Friday, 28 March 2014

10 bumps in the road of a digital transformation

So your CEO is now enthused by digital transformation? You have a new head of digital, a clear vision and strategy for how to digitise and transform different aspects of your business (from your business model and customer interactions to your supply chain and operations). You’re taking customer-centricity seriously, consuming computing power from the cloud, building in sprints, failing fast, iterating; following everything that the web companies are doing.

Unfortunately success is far from guaranteed. There will be a number of bumps along the road ahead... some of them obvious, some of them less so. Let me give you a quick flavour of 10 of the challenges that you should at least be thinking about:

1. Changing expectations and lack of exec alignment – I worked with a client recently and did a quick and unscientific survey of their exec. Around a third wanted to be extremely disruptive and innovative with digital, a third wanted to raise the bar and get to the level of their closest competitor, a third simply wanted to do the basics and nothing else. It goes without saying but in any major program exec alignment is crucial. In major digital programs, this seems to be even more the case due to the speed at which new technology, consumer expectations and market dynamics are changing and vast differences in what can be achieved (see my post on “digital channel shift vs digital paradigm shift”).

2. Consumer apathy / consumer backlash – if you build it, they might not come. Worst still, they might react angrily. Countless, well-meaning digital PR programs have provoked consumer rage from fury over utilities bills at a UK Utility, to “upper class jibes” at Waitrose to  anger at changing pricing at Netflix. Simply digitising content and blasting it out to social networks and apps is a sure-fire way to wasting your investment. Building customer attention let alone engagement is difficult. It’s essential to maintain a razor sharp focus on customer needs and the journeys that they go through. These can be used as a compass to guide investment decisions and focus during a digital transformation program.

3. Regulatory changes – it’s clear that the regulatory world is desperately trying to catch up with the digital world. Topics like privacy, use of data, security of personal information, misleading advertising and even new business models are under attack from governments and regulators worldwide. In the US, the New Jersey Motor Vehicle Commission recently voted to ban the direct sales of vehicles in the state. In Europe, the European Commission are harmonising data protection laws impacting all companies processing the personal data of EU citizens and calling for fines of up to 5% of global group turnover for major data breaches. That cool, funky app that was built in a garage by a couple of creatives had better have thought through data and privacy implications! Brazil also recently passed a bill of rights for internet users.

4. Tax – now I admit that if you get a group of digital professionals together then tax is unlikely to be top of their list of topics to discuss (!). But most tax authorities have realised that their tax systems have a long way to go to catch up with a global digital market place, crypto-currencies, transfer pricing and IP protection. Late last year the European Commission introduced fundamental changes in the way in which digital goods and services will be taxed within the EU. Today it is possible to base a digital downloads business in Luxemberg and pay a flat rate of VAT there of 3 or 15%. From 1st January 2015, companies will have to register and pay VAT where the consumer is located, presenting a significant headache to anyone selling digital goods and services cross-border within the EU and exposing them to much higher rates of VAT such as 27% in Hungary. In addition to the margin impact of these changes and the need to deal with up to 28 different tax authorities, companies will be forced to reconsider their pricing strategies, customer experience and supporting systems in order to comply with the legislation, or face penalties from tax authorities in EU member states looking for new sources of revenue.

5. Technical debt – as easy as it may be to consume computing power from the cloud, technical debt is becoming a major issue. The barrier to entry into the digital world is extremely low and the pace of change extremely high, leading to many organisations developing and launching new apps, micro-sites and platforms in a sporadic and uncontrolled way and building up their technical debt. Gartner assert that by 2017, the CMO will be spending more on technology than the CIO. That spend needs to carry significant responsibility to ensure management of technical debt, including adherence to quality standards, governance, standardisation and re-use, decommissioning legacy applications etc

6. Delivery governance – with the CMO increasingly affecting digital spend and with the supplier eco-system increasingly fragmented into multiple agencies, SaaS vendors, SIs, analytics boutiques and others, delivery governance is becoming extremely challenging. Contrary to popular believe an Agile delivery approach requires strong governance and control, particularly when many third parties are involved. Lack of control of large scale digital technology programs will no doubt see many more major failed mega-programs (see “BBC abandons £100m digital project”)

7. Contracting and commercial challenges – in addition, simply contracting for a digital program can be a headache. Most procurement departments simply have no experience in contracting with a range of SaaS providers, each with different policies and standards regarding up-time, access to data, portability of data etc. Se Ray Wang – “What CFO’s need to know about SaaS and Cloud Integration”.

8. Cyber threats – quite simply there is not a single board today who should not be taking cyber risks seriously. In their Global Risks 2014 report, the World Economic Forum stated “The world may be only one disruptive technology away from attackers gaining a runaway advantage, meaning the Internet would cease to be a trusted medium for communication or commerce”

9. Cannibalisation and channel conflict – by its very nature a digital transformation, disrupts an analogue business model and ways of working. This often causes heated conflict and debate – should we disintermediate our channel partners and sell direct? Should we charge the same price for the digital version? How aggressively do we try and replace today’s cash cow?

10. Skills Shortage – digital has crept into almost every aspect of life with astonishing speed, but knowledge and skills are yet to catch up. The European Commission estimate that in 2015 the EU will face a skills shortage of 900,000 digital professionals. This skills shortage has manifested itself in almost every digital program I have worked on. Success with digital requires a broad mixture of skills from right-brained creative to left-brained technical and analytical. Skills shortages can appear in a broad range of roles from programmers to data scientists to digital tax and legal specialists.

The list above represents just 10 of the most common challenges that I see in digital transformation programs. If you think of others please do let me know! 

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