Tag: Digital Transformation

CIOs Struggle with Gap in Digital Transformation Expectations and Delivery Capabilities | Sherpas in Blue Shirts

As part of our Pinnacle Model™ methodology and benchmarking, Everest Group recently conducted a study of over 200 companies on their digital transformation readiness. The study found companies’ boards of directors typically believe digital transformation is about technology, and they typically under-estimate the cost and expect results in months, not years. Those expectations are a huge gap away from the reality challenging CIOs and senior leaders leading the digital transformation. CIOs participating in our study revealed their companies were unprepared, under-funded and under-supported as to the tools, investment and commitment required to succeed. In this blog, I’ll share how to effectively communicate to your company the requirements for digital transformation to succeed.

Why Is There a Huge Gap?

The gap between expectations and delivery capabilities is because digital transformation is fundamentally different from companies’ past experiences with transformation. The technologies are disruptive and necessitate changing the organization, talent model, mind-sets, policies, processes and procedures – basically, the entire business model. Those changes are not easy. They don’t come all at once. They’re not completely known at the outset. And they unfold over a multi-year journey.

Peter Drucker advised, “If you want something new, you have to stop doing something old.” But the depth and breadth of necessary changes and the required commitment and investment for digital transformation are complicated to explain. They are hard to understand.

The digital journey requires far more resources, support, commitment and investment than anyone wants to believe. Digital technologies also take far longer to implement than people expect. For instance, in Robotic Process Automation (RPA) technology, a company can put a robot up quickly to create process improvement; but getting significant value involves more than that. Sure, a company can automate a function. But until the executives rethink the process that the robots will perform, they cannot create a meaningful improvement or breakthrough performance.

So, it’s no wonder that the boards don’t understand the extent of what is required to successfully complete a digital transformation journey. They also don’t understand that they need to fund IT transformation at the outset so that IT can successfully support the digital transformation.

As a result, most digital transformation initiatives fail (70%, according to a 2013 McKinsey & Company study. Many participants in Everest Group’s Pinnacle study revealed that, even when they understood the journey, they could not communicate it to their board, could not get funding, could not build support for it, and thus could not drive the change necessary to get it done.

How to Communicate Digital Change Requirements to Your Company

From our Pinnacle Model study, we developed an assessment vehicle (a 30-minute questionnaire) from which your company can compare its digital readiness against the broader population and against the market leaders (the Pinnacle Enterprises™). Together with a four-hour workshop, you’ll have the tools that will allow you to identify gaps, create learnings, understand what things you could do differently to improve your company’s readiness and performance and well as build road maps that allow you to systematically mature your digital readiness.

Learn more about our digital transformation analyses

Executives that have gone through the assessment and workshop tell us it created a great tool for communicating with their board of directors and the rest of the business about the support, resources and investment necessary to allow for successful digital transformation.

It is also a supporting budgeting tool that allows you to demonstrate the value against the cost, build support for the investment required to mature digital readiness and communicate the value that the IT organization will be able to achieve or support by increasing its digital readiness.

There’s a startling fact in the 2013 McKinsey study I cited earlier: Of the “successful” 30% that didn’t report their initiatives as failures, “success” was described as either breaking even or finishing the program but not delivering the anticipated business results. Of course, no company wants to undergo the challenge, effort, and expense of transformation only to break even or remain in the same relative competitive position.

Harvard Professor John P. Kotter’s study of 100 companies that underwent transformation initiatives found more than 50% failed in the first phase (getting organizational commitment and cooperation for the initiative). The Pinnacle assessment, workshop and communication tools are very helpful in addressing these issues.

Where Most Companies Go Wrong In Digital Transformation | Sherpas in Blue Shirts

Many companies’ senior leaders and board of directors believe a company can buy digital technology, implement it and get the benefit of it in a few months. That’s an illusion. Because of the depth and breadth of change required to succeed, that belief is not realistic. The record of studies on digital transformation indicate a high failure rate, with a notable 2013 McKinsey study finding that 70% fail. That is a lot of wasted time, money and unmet expectations. In investigating why digital transformation often fail to meet expectations, I find several factors contribute to the failures. However, I believe the biggest problem is the mind-set. This is where most companies go wrong.

