After reading this article, you will definitely not become an IT specialist, but you are guaranteed to gain the knowledge necessary for a modern specialist in the new economy.
Our goal is to clear the fog and reduce resistance on your path to digitalizing your business, and ideally, to get you interested in this direction. Therefore, we will try to convey information in simple words.
In our materials, we take as a basis the terminology from RANEPA, the works of classics and contemporaries of management, as well as our own experience.
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Introduction
First, you need to understand what digital transformation (DX) is and how it relates to the digital economy. What kind of animal is this so scary and incomprehensible? How is it different from automation and digitalization?
The vast majority of people, both representatives of production and business, and IT employees in production, do not distinguish between these concepts. Therefore, one of the most frequently asked questions is: how does automation differ from digitalization, and digitalization from digital transformation?
In general, in the field of digital implementation, it is extremely important to remember one thing: it is not about technology (they are just a tool), but about people and processes, about the ability to sit down and come to an agreement.
Let's look at the "classic" definition of automation. This is an activity aimed at reducing the amount and complexity of human manual labor in everyday activities.
That is, automation itself is not always associated with IT. And in the context of our topic, automation is the digitization and integration of IT technologies into existing processes, their acceleration by minimizing manual labor and the initial establishment of process management.
The key effect here is speeding up processes and reducing the risk of errors due to the human factor and people’s labor costs (their unloading for other tasks).
Let's give some examples:
implementation of “classic” ERP for resource management and planning or electronic document management systems, which copy existing “paper-based” practices and often complicate the process;
robotization and automation of routine operations (for example, RPA, which we will consider a little later);
automation of report creation, for example, using 1C.
Digitalization is the introduction of digital technologies and systems, which allows you to rebuild business processes according to the principles of lean production and make them more efficient and flexible, starting to work with data and making decisions based on it. This process reduces internal costs and improves efficiency, allowing you to gain competitive advantage within your existing business model.
That is, the key effect here is reducing costs when executing processes, improving them and creating “flexibility”, improving the quality of management decisions.
Examples:
implementation of an enterprise management system with a data warehouse, complex integration between IT systems, optimization of business processes and the use of end-to-end analytics and cross-functional indicators for decision making;
transition to cloud technologies and cloud services for organizing work, use of SaaS, PaaS, IaaS;
the use of blockchain-based contracts to eliminate legal disputes between counterparties on complex projects;
implementation of tools for remote work (Kanban boards, video communication services, common spaces for exchanging ideas and working on them);
analytical dashboards.
Many classical automation experts will not agree with us and will start a discussion that digitalization is the transfer of data into the format of ones and zeros, that all these problems can be solved by automation, and, of course, they will be right... in the ideal world of a spherical horse in a vacuum.
We have a different opinion. We have seen many automation projects, and they often amounted to nothing more than transferring processes to IT systems. Meanwhile, the work became more and more, but the processes did not change radically.
In addition, digitalization is not always accompanied by automation. For example, the introduction of cloud tools for working with documents does not eliminate manual labor and does not automate processes. However, digital technologies are emerging in the work process, which reduces costs and removes the restrictions associated with the need to be in the office at a work computer. Now you can work anywhere and not wait for the “important boss” to return from a business trip.
Another example is using a board in Trello, which also does not automate anything by default, but allows you to rebuild your workflow, work more efficiently with information, and be freer to work on any device with Internet access. At the same time, productivity sometimes increases by 40–50%.
Finally, I would like to share the opinion of Peter Drucker, who in his book “Challenges of the 21st Century” gave a very good definition of the evolution of the term IT (information technology): previously there was an emphasis on T-technologies, since they were our limiting factor, and the whole point came down to their development and implementation, as this provided benefits; Now the emphasis is shifting towards I - information, since we need to learn to process it at lower costs, systematize, analyze and make decisions based on it.
So, automation often consists precisely in the introduction of technology, and digitalization is in working with information.
Perhaps now the difference between automation and digitalization should be clearer. But what about the term “digital transformation”?
Here everything is somewhat more complicated, and there are even more disputes, quarrels and broken copies.
By turning to open sources, you can find a lot of definitions of the term “digital transformation”:
“Achieving operational efficiency and agility using digital technologies” (Forrester Research).
“A business model that creates value and generates revenue” (Gartner)
“Exponential growth of connections” (Deloitte)
“Attracting customers at every touch point” (Altimeter Group)
At the same time, for most IT specialists, the main part is the first part - digital technology. For businesses and owners, the emphasis is on the word “transformation”, which is necessary for the business to develop.
Over time, more and more interpretations of this popular term appear and there is no single exact opinion.
