Leading Digital Transformation - extract from the book with cover v2 by DigJourney

TABLE OF CONTENTS A big thank you to... Foreword by Brian Solis Preface Getting the most out of this book

6 10 14 16

OTHER STORIES OF DIGITAL TRANSFORMATION

Ving – From 54 retail stores to none in 13 years

LEADING DIGITAL TRANSFORMATION

5. Digital maturity and competitiveness

6. The Digital Maturity Matrix

The three phases of maturity in digital transformation

The three cornerstones of the Digital Maturity Matrix

Trelleborg – How digital transformation is the right path for an industrial company

A conversation with Dr. John Kotter: About change leadership in a fast-moving world

Schibsted – Lively 178-year-old takes the lead in digital transformation

Values, Vision & Mission

TV4 – From viewers to users

Strategy work

MTGx – The motor that accelerates digital innovation

Organization

Doberman – An agency built on trust

Processes

Leila Lindholm – How passion, inspiration, vision, and digital insight create business

Infrastructure

Data & Analysis

King – From stagnation to success

Value proposition & Revenue model

Touchpoints

ABOUT DIGITAL TRANSFORMATION

THE DIGITAL MATURITY MATRIX METHODOLOGY 48

7. The 9 digital motors of transformation

1. What surfing can teach companies

2. The ultimate goal: Digital nirvana

3. The concepts of of digitalization and digital transformation

4. 10 pitfalls to avoid

Relationships 8

Interaction and development of digital motors

98 104

LEADING AND ACHIEVING DIGITAL TRANSFORMATION

106

9. The transformation process

108

10. Get into position

110

Identify the company’s digital position

110

Identify the industry players' digital positions

123

11 Choose the right waves

124

Compare the company’s digital position with others in the industry

125

Take account of the company’s overall strategy

126

Identify waves of change that have the greatest effect

126

Determine the company’s digital destination

127 128

Working in the Mobilization phase

128

Working in the Coordination phase

146

Working in the Acceleration phase

163

SUMMARY AND CONCLUDING WORDS

178 179 183

124

Compare the company’s digital position with general best practice

12. Make the most of the waves

Concluding words References Footnotes

172

13. The 10 commandments of digital leadership

174

14. How we can work together to keep moving forward

177 9

FOREWORD BY BRIAN SOLIS Ok, you’re ready for digital transformation! Everyone is talking about it. Everyone is doing it. So now what’s your next step? What do you do? Who do you work with? What’s the goal and measurable ROI? Ask different people and you’ll get different answers. Some of the advice will be helpful, some of it not so much, and there are also instances where you will be misled. Among the many challenges of digital transformation is a lack of a common definition or prescriptive set of instructions to follow because there isn’t just one approach to digital transformation. It’s a term that has developed to become all things related to competing and operating in a digital economy. Over the last ten years, digital transformation has become a global trend affecting every aspect, level, and model in businesses and organizations across every industry. While there are many reasons for this, none is more prevalent than digital Darwinism, the evolution of technology, business and society, and the effects they have on … everything. The world is changing. People are becoming more and more digital. Technology is accelerating. Executives understand that change is inevitable. At the same time, many executives in the C-Suite1 do not live life in a manner that’s reflective of why digital Darwinism is rapidly evolving. Thus, they do not lead the change of digital transformation with a unified vision or purpose that rallies the organization together. Instead, digital transformation rises up in disparate parts of the company leading to a fragmented approach to change. 10

LEADING DIGITAL TRANSFORMATION

After years of research, I found that digital transformation was open to interpretation. This leads to divergent interpretations of the problem and opportunities presented by digital Darwinism and, thus, the approaches to solve them. It’s very common, for example, to see individual efforts strewn across the organization that includes “the digital transformation of…” • • • • • • • • •

IT Marketing Advertising Sales Finance Customer Service/Support HR Supply Chain R&D/Innovation

Separate initiatives often lead to meandering or contrasting efforts and goals. These attempts at driving change are not ill-intended. It’s a function of design. Most organizations, unless you’re like the online shoe company Zappos and practicing Holacracy2, are intentionally hierarchical and siloed through traditional architecture. But digital transformation is most effective when it’s coordinated as an enterprise-wide initiative. I’m an optimist, so I try to see the good in everything. Try is the keyword. Even though many digital transformation initiatives start in pockets without having a deep understanding of what digital transformation is or why,

PREFACE Change. Feel the word. Change. Some love it, others hate it. No one is left untouched by change. Digitalization of a company, contrary to what intuition might say, is less about ones and zeros than about people and change, and fundamentally, changing a business. All operational changes begin at the individual level. This happens when employees, one by one, at all levels in a company move away from old truths and develop new ways to approach their work. When these combined changes in behavior take place, a force is created that can take the company in a new direction. This book is about how such a force arises, how to steer it in the right direction, and what forces the company needs in different stages of development. All industries are affected by digitalization and an increasing number have gained insight that the conditions for their business have changed. Industries develop new value networks, new needs arise, buying habits are recast, customer willingness to pay is changed, and use of products and services become increasingly digital and social. The list is endless. We, the authors of the book, have always delighted in the Internet boom and all the online startups that see opportunities in the new market conditions. Startups, whether they are called Spotify, Alibaba, King, or something else, are extremely inspiring. 14

