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Digital innovation calls for jumping over many hurdles, but the most challenging of these is to get the organization behind big, groundbreaking investments. If you take a dispassionate assessment of your portfolio of digital projects, what percentage of these investments is dedicated to a laundry list of small, incremental improvements versus truly impactful projects? For being digital, we see that many of these investments find a place in the portfolio, but they are typically business-as-usual, keep-the-lights-on or compliance projects. Realizing the full potential of digital innovation requires marshaling an organization-wide effort behind game-changing initiatives that either build new capabilities, solve a business or customer problem, or preferably, both.
Digital investments at this scale create new ways of working to better enable individuals to drive work forward or allow distributed teams to work together seamlessly. These large projects don’t simply automate what companies are currently doing. They change the work and ultimately drive significant benefits in efficiency, speed, quality or value. Nearly all bold business improvements today are typically powered by digital.
Focusing investment on big impact projects can be challenging
The benefits may be clear, but why do large companies find it difficult to focus investment on big impact projects? Our experience has highlighted some of the reasons:
- Diffused decision-making: Business unit heads have profit and loss responsibility and budget control, IT has a dedicated budget for projects, and the head of Digital also has a budget but is typically not the sole decision maker regarding digital investments. The challenge: game-changer investments require the alignment of all these players, who typically have different interests at stake.
- Misaligned, risk-averse incentives: Typical business unit leader compensation structures emphasize achieving in-year goals. These positions are sought-after springboards up to higher executive leadership roles. Investing for the future and taking large gambles even on “good” bets like digital are not on the standard strategic game plan for success. Again, spending the necessary time to align across business units and functions often proves challenging.
- Lack of visibility: Understanding the portfolio of digital projects is a lot harder than it needs to be. We find that miscategorized investments and low transparency leads to a difficulty in understanding the level and focus of digital investment. Without visibility, it’s difficult to understand, and from there, to act.
A good example of the challenges in focusing investment on big impact projects comes from a Fortune 50 company that is a recognized leader in digital innovation in their supply chain. Even for this digital-forward company, when the team sought to understand their digital investments, they weren’t clear. Some projects were incorrectly tagged, while confusing language was used to identify game-changer investments. Plus, they had only just moved to a common portfolio management platform. It took serious work to create some visibility and move on changing the digital strategy: roughly 6%of the budget was applied to game-changing investments, while a further 6% was not making the sought-after impact.
This company is now on the right path to address the above challenges, with a clear mandate to change and evolve its organization and culture. What are other companies doing to solve this problem?
Digital transformation investment examples from leading companies
One of the largest hospitals in the U.S. recharged its digital path by bringing full visibility to its investments in digital, uncovering hidden pockets of investments in the process. Once new leadership achieved a clear understanding of the investment portfolio, the company set a goal to increase the amount dedicated to transformational investments from 10% to 30%. They were able to achieve 22%, which was a dramatic increase but still short of the goal.
In another example, a leading CPG company started on its digital journey without a clear strategy, having made initial efforts under the IT umbrella. Challenges soon arose, especially around securing enough investment to implement large-scale digital projects. Change started when a digital strategy was created on top of the overall business strategy, clearly tying digital priorities to business goals. Once this clear link was established, the discussion shifted to digital enablement as the way to drive the business strategy. Gaining clarity on the importance of digital paved the way for an aligned set of big investments dedicated to impactful digital projects.
Will your organization succeed with focus, or go sideways with diffuse spend?
Here are three questions that will help a company understand whether it is on the path to digital transformation success:
- Is bold leadership in place that is willing to advocate for a path and stand behind it?
- Is the leadership team aligned to a company-first strategy, or to chasing their own individual goals?
- Is there real visibility into digital investments, and can they be held accountable for progress?
We’ve seen that it appears to be safer and easier for individual executives to spread their digital investments across a broad set of projects that will work with minimal disruption and create only a minor amount of change to manage. However, this strategy almost guarantees that the organization won’t make meaningful progress. In fact, this piecemeal approach is not as safe and easy as it might appear at first. Companies that take the “safe” approach and do digital incrementally forfeit the benefits that fundamental digital transformation affords. True change requires the bold leadership, alignment and visibility that we see from the best leaders. That means getting out of the comfort zone.
Jeff Hewitt is a partner in the health practice of global strategy and management consultancy Kearney. Anshuman Jaiswal is a principal in Kearney’s Digital Transformation practice.
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