Let's now try to derive a complex definition for ourselves:
digital transformation is a global restructuring of business and management systems, processes using the results of digitalization to increase commercial potential and profit growth. The main “effects” of digital transformation:
multiple reduction in information processing costs (receipt, transmission, processing, analytics);
change in organizational structure, functions, culture;
creation of new products and business models;
active use of end-to-end cross-analytics for decision making;
“direct” digital channels of communication with clients;
development and testing of new products based on data from hypothesis research.
That is, the key effect here is the creation of new personalized products for the “target audience” in combination with a multiple reduction in internal costs.
Examples:
exclusion of intermediate stages from the “manufacturer-consumer” chain; direct communication and delivery directly to the buyer (for example, through the use of Yandex Taxi, Wildberries, etc. platforms);
bringing a new product or service to market (for example, custom-made parts) without the need for complex approvals;
transition to a new business model (for example, instead of selling chemical fertilizers, switching to payment for the area processed and the results achieved, or a subscription model).
Digital transformation, first of all, is done by people and for people; its success depends mainly on how well the needs of clients (or citizens, if the public sector) are understood and thought out, how prepared and well organized the teams involved in the transformation are.
Understanding customer needs is not as simple and obvious as it seems.
The term “digital transformation” is applicable in the context of companies or industries, which in turn are parts of the digital economy.
There are also many definitions for the digital economy:
“Economic activities in which the key production factor is digital data, the processing of large volumes and the use of analysis results of which, compared with traditional forms of management, can significantly increase the efficiency of various types of production, technologies, equipment, storage, sales, delivery of goods and services” (RANEPA).
“An economy that operates primarily through digital technologies, especially electronic transactions carried out using the Internet” (Oxford Dictionary).
“Digital-enabled markets that facilitate trade in goods and services through online e-commerce” (Organization for Economic Co-operation and Development).
“An economy that can provide high-quality ICT infrastructure and harness the power of ICT for the benefit of consumers, businesses and governments” (Economist Research Center and IBM).
“Digital manufacturing, publishing, media production and programming” (UK Government).
“Economic activities in which the key production factor is digital data, the processing of large volumes and the use of analysis results of which, compared with traditional forms of management, can significantly increase the efficiency of various types of production, technologies, equipment, storage, sales, delivery of goods and services” (Strategy for the development of the information society in the Russian Federation for 2017 - 2030, Decree of the President of the Russian Federation dated May 9, 2017 No. 203).
“Economic activity based on digital processes, models, technologies, digital goods (services), incl. produced by electronic business” (Eurasian Economic Union).
“An economic system based on the use of digital technologies, which leads to fundamental changes in the economic environment and economic activities” (People's Republic of China).
The digital economy is a new stage in the development of the world economy, when technological changes optimize entire industries and areas of social life. It is characterized by:
the emergence of digital platforms in the economy;
the emergence of platform solutions in the social sphere and in public administration;
a new quality of interaction in a transformed industry or social sphere;
a sharp reduction in transaction costs due to automated information management systems;
the emergence of new products integrated into new processes.
Benefits from DT
Now let's answer the question “why?”, i.e. what benefits can we get and what problems can we solve with the help of digitalization.
1. Increase efficiency and productivity
How: reducing operational losses by simplifying and optimizing operational tasks and processes, increasing labor productivity (including eliminating duplication of functions), eliminating intermediaries (effective formation of added value), reducing transaction costs for obtaining information and services, simplifying the organizational structure.
Example: It's estimated that every year, companies with around 1,000 employees lose an average of $1 million just from duplicating previously done work.
2. Increasing the speed of funds turnover
How: reducing the time required to fulfill contracts (accelerating the process of purchasing your own goods, accelerating and simplifying document flow, procurement processes, deliveries), introducing new products and services to the market, introducing direct communication and reducing the time required to communicate with customers and clients.
3. Realization of employee potential
How: reducing the operational burden on repetitive and simple operations, increasing flexibility in terms of personnel, including attracting the most talented employees, including from other regions; reduction of staff turnover.
4. Improving the quality of management decisions and speed of response to changes
How: use transparent and structured data to assist analysis and assessment, speed up the acquisition and processing of information, reduce industrial risks (early detection of threats).
5. Implementation of new opportunities and diversification of income sources
How: creation of new products and services, business models, creation and development of new markets, both in understanding a new niche in the economy of the current market, and expansion into new territories.
For example, contrary to the traditional model of working with the most profitable clients, you can attract a large number of small clients.
That is, we cover that part of clients that was previously unprofitable to include in our work because the costs of supporting them were too high. In total, they can bring in even more money than the “main” clients.
