Digital transformations – Efficiency, effectiveness & risk management
For many companies, the technology strategy begins and ends with technical details in which the Board have little interest. The absence of a digital vision and any experienced IT leaders means that the IT slot on the Board agenda is a discussion of details, issues and gripes. The Board may simply see IT as a problem to be overcome or a beast that has to be fed.
But IT genuinely has the ability to transform a business. There are radical new ways to grow the business, to serve customers better, and to make more profit.
Businesses that can connect with these benefits are, understandably, valued far higher than their low-tech competitors.
So what exactly is Digital Transformation?
For our clients, Digital Transformation simply means using IT to deliver dramatic improvement. That’s different to just an upgrade or fixing some niggling problems. It means: using IT to make a significant change for the better.
That may just mean simple IT done well – that’s surprisingly rare! Or it may mean genuine technology innovation, something that is breaking new (or new’ish) ground.
We simplify this issue by defining 4 different kinds of transformation:
1. Market break-through
2. Wow customers
3. Internal redesign
4. Tame the risks
For an explanation about the 4 types, read our post.
This document is a briefing on internal redesigns and risk management.
For one of our clients, detailed later, this meant not only radically improving how the business worked, but reducing IT spend by 75%! For other clients this meant halving delivery times, or massively improving competitiveness by calculating risk accurately and pricing products correctly for the customer.
Successful Businesses Focus Outwards
Directors of growing mid-market businesses tend to be focussed outwards – for example, they are often defined by an obsessive attention to the needs of the market, their customers’ perceptions and building revenue. Sometimes this includes supplier and partner relationships as well – securing excellent relationships, pricing and terms with suppliers can be of strategic importance.
Perhaps entrepreneurs are defined by their focus on seizing opportunities rather than worrying too much about details of how the deal will be fulfilled.
So as company revenue turns from millions to tens of millions, process, organisational and behavioural issues build up. Typically, people’s jobs become progressively less productive, there is increasing reliance on individuals, and often there is more argument and friction between people.
Many CEOs of growing businesses become exasperated as they feel that they are employing ever more staff who seem to spend their time making work for each other!
But, at every stage, the Board take the view:
- the issues are manageable
- the business is profitable
- securing growth is more important – in other words securing growth is more exciting!
And this can result in a mid-market business becoming progressively complicated and management “papering over the cracks” using old-fashioned ERP systems and point-solutions.
Most importantly, many staff begin to see these issues as normal and they see handling and wrangling these problems as the purpose of their job.
People stop complaining about how much time they spend in Excel processing an order, instead they ask for more Excel training. They begin to look forward to being promoted to Senior Order Administrator. Everyone has forgotten that order administration should be entirely automated.
Three Main Opportunities
A useful way to navigate Digital Transformation is to consider 3 specific opportunities:
- Integrate with suppliers and customers – for many companies, integrating with their suppliers is the greatest possible waste reduction; and their ability to understand and integrate with customers is their biggest potential market differentiation and means of providing great service and lock-in.
- Address “swivel chair” users – traditionally lots of staff spend their time switching between one system and another, using their expert knowledge to correctly manipulate systems and data and to handle incoming emails and calls to provide expert assistance to other people in the business. We call this the “swivel chair” problem! Often these manual tasks are not at all simple and these staff may seem like vital experts in the business – but they are not really adding value. These people may be replaced by properly integrated systems or by software robots so that their expertise can be properly used.
- Real-time and accurate data – having data readily available (without the need for teams of administrators!) is the basis for intelligent decision-making. This can be managers, making informed decisions; simple rules-based automated decision-making; or more sophisticated AI and machine learning.
Customer Integration is Changing
Integrating with customers allows you to provide higher levels of service and lock-in, but customer service is not what it used to be!
Increasingly customers of all sorts want to interact using mobile apps rather than call centres. Many people, especially younger people, expect a chat interface even in a B2B environment and many companies are using bots and language recognition to fully or partially automate their handling of incoming requests or queries. Bots can support call centre agents and increase their throughput and responsiveness or automate parts of their roles.
