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Digital Transformation


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Ron Tolido presented this at our Meetup on Sept. 16th, 2013.

With digital transformation, the use of digital technologies to radically improve the performance or reach of enterprises, companies can become more customer-centric, more valuable and more profitable. Ron Tolido (@rtolido) discusses digital maturity, digital governance and the role of the chief digital officer (CDO), design principles and a digital transformation roadmap.

Published in: Business, Technology

Digital Transformation

  1. 1. all credits
  2. 2. Digital Transformation ian overview Ron TolidoRon Tolido CTO Capgemini Application Services – Continental Europe 16 September 2013 Transform to the power of digital all credits
  3. 3. Digital Transformation ‐ AGENDA 1. The Basics 2 Digital Transformation framework2. Digital Transformation framework 3. Digital Maturity 4 Digital Governance4. Digital Governance 5. The Roadmap 6 Some relevant Technology Trends6. Some relevant Technology Trends all credits
  4. 4. 1. Digital transformation: The Basicsg How digitization fundamentally transforms businesses
  5. 5. A multi‐year research project with MIT … all credits
  6. 6. … leading to several important insights … 2011 2012 2013 “Digital Transformation  k” “Digital Transformation  f ” “Digital Transformation  i ” Research  themes Framework” Performance” Execution” Research  160 in‐depth interviews  in 50 companies (15  countries)  400 companies surveyed in  30 countries (5 continents)  11 industry sectors  > 2,500 companies  surveyed  Europe (54%), NA (35%),  APAC (16%)  11 industry sectors  benchmarked  Global scope  Understand the digital   Establish link between  digital leadership and   Establish how digital  Objectives g phenomenon in $ billion  global organizations  Define a “digital  maturity” framework financial performance  Understand digital maturity  at sector level  Define “DNA” of digital  leaders g transformation is managed  in practice  Understand execution  challenges Outputs The  Execution  f DT leaders  Deep dive on  governance  Digital  leaders cases  Deep dive on  digital vision  and  engagement all credits of DT g g  Digital leaders  cases
  7. 7. all credits
  9. 9. We are in midst of the third industrial revolution powered by digitization 3rd Industrial Revolution2nd Industrial Revolution1st Industrial Revolution Electricity Steam  Engine Digitisation  Shift to an economy based on Centralised manufacturing Machine‐based manufacturing Driving  agent Shift to an economy based on  information  Fuelled by advances in computer  miniaturisation, mobile, and  Internet Centralised manufacturing  Revolved around steel, railroads,  electricity and chemicals Machine based manufacturing  Centred on iron, steam  technologies and textile production Technical  Innovation  PC  Internet and mobile networks  Smart devices  Internal combustion engine  Diesel engine  Telephone and telegraph  Cotton spinning  Fossil fuel  Large scale production of chemicals Innovation S i  Explosion in ICT‐enabled  productivity  Massive economic growth  I t i li i t d d  Creation of factory system and  trade unionsSocio‐ Economic  Impact productivity  Globalisation of markets and  workforce  Growing income inequality  Improvement in living standards  Rising unemployment  Greatly increased international  trade trade unions  Increased life expectancy  Massive urbanisation all credits Source: Capgemini Consulting‐MIT Analysis
  10. 10. As opposed to previous industrial revolutions Digital Transformation is mainly driven by  consumer behaviour and demands … all credits
  11. 11. … a powerful combination of technology forces … Social Internet of Things Big Data Cloud Mobile all credits
  12. 12. … and catalogs full of inspiration … all credits
  13. 13. … making it a major challenge on CXOs’ agendas “People have a tendency to  overestimate technology in the short  term, and underestimate it in the  long term.” – (Bill Gates, Microsoft) “I can’t think of any industry sector or  company which is immune from Digital p y g Transformation.” – (Andrew McAfee, MIT) all credits
  14. 14. This trend is intensified by new entrants … all credits
  15. 15. … taking advantage of digital innovations to oust traditional companies … Example: Blockbuster’s lack of adaption Market valuation (million USD) Blockbuster (established in 1985) (established in 1999) 8.400 Value  Proposition  DVD rental through brick and  mortar stores and online  Launched online DVD rental  business in 2004  Started as an online DVD rental  company in 1999  Launched personal movie  recommendation system in 2000 8.400 Proposition  Introduced streaming service in  2007  More than 6,000 stores in 2010  No physical presence Operations/  Customers  48,000 employees as of Jan. 2010  2 million online subscribers in  2006  Decreasing physical customer  base  900 employees  26 million streaming members as  of Dec. 2011 24 Bankrupt in 2010Bankrupt in 2010 base Valuated at $4.9 billion  as of April 2012 Valuated at $4.9 billion  as of April 2012 24 1994 2010 all credits Quelle: Capgemini Analysis; Company Websites, Annual Reports as of April 2012as of April 2012
  16. 16. … with new business models … all credits
