This guide aims to be the one-stop-shop on digitalization strategy. We will see what a digitalization strategy is, who needs it, and how we can define and implement one that works. After reading this article, you will know how to proceed to assess if your company needs a digitalization strategy, and if so, you will know how to create one and how to execute on it.
Here is the table of content that shows what we will cover.
- Introducing Digitalization Strategy
- Defining your digitalization strategy
- Implementing the digitalization strategy
- Conclusion
I encourage you to read the entire guide, as it is a start-to-finish explanation. However, you don’t need to do it all at once. In fact, you can keep it for reference and come to it later as you are midway in your digitalization journey.
Introducing Digitalization Strategy
What is digitalization?
Before we can even think of a digitalization strategy, let’s start with some definitions. I know you may think you know this already, but it is crucial to be on the same page. If you don’t have a solid knowledge of what digitalization is, or if it does not align with this article, implementing a strategy according to what we see here will lead to dire results.
First, digitalization is a buzzword. It somewhat fell out of fashion in the last 2-3 years as people tend to assume they already have everything digital, and there is nothing to digitalize anymore. However, that is not really the case. Like many buzzwords, “digitalization” has a real meaning which is neither bad nor good in itself.
Digitalization is the process of taking something you did without computers, and do it with computers.
For example, if you run a restaurant, you may take reservations over the phone. You can “digitalize” this by taking reservations through an app or website automatically. In general, when you digitalize something it can happen faster and at larger scale (i.e. you can process more reservations per minute, you can process reservations 24/7 and so on). Yet, it does not necessarily mean things are better when digitalized.
Digitalization removes or reduces the “human touch”, so if there is a process that needs that and you digitalize it away, you are probably making things worse, not better. We will come back to this later, but for now just know digitalization means “using computers” to do things.
Also, note it means using computers and not any technology. If you were sowing your field by hand and now buy a tractor, you have made a big improvement but that is not digitalization. If you first watered your field whenever you felt like, but now you have an AI-based sensor that decides when to water, then you are digitalizing. The message is simple: you need a computer, not any sort of technology.
(Note: a computer can be a smartphone, an Internet-of-Things device, or literally anything that processes numbers and bits).
What is a digitalization strategy?
Defining digitalization is easy, and most people agree on the definition I provided earlier. Yet, when it comes to “digitalization strategy”, people have conflicting views. This is because it is easy to confuse strategy with roadmap.
Let’s start with the real definition, and then move from there.
A digitalization strategy is your approach to decide which parts of your business to digitalize, in which order of priorities, and to what extent.
A digitalization strategy is not a roadmap, that is, it is not a series of activities you want to digitalize. It is also that, but not exclusively that. The strategy has a much wider view, and defines what you think is important to digitalize, and what is not. And, for each thing you digitalize, you define to which extent. Defining what you do NOT want to digitalize it is as important as defining what should be fully digitalized.
Strategy is about tradeoffs, it is about choosing A over B where if you pick either, you can’t possibly do the other. They are mutually exclusive. For example, if you have a business process to interact with customers, it can be fast and standard and driven by computers, impersonal and with no manual interaction. Or, alternatively, it can be highly personalized and done by caring employees, but in that case, it will not be extremely efficient.
Neither is good or bad. You need to define what of the two best aligns with the values, goals, and priorities of your company, and implement that. The digitalization strategy helps you clarify that, it defines the tradeoffs you need to make.
So, a digitalization roadmap is part of a digitalization strategy, but is not the only component. Before you define what you want to digitalize (the roadmap), you need to understand what not, and why (the strategy).
Who needs a digitalization strategy?
At this point you may think that only companies that have legacy processes without computers need a digitalization strategy. That a digitalization strategy is something you do once, a one-off effort, and then never again as the company becomes digitalized. Even further, this has the implication that all companies should be entirely digitalized, with all their processes running with computers.
This implication is not entirely incorrect, but it is a dangerous assumption, because it ignores what is worth moving to the digital world, and what isn’t. If you spend effort digitalizing something that is good in the “analog” world, at best you are wasting effort, at worse you are damaging your company.
Furthermore, you still have people who do things. Even the fact that you are reading this article looking for a digitalization solution for your company is some sort of non-digitalized activity. In other words, you will never achieve 100% digitalization, it is a continuous effort.