Let me give you an example from the consulting industry. A good consultant will be expensive: from 5 to 20 thousand rubles per hour, depending on the industry, direction, qualifications and type of client (legal entity or individual).
As a result, we get 2 key restrictions:
for a consultant as an entrepreneur: his income is limited by his time;
for clients: to get the effect, you need to hire an expensive specialist, and not everyone can afford this.
What if you created a digital advisor? Mathematically describe experience and best practices, draw connections and simulate possible scenarios, then form a neural network and gradually develop it through deep learning (more on this in the next part). Then the system, based on the input data, will generate recommendations.
After all, this is essentially how consultants work. Only a few of them know how to combine different tools and deviate from the rules to achieve results. And this can also be taught to the system.
How much do you think it will cost to access such a system? Even if it’s 2,000 rubles a month, it’s still a multiple reduction in the entry threshold.
As a result we get:
a consultant can multiply his cash income;
the client receives a modern instrument for reasonable money. That is, now he can try out the service, and, if he likes it, use it as a working tool, and if not, then it is still much cheaper than a live consultant.
This example shows how a classic consultant service is being transformed into a digital product that benefits everyone: the consultant reaches more clients and the clients themselves reduce their costs.
And it turns out that one company will be able to serve, say, not five clients for 1 million rubles per month, but five hundred for 20 million rubles per month at the same costs. And this is one of the key areas of development of the digital economy.
Main types of Digital
Boston Consulting Group presented a matrix of what competencies companies need to become digital. There are six directions in this matrix with the Digital prefix:
1. Digital business
This is a strategic function, which was previously handled by the development director, but now the emphasis is moving to digital and 3 more roles have appeared:
Head of Digital Transformation;
digital venture investment strategist;
head of the digital laboratory.
The Chief Digital Transformation Officer (CDTO) is responsible for changing the company's business model and then moving a number of functions to a digital environment. As a result of CDTO activities, operating losses should decrease and service conversion should increase.
A digital venture strategist is responsible for finding new business niches. Accordingly, his work is assessed by the quality of investments in these niches.
The Digital Lab Leader creates promising digital products and works closely with the Digital Venture Strategist. Indicators of their work are the number and success of pilot projects launched.
2. Digital Marketing
Here content is generated that allows you to manage the brand and end-to-end communication through all digital channels (messengers, social networks, email, etc.). Marketing constantly interacts with users and collects feedback, studying their preferences.
3. Digital products
They differ from all others in that they interact with the client through a virtual interface. In this case, communication between the user and the seller occurs directly, through digital channels, and the processes associated with the provision of services use modern tools - digital platforms, chat bots, machine learning, big data.
Therefore, the roles of UX/UI designers and product managers are very important here. The former make the product as convenient and friendly to use as possible. The latter know the value of the product and ensure its implementation, promotion and profitability in the market.
4. Digital analytics
It is the collection and systematization of all data from all channels and sources, the same Big Data (more details a little later) that everyone is talking about. Data scientists are working on this - people who are able to build mathematical models that can predict user behavior, forecast the state of the market and the place of the product in it, and form algorithms for the further development of the product.
5. Digital manufacturing (industry 4.0)
The point is that technologies, for example, the Internet of Things, sensors, robotization, artificial intelligence, are beginning to be used in production, and some decisions on the assembly line are no longer made by humans, but by machines. The design of such production initially takes place in the digital environment along with the creation of digital twins
6. BCG called the latest direction “New ways of working” - new ways of working.
This area has to do with how we work and think at work. Here we are talking about Agile methodologies, which are very popular now: Scrum, Holocracy.
Digitalization without Agile is not feasible; no one has done this and no one will do it. Therefore, if you are going to be involved in digitalization, know that Agile will certainly come with digitalization in your organization. If you are against Agile, then you will have to come up with something new or still overcome yourself.
New ways of thinking mean a new philosophy of project management, a move away from directive management in order to unleash the creative potential of the team.
This is where the Scrum Master comes to the aid of the business, whose task is to teach people to live in this new paradigm. This is possible only when a new thinking mechanism appears, when people stop thinking at the level of technical specifications, papers, strategies and start thinking at the level of customer experience, prototyping, hypotheses and their testing. This is a change in thinking, and here the work of managers falls on the plane of managing staff resistance.
The Digital Director in this role already acts as a psychologist - he negotiates, reconciles, and looks for the best solutions.
If you are engaged in digital transformation within the company, then you will have to choose a direction: engage in analytics, put things in order in marketing, or engage in some venture projects, or do something interesting in products, or all together. And then it will become obvious that all this requires significant resources and competencies.