And modern back-office systems allow integration far more easily than they did in the past using APIs. So your prospects may well make their buying decisions based on how easy it is for their systems to integrate with yours and if you can offer faster, simpler, more reliable and secure integration than your competition then that can be a powerful USP.
In some cases it’s possible to bring about genuine transformation simply through a successful, well-engineered top-to-bottom system replacement programme.
British Retail Consortium (BRC) are the go-to trade association for all UK retailers. Their membership encompasses over 70% of the UK retail industry (by turnover) and they have 25 years of history. Over the last 2 years they have been through a complete systems transformation project with impressive results.
BRC’s CEO, Helen Dickinson OBE, summarised their objectives:
“We had systems and ways of working that were deeply embedded but not always very efficient. Several areas of our business were caught up in this problem and it impacted people’s attitude to their work as well.
Many aspects of our business are about publishing and our website was completely out of date. Not only did it fail to project our brand but publishing content was difficult and time-consuming.
And our working practices were looking old fashioned – lots of expensive office space and everyone chained to their desks. It was time for a major overhaul.”
A Freeman Clark’s IT leader became BRC’s CIO and over a 24 months period he shaped, planned and delivered a programme of changes. He explained:
“Real change is about systems and how people work, so a large part of this project was ensuring that communication was effective and people were lined up.
For example, once we had created a rapid and effective website and publishing system, we had to work out how to take BRC’s brilliant content and turn it into things people want to read, watch or listen to. This meant new ways of working as well as new roles and new attitudes.
We replaced every system in the business and we also moved to modern offices and implemented flexible working and hot desking to reduce space by 30%. This was a worry for staff and we spent a lot of time in workshops and discussions. We had to create policies and rules but also give managers strategies and simple ways to make these changes work.
But the end results speak for themselves. The old systems were not fit for purpose and overall IT costs were 10% of revenue. This has now reduced to 2.5% of revenue!”
Chillisauce are an example of both removing swivel chair problems and improving integration with suppliers. And, no surprise, this has also enabled them to radically improve their customer experience as well.
Chillisauce is an events agency, specialising in stag and hen parties. They offer a choice from over 5,000 different activities in 70 cities worldwide. Customers use their website to select all the components of their own bespoke event including activities, locations, hotels and transport.
James Baddiley, CEO of Chillisauce explained the challenge:
“Our website was very inflexible. If we wanted to add a new product then this was a very major undertaking, so it was a drag on our ability to really expand and develop our business. Choosing and buying a stag or hen do is a major decision for people, we want to make it fun and offer the best experience and the best options on the market.”
One of our Principals, Tony Tinnirello advised Chillisauce on a programme of work to transform the entire fulfilment activity. Tony explained:
“We implemented a suite of new systems, all based in the cloud, and we used some sophisticated technology to link them all together. It’s all largely automated. So the entire process is far less manual, far faster and less error-prone. Critically we generate prices dynamically so customers can see the price right in front of them – that’s very rare in our market!
Communication with suppliers is challenging as they range from airlines who have sophisticated systems, to a farmer offering Zorb Football in a field! For the airline we integrate with their system in real-time, for the farmer we create automated emails and he can login to our portal to confirm he has taken the booking.
The result is that customers can create their event online, book and then check the status of each element taking shape.
From our internal point of view the new systems also now provide a wealth of data. We can check revenue and margins on every product, check we’re meeting service targets and rapidly deal with any issues. In particular this has been a huge time saver for the accounts department.”
Availability of Information Can Transform Growth Prospects
The growth of many mid-market businesses is limited by the lack of availability of their Board to pursue major changes and expansion. And the fundamental reason is that the Board are too busy managing the business and this takes most of their time and energy.
As the business expands, it would make sense to build a layer of senior managers under the Board but the barrier is a lack of hard information which should be the basis for delegating meaningful decision-making authority and accountability.