Read more in my blog on Forbes

85% of Banks Claim Digital Transformation as Priority, But Most Are Merely ‘Digital Washing’—Everest Group | Press Release

Banks are increasingly adopting automation, cognitive/AI, analytics and blockchain, but too many banks mistake digital projects (mostly in the front-office) for digital transformation

Everest Group reports that 85 percent of banks have digital transformation implementation as a priority for 2018, driven by the need to find efficient ways to address challenges in the industry such as cost pressures, eroding top lines, uncertainty and instability in the geopolitical environment and decreasing customer satisfaction. Unfortunately, in the rush to find digital solutions, many banks are mistaking digital projects for digital transformation.

According to Everest Group, 81 percent of banks are implementing digital projects focused primarily on their front-offices; only the remaining 19 percent are actually going for true transformation by optimizing and integrating their front-, middle- and back-office operations.

“Those 81 percent of banks who have only invested in front-end application of digital technology are engaging in what we call ‘digital washing’—claiming transformation achievements when they are in fact far, far away from true transformation,” said Manu Aggarwal, practice director at Everest Group. “True digital transformation requires connecting the dots between the front-, middle-, and back-office processes to achieve key business objectives. Moreover, it is not an isolated implementation of technology. Rather, it’s an ongoing process where changes in technology and alignment to goals need to be continuously checked.”

In examining the digital transformation strategies within the banking industry, Everest Group identified the following trends:

  • Strengthening competitive position, building market share, acquiring and retaining customers, and generating cost savings are some of the major factors for adopting digital technologies.
  • Market facing front-office processes lead the demand for adoption of digital services, mainly targeting customer experience.
  • Some of the key levers of digital adoption include Automation, cognitive computing and artificial intelligence (AI), analytics, and blockchain.
  • While the adoption for automation, AI and analytics is primarily driven by lending, retail banking, and cards and payments, most activity in blockchain is happening on the commercial banking side.

These results and other findings are explored in Everest Group’s recently published report: Banking BPO Annual Report 2018: Digital Transformation or Digital Washing: Looking Beyond the Hype. The report addresses digital washing and the key considerations for successful digital transformation. It also examines the levers of digital adoption within the banking industry, with an emphasis on automation, AI, analytics and blockchain.

***Download a complimentary 11-page abstract of the report*** (Registration required.)

How HCL Differentiates from Other Service Providers in a Digital World | Sherpas in Blue Shirts

Third-party service providers are talking a lot about digital transformation, and their strategies for rotating into digital services are well underway. HCL Technologies is quietly taking a different strategy, creating a different base of business than providers such as Cognizant, Infosys, TCS and Wipro are building. This strategy is currently rewarding HCL with higher growth and is causing HCL to be quite a different firm, standing out from its rivals.

HCL’s Strategy

I think it’s refreshing to see a service provider separating itself from the pack and taking a differentiated path. This is not the first time HCL has done this. Early on, the firm recognized the power of Remote Infrastructure Management (RIM) and was a leader in that space. It was rewarded handsomely by building a leading infrastructure practice on the back of that capability.

Now, as part of its strategy to rotate into digital, HCL is aggressively acquiring other firms – so aggressively that the firm’s revenue is just $222 million short of displacing Wipro as the third-largest software provider in India. Seeking to scale its business inorganically, HCL acquired eight companies in the past two years, including 80% of US hybrid cloud and analytics company, Actian.

HCL’s strategy is leveraging its balance sheet to acquire legacy assets. It could be legacy IT assets on the infrastructure side and legacy software on the engineering side. This is different from the way the rest of the service providers are operating, and it allows HCL to garner large contracts. There is no indication that the legacy assets the firm is buying aren’t remunerative and that these deals are not well thought through and kept in focus. But there is a trap in this strategy, which other firms before HCL fell into.