LEADING DIGITAL TRANSFORMATION

Many have experienced tremendous growth and will hopefully belong to tomorrow’s major employers. The question we ask ourselves, however, is why are there still so few success stories of traditional companies taking advantage of digitalization and its possibilities? These questions are important because the global economy continues to be dominated by older companies that emerged from traditional industries.4 Therefore, even more focus should be on helping traditional companies succeed with digitalization. Much has happened since the first computer was launched in the 1940s.5 A company’s ability to manage digitalization has become an increasingly important part of competitiveness. Unfortunately, we encounter many frustrated business leaders who describe feeling like they’re sitting in the back seat of a racing car without knowing who’s driving. We also encounter executive boards and management teams ducking digital issues because they don’t know the best way to take on the task of digitalization. If they had the right support, the companies they are responsible for would be able to take significant digital leaps, leaps that would lead to enormous positive effects. Successful digital transformation involves three things: Innovation, change leadership, and digital maturity. The transformation that companies need to undergo is usually larger than any previous change processes. Research

shows that as many as 70% of all major change attempts in companies fail.6 Achieving real change is difficult: A clear framework is required for a good chance of success. This book’s goal is to help companies increase their digital maturity and with that, its competitiveness. We do this through our methodology The Digital Maturity Matrix together with the understanding, tools, and recommendations that come with it. This methodology was developed in collaboration with some forty people in the areas of science and business, and is based on proven experience, both our own and others’. In addition, we have availed ourselves of research and literature, as well as conducted workshops, interviews, and discussions with researchers, government authorities, and experts. Our objective is to provide tools, understanding, and recommendations for how companies can strengthen their competitiveness by developing business digital maturity.

ny’s digitalization. Soon, your digital journey will be on course, gaining momentum to develop a digitally mature operation that can, faster and smarter, transform the company into one that is more competitive in the long term.

To succeed, executive boards and management teams need to take charge of the company’s digital investments and thus regain control of all aspects of business development.

To succeed, executive boards and management teams need to take charge of the company’s digital investments and thus regain control of all aspects of business development. The book is written for those individuals and companies that have made this decision, in other words, where if is no longer the question but rather how, what, and when. One thing is for sure; simply by holding this book, you’ve taken a big step towards taking command of your compa15

GETTING THE MOST OUT OF THIS BOOK Our hope is that you gain a deeper understanding of what digitalization involves and how your business should work to create value through all aspects of digitalization. The book is intended primarily for those who work in a traditional company in need of a digital transformation. The book helps you to find, get, and delegate control throughout your digital journey. In a digital transformation, methods, tools, and a cohesive transformation process are necessary to facilitate the work and ensure that the right things are done at the right time. Every business has unique requirements, constraints, and opportunities. The methodology The Digital Maturity Matrix helps you understand your company's specific characteristics and, based on this knowledge, you can make the right decisions and prioritize initiatives for the best possible result. The methodology works for all types of companies. In this book, however, we have chosen to focus on traditional companies and how we can best help them. We hope the book gives practical application in your work and can become a source you consult again and again - perhaps when you need advice on how to improve efficiency through digitalization or how to better create and develop customer relationships. Sometimes you might only need to find examples to bolster an ar-

LEADING DIGITAL TRANSFORMATION

gument against employees or the board, other times you might be in search of a good exercise for the fall conference. There are many ways to read and use this book.

The bookâ&#x20AC;&#x2122;s structure This book combines theory, practice, and various business perspectives for the best conditions for quick understanding. In the next section, you'll learn about eight companies, their digital journeys, and their lessons - all good examples of how digitalization is used to create competitiveness. We hope you will find one or more companies that interest you and that you want to learn more about. The book's theoretical part begins with a description of how companies can take advantage of acting like surfers. It then describes digital nirvana - the unattainable goal of digitalization - before we introduce the methodology and how innovation, change leadership, and digital maturity is linked to a company's competitiveness. After the theoretical framework is in place, you begin the concrete work of your company's digital journey, phase by phase. We describe the process of work that starts with finding out where you are today - your digital position - and how you can learn to identify and address the waves of change that will carry you to your digital destination, all to maximize your competitiveness.

READ MORE ABOUT VING

Traditional catalogs 2 400 000/year

At the turn of the millennium, Ving had 54 travel agencies in Sweden; the last physical store closed in June 2017. In the early 2000’s, Ving distributed 2.4 million paper catalogs. Then, in 2015, Ving replaced the catalog concept with a travel inspiration magazine, distribution approximately 500,000 copies per issue. Today, three of every four Ving charter trips are sold online. Throughout their exceptional and relatively fast transformation, Ving was able to stay on course.

Technology is straightforward compared to changing people.

Online sales 73% 54 shops

Telephone calls 850 000/year 230 000 Facebook followers 17 000 Instagram followers 11 000 Twitter followers Brochures 500 000/year

120 000 visitors

600 000/year, Telephone 65%, Chat 20% Email 15% Social media

Online sales 20%

2004

2005

2006

2007

2008

2009

1 shop

2010

2011

2012

2013

2014

2015

VING SWEDEN: Changes in customer communication VING SWEDEN: Changes in customer communication

KING From stagnation to success

LEADING DIGITAL TRANSFORMATION

WHO: Sebastian Knutsson (Founder and Chief Creative Officer), Magnus Kager (Game Performance Manager). WHAT: The world’s biggest online social media gaming company, with 405 million active users for the year of 2016. The company behind Candy Crush Saga. TURNOVER: USD 367.8 million (2015) PROFIT (EBITA): USD 194.3 million (2015) NUMBER OF EMPLOYEES: 2,000 (December 2016) FOUNDED: 2003. WHERE: The games themselves are global. King has offices in London, Berlin, Stockholm, Malmö, Barcelona, Singapore, Seattle, Tokyo, Malta, Bucharest, San Francisco, New York, Los Angeles and Chicago. SUCCESS FACTORS: Took a risk and had energy and courage to walk away from existing business to look beyond. Today, King’s culture supports change as well as data analytics on a world-class level. TRIVIA: King collects 36 billion data points daily and the amount of data increases by a massive 1.5 terabyte each day.

