Key to Digital Transformation Success: Executive Sponsorship is 80% of Success

In this first installment of Digital Transformation Strategy: The Essential Guide to Enterprise Success, I’d like to talk about Digital Transformation Strategy I: Clear Vision and Strong Executive Commitment.

Digital Transformation (DX) starts with an executive decision

One day at a management meeting with key executives, the conversation went something like this

“Mr. Kim, shouldn’t we start doing DX, which is all the rage in the industry right now, for the future? I hear that some of our competitors are starting to do so, so Mr. Kim, please prepare a plan and report back to me on what we should do.”

“Mr. Kim, it’s clear that DX is a hot topic in the industry. We’re seeing real-world success stories in many areas, but we don’t know exactly how to get started, so instead of trying to prepare internally, I think we should get some professional consulting.”

“Sure, let’s do that. However, we’re running out of time, so please hurry up and let Mr. Kim oversee it.”

Executive DX decisions and the role of the executive team

After the meeting, Mr. Kim sought out well-known consulting firms with extensive experience in DX strategy, and after hearing their proposals, he selected the most suitable firm to partner with. Over the next three to four months, the external consultants reviewed the company’s main business model, interviewed members of each part of the company, and checked various documents. They also benchmarked how the industry is doing DX and looked for suitable strategies and measures compared to existing DX practices. However, because of the limited time required by the management, we focus more on drawing conclusions in the direction of the management’s expectations rather than deep thinking from the origin.

Finally, they have something that compares favorably to the competition and looks pretty good when you look at it logically. Kim decides that the quality versus the timeframe is not a problem and makes a final report to the CEO.

DX strategy and executive sponsorship

“Mr. President, to summarize the results of the consultation, we have two goals: to innovate the business model through DX in the main business, and to solve various problems, streamline operations, and reduce costs. With these two goals in mind, we looked for possible areas that can be executed in the shortest possible time and are expected to be effective: streamlining operations of existing businesses and using big data for this purpose.

Specifically, we came up with tasks A, B, and C. For these, we can outsource, but in the medium to long term, we would like to have a dedicated organization within the company to build internal capabilities. For DX, technical understanding of AI, big data, and cloud is very important in the future. I would like to start with DX using data from the perspective of starting small, so I would like to create a data analysis organization first.”

“Mr. Kim, I understand, speed is important. Let’s get the organization up and running and start doing DX. I want the other executives to help Kim and lead the charge to change the company.”

Of course, this is a hypothetical scenario, but in many cases, the decision to implement DX is often driven from the executive team down to the line of business, rather than from the line of business up to the executive team. In that sense, this is a very positive start. But will this new organization be able to do DX well? The bottom line is that, unfortunately, they most likely won’t.

Structure and roles in the DX organization

Non-IT companies often create a small, dedicated organization to accelerate DX execution. This organization may be part of a traditional IT department, or it may be part of a strategy or business support function. And they need new capabilities that the company doesn’t have, whether it’s data analytics or cloud.

So a lot of times, you’re building an organization by hiring new people from the outside. This is the preferred method for many companies. The new organization starts out with the expectation that it will bring new innovation to the company, and it’s tasked with delivering significant results that reflect the high expectations of the executive team. It’s a natural progression up to this point, but then comes the challenge.

Implementing DX is not about one party fulfilling the requirements of the other, as in a typical SI (system integration) project, but rather about the business and DX organizations communicating with each other based on their respective roles, identifying problems, and figuring out how to solve them with DX. Imagine solving a problem in an existing business unit through big data analysis. The DX organization creates a plan through analysis, but the on-site organization applies it to the business.

In other words, the DX organization is not a department that takes the results of analytics and puts them into practice, so rather than creating results on its own, it should be in close consultation with the business unit, creating the results that the business unit needs and helping the business unit to achieve results. However, the reality is often the opposite.

DX organizations are often under pressure to produce tangible results quickly, and in the rush to move quickly, they often find themselves pursuing topics that are not relevant to the needs of the business without sufficient collaboration with the business. As a result, they get off to a very bad start. This is more likely to happen in large organizations. This is because they have many departments and complex interests.

Collaborate with on-the-ground organizations for DX success

As we all know, working with other departments can be a challenge. In the case of big data, we have to re-analyze the data we already have and create new modeling results using the latest technology. It’s a new organization, and the results are pretty good because the experts were brought in from outside. From the DX organization’s point of view, the results were impactful.

DX organization. But unfortunately, because there is no foundation for collaboration, there is no real organization that wants to use it. So it doesn’t really get utilized. From an executive perspective, it’s a lost cause. What happens to DX organizations? Unfortunately, it’s not long before they are dismantled. Experts who feel they’re not making a difference resign and leave the organization.

While a lack of cross-functional collaboration is part of the reason for this outcome, it’s more fundamentally a management issue. It’s a lack of understanding of the nature of DX and how to execute it. The most important gateway to the success of DX is to define the immediate and pressing problems within the company, and to make sure that they can be solved through DX – to be clear about what the problem is, why it needs to be solved, and what it will accomplish.

And then the executive team needs to be an active sponsor to help drive it forward. When that happens, it’s hard for line-of-business organizations to not be on board with the idea that DX is going to solve their biggest pain points. And then there’s the executive team behind it.

The importance of executive leadership: alignment with the workforce

In any organization, large or small, there’s a natural reaction to the introduction of unconventional practices. It’s almost instinctive. The so-called experts brought in from the outside are viewed with wariness. Executives can’t afford to let this happen. If you want DX to take root in your company, you need to not only create an organization, but you need to be a strong sponsor and provide constant attention and support so that it fits in well with the existing organization.

Executives need to take the initiative to show interest in DX findings and actively work together to figure out how to utilize and scale them. They need to continue to provide the same strong support as they did when the DX organization was first created. This will increase your chances of success.

Executive sponsorship to drive DX success

It’s not an exaggeration to say that eight percent of DX success comes down to strong executive sponsorship. Not only do you need to create a dedicated organization to execute, but you also need to exert direct and indirect influence to ensure that they are well integrated into the existing organization. If you don’t think you can do that, you’re better off not creating an organization and just adopting DX tools. Once again, it’s important to remember that the key to DX success is the executive team, not the practitioners. DX doesn’t happen in a vacuum, so it’s important to lower expectations, celebrate small wins, and be patient. Doing so will ensure a successful start to your DX journey.