  17. 17. … that are changing the game … all credits
  18. 18. 2. Digital Transformation Frameworkg Digging Deeper
  19. 19. Digging deeper: In a joint study with the MIT we achieved a better understanding how  companies leverage Digital Transformation Digital transformation study 157 Interviews 50 Companies 15 Countries Billi D ll C i IT d B i E i all credits Billion‐Dollar Companies IT and Business Executives
  20. 20. The MIT study shows that organisations are digitally transforming three key areas:  customer experience, operational processes and business models Building blocks of Digital Transformation showing customer’s key challenges Customer Operational i d l Customer understanding Digitally‐modified businessesProcess digitisation Customer  Experience e Operational  Process e Business Model g  Analytics‐based segmentation  Socially‐informed knowledge  Product / service augmentation  Transitioning physical to digital  Digital wrappers g  Performance improvement  New features New Digital Businesses  Digital products  Reshaping organisational  boundaries Worker enablement  Working anywhere anytime  Broader and faster communication  Community knowledge sharing Top line growth  Digitally‐enhanced selling  Predictive marketing  Streamlined customer processes Digital Globalisation  Enterprise Integration  Redistribution decision authority  Shared digital services Customer touch points  Customer service  Cross‐channel coherence  Self service Performance management  Operational transparency  Data‐driven decision‐making Shared digital servicesSelf service Digital Capabilities  Unified Data & Processes  Analytics Capability  Business & IT Integration  Solution Delivery all credits Source: Capgemini Consulting‐MIT Analysis
  21. 21. 3. The Digital Advantageg g Digital Leaders Outperform their Peers in Every Industry
  22. 22. Digital maturity is a combination of two separate but related dimensions: Digital Intensity  and Transformation Management Intensity Digital Intensity is investment in  technology‐enabled initiatives to change how  the company operates – its customer  engagements, internal operations, and even  business modelsbusiness models. Location‐based marketing Customer Service in Social Media Transformation Management Digital Design Connected Products Mobile sales Intensity consists in creating the leadership  capabilities necessary to drive digital  transformation in the organization. Digital Design … Digital Vision Cross‐silos coordination New skills Cultural change … all credits
  23. 23. The two dimensions spell out four different types of digital maturity • Beginners do very little with advanced digital capabilities, although they may be mature with more traditional applications such as ERP or electronic commerce Although nsity applications such as ERP or electronic commerce. Although companies may be Beginners by choice, more often than not they are in this quadrant by accident.FASHIONISTAS F hi i DIGIRATI Digital Inten BEGINNERS • Fashionista have implemented or experimented with many sexy digital applications. Some of these initiatives may create value, but many do not. While they may look good together, they are not implemented with the vision of gaining synergies among the items.CONSERVATIVES Transformation Management Intensity BEGINNERS among the items.CONSERVATIVES • Conservatives favor prudence over innovation. They understand the need for a strong unifying vision as well as for governance and corporate culture to ensure investments are managed well. However, they are typically skeptical of the value of new digital trends, sometimes to their detriment. • Digirati truly understand how to drive value with digital transformation. They combine a transformative vision, careful governance and engagement, with sufficient investment in new opportunities. all credits
  24. 24. Codelco Revolutionizing Mining Through Digital Technologies “Shifting from a physical‐intensive model to a knowledge and technology‐ intensive one”intensive one Codelco, the largest copper producer in the world, has its t b k i th 1800 Today, four mines in  • Developed a radical digital vision  (“envision the future of mining”) roots back in the 1800s. Owned by the Chilean State, it operates internationally and employs over 18,000 people. Chile are operated  automatically: trucks  drive themselves,  operations are  controlled remotely • Invested in cultural change  (innovation challenges) • Developed new skills • Constantly monitor, assess and  controlled remotely,  information is shared in  real‐time, and so on y , coordinate initiatives “Our company is very conservative, so changing the culture is a key  h ll W t d i t l i ti d t tchallenge. We created internal innovation awards to promote new  ideas and encourage our workers to innovate” Marco Antonio Orellana Silva, CIO all credits
  25. 25. We quantified the digital maturity of 391 companies and analyzed their financial  performance We analyzed financial data from all the publicly‐traded companies in our sample*companies in our sample* Digitally‐mature companies are achieving statisticallyare achieving statistically significantly better financial performance** * Of the 391 companies in our sample, 184 were publicly traded all credits ** Industry adjusted FY2011 financial performance for 184 publicly traded firms, controlling for geography