All this leads to the conclusion that every company at every stage needs a digitalization strategy. There is always something that can be digitalized, and the question “Is this digitalized enough?” and, even more, “Is this digitalized too much?” are always relevant. So, if you don’t have such a strategy, you should create it. This guide will help.
The digitalization strategy does not need to be separate from other strategies. It needs to align with the company strategy, and with the Information Strategy of the company. If you already have a great level of digitalization, or you don’t have many processes, then the digitalization strategy may be your Information Strategy itself. But here the point is not really to define a standalone doc or strategy. The point is to be sure the company considers digitalization in all its strategic decisions.
One more point of emphasis to remark: your strategy may lead you to decide that some processes should require less automation and less computer but be done by humans instead. Never assume digitalization is all about using more computers.
Now that you have these concepts in mind, we are not ready to start crafting the digitalization strategy of your company.
Defining your digitalization strategy
Outcome of “digitalization strategy”
Here we are, in the main section of this guide. Here we cover how you can define your digitalization strategy for your company. But what is the actual outcome that we want? How do you want to leave reading this section with?
In short, the outcome of your digitalization strategy is that you write a document to define how you approach digitalization. For this guide, we recommend that you create a separate document for this strategy. However, this may be merged and integrated with other strategies in your company and may not need to live as a standalone document.
Personally, I highly recommend writing the document. Sometimes it is easy to assume you have cleared everything out in your mind, and that the strategy is clear to you. There are two caveats with this approach. First, it does not have to be clear to you only, it needs to be clear to everyone. Second, as you write things down, it is easier to see improvement areas in your thinking.
Having this in mind, we can start to define this strategy doc according to the various points you will see In this section.
Value-stream mapping
Lean manufacturing introduced the concept of value stream. This value stream is simply the sequence of activities you do to deliver on a customer request, or to design and produce a new product. You can see that as a series of steps, or of workstations.
Once again, in manufacturing, a workstation is a place where you have people with tools doing one specific job. The proverbial example is the assembly line of a car. You will have a place where people assemble the doors in the car, another place where they assemble the wheel, and so on. Each is a workstation (to add to the complexity, actual workers may move from one workstation to another, occasionally).
In your plant, the partially assembled car flows from one workstation to another and it receives more parts and improvements, until it is complete. In this way, you can see the car going through this “stream” of workstations, flowing from left to right seamlessly until complete. That is the value stream.
We can identify a value stream for each activity that a company does, even if it is not in manufacturing. In fact, most companies will have multiple value streams, as they produce multiple products and respond to different kinds of customer requests. It is a pre-requisite for digitalization that you know your value stream. If you don’t know what you are doing exactly, and in which order, you will not be able to decide effectively what to digitalize.
Of course, you know what you are doing, but if this knowledge is tacit and not documented in an expressed way somewhere, you are not in a good spot. The first step is to document exactly that. Let’s make an example of a restaurant. Imagine the customer is going through a series of steps, we can articulate them as follows:
- Take reservation – first customer interaction, they make a reservation
- Prepare the restaurant for service – customers are not involved here but this is part of our value stream, we need to stock equipment, arrange tables, and so on
- Welcome guest
- Take order
- Prepare food
- Serve food
- Listen to additional requests – in case our customers want desserts, some time to be left alone etc.
- Collect payment
- Clean up restaurant after service – customers are not involved here either, but we need to do this to be ready for the next day
Of course, the real process is a lot messier. Where do we handle reserved cancellations? How about no-show? This is a model, and it will never represent 100% of reality, but it can be useful to identify the flow most customers go through.
You need to think of the value stream of your company, or multiple value streams, and identify the activities you do in each. Only once you do it, can we start to think about digitalization, and how to implement a digitalization strategy for each.
Sources of value
The next step in defining the digitalization strategy is to consider the source of value for each of the activities in your value stream. In each activity you will do something that produces value, and something that detracts from it. Let’s be clear, we are thinking of value from the customer perspective.
What is adding value for the customer? Once again, we are going to see how you can look at that in the restaurant example. We will look at two activities: the taking of reservations, and the preparation of food.