TAKEAWAYS FROM KING Few know that King’s path to success has had its share of twists and turns. It’s hard to believe that this entrepreneurial online company once found itself trapped in daily operations, focused solely on maintaining its existing business. The wake-up call came from a dejected investor pulling out of King.

THE MOST IMPORTANT LESSONS: • • •

It is possible to start over – but it takes focus and the will to change. Dare to challenge yourself – leave your comfort zone and take more risk. Be humble – you will make friends along the way and stay on your toes.

READ MORE ABOUT KING Chapter 12. Working in the Coordination phase. More specifically, “Introducing an ongoing innovation process” and “Understanding what drives business”. Chapter 12. Working in the Acceleration phase. More specifically, “Ongoing and open innovation through small and large steps”.

We simply focused too much on the existing business and weren't vigilant about changes taking place around us. Sebastian Knutsson, founder, about nearly missing Facebook and smartphones as gaming platforms

Read the entire interview with King. 35

ABOUT DIGITAL TRANSFORMATION

You canâ&#x20AC;&#x2122;t stop the waves, but you can learn to surf. Jon Kabat-Zinn, Professor of molecular biology and mindfulness guru

CHAPTER 1

WHAT SURFING CAN TEACH COMPANIES The transportation network company Uber launched a beta version of its app in the summer of 2010. Less than five years later there are more Uber cars than traditional yellow cabs in New York City10. As it begins to enter industries, digitalization has a profound impact in reshaping both business models and value networks11. Reshaping occurs through a marked increase in rate of change, opportunities, and threats. The traditional long technology and product life cycles are being replaced by different technologies and solutions that overlap and remain in parallel, as the cycles become shorter. As external change increases, internal change should increase as well. That is, companies with an operational excellence focus need to focus in parallel on agility, innovation, and entrepreneurship. The dilemma for CEOs and management is to create a business that can handle a

Associated with increased rate of change, many signs indicate that the clock is ticking for traditional long-term competitive advantage. Companies can no longer rely on sustainable business models: The strategy instead needs to be based on speed, flexibility, and power to handle transient competitive advantages. Competitive advantage needs to be based on the creation of a dynamic organization with the ability to tackle the right opportunities in the right way. Companies need to handle all the frenzied waves of change, such as: artificial intelligence, big data, and Internet of Things - and this is where the analogy of surfing comes in. Surfing and digital transformation, in fact, have very much in common.

ADAPTATION

TODAY

ADAPTATION

YESTERDAY

combination of operational excellence and innovation combining todayâ&#x20AC;&#x2122;s business with tomorrowâ&#x20AC;&#x2122;s.

TIME ENTREPRENEUR CULTURE OPERATIONAL EXCELLENCE CULTURE

LEADING DIGITAL TRANSFORMATION

TIME ENTREPRENEUR CULTURE OPERATIONAL EXCELLENCE CULTURE

Imagine that your company is a participant in a surfing competition. The company exists in an ocean with unending new waves: some larger, some smaller. A participant of a surfing competition has three tasks: 1. Get in position. Participants need to recognize their strengths and weaknesses and position themselves appropriately to catch the best waves. 2. Choose the right waves. The participant’s view of the horizon indicates which waves are incoming and of those, which waves are interesting to take and which can pass. The participant’s position and strength determines which wave should be taken. 3. Make the most of the waves. As a wave approaches and grows, the participant must prepare to catch it. Once on the wave, it is critical to determine where the wave is headed in order to quickly and agilely steer, getting the most out of it before catching the next wave. Now, reread the three tasks above and exchange the word ‘participant’ with ‘company’. This is the essence of the transformation process. To win, it is not sufficient to ride one wave. Many waves must be caught and the appropriate waves must be chosen. Moreover, it’s important to maximize every wave that is chosen. A business should operate in such a way that the company dares to: embark on uncharted waters, quickly see which waves are incoming, which are worth catching, and how to best make that happen. This is done through courage, good environmental scanning, clear strategy, and the ability to quickly and continually adjust the company’s resources. Ultimately, it is about innovation. Those who are truly innovative create their own waves - waves others ulti-

MAKE THE MOST OF THE WAVES

GET IN POSITION

THE DIGITAL MATURITY MATRIX

CHOOSE THE RIGHT WAVES

mately need to identify and either maximize or choose to leave behind. We will return to the surfer’s three tasks often in this book. The heart of our work with these is The Digital Maturity Matrix, a methodology described in depth in the next section of this book. With that knowledge in mind, we then come to grips with how digital transformation is managed and implemented - through starting at the right position, choosing the right waves, and making the most of those waves.

The key is to learn to surf the waves of change that come at an increasingly rapid pace.

THE DIGITAL MATURITY MATRIX METHODOLOGY

Your surfing can get better on every turn, on every wave you catch. Learn to read the ocean better. A big part of my success has been wave knowledge. Kelly Slater, eleven times world champion in surfing

CHAPTER 6

THE DIGITAL MATURITY MATRIX It is crucial for companies and organizations to understand how digital development affects business. This insight comes at different speeds and doesn’t really begin until a company decides to tackle the digital transformation process from a holistic perspective. We explained in chapter three that there is often confusion surrounding terminology. A prerequisite for successful digital transformation is a shared understanding of the work that comes with it. This is particularly important for management and key personnel whose task is to convey the shared understanding to employees and ensure everyone is headed in the same direction. A shared understanding begins with dialogue around what digital transformation is and why it is important. The methodology described in this book helps control how the work should be developed and assessed. To begin with, digital transformation is not an end in itself but is about the ability to develop and maintain competitiveness.