Shareholder Value and Risks

Firms that leverage a balance sheet to buy legacy assets can end up overpaying for those assets. This is a trap that EDS and CSC fell into, and they spent years digging their way out of the trap. EDS was first purchased by HP and then merged with CSC, then into DXC. So, there is a trap in HCL’s strategy, but it doesn’t necessarily mean HCL is doing bad deals. Providers using this strategy must be disciplined. So far, there is no indication that HCL has not been disciplined.

HCL’s rivals in the services marketplace are buying or building digital assets that help accelerate their rotation into a digital model. In contrast, HCL (at least in its acquisition aspect) is becoming a consolidator of legacy assets. The market absolutely has a differentiated, profitable place for a consolidator of legacy assets, whether they are software or infrastructure assets. In fact, DXC perfected this strategy and created shareholder value with this strategy. The HCL path will differ from DXC in some respects but, fundamentally, could be very similar.

HCL looks to be creating itself as a consolidator of legacy assets and using its labor arbitrage position to extract value from these assets in both an innovative and clever way. I’ve been calling for providers to create differentiation, and I think HCL is doing so. But the firm runs risks that its rivals are not running. However, a legacy consolidation strategy may be less risky than creating a new business model, which is the strategy of HCL’s rivals.

Risks for Clients?

I think HCL’s clients need to understand what the firm’s strategy means to them. There is a risk for clients in believing the rhetoric around digital transformation. Clients need to see HCL for what it is truly doing, not for what it is “selling.” The firm appears to be trying to wrap itself in the flag of digital transformation. In reality HCL is playing a sophisticated legacy consolidation game. Legacy consolidation is an important and valuable role for the firm’s clients. However, clients should not fall into the trap of believing it equates to digital transformation.

Digital transformation: How to beat the funding challenges | Sherpas in Blue Shirts

Executives continue to struggle with how to fund digital transformation projects. Let’s examine three funding pitfalls and approaches that avoid them

In working with CIOs and other senior executives leading digital transformation efforts, the most frequent comment we at Everest Group hear is, “I don’t know how to get this funded.”

IT modernization and digital transformation are multiyear journeys that require enormous change to reinvent the business and create new value for customers, employees, and shareholders. Typical transformation initiatives aim to help an organization stay within the budget and complete projects on time. Although these goals help when you’re trying to achieve a return on investment (ROI) by performing a process better, these are not relevant goals when you’re aiming to do something different.

Digital Transformation Readiness

Everest Group’s study on digital transformation readiness reveals dramatic differences in value created by the most successful organizations, which we call Pinnacle Enterprises. (These 21 companies in our study achieved superior transformation results, by investing in resources  including adequate funding for digital transformation.) Consider these outcomes, for instance:

  • In 86 percent of the Pinnacle Enterprises, the IT organization enabled the enterprise to serve a new market or customer segment (versus 43 percent of the other enterprises we studied).
  • In 85 percent of the Pinnacle Enterprises, the IT organization supported significant growth of current products/services (versus 33 percent of the others).
  • The Pinnacle Enterprises invested in innovation labs (81 versus 36 percent), digital studios for new product development (71 percent versus 27 percent) and innovation funds to support start-up activities (76 percent versus 35 percent).

Read more in my blog at The Enterprisers Project

Redesigning Your Outsourcing Portfolio for a Digital World | Virtual Roundtable

Thursday, June 28, 2018 | 11:00 a.m.  – 12:30 p.m. ET

Request to attend the Virtual Roundtable

As digital services cause yet another inflection in the outsourcing market, the service provider landscape is undergoing significant changes. Against this backdrop, enterprises need to recalibrate and reimagine their outsourcing portfolios to capture transformational value and manage risks.

To help organizations future-proof their outsourcing service provider portfolios, this session will provide an alternative view to segment the landscape. Participants will exchange perspectives on how they are shaping their outsourcing supply strategies to align with new demand strategies.

Who should attend

Strategic sourcing and vendor management executives who currently manage their enterprise’s portfolio of IT Services providers.

What you will learn

The session will help participants understand contemporary practices for structuring outsourcing portfolios and share best practices for future-proofing outsourcing relationships.