Preparing for the implementation of digital transformation and digitalization
Conscious digital transformation involves the following three steps:
Assessment of the current level of development of the subject (current digital maturity)
Determining the desired level of development (expected digital maturity)
Planning actions to achieve the desired level of development
That is, digital transformation is the achievement of a level of digital maturity that corresponds to both the company’s goals and its external environment (taking into account further development).
For businesses, digital maturity is largely about the ability to offer the best value proposition to customers.
For the state, this is the ability to effectively regulate, perform functions and provide public services.
For social initiatives, this is the ability to unite into communities and solve social issues and problems in a compromise.
During the transformation process, there is always a risk that the project will be implemented formally and will not lead to a qualitative change. It is necessary to understand how the processes and results of digital transformation will be assessed. Without this, any changes can be attributed to digitalization, and any actions can be considered sufficient. It is important to describe in advance the criteria for assessing the effectiveness of planned actions for the digital transformation of the organization and ensure the collection, monitoring and analysis of data on the progress of digital transformation projects.
6 areas for assessing digital maturity:
1. Infrastructure and tools . It is important that the institution has access to modern digital tools for processing and storing information, and has the resource capabilities necessary to solve the problems of digital transformation.
2. Processes and products . In this direction, existing processes of management and organization of professional activities and communication are analyzed. In addition, the readiness of employees to change these processes and improve them in accordance with new tasks is assessed.
3. Data . The methods of storing information, the speed of access to it, the possibility of its mobile processing, and the security of storage are assessed. Existing technologies make it possible to centrally store large volumes of information, give access to it to certain categories of users through a system of rights, allow them to work with information on different platforms, control its changes and other operations.
4. Models . The methods of transmitting information adopted in the organization are assessed.
5. Personnel . Here, the competencies of employees of an organization aimed at working in the conditions of digital transformation are subject to assessment: readiness to master new technologies and tools, transfer acquired knowledge to colleagues, etc.
6. Culture . The level of organizational culture, employees’ readiness to implement innovations, generate new ideas, work with large amounts of information, and new technologies are assessed.
Below are the criteria for assessing digital maturity (based on the RANEPA methodology):
Also, in practice, we use additional assessment factors:
industry and company performance compared to competitors;
use of modern technologies, work with data;
work with operational processes, including their optimization;
approach to project management and implementation of changes, creation of products;
work with personnel and the current level of organizational development.
Actually, our entire model is reflected in our systems approach
With any chosen approach to assessing digital maturity, it is necessary to focus on the target state of the organization, specified by the requirements of digital transformation.
At the level of process management, this means: the ability to make algorithmic decisions, automate the execution of decisions, the presence of an established system for analyzing performance results, the rejection of unnecessary processes, and the creation of a digital platform for the organization. At the project management level, it is necessary to strive for the constant creation of new products that meet the requirements of the digital economy, work in project teams, and interaction based on flexible management methodologies. At the level of innovation, the organization should strive to develop innovative tools for managing and solving problems of citizens, introducing new technologies, and increasing the level of competencies of its employees.
Main stages on the path of transformation
We have decided on the concepts, goals of transformational changes, types of Digital, and now we need to understand what path lies ahead, what are the main stages?
To begin with, let us remember that digital transformation is the final step in the comprehensive transformation of an organization. This means that it is preceded by several more stages. Namely:
1. Automation
2. Digitalization and reengineering of business processes
3. Digital transformation
In this case, the first and second stages can change places.
Let's take a closer look at these stages.
1. Automation, transfer of processes to IT.
For example, electronic document management, which copies existing paper practices and only complicates the work. Without optimization it only became more difficult, it got worse (those of you who worked in large corporations have probably encountered SAP and 1C systems).
Pros:
New ways of doing things
Speeding up operations
Minimizing errors due to human factor
Changes in process control
Process control may appear
The work of loosely connected divisions and departments is integrated.
2. Digitalization.
The goal here is to improve the process, including using IT; process optimization technologies are actively used. First, reengineering techniques are used to build optimal processes, and then they are transferred to “digital”.
Pros:
Organizational changes: structure, job responsibilities (appearance, disappearance, consolidation, separation of organizational units)
Simplification of processes, partial transfer to automatic execution
Multiple acceleration of processes
3. Digital transformation.
Over the past few years, existing business models have been changed or new ones introduced. As a result, new products and services began to appear, which quickly spread and conquered markets. DT, unlike automation, does not focus on internal processes, but allows the use of new technologies for business and process changes.
Pros:
Transformational effect for the activities of the parties involved (market participants, authorities at various levels)
Involving IT companies, the scientific community, development institutions, civil society, and foundations.