DEFINITION OF THE DIGITAL MATURITY MATRIX The Digital Maturity Matrix is a methodology helping companies in digital transformation with how they should work, what they should do, and when this should happen. All to continuously maximize digital competitiveness.

Answers to the questions how, what, and when are found by looking at the digital maturity of a company as well as the digital maturity of its environment. The methodology 52

LEADING DIGITAL TRANSFORMATION

supports all three of the surfer’s tasks – taking position, choosing the right waves, and making the most of them. The methodology is well-tested and is used for small, medium, and large companies. The methodology helps with: • including all perspectives in the company’s digital journey, • understanding the company roadmap and where the company is positioned on it (finding the company’s digital position) in order to take the right course for the smoothest possible journey to the company’s desired position - its digital destination, • providing CEO and management teams control without them needing to be controlling, • doing the right things and not only doing things right: engaging in digital initiatives in the right order with the understanding that everything has a season, • developing the company’s digital initiatives to strengthen existing operations as well as generate new business, • creating a digitally mature business that continually develops and in which digital initiatives don’t feel alien, frightening, or difficult, but are seen as a natural part of the business, • providing increased return on the investments a digital transformation entails. The methodology was developed for general application to business transformation, with special emphasis on traditional companies. Our ambition is to have a broad approach regarding, among other things, industry and com-

pany size. As a part of this ambition you can, in this book and on the web, get insight into widely diverse companies and industries as good examples to learn from.

THE THREE PHASES OF MATURITY IN DIGITAL TRANSFORMATION We discussed earlier that a high level of digital maturity provides increased competitiveness. Companies that have come far in their digital transformation have a high level of digital maturity, and in the methodology transformation as described in three maturity phases: Mobilization phase, Coordination phase, and Acceleration phase. Why and Where?

MOBILIZATION

Digital activities

How?

COORDINATION

What?

ACCELERATION

Existing activities

Merged activities

The three phases have the following features: Why and Where? How? MOBILIZATION

COORDINATION

What?

ACCELERATION

Mobilization phase. This is where the focus should be: to get started, test, and mobilize resources. This means one shouldnâ&#x20AC;&#x2122;t be too detailed in planning, but instead should focus on stimulating interest and acceptance of the necessity of transformation. Important aspects are to answer why the transformation is important and develop a vision of where the digitalization will take the company. It is

Digital activities

Existing activities

Merged activities

often necessary to get to the bottom of why the company exists - to find a higher purpose. The answers to why and where create enthusiasm and strength to go forward. In this phase, efforts are often limited to one or a few people leading the work. Alternatively, the work takes place in a smaller part of the company. The goal, however, is widespread mobilization. The digital initiative is small (see the little red ball in the image) and is often driven completely separately from existing operational activities (see the light orange ball in the image). Coordination phase. In this phase, the company gains deeper understanding of its current digital activities as well as understanding what works. Here, focus is placed on how the company should work with digitalization and these questions are primarily inward in the company. Examples of questions are: What is the company culture and which culture does it need? What new skills need to be supplemented? What are the processes like? Does the IT infrastructure provide the necessary support that processes, employees, and data analysis require? A deeper-level strategy for a digital initiative is often drafted and resources allocated in this phase. Often a specific department is created for the initiative. This is the most difficult maturity phase and places high demands on good leadership because digital initiatives have grown and become increasingly important while existing business decreases. The result is a business needing clearer coordination. Conflict between traditional and digital business operations is a common challenge. Much energy, therefore, goes inward to the business to coordinate digital and existing operations, and maximal energy forward is not attained. Acceleration phase. As the company makes fundamental changes to ways of working during the Coordination phase (the how), it becomes easier and more natural to understand and develop the companyâ&#x20AC;&#x2122;s value proposition and 53

When the rate of change outside an organization is greater than the rate of change inside, the end is near … Jack Welch, former chairman and CEO of GE

revenue model, (the what). Thus, in the Acceleration phase, more focus can be directed outward, toward the market. In this phase, there is no distinction between strategy for digital efforts and strategy for existing business operations. There is, then, one vision and one strategy permeating the entire business, digital or not. The company has a business that is a mix between digital efforts and the previously existing business (dark orange ball in the graph). In this way the initiative gets a stronger foothold in the company and all energy is directed forward, which accelerates both change and results. The company can now continuously adapt to changes in the surrounding environment. This increases the possibility to develop a long-term, successful company.

THE THREE CORNERSTONES OF THE DIGITAL MATURITY MATRIX How a company transforms from the Mobilization to the Coordination phase and further to the Acceleration phase is based on three things: Innovation. New solutions that are used in practice. Change leadership. Ensures change is created within individual employees and within the organization as a whole. An important part of this is how employees adapt to innovations.

Change leadership

Digital maturity

Digital maturity. Pinpoints how far a company has come in its work adjusting to the new playing field digitalization has brought. A company’s level of innovation and change leadership's ability to elicit innovation has a profound influence on digital maturity. Digital maturity in turn develops the company’s digital competitiveness. Let’s look more closely at these three cornerstones.

