformation programs. In addition, companies that assign technology leaders to strategic roles, rather than operational roles, are the ones that achieve the most aligned and effective transformation. It's not just about executing projects, but ensuring that each technology implemented directly supports the organization's goals.
One of the key challenges according to Forbes in fostering effective leadership for business transformation is the implementation of leadership training programs. While more than 80 percent of companies recognize the need for leadership development at all levels, only 5 percent effectively achieve this goal. In addition, a staggering 63 percent of millennials feel underprepared for senior-level leadership roles, indicating a gap between leadership development initiatives and their tangible impact on companies.
To address these challenges, leading companies are encouraged to develop an always-on transformational capability that promotes resilience and long-term value creation. BCG has identified five key metrics that significantly improve transformation outcomes, which underscores the importance of continuous adaptation and strategic foresight in today's business climate, including leader engagement and employee buy-in, which in a literal translation does not have the strength it does in its native language, but would translate as the level of involvement and active participation that leaders have and that employees actually accept and support a new project or change in the organization, but that will also depend on the purpose, something we will talk about in another article.
Continuous transformation: the future of organizational success
Another fundamental aspect of business transformation is that it is not a one-time project. Transformation is an ongoing process that requires companies to constantly adapt to new technologies, changing customer expectations and the evolving competitive environment. This means that continuous improvement must be part of the organization's DNA.
Implementing a culture of continuous improvement is not easy. One of the main obstacles is the lack of support and commitment from leadership, as well as resistance to change from employees. Often, employees are afraid of the unknown or are comfortable with the status quo, which can slow progress. To overcome these challenges, it is essential to foster open communication, empower employees and demonstrate the benefits of new processes. It is also crucial to create a culture where change is seen as an opportunity to grow and improve, rather than a threat.
The impact of digital transformation based on a framework
In the first version of this article, five years ago, I presented aframework that structured digital transformation into four fundamental areas: business, interactions, processes and analytics. With this framework we can frame each of the digital initiatives in one or more action areas and indirectly the rest. Let me give an example of a digital initiative:
1. Business
Development of a new online sales channel:
Direct: Impacts the business by opening a new revenue channel.
Indirect: Feeds analytics with data on online customer behavior and interactions, and requires new logistics processes to manage orders.
Launching a loyalty program:
Direct: Encourages customer retention and increases loyalty to the business.
Indirect: Generates personalized interactions through touch points (apps, email, SMS) and enables data analysis on purchase frequency and value.
2. Interactions
Implementation of an SMS platform for purchase confirmations:
Direct: Improves interactions with customers, ensuring they receive notifications about their transactions immediately.
Indirect: Collects analytical data on user devices and behaviors, and strengthens sales processes, impacting strategic business decisions by improving customer experience and increasing satisfaction.
Development of a mobile application for customer service:
Direct: Facilitates more efficient interactions between the customer and the company, providing real-time support and case tracking.
Indirect: Allows the collection of data for analytics on the most common questions and problems, which optimizes customer service processes and helps to adjust the business strategy.
3. Processes
Automation of the sales cycle with CRM:
Direct: Improves sales processes, follow-up and closing opportunities by automating repetitive tasks.
Indirect: Increases interaction with customers through automatic reminders and personalized emails, and generates valuable data for analytics, such as sales process efficiency, which impact strategic business decision making.
Implementation of RPA (Robotic Process Automation) tools:
Direct: Automates repetitive operational processes, such as data entry or inventory management.
Indirect: By freeing up employee time, it facilitates more personalized interactions with customers and feeds analytics with information on operational efficiency and business performance.
4. Analytics
Implementation of a Business Intelligence (BI) platform:
Direct: Impacts analytics by providing the business with a clear view of its data in real time to improve decision making.
Indirect: Improves processes by identifying areas for optimization, enables greater personalization in customer interactions, and adjusts business strategies by forecasting market trends.
Predictive analysis of customer behavior:
Direct: Impacts analytics by predicting behavioral patterns and product demand.
Indirect: Improves interactions by enabling personalization of offers and communications, adjusts production and logistics processes, and optimizes business strategy by adjusting inventory and promotions according to predictions.
Additional combined example:
Implementation of AI-enabled chatbots for customer service:
Direct: Impacts customer interactions by providing instant attention and resolving frequent queries.
Indirect: Improves customer service processes, collects data on common queries for analytics and allows the company to adjust its business strategy around the recurring needs detected.
Now, each of the above and its impacts start with a strategy, that north defined in a war room that as a result obtained a map of OKRs (Objectives based on key results) or a prioritized map of initiatives, is the originator, concentrator and measurer of the success or failure of the business objectives.
Without a clear strategy, any effort in technology, processes or customer interaction is a shot in the dark. It is the strategy that sets the objectives and prioritizes the investments that truly drive growth and competitiveness.
Processes that follow strategy
Business processes, both internal and external, are the mechanisms that enable the strategy to be executed. In a digital environment, processes must be designed not only to make the business run better, but to adapt quickly to new market demands. The key is that these processes cannot be static: they must be agile and flexible, allowing the company to innovate and respond to change efficiently.
Processes, in turn, are fueled by interactions. Every time a company interacts with its customers, partners or employees, valuable data is generated that feeds back into those processes, enabling continuous improvement and informed decision making. Business strategy should guide how we optimize these processes so that they not only serve today's business, but prepare the organization for the future.
Interactions that connect the customer to the enterprise.
Digital interactions are the bridge between the enterprise and its marketplace. Modern organizations need to maintain a strong presence on digital channels, from social media to mobile apps, websites and ecommerce platforms. But beyond being present, the important thing is to understand how customers interact with the company at each touchpoint.
Each of these interactions generates valuable information that becomes actionable insights when properly analyzed. This brings us to the next key component of the framework: analytics.
Analytics: data that nurtures decisions
Analytics is the engine that transforms data into knowledge. Today, data is one of the most important assets for any company, and the ability to analyze it effectively is what allows decisions to be made based on evidence, not assumptions. Insights derived from analytics not only help to optimize processes, but also to personalize customer interactions and adjust strategy on an ongoing basis.
It is the business strategy that dictates what type of information is most relevant to the business and how it should be used to generate value. Without this clear direction, analytics can become a cluttered collection of data with no real utility. But when properly aligned, analytics drives constant improvement in all areas of the organization.
Culture, talent and technology: the cross-cutting pillars
Throughout these five years, I have reaffirmed that organizational culture and talent are cross-cutting elements that enable the entire framework to work. Without a culture that promotes innovation, collaboration and adaptation to change, any digital transformation initiative will encounter barriers that are difficult to overcome.
Talent, meanwhile, is what sets the machinery in motion. It is not enough to have the best technological tools; people must be prepared to use them effectively. Investment in training and talent development must be aligned with business strategy so that employees can lead and execute the transformation successfully.
Finally, technology is the gear that makes the transformation possible. As I mentioned in the first version of this article, technology is a powerful tool, but only if it is used strategically. It is not about accumulating the newest tools, but about choosing the right ones to solve the right problems and leverage the capabilities of the business. Technology must be integrated with processes, interactions and analytics, and be at the service of the organization's strategic objectives.
Final thoughts
Digital transformation is not just about technology. It is a journey that involves a complete restructuring of how companies operate, and it must be deeply aligned with business strategy. Without a clear vision, proper alignment between technology initiatives and business goals, and committed leadership, organizations run the risk of spending money on technology that doesn't deliver the expected results.
As the world continues to evolve, companies must take a more holistic approach to transformation, ensuring that every technology decision is backed by a sound strategy and strong leadership. The question, then, remains the same: Is your digital transformation aligned to the company's strategy?
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