  26. 26. Digital Intensity and Revenue Generation Companies that are mature on the digital intensity dimension are better at driving revenue through their existing assetsbetter at driving revenue through their existing assets +6% +9% Basket of indicators: • Revenue / Employee ‐4% ‐10% / p y • Fixed Assets Turnover (Revenues /  Property, Plant & Equipment) all credits
  27. 27. Transformation Management Intensity and Profitability Companies that are mature in the transformation management  intensity are more profitableintensity are more profitable ‐11% +26% Basket of indicators: • EBIT Margin ‐24% +9% g • Net Profit Margin all credits
  28. 28. Digital Intensity and Market Valuation Companies that are mature in the transformation management  intensity achieve higher market valuationsintensity achieve higher market valuations ‐12% +12% Basket of indicators: • Tobin’s Q Ratio ‐7% +7% • Price / book ratio all credits
  29. 29. Digital transformation is moving more rapidly in some industries than in others… Digital maturity, by industry, for our survey Each dot represents the average maturity of industries for hi h h 20 d i Hi hT h l Telecomm Travel and  hospitality which we have 20 or more data points. BankingRetail High Technology Banking Consumer  Packaged Goods Pharmaceuticals Retail Insurance Utilities Manufacturing all credits
  30. 30. …but every industry has firms that have already begun to gain the benefits of digital  transformation Percentage of firms in each industry by quadrant. “Digital Beginners in  any industry areany industry are  several years from  gaining the digital  maturity that their  Digirati competitors  already possess" all credits
  31. 31. 3. Digital Governanceg What Digital DNA looks like
  32. 32. Digital Leaders show common patterns: the Digital DNA Focus Investments on  where they  Invest 100% in  transformation  “Digirati status is more  than simply a  combination of sound  t d di it l choose to Excel Digitally management Digital management and digital  capability. There is  something inherently  different about Digirati  Combine Digital  Use Digital  T h l i t Leaders ff g DNA that separates   them from the rest" g Capabilities to  Exploit Synergies Technologies to  Transform their  Business Models all credits
  33. 33. Common Digital Governance Mechanisms all credits
  34. 34. Nike Connecting Digital Silos to Create Synergies “From Separate Initiatives to Firm‐Level Transformation” Nike is the world’s leading maker of athletic shoes, l i t d • Strong presence in social  media – usages include  open innovation and  customer service • Created a dedicated unit – Nike Digital  Sports – to provide skilled resources,  budget, and coordination across the  enterpriseapparel, equipment, and accessories. customer service • Offers mass  customization • Brand dedicated to  digitally enhanced enterprise. • The unit leads most customer‐facing  digital projects, and releases products  under the Nike+ brand. • IT and business people work togetherdigitally‐enhanced  products • Strongly developed  digital design • IT and business people work together  in the unit, developing new products “Connecting used to be, ‘Here’s some product, and here’s some  d ti i W h lik it ’ C ti t d i di l ”advertising. We hope you like it.’ Connecting today is a dialogue” Mark Parker, CEO all credits
  35. 35. The rise of the Chief Digital Officer all credits
  36. 36. How Starbucks did it… all credits
  37. 37. A CDO may be relevant to any sector… all credits
  38. 38. all credits
  39. 39. 5. The Roadmapp Get Digital Transformation started
  40. 40. The starting point: Formulate a vision of your digital company and outline clear business  objectives Vision Business objectives (examples)  Get smarter ‐ make better use of  digitally available informationdigitally‐available information  Get closer to clients ‐ gain better  insights from customers and build a  strong relationship  Get leaner ‐ establish efficient  globally integrated operations  through utilising state‐of‐the‐art  technology  Get more innovative ‐ facilitate  knowledge exchange and  communication all credits
  41. 41. Identify and select digital innovations which help you achieve your digital vision and  business objectives Digital transformation radar and innovations Live data  analysis Automated online  Online bidding Digital warehouse Supplier  collaboration  platforms  Online product  blog Rapid  manufacturing analysis  sales mgt Mobile service field Mobile service field  workforce solution Social media Knowledge  library E ecommerce New Customer E i Cost Management Productivity Improvement New Products /  S i blog Mass  customisation Crowd  sourcing  E‐ ecommerce  (multiple channels) Personal  recommendation  solutions Customer Insights Experience Services New PlatformsCustomer Operational Product Co‐innovation  l f Online design Online design  and testing  forums After sales mobile  and online services Order status  Insights PlatformsCustomer Product platformstracking In traditional business transformation technical innovations help realising an organisation’s defined target picture. In the  all credits course of Digital Transformation technical innovations should be selected to actively shape the target picture.