First cornerstone: Innovation Okay, let’s be clear. With the risk of sounding like doomsday prophets, it’s time to take the old cliché “Innovate or die!” seriously. Innovation is the mother of competitiveness, something companies in traditional industries tend to forget. Innovation is no longer restricted to a single department in a company, but instead is driven equally as much by a company’s external relationships and customers. Technical development, driven by Moore's Law17, contributes both to higher efficiency and to new solutions not previously possible to develop. With this rate of growth, it is not sufficient to "do what we do a little better every day." In all corporate disciplines, businesses must constantly reimagine and challenge themselves to increase the rate of change and keep pace with the outside world. These days, the word innovation is on everyone's lips and is viewed as a cure-all for one thing or the other. This has meant, in a similar way as the words digitalization and digital transformation, the risk of people talking at cross-purposes. Therefore, it is important to clarify the concept.

COMPETITIVENESS

DEFINITION OF INNOVATION Innovation

LEADING DIGITAL TRANSFORMATION

An innovation is a new solution that is used in practice and which improves revenue, cost or creates other values in a company, that is, increases competitiveness.

Innovation occurs in all parts of an organization, not just the company's value proposition and revenue model. It can also apply, for example, to processes, technologies, or organization.

100

EBAY’S FIVE PRINCIPLES OF INNOVATION

Rogers sets the stage

More than 50 years ago, a book was released that has become the foundation for how many companies view their markets and how they should be managed. The book, Diffusion of Innovations, was written by Everett M. Rogers and introduces, among other things, the wellknown term ”early adopters”. What Rogers describes is how customers embrace innovation at different speeds. This can be described by a normal distribution curve separating customers into different groups depending

ADAPTION %

Although it may sound paradoxical, creative processes, which are an important part of the innovation process, benefit from certain principles and rules. Meg Whitman, CEO of Hewlett-Packard, presented five principles for eBay's innovation when she was CEO of the company: • Innovation is a mindset. We strive to ensure that everyone in the company is focused on innovation. • Innovation is in our DNA. We build new products with innovation from the inside out. • Cannibalization does not scare us. We would rather cannibalize ourselves than have someone else cannibalizing us. • Some people are gifted pioneering innovators. We call them "Baby Tigers" and we nurture them and give them room to succeed. • There can only be so much structure to creating innovations. We are always open to new ideas and serendipitous finds.

0 2.5% INNOVATORS

13.5% EARLY ADOPTERS

34% EARLY MAJORITY

34% LATE MAJORITY

16% LAGGARDS

on how quickly they adapt to new innovations. He calls the fastest group innovators, followed by early adopters and early majority. Those who belong to the slower half are separated into late majority and laggards. The various groups exert sequential influence on each other, where those who are earliest to adapt inspire the latter to change18. The normal distribution curve can also be expressed through the so-called S-curve, which is frequently used to describe degree of adaptation, that is, the proportion or percentage of a population or target group using an innovation. The figure above shows clearly how adaptation growth increases in the beginning, peaks when half have adopted an innovation, and then it decreases. In our methodology, the S-curve is used to describe digital maturity in industries, companies, and individuals. It is also used to describe how the three levels of waves of change, (Technology, Products and services, and Behavior) are adapted through Roger’s phases19. 55

D IN ISR NO U VA PTI TI VE ON

ST IN RU NO CT VA UR TI AL ON

IN C IN REM NO E VA NT TI AL ON

The market's changeability influences how leaders balance current and future business Companies need to manage current business (through focus on existing operations and incremental innovation) as well as future business (through structural and disruptive innovation).20

DEGREE OF CHANGE

Incremental innovation. This refers to small incremental improvements within existing operations and offerings. Kaizen and ISO 9001 are related concepts. Incremental innovation is primarily employed for short-term competitive edge or in markets where change is not as great. One example is when the auto industry releases a new model with a series of smaller improvements compared with earlier models, such as a more energy efficient motor, five doors compared to the previous three, or back seat TV screens. Structural innovation. Improvements that have a major impact on a part of or on the entire value network, such as technology or processes, are called structural innovation. This type of innovation is more long-term than incremental innovation. One example is ethanol cars that were developed to reduce environmental impact. This affected the market in the sense that many chose to purchase these cars (thanks to environmental rebates in some countries), but no complete change in the market occurred. 56

LEADING DIGITAL TRANSFORMATION

Disruptive innovation21. Disruptive innovation is a phenomenon and a concept coined by Harvard professor Clayton Christensen in his book Innovator's Dilemma22. Disruptive innovation is new technology and new business models breaking down existing markets and value networks at the same time as new ones are created. The connotation of disruptive innovation has been in flux since the book came out in 1997 and we, among many, have a broader view of disruptive innovation than Christensen. We refer to all innovation that through technology and new business models significantly changes a market or creates a new market. According to Christensen, a disruptive innovation also requires lower pricing than existing products and have a value proposition that existing competitorsâ&#x20AC;&#x2122; customers perceive to be of lower quality. For us, Uber is an example of disruptive innovation, but not according to Christensenâ&#x20AC;&#x2122;s definition since Uber is perceived by the existing market to be higher, rather than lower, quality compared to competitors23. The Model T Ford is an example of disruptive innovation (even according to Christensen). It was the first car produced on an assembly line, which greatly reduced the consumer price and enabled many to purchase a car. This in turn led to a huge change in transportation routines and alternative transportation such as horse and buggy were eliminated.

CHAPTER 7

THE 9 DIGITAL MOTORS OF TRANSFORMATION All companies are on a journey of digital change, consciously or not. The sooner a company acts proactively, the better. The journey is challenging, and since the outside world, like the company and its employees, is dynamic, there is no simple roadmap. It is this complexity the Digital Maturity Matrix aims to facilitate. To understand the way digital maturity develops business competitiveness, it is not enough for us to look only at digital maturity on a general level. The subject needs to be broken down into smaller parts. We divide digital maturity into nine areas of activity that we call digital motors. All of these motors are affected by digitalization and are areas that companies must work with to develop competitiveness. The nine digital motors are: Values, Vision & Mission. The vision is a company's long-term goal. How the company will reach its longterm goal and the answer to why it exists are its mission. The aspects that are held in high regard along the journey are the values. Strategy work. How the work with strategy is conducted and how the results of the work are documented, deployed, and monitored in the organization. Organization. The corporate culture, skills, and organizational structure that exist in order to create and deliver the value proposition.