When information is not available the business operation continues to revolve around the knowledge, experience and “gut feel” of the Board members and this becomes a serious choke on expansion.
Real-time and accurate data can be the basis for:
- informed, objective decision-making by middle and senior managers according to rules, guidelines and set targets
- introduction of machine learning tools and Artificial Intelligence to reduce effort, improve speed, reliability and accuracy
- visual analytics technologies can allow people to better understand complex data, to get insights and new ideas.
Because data can allow the expansion of senior management to free up the Board, availability of information is more than just a detail, it can have a truly transformational effect.
Tame the Risks
Finally, digital transformation can be focussed on improving a business by addressing risk management. By understanding risk in specific contracts, products or customers, you can price more accurately and competitively. Provision for risk can be applied more specifically, perhaps by more sophisticated analysis of a company’s own existing data or by combining data from multiple systems, and potentially 3rd party data as well.
In some cases, the transformation might be achieved by more timely application of existing risk processes. For example, real-time calculation might allow more accurate pricing for sales people on the phone, or can allow real-time calculation of prices whilst customers are going through a purchasing process online.
Integrating systems can ensure that credit risk information is applied during the sales process as prices or processes can be adjusted dynamically in line with customer credit risk at an individual, group or aggregate level. Or, very simply, customers should be put on hold in real-time if credit limits are breached – many companies have had the experience of putting a customer on stop just a few days too late!
Having accurate risk reporting can also significantly reduce time wasted by Directors worrying about this issue. If simple risk data is available in real-time then the Board can understand the level of risk and take measures to adjust it as a routine activity. Automated rules engines or AI can pick out patterns or raise alerts when thresholds are near or are breached.
Simply having hard facts available all the time can reduce the level of anxiety and wasted energy!
For companies heavily reliant on IT, well-structured systems can reduce their existential risk by ensuring that they are more resilient in the event of a disaster.
In the past the British Retail Consortium (BRC) experienced a fire in their office and were locked out for 3 weeks.
Their CEO, Helen Dickinson OBE, explained,
“We basically had to shut down for 3 weeks because we were locked out of the office due to smoke damage and our systems were unavailable.
One of the benefits from our transformation project was that we were able to start again with our business continuity plans. And the tragic London Bridge terror attack in June 2017 put this to the test as our office was again unavailable for several days. But this time we were pretty much unaffected and were able to continue our business without interruption.”
For businesses providing critical or 24/7 services, a Digital Transformation might be justified simply in terms of providing a proper robust platform for continued operation in the unlikely event that the office or parts of it are unavailable.
Where to Begin
The opportunity for ambitious mid-market businesses is to start with a blank sheet of paper and design the internal framework you really want.
In our experience mid-sized businesses often have a huge advantage over their larger competitors in this kind of transformation because larger companies are mired in details and variations. The 80/20 calculation for a larger business is far more difficult because the absolute value of the 20% is much greater. In addition, larger businesses have layers of managers who are deeply entrenched in existing ways of working and the effort to change behaviours will be a huge task.
For ambitious mid-market businesses, the Board can get close enough to the coal-face to personally see and hear what is happening, and the company is small enough to make rapid decisions and to make changes more quickly. Of course, a major change is never simple, but the scale of effort increases greatly for larger companies.
Starting the journey towards a Digital Transformation is perhaps the most difficult step. The following questions can be a useful kickstart for a Board workshop…
- How much of your cost is not directly related to winning customers and fulfilling their needs?
- How many experts do you have locked into “swivel chair” roles where they simply manage systems and data, and help other people around the business to do the same?
- How could you really integrate with your customers’ activities?
- How could you remove waste from your business by integrating with your suppliers or partners?
- How much is it worth to you to correctly quantify risk at a supplier, customer or product level?
- How much would it be worth if you were able to reduce the risk of a major outage affecting your business?
- How can you remove the barriers to enable you to lead this transformation?
Imagine that, tomorrow morning, you read in your trade press that one of your competitors has made a radical change that leaves you behind.
Be the one who does this first!