#4: On Merits of Digital Transformation in Supply Chain

In the fast-evolving landscape of supply chain management, businesses are increasingly drawn towards Digital Transformation. But what are the reasons organizations need to take Digital Transformation seriously? What those reasons entail? What are the main factors defining a comprehensive transformation journey? Why many organizations fail in their efforts? And are there simple rules to improve the rate of success?

Reasons for pursuing a
Digital Transformation Journey

There are three compelling reasons driving a strong shift towards Digital Transformation in an enterprise. These include:

Increasing Market Share:

A successful implementation of key Digital Transformation concepts can lead the way for identifying as-yet unexplored avenues for market expansion. This is primarily due to the ability of a digital-savvy enterprise to employ advanced analytics and utilize marketing techniques, such as A/B testing, to identify new ways of repurposing the data they already have or obtaining additional relevant data to put to good use. Needless to say, this new-found ability can be a clear competitive advantage for businesses that embrace Digital Transformation.

Improving Operational Efficiency:

Another advantage of enhanced digital capabilities for an enterprise is the potential for more detailed and granular measurement of operational performance through targeted Key Performance Indicators (KPIs). Well-defined KPIs can lead to streamlining and improving processes, ultimately leading to reducing inefficiencies within operations. And as any seasoned professional would tell you, reducing operational inefficiency means tangible cost saving down the road.

Boosting Innovation:

A successful Digital Transformation exercise acts as a catalyst for innovation within the supply chain. This is due to the fact that, in order for an enterprise to advance in their Digital Transformation journey, it requires putting in place the right foundations (see Pillars of Digital Transformation below), such as Technology, which eventually result in promoting a culture of continuous improvement and creative problem-solving.

A clear understanding of the above reasons is crucial for a successful Digital Transformation journey as they help define a set of priorities (what projects to take on first, etc.), KPIs (how well the projects are progressing) and success criteria (when a project has achieved its interim and/or ultimate objectives).

In short, aiming to implement Digital Transformation is good but you should be clear about your reasons as to why your business needs to embark on such a journey in the first place. And consequently, a better understanding of the said reasons would allow you to define how to chart the territory, while moving along the complex, but exciting road to digital nirvana.

Pillars of Digital Transformation

As with any other long and hard journey into the unknown, Digital Transformation requires a set of markings, or pillars, to guide the uninitiated. These pillars include:

Vision:

Are you embarking on this journey because it is what everyone else is doing, or do you actually have a clear set of business requirements that you can articulate towards an endgame? A clear vision is essential to guide effective decision-making throughout the Digital Transformation process. It is, therefore, advisable to start the process by revising your purpose as an enterprise and clarify your vision of success.

Environment:

Any organization’s success in its Digital Transformation journey is both bounded by and defined within the environment in which it operates. This environment includes a number of stakeholders, both internal and external to the organization. As a consequence, effective stakeholder and change management are essential for a successful transformation outcome.

Technology:

It should come as no surprise that technology is a pillar of successful digital Transformation. After all, technology is commonly referred to “the great enabler”, that makes things happen. Two aspects of technology stand out in relation to Digital Transformation. Infrastructure and Software. While Infrastructure is where the magic of technology happens at scale and speed, Software is at the heart of innovations which lead to solutions tailored to supply chain needs.

Processes:

Processes define the blueprint of success (or failure if you are careless with them!). For a Digital Transformation to succeed requires a solid understanding of the “as is” processes, clear vision of the “to be” processes (and their deviations from the “as is”) and the ability to view “to be” processes in terms of relevant “Personas”. It is critical to understand that ultimately, it is the Personas that drive behaviour and processes in an enterprise. Therefore, to ensure higher degree of success in your Digital Transformation journey requires a clear definition of the “Personas” involved and how they interact under different conditions. This is primarily a non-technical aspect of Digital Transformation that is business (and not technology) driven.

Knowledge:

Digital Transformation, while highly promising, is equally challenging, which is why many companies fail to deliver on its promises (see Why Some Digital Transformation Efforts Fail below). And knowing where those challenges lie and how best to address them require the right skillset and knowhow.

Acquiring such relevant knowledge involves two separate activities: Improving the existing workforce with targeted trainings and onboarding new recruits with the appropriate experience and background. Both these activities require a change of approach that are potentially painful to implement. While one requires incentivizing your existing personnel to follow the path of continuous learning (in what is typically called a growth mindset), the other involves revisiting your entire recruitment strategy to unearth new talents from places and backgrounds you may never have dealt with before.

And let’s not forget that, as the volume and complexity of organizational data increases, so does the urgent need for a suitable mix of Subject Matter Experts (SMEs), with deep domain expertise, and Generalists, who are capable of functioning effectively within multiple and diverse domains.

Data:

It is no surprise that implementing a successful Digital Transformation program should have something to do with data! After all, it is almost a given by now that every business, regardless of the industry in which it operates, is first and foremost a data business.

In particular, a modern organization’s attitude towards data should revolve around the following distinct concepts:

A Sustainable Enterprise Data Model: This is a high level and holistic view of all business concepts (data elements) and their respective relationships that collectively capture the essence of an organization’s operations. Such a model clearly defines how data is captured, enriched, treated, put to use and ultimately discarded. And it offers all these capabilities while remaining flexible and responsive to change. How this is implemented (physically, virtually or in a hybrid model) is a topic for another [T] Nugget article but it is the first thing any organization needs to take a closer look at.

Data democratization: What is the point of having a comprehensive data model if not for enabling everyone within an organization to use the said data (in the required form and time) for their respective decision-making activities? This does not mean free access to all data for all. If anything, security considerations and allocating proper access mechanism to users have never been more important. But the ultimate aim of having an enterprise data model is to utilize it in order to remove the friction associated with decision making at all levels of an organization.