LEADING DIGITAL TRANSFORMATION

Processes. The recurring series of actions that exist to support the organization in creating and delivering the value proposition. Infrastructure. The information technology available to support the company's processes and how it integrates with the value proposition. Data & Analysis. The data collected, how it is analyzed and used to make and implement decisions, and how it is used in the value proposition. Value proposition & Revenue model. Value propositions are the solutions that create value for the company's customers and other target groups. The revenue model is how the company makes money. Touchpoints. Where target groups come into contact with the company, and how the value proposition and touchpoints are integrated. Relationships. How the company interacts with its target groups, which relationships are developed, and how these integrate with the value proposition.

Data & Analysis Value proposition & Revenue model Touchpoints Relationships

Why and Where?

MOBILIZATION

How?

COORDINATION

What?

ACCELERATION

Values, Vision & Mission Strategy work Organization Processes Infrastructure Data & Analysis Value proposition & Revenue model Touchpoints Relationships

The nine motors range across the company's entire operational structure. They encompass everything from the company's plans and core values that are placed in the Values, Mission and Vision to Strategy work, and to those motors where the day-to-day work is performed and analyzed, Organization, Processes, Infrastructure, and Data & Analysis, to the three final motors that are nearest the market and customer, Value proposition & Revenue model, Touchpoints and Relationships.

Each motor has its own digital maturity journey; the foundation in the methodology is understanding the development of the motors' maturity and how they are interrelated. With this knowledge in place, the company can prioritize and coordinate the work of digital transformation. This chapter describes each motor as well as a number of selected waves of change to keep track of.

Definitions, explanations, and insights of key concepts within each motor.

The vision is a company's long-term goal. How the company will reach its long-term goal and the answer to why it exists are its mission. The aspects that are held in high regard along the journey are the values.

VALUES, VISION & MISSION The vision is a company's long-term goal. How the company will reach its long-term goal and the answer to why it exists are its mission. The aspects that are held in high regard along the journey are the values.

There are many definitions and applications of Values, Vision, and Mission. These definitions often overlap. It doesn't matter which you use. What does matter is the effect they have on the company. Together, Values, Vision, and Mission should achieve the following: • clarify what is valued, • create a framework for the strategy and business plan, • assist the company in its positioning, • create a push forward and influence employees to stop doing certain things and start doing other things in their work, • help to attract customers, partners, suppliers, and employees.

LEADING DIGITAL TRANSFORMATION

• why the company exists, • what the future vision is, • which value the company creates for its target groups, • what the company does, • what the company stands for, • what is valued. The journey from digital immaturity to maturity is a process and as in all such journeys, the vision is a key tool for success.32 The vision and mission provide clarity and helps the organization make great strides forward. Digital transformation, in the highest degree, requires clarity in both vision and mission. In all the interviews we have done, it has been highlighted that this motor is vitally important throughout the transformation. If companies fail to explain to employees why digital transformation is important and what it will lead to, they will be left behind. The probable outcome is that the efforts made for the desired change are fruitless. During a transformation, the purpose and use of the vision and mission changes. During the Mobilization phase and the Coordination phase, it is beneficial to specify a digital vision and mission to pinpoint the value created by digitalization and to provide greater clarity. When the digital way of working becomes a natural part of the business - the digital maturity is high - the specific digital vision and mission will have performed their roles, and can be replaced with a vision and mission applicable for the entire company. For maximum impact, these must permeate all activities. As a result, the digital perspective will be part of the overall vision and mission.

Normally, values should not be adapted to achieve greater digital maturity. However, they are important as they provide the framework for the vision and mission. In addition, values are the foundation in the organizational culture that is key to successful digitalization.

Important waves of change The answer to the question why More and more, people want to work with something truly meaningful. They want something more than financial goals like gross margins, market share, and yearon-year growth. Employees and customers all demand transparency as well as moral and ethical behavior. The topics of sustainability and CSR (Corporate Social Responsibility)33 now have more space than ever on corporate agendas. This shift has been accelerated, simplified, and developed through digitalization, where collective knowledge of a situation or event is quickly generated. For example, a revealing picture of a company's production facility or an e-mail conversation with customer service can spread like wildfire in social media. Companies able to answer the question why they exist and commit in a wider context will be rewarded with motivated employees and ambassadors both inside and outside the company. This will in turn lead to better performance and clear results in P&L statements.

CHAPTER 8

INTERACTION AND DEVELOPMENT OF DIGITAL MOTORS

One of the main promises of the methodology is to help businesses figure out when to do what and how it should be done. Let's dive in and see how the different motors relate to each other in the digital transformation journey. There is no one-size-fits-all solution to all situations, but there is a basic working order that serves as a good reference point for most companies. We call it general best practice. The arrows in the figure indicate the maturity each motor should have in different phases. In early phase (red part of the arrows), it is, for example, advantageous to prioritize Values, Vision & Mission. In the next phase (yellow part of the arrows), Values, Vision & Mission remain in the forefront while, at the same time, the focus should be on how the company works. Thus, motors such as Organization and Data & Analysis should be given preference. In the third phase (green part of the arrows), maturity of the various motors levels out.