When a potential guest looks to make a reservation for a restaurant, the main value they get out of that is that they ensure they will have a table on the day they desire. We can abstract this to say that the customer wants to “secure an experience” for a given day and at a given time. This is because just having the table may not be enough. They may want to get a table by the window, tell us that it is the birthday of their child, and so on. So, there are multiple moving pieces that contribute to the entire experience, and the customer is looking to lock them in.
What would provide value in that sense?
- Be able to browse the possible experiences available (i.e. table outside vs. table inside, different times available etc.)
- Quick confirmation if their experience is secured or not
- Ability to secure the experience at their convenience
- Possibility to personalize the experience
These four items will have different values depending on the type of restaurant (i.e. your overall company strategy). A casual restaurant will not place much emphasis on #4 to personalize the experience, while a Michelin-starred restaurant will want to create something unique for each guest. But those are the four main levers you use to produce value for the customer in this activity.
The “prepare food” activity is somewhat simpler to articulate, although may be quite complex to execute. Here we are delivering a key component of the customer experience, so it is all about seeing if we meet the expectations we set for the customers. We will have some levers here as well:
- Speed
- Quality of the food prepared
- Personalization (i.e. changes of ingredients to accommodate for allergies and customer attests)
Once again, different restaurants will have different sensitivity to these values. A fast food will be much more sensitive to speed rather than quality and personalization. There is no good or bad lever by itself, just levers that align more with your company values than others.
Spend time to define what provides value in each of the activities you do, and do not start with assumptions. Do not assume you already know the full picture but take a questioning mindset to review your processes as you are doing this value-stream mapping exercise.
Detractors of value
Sadly, not all activities you do add value to the customer. Some activities are detractors of value, they remove value from the customer, or simply said they make the customer “less happy”. You need to account for those activities in the digitalization strategy. Most often, the quickest and most impactful improvements come from removing or containing the detractors, rather than improving on the sources of value.
A detractor of value is something you do that reduces the value for the customer. It can be something you have to do, or something totally wasteful you can stop doing right now.
A detractor of value when preparing food is running out of some ingredients, so that you cannot prepare what the customer want and have to say a product is not available. Or running out of plates so that you must wait that they clean in the dishwasher, thus delaying the preparation time.
Not every activity will have detractors of value, but most will have some. Spend time to identify at least 1-2 detractors of value per activity. Here are a few examples I have thought of related to our restaurant example:
- Waiting on the line on the phone when making a reservation (Taking reservations)
- Table not ready when the guest arrives (Welcoming guest)
- Dish not available (Preparing food / taking order)
- Wrong dish delivered to the customer (Serving food)
- Item not ordered present in the bill (Collecting payment)
Once you have a list of sources of values and detractors of value, you are ready to define how your digitalization strategy will improve on them.
Selecting measurement KPIs
As you define sources and detractors of value, you will start to form a comprehensive picture of what you need to improve, what is working well, and what needs fixing in your organization. However, “improve” and “fixing” are broad terms, and you should invest some time to decide what they mean.
This is where you need some measurements and Key Performance Indicators, or KPI. KPI is a huge buzzword thrown at things like it is a magic bullet. Today, however, we use it in a much humbler way that I am about to explain.
We know we have sources of values in each activity. For each, you can think of a measurement associated with that value. That measurement is simply a number, that you can assess somehow. For now, do not focus on how you produce that number, just think about the number itself. Going back to the example on taking reservations in a restaurant, we listed as a value “quick confirmation of the reservation to the customer”. So, a measurement is the time it take to confirm the reservation.
This is something we should measure for every user. Then, we can say what is our average performance, how is our best customer doing, what is our worst performance (the reservation that took longer than everything else and why), or what is the performance for 90% of the users. If you think about it, you will find one or more measures (number) associated with each source of value.
Even for detractors, you can still find measurements. For example, you can measure the time people are hold on the phone while waiting to make a reservation, or the time you need to get the table ready for the customer when they show up (this is 0 if it is ready when the customer arrives).
Other measures may be somewhat harder to track at first glance. For example, you may not think of a number easily when considering if we delivered the wrong dish to the customer. However, if you think it in numerical terms, you can say “How may wrong dishes did this customer receive?”, and the answer will be 0 or 1. Over time, you can track the total number of wrong dishes over the total number of dishes you serve and see the percentage of wrong dishes.