Presenters

Jimit Arora, Partner, Everest Group
Eric Simonson, Research Managing Partner, Everest Group

Request to attend the Virtual Roundtable

Digital Insurer of the Future — June 27 | Webinar

Wednesday, June 27, 2018

Register to attend

Research Practice Director Manu Aggarwal and research analyst Saurabh Verma will be guest speakers during Capgemini’s June 27 webinar: Digital Insurer of the Future.

The webinar will start with a 20-minute introduction by Everest Group on industry trends, the need for digitization of insurance operations, and the role third parties can play in fast-tracking the Digital journey for insurance companies

About the webinar

This webinar will help orgs understand “how to” digitize their front and back-office operations to deliver increased efficiency, faster turnaround time, and enhanced member experience.

Although traditional third-party administrator (TPA) services have been around for quite some time, insurance companies are under increasing pressure to deliver breakthrough innovation in customer experience and a significant reduction in administrative spend through leveraging Digital across their policy administration.

Capgemini has been listening to the market and together with leading analyst firm Everest Group brings you an exciting opportunity to learn how to digitize your insurance operations across your entire core policy administration.

Speakers

Manu Aggarwal, Research Practice Director, Everest Group
Saurabh Verma, Research Senior Analyst, Everest Group

Register to attend

IT Modernization Journeys Require New Approach To Transformation | Sherpas in Blue Shirts

Prior to digital transformation to achieve new value creation, many companies undertake IT modernization initiatives to ensure systems can support the digital transformation. IT and shared services groups need to modernize so they can respond more effectively and quickly to the business needs for innovation and competitive advantage. We often find that companies don’t realize that IT modernization in a digital world is very different from traditional transformations in the past. It’s a multi-year journey, and the changes cut across a company’s technology, people, process, talent and philosophy. So, it requires a different approach than traditional transformations. The experience of a leading global healthcare company serves as an example of a highly successful approach.

Read more in my blog on Forbes

Trends in Third-Party Service Providers Transitioning To Digital Services | Sherpas in Blue Shirts

Third-party service providers are redefining how they compete in the new digital world. The pressure to gain market-leading positions intensifies as the new digital business model threatens to shift market share and upend existing market leaders. At the heart of this new business model is a shift away from labor arbitrage and its FTE pricing to a software-defined model and consumption-based pricing., It’s a new world, and I believe it’s important for companies seeking to buy services to be aware of how of service firms are investing to position themselves for the digital market.

Read more in my blog on Forbes

Crucial CIO Skills for Digital Transformation Success | Sherpas in Blue Shirts

What do CIOs making the most progress with digital transformation have in common? They know how to nurture cross-functional collaboration.

All companies are vulnerable to the threat of a competitor’s ability to create new value for customers. That’s why most companies today are considering the opportunities for creating new competitive advantage through digital transformation and virtually all CIOs view digital transformation as a top priority. However, Everest Group’s Pinnacle Model research of more than 200 leading companies finds that only 10 percent of CIOs and their IT organizations are in a state of readiness for digital transformation initiatives.

Through our investigation into these companies’ digital journeys, we identified Pinnacle Enterprises – those that were best prepared for digital change and achieved superior business outcomes because of their advanced capabilities. The outcomes are compelling. Consider these examples:

  • In 86 percent of the Pinnacle Enterprises, the IT organization enabled the enterprise to serve a new market or new customer segment, versus 43 percent of the “unready” enterprises.
  • In 95 percent of the Pinnacle Enterprises, employee productivity increased between 10-30 percent, versus 54 percent of the other enterprises we studied.
  • Of the enterprises implementing Robotic Process Automation (RPA), the Pinnacle Enterprises achieved 4X more ROI (100 percent) than the other enterprises (40 percent) and achieved implementation 3X faster.

Our research also identified the enablers and capabilities of Pinnacle Enterprises to achieve desired outcomes and accelerate timeframes. A notable enabler: We found 95 percent of Pinnacle Enterprises (vs. 58 percent of the other enterprises we studied) built a culture that is effective in collaborating across functions in an organization.

Read more in my blog at The Enterprisers Project

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