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MOBILIZATION

COORDINATION

ACCELERATION Why and Where?

Values, Vision & Mission Strategy work Organization

How?

Processes Infrastructure Data & Analysis Value proposition & Revenue model

What?

Touchpoints Relationships

Working in the Mobilization phase The main task is ensuring that all levels of the organization understand why digital transformation is important and where it will lead. The goal is to mobilize the will to change and the force for change - to create a sense of urgency. Central to this phase is a willingness to try, test, and learn, and in this way become more digitally mature, paving the way to the Coordination phase.

Working in the Coordination phase Here, lessons from the Mobilization phase are applied in order to start the implementation of long-term initiatives. It is important to get others on board and bring about a distinct change in how the company works, above all through a focus on Strategy work, Organization, Processes, Infrastructure, and Data & Analysis. To a large degree, the focus here is the coordination of existing operational activities with digital initiatives.

Working in the Mobilization phase In this phase, the emphasis is on what needs to be done to fully meet the target groups' needs, regardless of touchpoints or technology. Here the work is done as one company with one plan and with one organization where everyone is working towards the same goal. Chapter 12, Make the most of the waves, contains an in-depth review of work in the different phases.

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LEADING AND ACHIEVING DIGITAL TRANSFORMATION Itâ&#x20AC;&#x2122;s a cakewalk, when you know how. Gerry Lopez, surf legend, about surfing

CHAPTER 9

THE TRANSFORMATION PROCESS In this section, we look at how digital transformation is led and carried out - step by step. It is a long and demanding process requiring much from you and your organization. In our experience, the process itself is an important part of the journey. The process provides an understanding of the work involved and why the digital journey needs to be implemented. Our intention with the methodology and the book is that you relatively quickly get a clear picture of where you are today and, with this insight, acquire ideas and recommendations for your onward journey. Letâ&#x20AC;&#x2122;s return to the surfing analogy to describe the digital transformation process. Weâ&#x20AC;&#x2122;ll provide an in-depth, stepby-step description of how the work is managed and implemented - all to make the process as quick and efficient as possible.

Get in position (the starting point). You have to start from the right position. To do so, the company must understand their own digital maturity and that of other industry stakeholders (digital positions). Choose the right waves (the plan). This is done by starting with general best practice and adjust according to the company's digital position relative to the industry, company strategy, and whether there are waves of change significantly impacting the company. Altogether, the company's best practice answers what the company should focus on, more or less, in any given situation. The last part of this step is to determine how far you want to progress in each motor, and the time frame in which it should happen. This desired position is called the digital destination. Make the most of the waves (implementation). It is now time to act on the waves of change. This is done through the companyâ&#x20AC;&#x2122;s development of its digital maturity in the three phases: from the Mobilization phase to the Coordination phase and finally to the most mature stage, the Acceleration phase.

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MAKE THE MOST OF THE WAVES

GET IN POSITION

THE DIGITAL MATURITY MATRIX

• Identify the company’s and the industry players' digital maturity (digital positions).

• Working in the three phases

CHOOSE THE RIGHT WAVES

• Company maturity vs best practice • Maturity in relation to industry players, strategy, and waves of change • Company best practice • Digital destination

CHAPTER 10

GET INTO POSITION The first thing a surfer needs to do in a surf competition is throw herself into the water and swim out to get into position. The position is selected based on the surfer's knowledge of the water (for example, where the waves break and how the seabed looks), what the surfer knows about the other competitors, and his or her own strengths and weaknesses all to increase the chances of choosing the right wave. Positioning takes place in a similar way for a company that wants to transform. You start from the current situation. The first step is to find out how far the company has come in its digital transformation. You need to determine your strengths and weaknesses and whether there are motors lagging behind or motors that should go before others. These answers also need to be put into context by comparing them with the rest of the industry. A company may, for example, be relatively well advanced in its digital transformation, but still remain last in the field in relation to its competitors.

IDENTIFY THE COMPANY'S DIGITAL POSITION There are three approaches to identifying how far a company has come in its transformation:

What's your company's Digital Maturity Index? Take the digital maturity test on www.digitaltransformation.net. 110

A quick estimate based on the characteristics of each motor and phase is one way. There is a template you can copy and use on page 122. Review the summary at the beginning of the section The phase's characteristics and the in-depth descriptions of each phase. Then fill in the template to best describe your company and industry.

LEADING DIGITAL TRANSFORMATION

Maturity test on www.digitaltransformation.net. This test is recommended if you would like more detailed feedback and responses based on your company's specific setup. After completing the test, you can see where your digital maturity is distributed and how it differs from general best practice. Note that the test should not be seen as an absolute way forward. Instead, think of it as you would a personality test in a recruiting process. The purpose of the test is to point companies in the right direction and serve as a basis for good discussion. In-depth analysis of the company. The most extensive work and that which provides the best groundwork for analysis, discussion, and choices for paths forward is to combine the test in the last point with an in-depth analysis of the company's digital maturity. That involves interviewing key people and reviewing existing documentation and operations, motor for motor. Once this is done, you will have a very good idea of your companyâ&#x20AC;&#x2122;s digital position and a starting point.

DIGITAL MATURITY INDEX PUTS A NUMBER ON YOUR MATURITY To quantify where you are, to use that in relation to your market, and to see how your digital maturity evolves over time, it is useful to track your Digital Maturity Index (DMI). A company's DMI ranges from zero to one hundred percent and is relative to the world outside the company. This means that as the outside world's digital maturity develops, your company also needs to mature to maintain position and digital competitiveness.