Data as a Product: This one may qualify as one of the newest kids on the “XX as a YY” block, but it is, arguably, an important factor in providing organizations with a clear competitive advantage in their respective industries. Building a data product, more than anything, requires a deep understanding of operational flow of information within an organization, which in turn, mandates a clear appreciation of the various Personas that are involved in curating data along its journey. Identifying the right mix of activities and Personas is easier said than down. Furthermore, it takes considerable time and effort, and perhaps, it is not a surprise that many organizations fail to allocate enough resources and attention to clearly define its parameters.

Governance & Control:

In their most simple terms, Governance and Control are about making sure good intensions prevail, and clear provisions are in place to ensure any deviation from the expected behavior is identified and rectified accordingly. The activities to note here include:

• Clear definition of roles and responsibilities to ensure maximum accountability is maintained throughout and organization.
• Cohesive Key Performance Indicators (KPIs), to help clarify what level of performance constitutes success in respective operational areas. Note that this point is not about the need for having KPIs. This is likely already the case in most active organizations. The point to take is that Digital Transformation mandates new set of KPIs that are both domain driven (how much sales per week, how many customers, etc.) and data driven (how easy it is to prepare data for certain types of analytics, how many people are involved in preparing various reports, how many systems are reconciled to generate projections, etc.). In other words, Digital Transformation brings with it the need to revise how you measure success within your organization.
• Continuous monitoring of operational performance. With new KPIs come new requirements for monitoring performance. And the speed at which data is generated and consumed means your monitoring systems should be dynamic and highly responsive or you will risk dealing with stale data.

Why Some Digital Transformation Efforts Fail

Despite the potential benefits, Digital Transformation efforts can, and do, encounter many obstacles, most notably:

Lack of Enforced Standards: As volume and complexity of data in an organization increase, so do the complexity of the systems interacting with this data. Consequently, to facilitate exchange of information between diverse systems (interoperability) and to promote data consistency, a formal communication scheme, or a set of standards are required, which need to be well understood and enforced (thanks to a solid governance and control mechanism) throughout the organization.

Wanting Everything Now: You cannot build a solid house without a reliable foundation. And the first aim of Digital Transformation is to revamp your organization’s foundation in a way that makes your operations seamless. If you agreed with the previous two sentences, then chances are that you will agree with the conclusion that follows:

You need to be realistic with your timelines, specially in the early stage of a Digital Transformation program.

While it is not reasonable to give a blanket statement as to how long each activity needs to take, the main message is that you will rush the implementation at your own risk (and the risk can be really high). This is one area when consulting the right people can pay dividend. So does early training of the selected workforce or early hiring of the right personnel. Another thing to consider is to promote a phased approach to Digital Transformation. A Big bang approach, while may have a marketing attraction, is normally a recipe for disaster so, think before you act!

Small Matter of Skill Gap: We have already touched on this point earlier in this article, but we reiterate it here as it is one of the main causes of failure in implementing a successful Digital Transformation program. The bottom line: New challenges require new ways of working and thinking and you either acquire the additional knowledge through training of your existing workforce or by hiring new talents more strategically.

No Tolerance for Experimentation: Admittedly, charting new frontiers is both frightening and full of unknown. But it requires much experimentation and a fair amount of trial and error to find your way in the new territories and to learn how to innovate. In other words, trying, and continuously fighting the fear of failure are essential parts of this journey. Without going through this phase, it is unlikely to ever gain enough momentum to make this exercise a success.

How to Succeed in Digital Transformation

Ultimately, achieving success in Digital Transformation involves adopting the right mindset and strategies, which include:

Incentivizing Correct Behavior:

Let’s be honest for a second: Almost nobody does the right thing on their own. People do the right thing because they have the right incentives to do so (incidentally, people do the wrong thing mostly because of the wrong incentives). A successful Digital Transformation requires revising what you consider correct behavior, how you measure it (which KPIs) and how you incentivize your personnel to “do the right thing”.

Thinking in Personas Not in Solutions:

Remember the earlier comment on Data as a Product? That essential concept was driven by various Personas whose interactions and expectations define how data is managed throughout an enterprise. Therefore, it is paramount for organizations to clearly identify and map Personas to their respective processes as early as possible. Once Personas and their interactions are identified, how their activities translate into specific data-oriented solutions become much clearer.

Defining Clear Ownership:

This is where a well-defined Governance and Control framework shines. A carefully selected set of Roles and responsibilities ensures the right level of accountability with respect to all Digital Transformation initiatives are allocate and monitored throughout an organization.

Utilizing Technology:

For the love of God, leave Excel behind and seek Excellence instead! The judicious choice of technologies (and their respective infrastructures) are collectively “the great enablers” that allow you unleash the true power of Automation that ultimately leads to the eradication of operational inefficiency and friction in movement of data from the first point of availability to the next point of decision making. This is another reason why timely training of the existing personnel or early hiring of new recruits with the exposure to the right technology stack can make or break your Digital Transformation efforts.

Thinking Digital to Act Digital:

Ultimately, Digital Transformation is about a cultural shift within an organization. It is about identifying the bad habits and actively working on building new ones. Namely, it is about developing the right mindset, without which no amount of systems training, or fancy technology can make a real difference. With the right mindset, you are more likely to experiment, bounce back in the face of failure and try again. Digital Transformation is an iterative exercise and as with any other form of exercise, one gets better at it as they continue to practice well. In other words, you need to think digital before you can act digital!

At Tetrixx, we are obsessed with effective utilization of modern technologies to transform and improve how our clients do business. We would love to hear your take on this topic and, of course, would be happy to discuss with you many ways in which we can help you become a more competitive Supply Chain player in your specific domain. Find us at www.tetrixx.io for more details.