  42. 42. How Burberry did it… all credits
  43. 43. Burberry’s Digital Transformation approach has resulted in top‐line and bottom‐line  benefits Total revenue, 2006‐2010,  GBP million 1 Vision: Focus on all aspects of the business Better  revenue GBP million 850 995 1.202 1.185 1.501 2006 2007 2008 2009 2010 1 Top‐Down approach: Driven by top executives Better Adjusted operating profit,  2006‐2010, GBP million 2 185 206 181 220 301 Investment in digital innovations Better  profit 3 185 206 181 2006 2007 2008 2009 2010 Communication of the vision Better  share price Share price, 2006‐2011, GBP4 591 556 160 569 1.033 1.234 KPIs and ROI: Measuring success of digital initiatives p 5 2006 2007 2008 2009 2010 2011 all credits Sources: Capgemini Consulting Analysis;; Company Websites; Company Annual Reports; Yahoo Finance;  Note: Share prices as on 10 / 17 / 2011, 11 / 15 / 2010, 11 / 16 / 2009, 11 / 17 / 2008, 11 / 19 / 2007, 11 / 20 / 2006
  44. 44. 5. Some Relevant Technology Trendsgy A few minutes on Capgemini’s TechnoVision 2014
  45. 45. Digital Transformation is driven by emerging technologies .. • TechnoVision categorizes technology trends in 6 distinct clusters aiming to better understand anddistinct clusters, aiming to better understand and position an abundance of new technologies • In the 2013 edition, each cluster consists of 5 technology trendstechnology trends • Each trend is described through actions to take, tools to consider and insights to gather • There are also 7 design principles (Design forg p p ( g Digital) that should be considered and applied throughout • Depending on the challenge an enterprise wants to address, relevant building blocks are selected and woven together in Digital Transformation story lines DESIGN FOR DIGITAL • These story lines can be used to discuss, test, validate and strategize all credits DESIGN FOR DIGITAL
  46. 46. Overview: 7 Design Principles and 30 Trends Design For Digital Invisible Infostructure Thriving On Data We CollaborateDesign For Digital 1. Born In The Cloud 2. Build Social 3. SMAC It Up Invisible Infostructure 1. Virtual Lego 2. What Would Amazon Do? 3. Bon Risk Appetite Thriving On Data 1. My Data Is Bigger Than Yours 2. Intelligence Inside 3. Real Real Time We Collaborate 1. Social Is The New Oil 2. Profile As A Currency 3. Social Workers 4. Business, Mon Amour 5. No Requirements 6. From Train to Scooter 7 Think Design 4. Let’s Get Physical 5. Orchestrate for Simple S t A A S i 4. Data Art 5. Data Apart Together P O Th Fl 4. No Work 5. Friend Your Vending Machine Y E i7. Think Design Sector As A Service 1. Vanilla Tastes Good 2. Enterprise Candy Store 3. Elastic Business Process On The Fly 1. Shades Of Process 2. Process Is The New App 3. No Process You Experience 1. Object Of Desire 2. Zen Of The Task 3. Sweat The Assets 4. Close To The Edge 5. No Apps Apps 4. String of Silos 5. Co‐Process 4. Bring Your Office Device 5. End User, End Producer all credits
  47. 47. The Cloud has set a new benchmark for how quick flexible cost‐effective and Born In The Cloud The Cloud has set a new benchmark for how quick, flexible, cost effective and  scalable solutions should be available. This has a transformative impact on the  demand and supply sides, as expectations shift. Many organizations are not ready  to get all their solutions from the Cloud, but the new normal is already there and g , y particularly the expectations at the business side have considerably changed. For  new solutions, the Cloud should be the default scenario, only then to be ‘softened’  by pragmatic considerations around integration, security, legislation and y p g g y g manageability. all credits
  48. 48. Social is not something to be added at the end on top it is a ubiquitous design Build Social Social is not something to be added at the end on top, it is a ubiquitous design  principle that should be applied from the very beginning of creating solutions. If you  start designing your processes and applications as social by default you’ll see that  solutions are likely to become more flexible, connected and user/team‐centered. You y , / unleash the power of outside by thinking outside‐in. But privacy and trust are key and mobilizing the social network around you is all a matter of creating tangible value for it. all credits
