“Companies that don’t or can’t keep up in this age of digital transformation are going to get left behind by their competition,” says everyone, all the time. But what does that mean, and where and how should companies be investing to actually drive digital transformation going into 2021?
We are currently seeing high levels of investment in a few key areas:
Predictive data & analytics
Data warehousing & reporting
Industry 4.0 smart machinery
Smart asset monitoring
And in some areas we have seen a downward turn of interest - such as blockchain, drones and virtual reality.
Two things that become very clear when looking at the list are that investments are being made in areas where software and data meet, with high levels of interdependency. For example, smart buildings are used for asset monitoring purposes and contribute to data warehouses, which can be used for predictive purposes to drive efficiency gains. Each link in the chain incrementally increases value.
This interconnectedness is where we see the most value creation for organisations who get it right. Looking at investments in isolation, it’s hard to see the ROI against implementation costs and risks. When you look at these investments as an interconnected web (each node driving inputs and outputs with value generation at the centre), that picture changes. Technology areas which are seen as stand-alone drivers such as VR are struggling to attract the same broad levels of investment.
However, digital transformation is a journey, not a destination, and simply investing in a web of technologies doesn’t guarantee success, or even any kind of return. CIOs need to think further ahead and carefully balance current pain with future anticipated needs.
Organisations are understandably rarely in the position to take giant leaps away from models and processes that have made them successful today, so evolutionary roadmaps that typically span 3-5 years are a common approach. A strong roadmap constantly evolves, actively acknowledging obsolescence, technical debt, and the operational pain of change - balancing these against technology’s ability and responsibility to deliver radical organisational improvement.
An organisation’s ability to deliver successful change therefore depends upon the ability to execute both the technology roadmap and change management activities in sync. New capabilities in IoT or AI for example will only ever deliver value as part of a cohesive web of solutions – they are not the standalone ‘silver bullets’ some businesses expect them to be.
This is a bit of a move from some ideologies of the past. Lean practices have proven very successful in start-up technology companies and have spilled over into larger organisations. However, this approach may not be well suited to modern digital transformation projects. Focus on short-term ROI and individual projects is typically embedded in change-resistant organisations, leading to piecemeal investments without a strong roadmap and vision, which leads to poor returns as valuable data and information stay locked in silos unable to drive or consume value from the rest of the organisation.
One of the main obstacles to overcome in forming a strong digital strategy and not falling into this trap is the acknowledgment of pace of change and obsolescence. In the world of IoT, capital investments have often been written off long before they’ve even been depreciated off the balance sheet. Why is this? Unreasonably high ROI requirements, lack of flexibility in the original solution and lack of interoperability are all key culprits.
These experiences tend to make CIOs more cautious and pessimistic about their outlooks. The landscape right now is changing in regard to data sensitivity regulations, growing data sizes, cost of staff with the skills to maintain systems and lack of interoperability between solutions. All of these if ignored can cripple a solution and turn the return negative over time as they layer on increased cost and complexity.
However, all of these challenges can be overcome with a strong strategy. Capability-driven models that outsource much of the heavy lifting to SaaS providers and place cloud-based capabilities like Azure at the centre of their architectures remove much of the risk around data management. Similarly, carefully planned integration architectures and service-oriented designs with comprehensive APIs allow for changes down the road and a plug-and-play type approach to expanding services.
While just a handful of years ago traditional hardware-centric IT skills may have been sufficient to maintain business operations, most organisations are finding themselves in a place where access to modern programming and software engineering skills are table stakes to keep their strategy on track.
Over the next few years, skills such as data engineering and data science will start to move to the top of that list. So, another large part of setting a successful digital strategy is talent-focussed - not only in training and upskilling but in understanding, balancing and forecasting external vs internal expertise requirements: which capabilities belong in-house and which should be rented as a service and consumed as an Opex item.
Digital transformation doesn’t just change the technologies people use, but also how people work. We are moving into an age where cultural and process change needs to happen in step with technology change, and where an organisation’s technology proposition needs to be thought of as an interconnected web that creates value. The cost of implementing just one node or solution may not seem to create enough value in isolation, but as part of the whole value-producing web, it becomes an absolute necessity.
Leaders and CIOs need to remember that internal capabilities are only part of the solution - limiting your ability to execute to your own domain of expertise will ultimately be restrictive. The fastest solution isn’t always the best, but well-paced solutions that take into consideration all other transformation vectors will always win in the long run. And roadmaps that directly deal with and allow for the realities of change, obsolescence and technical debt tend to be the most successful.
So, the answer to where does digital value lies is, counterintuitively, not in any particular area of investment or technology, but in the interconnected web of data, action and insight that lies between those investments, driven by a strong overarching digital strategy.