Radically different ways for participants to interact
The resulting changes occur in many components:
activity model
structure
regulators
making decisions
processes
interaction
technology and data
You can also find another interesting interpretation of the company’s digital path:
1. Business as usual (business as usual)
Organizations work from a traditional perspective: customers, processes, metrics, business models, technologies, believing that all this will not lose relevance in the digital era.
2. Present and active (present and active)
Experimentation is underway, digital literacy and creativity are increasing, sometimes recklessly, in an effort to improve customer touchpoints and business processes across the organization.
3. Formalized (formalized)
Experiments are carried out systematically, more and more promising directions are being developed, initiatives are becoming bolder, and as a result, those who support new resources and technologies appear.
4. Strategic
Individual groups recognize the strength in collaboration for research and work. Overall findings contribute to new strategic plans for digital transformation containing ownership, results and investments.
5. Converged
The Digital Transformation team creates a strategy and operating model for management based on business and customer-centric goals. The organization's new infrastructure takes shape in the form of roles, knowledge, models, business processes and systems to support the transformation.
6. Innovative and adaptive (innovative and adaptive)
Digital transformation becomes an integral part of business when leaders and strategists accept the inevitability of constant change. The new ecosystem was created to identify and test existing technologies and market trends in pilot projects with subsequent scaling.
Basic DT technologies
It's time to discuss what specific technologies we use as part of digital transformation:
You can read a full description of digital technologies using the following links:
1. Internet of Things (IoT - Internet of Things), Industrial Internet of Things (IIoT - Industry Internet of Things).
2. Digital objects, digital twins - a digital copy of a physical object or process that helps optimize business efficiency. The concept of the “digital twin” is part of the Fourth Industrial Revolution and is designed to help businesses detect physical problems faster, predict their outcomes more accurately, and produce better products. Digital profile is a set of digital records about individuals and legal entities contained in government information systems, the provision of which is ensured using technological infrastructure that allows the use of data with consent provided in digital form.
Their use will make it possible to predict the properties of new products, provide qualified support for technically complex objects, analyze and optimize business processes using the model.
3. 3D printing (new quality of materials and designs)
4. Cloud computing (available calculations anywhere).
5. Virtual (VR) and alternative (AR) reality (new ways of working and designing)
6. Digital platforms - a system of algorithmic relationships between market participants, united by a single information environment, leading to a reduction in transaction costs through the use of a package of digital technologies and changes in the division of labor system.
Digital trading platforms reduce transaction costs and increase transaction speed, helping new products reach markets faster. Therefore, the goods and services offered through the platforms will be more modern, cheaper and more accessible.
7. Artificial intelligence (AI) (information processing, making better decisions)
8. Blockchain is a distributed registry designed to confirm the authenticity of data if we do not trust the database administrator.
9. Big data (so much data that without a machine a person can no longer analyze it, and a person’s life is not enough to process it manually).
Briefly about the advantages that DH technologies provide:
Availability of information everywhere and always
Reduced costs for obtaining and processing data - reduced transaction costs
Increased speed of data processing and useful information
Production of more complex products and their mass customization
Acceleration of time to market for products, acceleration of production cycles
Shifting focus and attention to the design stage
Organizational changes
The introduction of DH technologies, as well as the optimization of business processes, will lead to organizational changes.
Or more precisely, org. changes are a mandatory element on the path of transformation; without this, a lot will fall on “paper”, but in reality it will not work (we know, we’ve been there).
You can also read in detail about the implementation of changes and the main tools in our article Implementation of changes , as well as Organizational structures
The main changes will be:
1. Transition to flatter management models and avoidance of complex hierarchical structures.
Here we will meet active resistance for “political” reasons, and we may have to “ugly” say goodbye to some employees.
2. Revision of LNA and legal acts, structure of departments, number of employees and complexity of procedures.
This does not mean cutting staff, it means reassigning them to improve efficiency.
For example, Toyota has never cut staff; people must be confident in the future; this is the only way they will be loyal to the company and sincerely invest. The company directed the released potential either to new projects or used it in creative work to find new opportunities for growth.
3. The emergence of new roles, functions and the need for new competencies and skills.
From our experience, we can say that even among young people, not everyone has digital skills, and only a few have the required level.
4. Change of org. culture - new approaches to personnel management, a new value system, moving away from management from a position of force and punishment, fines.
All transformational changes will require more qualified personnel, and they are highly mobile and will not tolerate the “good old whip”.
Here you will have to show a combination of gentleness and discipline, the ability to fairly punish and manage employees depending on their maturity.