In short, every source of value and every detractor should have one or more measurements. If you can’t find any after thinking about it for a while, then maybe you don’t have a strong source or value or strong detractor, or you do not understand its underlying forces just yet.
Now, we can introduce the concept of KPI. If you have 5 value streams, each with 10 activities, and each activity with 2 measurements, you have 100 measurements in total (5 x 10 x 2). That’s quite a lot of measurements to track, especially if you are not measuring anything and need to update your processes to start recording this new information (i.e. having the staff note down how long it took to confirm a reservation). In other words, it is simply not feasible to track every measurement. Even if it is, it would be a waste of resources.
Key Performance Indicators define which measurements are crucial for the success of your business, and thus should be tracked. There is no hard rule there, but you should think about one of the measures that, if left unchecked, may go wild and have the possibility of doing significant damage to your business. Strive to have 5-10 KPIs that you measure regularly.
For each KPI in your digitalization strategy, you need to have a clear view of in which direction you want to move it. Do you want it to go up, or go down? Do you want it to be within a specific range? For example, you will want both the number of wrong dishes and the time to confirm a booking to go down. Note down the desired direction or range for each KPI in your digitalization strategy document.
Creating interfaces
Another important point you need to consider in your digitalization strategy is the creation of interfaces. The “interface” is a popular concept in software and system design. It defines how you can interact (indeed, interface) with a software module or a system.
You don’t need to care about how the system works under the hood, you have a clear entry-point and know how to communicate with that. Then, the service will take your request and do its magic, and give you back some results in a way you can understand. In other words, the interface is the point of contact between two systems, where they agree on how they communicate.
If interfaces are well defined, you can make changes inside each module without worrying about breaking the others, as long as you maintain your interface intact.
The same concept can apply to any process, even the ones that are not part of the digitalization strategy or that do not use any software or technology. This may seem somewhat bureaucracy, and in a sense it is.
Think about the restaurant example, which at some point needs to order ingredients from its supplier. The supplier has a website to place orders, where it requires you to fill a table with a list of items to buy and the quantity of each. That is the interface of the supplier. They can change the company they use for delivery, what their back-office team do when they receive an order, and so on. You won’t care as long as the way you interact with them does not change.
That is not the only interface you have with the supplier. Another interface is when you receive the goods. All that experience, such as at what time they come, if they already know they need to come through the back door, if you need to sign a receipt form, and so on – all of that is part of what we can call “delivery” interface.
Interfaces are not exclusive to interactions between third-parties or with external companies. Interfaces happen between internal processes, people, and workstations. More specifically, they happen between activities in your value stream.
As part of your digitalization strategy, spend some time identifying interfaces between steps in your value stream. Sometimes you may need to define those interfaces, as they may not be completely clear. Define (and decide) at which point you have a cutover, where the previous activity finishes and the next one starts. When this happens, what is the data, information, and physical objects that need to move from one to the next.
For example, when we complete the “prepare food” step in the restaurant example, we handover to the next activity, which is “serve food”. Here, the interface includes the ready dish to be delivered, associated with the information of which table and guest needs that specific item. Furthermore, it may include the notification to the floor staff that a new dish is ready for serving, or even information about what other dishes are ready for the same table and when they are coming. Once again, you define the boundary and what information goes across, versus what doesn’t.
Sticking to this example, cooking time, ingredients in the dish and so on are all information that are important during the “prepare food” step, but are not transported into the “serve food step”. They are local, and do not move to the next step.
It is crucial to define interfaces because it gives you freedom to change one activity without affecting the others. As long as you preserve the same interface, you have total freedom. Some changes, with time, may require to change also interfaces to be more effective, but they are complex to pull off. It is much easier to start in implementing changes in one area of the process at a time, without worrying about the others.
Once you have your interfaces designed, and you know which measurements and KPI you need to improve in each area, you can start to consider the implementation of the digitalization strategy. You need to think about where you can improve customer value the most (increasing sources, decreasing detractors) by using some digital product? How can digitalization help? Read the next section to find out.
Levers of digitalization
This brief heading addresses how digitalization (and a digitalization strategy at large) can help your company in producing more values. In short, what can computers do for you?