  49. 49. Although the drivers of Social Mobile Analytics (or ‘Big Data’) and Cloud all have SMAC It Up Although the drivers of Social, Mobile, Analytics (or  Big Data ) and Cloud all have  powerful transformation impact as themselves, the real breakthroughs are created by  bringing them all together. In this powerful melting pot, the drivers amplify each other,  creating something much more compelling than the sum of the parts. So whenever you g g p g p y consider a solution in one of these areas, systematically look in the other areas as a  default for synergetic inspiration. all credits
  50. 50. Business, Mon Amour The consumerization of IT and the availability of Cloud solutions has brought technologyThe consumerization of IT and the availability of Cloud solutions has brought technology  closer to the business than ever before. True Digital Transformation creates a fusion  between digital capabilities and business change, rather than just aligning it. The IT  function in an organization is successful if the business side happily  takes the stage to g pp y g testify about its benefits, also takes the lead in business/IT projects and holds a  significant part of the budget for innovation. A continuous dialogue is crucial for this,  together with an architected platform to enable digital change and a shared, end‐to‐end g p g g transformation approach. all credits
  51. 51. Too much focus on requirements creates an artificial boundary between the Business No Requirements Too much focus on requirements creates an artificial boundary between the Business  and IT sides of an organization. It’s a bridge, but one that cannot be crossed. Instead, IT  should be providing a flexible, scalable catalogue of secure and compliant enterprise  services and solutions. It inspires the business to assemble their own, unique solutions p , q from it. Such a catalogue is the foundation and inspiration for business solution  ‘hypotheses’ that can quickly be validated, turned into executable plans and deployed.  Think Catalogue First!g all credits
  52. 52. The next generation of Business Technology solutions have a short time to market are From Train to Scooter The next generation of Business Technology solutions have a short time to market, are  created and delivered in an agile way and are developed and owned in the nearest  proximity of the business. They are much like Scooters and Cars, where the current  applications landscape is populated with Trains and Buses. Think about when to apply pp p p p pp y the right rhythm and start to explore new, flexible ways to build solutions, applying  agile approaches such as SCRUM and rapid development tools. all credits
  53. 53. ‘Digital’ now is a synonym for the use of IT to create new ways to engage with Think Design Digital  now is a synonym for the use of IT to create new ways to engage with  customers, optimize operations and completely transform business models. It brings  fresh options to connect to  better informed customers, using a variety of volatile  channels and much closer to the dynamics of business. To fully reap the benefits, the y y p , Business Technology landscape needs to be designed from the integrated, end‐to‐ end, outside‐in perspective of the customer. Creating this experience requires  ‘Design Thinking’, which is all about finding the right mix between empathy, g g g g p y creativity and good analytical skills. all credits
  54. 54. Digital Transformation ‐ AGENDA 1. The Basics 2 Digital Transformation framework2. Digital Transformation framework 3. Digital Maturity 4 Digital Governance4. Digital Governance 5. The Roadmap 6 Some relevant Technology Trends6. Some relevant Technology Trends all credits
  55. 55. all credits
  56. 56. Digital Transformation ian overview Ron TolidoRon Tolido CTO Capgemini Application Services – Continental Europe 16 September 2013 Transform to the power of digital all credits