As you can see, the changes are dramatic, and not everyone will be ready for these changes. You will encounter very tangible resistance to change - political, technical and cultural.
The necessary conditions
According to expert estimates, the best opportunities for implementing digitalization and digital transformation are companies that:
They are actively working with external innovations, launching more pilots, i.e. They are not afraid to take risks and gain experience, even negative ones.
They have and actively use their own competencies in the field of digitalization. And this experience can only be gained through pilots and mistakes.
They use both financial and non-financial motivation. To do this, you must understand your employees well and move away from “heavy” directive management. In addition, financial motivation alone is very ineffective and has a short-term effect.
Tolerant of our mistakes. And this applies not only to digital projects. In general, the path of mistakes is often very effective, if, of course, you analyze the reasons for failures.
Middle management is involved in the change process. A huge number of projects are broken down precisely at the level of middle and technical management. As a rule, these people are loaded with operational tasks to the extreme.
At least 30% of people involved in innovation have undergone special training.
In fact, all these conditions are important not only for DT, but are also the key to effective work in general in any company.
Approaches to transformation
There are several organizational models for conducting DT:
The first model is informal.
For some reason, someone in the company started working on Digital. For example, the innovation or internet marketing department started doing this themselves, and did it successfully.
The downside is that the model does not cover the entire organization, but it is a starting point for many companies.
The second stage of development - the informal model becomes centralized.
The head of the organization or the board of directors understands that digital transformation in general is very important for the company. To do this, they hire a CDO (director of digitalization), allocate a large division to him, empower him, and he begins the digitalization of the company.
The vast majority of companies in Russia are at this stage - there is a Digital block or directorate that is engaged in the digital transformation of the entire company.
The advantage is that you can coordinate the movement and work of the entire organization.
The downside is speed. The larger the company, the larger the Digital division will be, the more communications it must conduct within the company in order to launch a project. In general, this model begins to break up over time into several small Digital blocks.
This is how the next model appears – distributed.
Each division has its own small Digital office. Why is this happening? As soon as an office and a digital director appear, the company is automatically divided into two parts: innovative and the so-called Legacy (old company).
Of course, no one wants to be in an old company, because old companies usually die, everyone wants to be in an innovative one. But it’s impossible for everyone to move to the innovation room, because there is only one Digital Director, and what to do with other directors?
In this case, often Directors of Digital are cut into pieces and embedded into existing departments so that these small offices begin to transform these departments from the inside. Then each division gets its own small Digital director, and the big Digital director leaves the company because he becomes unnecessary. And everyone begins to develop digital skills from within.
The plus is the speed and how quickly changes occur. The small or medium business division launches its Digital, and within a year and a half there are cool products.
The downside is the duplication of costs at the level of the SEO company and official directors. Often such teams start to push each other, they are not very cost effective for the entire organization, they are constantly reinventing wheels, and there is something to optimize.
Here comes the fourth stage of evolution in DH control - the hybrid model.
It lies in the fact that all these small Digital offices need some kind of coordination center, and this center is created by a new level of management over these small offices. His task is to build uniform rules of work, development, and come up with certain processes so that these offices will already use his developments. It becomes a methodological center.
To give an analogy, Google is developing its own “marketplace”. Developers do not use or develop applications from scratch, they use many proprietary ready-made applications from Google. That is, if you want to use maps in your application, then you must take maps from Google.
You must be aware of what level of development your organization is at. If you have a centralized organizational environment with a large digital block, then obviously there will be a problem with speed. If you have a distributed environment, there will be a problem with duplication and unnecessary costs for developing your products. Always understand where you are so you can move in the right direction.
Typical team structure
Who is needed if we decide on central heating?
Let’s make a reservation in advance that we are not talking about the staffing structure, but about roles in the organization. A lot depends on the size of the company, the chosen strategy and approaches.
CDTO (Chief Digital Transformation Officer) is a key role in the digital transformation team. This is the leader and chief ideologist who chooses goals and direction, agrees on the budget and manages the implementation of the transformation, coordinates all projects, interacts with external parties, and inspires his team.
CA (Chief Architect). Responsible for the practical implementation of transformation in the form of connecting all layers of the company's architecture (business processes, software applications, data storage, exchange interfaces, etc.). Provides system variability to build a digitalization platform. It is undesirable for one person to combine the roles of chief architect and project manager, since their functions and responsibilities within the project are very different.
CDO (Chief Data Officer, data manager). Responsible for the timely provision of the necessary data for analytics, coordinates their collection, storage and processing, and forms a data processing unit. In the public sector, the CDO is also responsible for the integration and consolidation of data from different bodies and departments.