Computers can do many things, depending on what you program them to do. They are much better than humans in executing well-defined processes at a scale and at a fast pace. They struggle with human touch, personalization and the “caring” aspect of service. In short, they can help you on the following dimensions:
- Speed (do things faster)
- Quantity (do more things)
- Reliability (never miss an item)
- Consistency (same input = same result, every time)
- Availability (doing something around the clock, every time)
If improving in any of those areas is important to improve value on any of the steps in the value stream, then that step is worth digitalizing, at least to a point. Doing that is part of implementing the digitalization strategy.
Implementing the digitalization strategy
Migrating to industry-standard application
In the “make vs. buy” tradeoff, this is the equivalent of “buy” for a digitalization strategy. Most likely, most of the problems you need to solve in your company are not unique. They are shared by our peers in the same industry, or have been solved before by other companies in related industries. All in all, this means probably there is already some digital tool available to address the problems you are having.
With this approach, you need to do mainly two things:
- Find and buy the software or tool that solves the problem you need
- Learn how to use it, and use it
For example, if you want to keep track of your finances there are tools like SAP for large companies, or QuickBooks for smaller ones that help you do just that. If you want to keep track of your sales, you can use Salesforce or HubSpot. Every job you may want to do has a tool associated with it.
This approach is normally the cheapest one if you hare a small company, and can be come crazy expensive as you scale. The main advantage is that is quick to implement, and you don’t need to solve complex IT problems in house, so it works really well if your IT capabilities are not well defined. However, it comes with the limitation that you can do only what the software you buy allows you to do. It may help you address 80-95% of your needs, but there is a 5% gap that will be unaddressed.
Often, this requires slightly changing the way you work to accommodate the tool you have. For most companies, these standard tools do everything you are doing, but some things are done differently than the way you are used to. Thus, if you are willing to slightly adapt (and this has a cost in terms of training and change of perspective), this approach can address virtually all your needs.
One challenge comes later, if you want to change tools or migrate out to a custom solution. In those cases, exporting data out may not be easy or simple, and will require some rework.
Build custom applications around your processes
The diametral opposite of using industry-standard applications is creating custom applications. This is another approach to digitalization strategy that works well if your company is large enough to have some economies of scale on this, or if you need something so specific for your business, such as solving a problem that was never solved before.
In this case, you don’t buy a product off the shelves. You hire a bunch of developers and pay their salary, and they create something you can use. The bigger this thing is, the more developers you need, and you are likely to need managers, program managers, product managers, and related roles as well. This activity also carries more risk, because you start to pay for these people’s work, but you are unsure what they will deliver. Can this problem really be solved? Will they solve it in a way that works for you?
Because of this, this is quite hard to pull off if your organization does not have already a strong IT expertise. In such cases, it is worth starting with an industry solution and then later on spin-off into a custom application. However, the big advantage of this approach is that you can digitalize any process in the way you intend it to work, without compromising or changing your approach to work.
The role of the CTO
We could not do an article on digitalization strategy without mentioning the role of the Chief Technology Officer, or CTO. Any company from mid to large should have a CTO, and this role helps a lot in the digitalization journey.
The CTO manages the technology strategy for the company, they are an executive aware of modern technologies (often, large companies will have multiple CTOs, each specialized in a different technology field). With that, they use this expertise to identify opportunities for improvement in business processes that use technology. That is exactly the definition of digitalization strategy.
In short, it is the CTO that can and should drive digitalization. Or, more precisely, it should enable it and consult business managers, which then drive improvements of their processes by using technology.
Conclusion
Additional resources
This guide aims to be the one-stop-shop on digitalization strategy. Which means I will list here any resources that can help you on that journey. Of course, if you think there are more, connect with me (see below) and let me know, I will add them here.
- Codù, commity of developers driven by a CTO-as-a-service professional
- What is Strategy? By E. Porter, on HBR
- MIT Technology Review
- CIO Review
- CIO.com
- Calculate Net Present Value of your Projects
- Quick guide on how to manage a project
Again, please let me know what else is helping in your digitalization strategy journey and I will add it here.
Connect and get help
If you are stuck in your digitalization strategy, or if you just want to say hello, you are not alone. Let’s make it personal, connect with me on LinkedIn and let me know what you think of this article.
Just add a note when connecting, saying you found me through the article on digitalization strategy. Provided there is a note in the invitation, I accept every connection and I am happy to have a chat. You can connect with m e here.