The phases' characteristics The current state is the first thing to identify. In the figure below, you can see common characteristics of companies with different digital maturity levels. Can you identify where you are?

MOBILIZATION

COORDINATION

ACCELERATION

No vision No answer to why

Comprehensive vision and mission Digital vision and mission

One company, one vision, and one mission There is a higher purpose

Strategy work

Comprehensive strategy Inflexible strategy Lack of clarity in goals and KPIs

Overall and digital strategy Relatively static strategy work Uses the customer journey

One overall agile approach Masters the customer journey Clear objectives and KPIs completely clear

Organization

Digital alibi Departments in silos Maintenance culture & competence

Active management Coordinates digital and traditional Increased innovation and digital skills

Digital leadership One open and competent organization Change culture

Poor process mapping No innovation process

Process mapping Measures processes Internal innovation process

Optimizes processes Automation Open innovation process

High technical debt Missing a plan Limited IT policy

More focus on core business Module based Modern work tools

Control, flexibility, and speed All relevant data is made available Needs-adapted tools

Does not see waves of change Intuitive decision-making What happened?

Ongoing environmental scanning More fact based What will happen and why?

Automation Facts & intuition What is the best thing that can happen?

Product and function Usage and income bases Transactional revenue

Digital value-added services User experience Recurring revenue

Ecosystem Situational value propositions Balance in the value proposition portfolio

Touch points

Purchased touchpoints Touchpoints viewed separately

Own, earned, and borrowed touchpoints Coordinate online and offline

Automation Omni-channel

Relationships

Transaction Mass marketing Company to customers

Relationship Lifetime value Companies and customers

Value-adding relationships Community Companies with customers

Values, Vision & Mission

Processes

Infrastructure

Data & Analysis

Value proposition & Revenue model

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CHAPTER 12

MAKE THE MOST OF THE WAVES Time for action! Now that the plan is formed, it's finally time to put it into practice. In this chapter, we make recommendations based on general best practice: These are the recommendations from the previous chapter that you adjusted according to your company's specific situation. In addition to the recommendations below, additional, more company-specific activities will surely follow. Evaluate these based on your digital maturity and the company's best practices. The overall goal is for you to reach your digital destination as efficiently as possible at the same time as the company's competitiveness increases.

WORKING IN THE MOBILIZATION PHASE What should be achieved in this phase: Ensure that all levels of the organization understand why digital transformation is important and where it will lead. The goal is to mobilize the will to change and the power to change - to obtain a sense of urgency. This phase is about learning and daring to explore, in order to become more digitally mature and pave the way for entry into the Coordination phase. • • • • • • • • • • • • •

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Engaging the owners, board, and management team Getting customer and market insight Developing the vision and mission Describing how the company should work Organizing the transformation Building the transformation team Eliminating barriers Demonstrating achievements Increasing the organization's digital competence Laying the foundation for process work Building infrastructure to grow into Exploring value proposition and revenue model Exploring touchpoints and relationships

The digital transformation begins in this phase, and the stronger the foundation, the easier the change will be going forward. It's essential to create understanding, enthusiasm, and commitment in this phase, especially within management teams. Keep in mind that the efforts required are in reverse proportion to the company's digital maturity. It is a bit like pushing a car to get it rolling. It requires the most power when it stands still. When it starts to roll, it's easier. Be careful with timing to foster and create energy in the organization so that it can be well managed and guided in the right direction. Below are our recommendations for the Mobilization phase:

Engaging the owners, board, and management team Management's commitment to digital transformation is the single most important success factor79. The CEO, management teams, and other key personnel need to take the lead early on and emphasize that the business is increasingly affected by digitalization. The better the leadership, the more power it will have in the organization. Despite these lessons, it is all too common that good leadership is absent. It's not enough that the CEO and management are involved; the board and owners must also be along for the journey. A long-term commitment that reaches beyond the results of individual initiatives is critical. The way to involve owners and directors often begins with our following recommendations.

Getting customer and market insight Digital transformation begins with the realization that the world looks different and most importantly, with an understanding of how customers and the market have changed. What are the waves of change and which of these should your company take? These are questions

SCHIBSTED'S OWNER SUPPORT LAYS THE FOUNDATION FOR SUCCESS One of the linchpins of Schibsted reaching the position they have today was owner support. "We had a good working environment early on, in that the largest owner stood behind us. It was extremely important," says Sverre Munck, former Director of Strategy at Schibsted. He recalls a meeting at which a colleague argued before the board: "The money we spend on the Internet is a known cost. But what we don't know is the cost of not spending money on the Internet." This says quite a lot about the reasoning early on. The dotcom crash came around the year 2000, putting the brakes on much of the worldâ&#x20AC;&#x2122;s economy, with one result being severe dives in advertisement revenue. Aftonbladet, for example, suffered a loss of 34 million SEK in 2000. "They were tough times, but we were emphatic with the owners that we must hang on because we knew things would turn around. We received a lot of criticism, and both Kjell Aamot (former CEO)80 and I were close to losing our jobs," recalls Sverre. "However, we managed to get the owners with us and we persevered, above all focusing on VG, Aftonbladet, and Finn.no. Seen in retrospect, this was the best decision we've made. It gave us the edge we still have today," he explains further.

you should ask yourself. When these insights fall into place, enthusiasm grows for adapting and meeting customersâ&#x20AC;&#x2122; changing needs and behaviors. Also, a keenness develops for giving new competitors a run for their money. This generates momentum helping the transformation work in many ways. More focus on the customer and the outside world means less attention to conflicts between departments and workplace politics. The customer and competitorsâ&#x20AC;&#x2122; digital behavior rub off on the organization the ball is rolling. 129