CTO (Chief Transformation Officer, head of digital design and processes). Responsible for implementing a process approach and designing new digital services, studying processes and customer needs.
In addition, it is recommended to introduce roles such as:
lawyer (monitors changes, innovations and nuances of legislation, primarily in the field of intellectual law and data rights);
specialist in interaction with external organizations (establishes contacts with owners of data used in the project);
information security specialist (responsible for protecting data, which inevitably attracts increased interest immediately after informing the external environment).
At the same time, it is necessary to understand that the current CIO (head of IT department) is not suitable for the CDTO position. At the very least, a long-term restructuring of thinking and work priorities will be necessary. It's all about different work goals. Thus, for an IT manager, the stability of the operation of IT systems, their reliability, compliance with budgets, processes, regulations, risk reduction and cost optimization are important. And for the CDTO manager, it is important to optimize business processes and increase the efficiency of the entire business in the interests of the client, search for new opportunities to increase profitability, work with data, not hardware, maintain flexibility and take risks.
Speaking in business language, the CIO is the director of operations, and the CDTO is the director of development.
If we evaluate functionality according to Adizes’ theory, functions A (administration) and P (production) are important for CIO, and functions E (entrepreneurship) and I (communication) are important for CDTO.
Let's look at the difference between CIO and CDTO using General Electric as an example:
Jim Fowler, VP and CIO. Goal: increasing labor productivity in the company, operational efficiency of GE. Efficiency parameters: production efficiency, productivity, cost reduction. KPI: cost reduction indicator.
William Ruh, VP, CDO. Goal: ensuring the launch of software and analytical products for commercial sale, new cashflow. Efficiency parameters and KPIs: commercialization of new products, profit. Areas of responsibility: development of new technologies, innovations. KPI: number of new products and services, profit.
Basic principles of team formation:
Wide profile of digital team competencies
Due to the high complexity of digital transformation projects, we are not talking about the competencies of individual specialists, but about the competencies of project teams as a whole.
The digital team gathers “to suit the task”
The digital team is not stationary, but is assembled “to suit the task”, including cross-functionally (from different departments/departments), with the involvement of participants from the external environment
Public work of the digital team
Constant interaction with parties interested in the project (citizens, businesses, authorities), working with open source, publishing reports on their activities and plans, etc.
Constant interaction within the team
Constant interaction within the team using the Agile and LeanManagement methodology, ensuring regular, effective and timely communication, but at the same time connecting with the existing architecture.
Risks and problems
Before getting involved in this long undertaking, it is important to understand the risks.
1. Information security
This will probably be one of the biggest problems. The creation of new, integrated information systems and the handling of huge volumes of data are associated with risks of protecting data from loss and unauthorized access, and from incorrect operations. New level security systems are required. New requirements for the protection of personal data are emerging. The digital transformation of services and processes should always be based on the interests of each individual: consumer, manufacturer or just a citizen.
It turns out that, firstly, information security and the use of new technologies and capabilities are two opposite phenomena. Secondly, as soon as your data has value, there will immediately be people who want to get it. You will have to look for a compromise, analyze risks and make strong-willed decisions.
But I believe that the main value in the company is people, their communication, as well as well-functioning management functions. As experience shows, you can copy anything, but without this factor there will be no success.
2. Resistance to change
When going through the transformation process, you will inevitably encounter resistance to change, and in a favorable scenario, you will lose 10-15% of your staff with curses addressed to you.
This topic is very broad, but it is worth highlighting three main reasons for resistance to change:
technical reasons - people don’t know what it is, we didn’t talk to them, they don’t know
political – redistribution of spheres of influence, changes in powers and responsibilities. You will step on many people's throats
cultural is a very difficult reason to work with. People are used to working in a certain way, and it will take a long time and persistently to show them that it is possible differently and more efficiently.
3. Long-term investments
In a good situation, digital transformation takes 2.5-3 years. This is if you do everything correctly, you have a working management model and changes are introduced both from above and from below. At the same time, we understand that managers change on average every 1.5-3 years. Will there be a situation where the new boss will come and say: “Misha, this is crap, let’s start over again.”
4. Process optimization
You can follow the classic path, first automate what you have, then reengineer the processes. However, I believe that it is inappropriate to carry out automation without prior optimization. You will waste a lot of resources and time. And at a certain point you will create a very heavy and clumsy system. Optimization is the most important step to move from manual to automated.
5. Data structure
Peter Drucker in his work “Challenges of the 21st Century” gave a very good example. If earlier in IT the emphasis was on T - technologies (computers, communication lines, etc.), now the emphasis is shifting to I - information.
