On the buzzword scale “digital transformation” is pretty much off the charts. Because this term is so overused but also misunderstood, we should probably start with a definition. For me, digital transformation means the integration of digital technology into enough areas of a business that it fundamentally changes how the business operates and delivers value to its customers. Using this definition, a business cannot truly succeed at this kind of transportation unless it meets three criteria:

  1. The transformation is pervasive throughout the organization
  2. It substantially impacts the operating model, and
  3. The impact extends to the way customers receive value

If you’re like most business leaders, these three criteria are daunting, perhaps even a little frightening. An effort of this scale, that will drastically reshape your business, should be approached with extreme care. The process starts with an honest evaluation of the company and investing in some changes to the underlying structure, values, success metrics, culture, and people.

A Readiness Questionnaire

Through our work, we see many companies that are in the middle of sweeping transformations. Some of them go smoothly, but more often they are chaotic, reactionary, and in some cases resisted by employees. The most well executed digital transformation initiatives are those that occur within organizations that have prepared. Let’s look at a few of the signals that indicate a company is ready for transformation.

Is your organization customer obsessed?

Being obsessed with customers is probably the first and most critical success factor in any digital transformation. Here are a couple markers of truly customer focused companies:

  • All levels of the organization have essential and regular touch points with customers, from the executive level down
  • The organization has a mature user research or customer insights team whose mission is to find customer needs more than just validate the product team’s ideas
  • Customers regularly participate in the co-creation of new products and services through user experience testing and accessible feedback mechanisms

Are your product teams high-functioning?

There can be many reasons why a delivery organization is not performing at optimal throughput. But one of the most common issues we see is upstream chaos. Specifically, the pipeline of steps that lead to clear, actionable, product definition is dysfunctional.

Because our definition of digital transformation requires pervasive and impactful change, these dysfunctions will literally kill a transformation effort on the vine. The easiest way to detect that your product organization may not be fully effective is to look at the amount of churn that happens in requirements based on feedback from the delivery (design, engineering, manufacturing) teams. If there’s a lot of churn it means that the product likely didn’t satisfactorily answer: who, what, why, and when.

Is experimentation safe for employees and managers?

The value of experimentation, and occasional failure cannot be overstated. This is especially true in a digitally enabled business. The benefits derived from becoming an organization that supports experimentation come at two levels:

  1. Products and services that undergo experimentation and iteration before and after release tend to be much more hardened against competition and much more integrated into an end-to-end offering
  2. The sheer effort of becoming good at experimentations forces the organization to become more agile and resilient which has incredible knock-on positive effects

For organizations to really support experimentation there are a few foundational things that need to be in place:

  • Employee incentives must be properly calibrated to strike a balance between incentivizing success (typically aligned with the old way of doing business) and disincentivizing failure
  • Experiments should have clear boundaries in terms of timeline, milestones, and success criteria that are known by all involved – this provides some psychological safety that failure does not fall on any individual or team
  • The core business must be allowed to be challenged. In other words, it must be acceptable for experiments to produce direct competition to the old guard.
  • Experimentation must not be shortchanged in terms of budget allocation so that they can fully realize their potential for value creation up to a particular milestone.

Are your technologists ready and forward-looking?

Digital transformations are, well, digital. This means that your organization needs deep technology delivery capabilities at its disposal. This could mean building an in-house team, partnering with external groups that are already well-oiled digital delivery machines, or a mix of the two. Regardless of how you build this capability, it is critical that the organization has the agility and skill to execute as strategic moves are put on the roadmap.

Do you have strong executive buy-in and leadership?

Earlier I mentioned that customer obsession was probably the single most critical component to successful digital transformation. I apologize, but I lied, customer obsession comes in second only to the need for executive leadership. Sweeping change in large organizations almost never happens without buy-in at the C-suite level.

When it comes to big digital initiatives that impact everything including product, marketing, sales, logistics, and operations, executive leadership must be at the forefront. It’s well known that the frozen-middle will organically resist these kinds of broad innovative changes. It’s not because they don’t see benefits in innovation, but because they are stuck in the old ways of producing value. The only contingent within a company that can unfreeze this layer is the executive team.

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If you found these questions challenging, don’t worry, you’re not alone. Most companies require several quarters or even years to be able to answer these questions positively. And, you don’t have to be perfect before you start down the digital transformation path. In our work with companies undergoing such change, we’ve seen examples at all stages of the maturity curve. Ultimately, success comes down to a company’s willingness to let go of the past, face the future, and change.