If you cannot structure the data and transform it into useful information, then everything else is meaningless. Instead of help for making decisions, you will receive a false lead. And you will only ask yourself the question in surprise: “Well, how can this be, I do everything according to the rules?!”
Now there is a class of very expensive specialists - data scientists, but as one person said - 90% of data scientists are in fact Satanists.
The one who learns to transform information arrays into useful solutions will win.
6. Employee competencies
This problem is somewhat similar to the problem of resistance to change. But it differs in that often people unknowingly slow down the whole process, not because they don’t want to, but because they don’t know how. This can be solved by working with motivation and training.
But those who are ready to learn on their own, outside of work and at their own expense, are few.
New digital technologies require a new level of knowledge and competencies both from the people who will implement these technologies and from those who will use them. And believe me, even among the younger generation there are not many people who can meet all the necessary requirements for working with new tools and in new realities.
Large-scale measures are required for training and retraining, building motivation, and overcoming resistance to innovation.
First of all, the changes will affect the employees of transformed organizations. Not everyone will be ready for innovation; it depends on education, experience, and personal qualities. There will definitely be those who are sensitive to changes and technological innovations.
7. Costs.
Digital transformation is now a very expensive proposition. There must be money for this.
When you invest a certain amount, it either works out or it's a risk payment. No one can guarantee success. But you can initially learn how to use free services. This will help reduce the cost of experiments and develop competencies in the team.
According to research, only 20% of changes are implemented successfully. The rest fail for various reasons, including due to their redundancy. If 250 changes are made per person per year, you can hardly count on a positive result.
In Russia, there is a significant digital divide, lagging local infrastructure, and poor quality of data collected locally. This situation is largely caused by the gap in funding for information projects at different levels - federal, regional and municipal. The digital economy must create a single economic space and provide equal rights to all citizens or companies, regardless of their location.
As a result, it should be noted that the most common causes of failure are:
Unavailability of used IT systems
Data quality and availability
Poor change management
Poor project management
We have also prepared a separate article on this topic: 7 reasons for most problems on the path to digitalization and digital transformation and how to eliminate them
Conclusions
1. If we are talking about automation projects, then the main goal is to speed up processes and reduce the share of manual labor to relieve people and reduce the likelihood of human errors.
2. If we are talking about digitalization projects, then the main goal is to increase flexibility, quality of management (decisions based on or taking into account data), and reduce the resource intensity of processes.
3. If we are talking about digital transformation, then the main goal is to search for new sources of profit, change / modernization (creating customized products or services for the user, as well as supplementing existing ones with new technologies) or creating completely new products and services, business models, changing organizational structure. For example, Walmart already makes more money from analyzing big data about customers and advertising in stores than from selling goods.
4. The introduction of digital technologies is one of the tasks of digitalization and digital transformation. Yes, it is possible and necessary to reduce costs and set priorities, but without technology it will not work.
5. Digital transformation is only a tool. The overall quality of management is more important, and you cannot rely only on numbers.
6. You need highly qualified employees. This means that directive management and aggressive management will no longer be applicable. Such employees are highly mobile and will not tolerate it for long. If management is incorrect, you will constantly recruit new personnel, train them, and so on.
7. According to the Gartner chart, digital technologies are near the peak of inflated expectations. Disappointment will follow, and only after we learn to use all these tools will there be any benefit.
8. There are no people with a full range of competencies in the labor market. Each member of the digital transformation team may have one or two strengths that can be useful and need to be developed.
9. Basic digital literacy increases the likelihood of digital transformation success.
When implementing digital projects, a large number of users are affected, and their level of basic IT training varies greatly. Accumulated statistics have shown that improving basic PC skills significantly increases the likelihood of successful implementation of digital solutions in general.
Testing of approximately 2,500 users affected by changes in one project showed the desirability of computer skills training for 850 of them. The training was conducted over a 32-hour program and became one of the factors for overall success in implementing a comprehensive transformation.
10. Basic competencies for all are the ability to solve semi-structured problems, systematic and critical thinking, digital skills
11. You can do it all yourself. Select people and work according to a matrix scheme. But I don't know of a single successful experience.
Your chances of success are 20-30%, at least 10% of employees will leave, huge costs and the project period is 2.5-3 years.
We recommend finding a DH company that will communicate with people, will not be dependent on internal politics, will digitize the project, prepare proposals for optimization and necessary changes in culture, processes, necessary training programs for employees, will implement everything gradually and will be a center of competence. At the same time, he will be able to simultaneously implement lean manufacturing tools. This is the same division of labor and people who have gone through trial and error.
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