There are digital transformation efforts in all industries—and in virtually every company. The best way to actually go about digitizing depends on the role and function of each business process and the data that underlie that process. In this post I’ll go into more detail about the various factors, and show you how to organize them within a digital transformation decision matrix.
Digital Transformation occurs when organizations rethink processes with a digital-first perspective. Digital Transformation almost is never simply the digitizing of paper-based processes.
Digital Transformation is not a nice-to-have; it’s a must-have. It’s the key to providing next generation products and capabilities that serve clients in a flexible, scalable manner. (See the results of our recent survey: What’s Real and What’s Hype in Digital Transformation?)
Most large organizations have thousands of paper processes and hundreds of legacy technologies supporting these processes. That makes it difficult to know where to get started and how to succeed.
But there is an approach that works: you need to understand if a process is a Utility or Enhanced Service on the one hand, and then understand if the underlying process is (mostly) non-digital, or (mostly) digital.
Before you start, ask yourself it the data and business process fit into one of two worlds: “utility services” or “enhanced services.” Utility services are processes that are non-differentiated, but are necessary and have great value to the organization. Like electricity or water when it comes to “real” utilities, doing these well doesn’t give you competitive differentiation. But it is important that utility services are run as efficiently as possible.
Enhanced services are those business functions where the company adds value to customers and markets. Though valuable, utility services provide little or no differentiation for the company; enhanced services are all about competition, growth and success. See the definition of Digital Transformation offered by my colleague, Joe Shepley, in What is Digital Transformation?
How you digitize should depend upon where the process and the underlying data sit in these two worlds. Utility services are necessary, but relatively simple. They are often post-process, low value-add, and non-differentiating or non-strategic (from the customer’s perspective.) Companies should focus on defining, commoditizing and automating these services and work streams.
Utility processes generally provide services that can be performed at optimal scale and low unit cost. Digital automation will shrink the pool of work over time. High volume usually requires minimal customization. Investments in a Utility process should be limited to maintenance and incremental improvements that keep the Utility operating effectively, competitively and in compliance with internal and external requirements.
Enhanced services provide a competitive advantage and allow the business to differentiate in the marketplace. The architecture is flexible and solutions usually are unique to the organization. Innovation is the watchword here: prioritization is flexible, and development scenarios often are measured in hours and days, versus months and years.
Here’s where it’s important to cut the digital transformation pie by the degree to which that process started out as a non-digital or a digital function. There’s a big difference between these two approaches. An example in the banking world illustrates the four areas:
A bank knows, relates and interacts with a customer’s money in non-digital and partly digital ways. Likewise a banking customer—for example, a checking-account consumer—also interacts with a bank within a non-digital to digital continuum.
The continuum in this example runs the gamut from depositing a check in an ATM to capturing a mobile image of a check to maintaining only digital records of the transfer of money. An example of an enhanced, all-digital process might be an on-line retailer’s history of a consumer’s purchasing history which that retailer then uses to suggest other products to the consumer.
The key is to define your digital transformation initiative based upon which of the four utility-enhanced—non digital-digital buckets the business process sits. Here’s a way to differentiate the four areas, looking at the loan application process:
My colleague, Lane Severson, wrote a eight-part series on Digital Transformation and the financial service industry. You can read the first of these, Why Can’t Our Transactions be More Like TurboTax? There are links to the other seven posts from there.
For mostly non-digital utility services, you can improve efficiency, but if you spend too much time improving the process there is a risk: the service may not be standard five years or more from now. For mostly non-digital enhanced services, you can incrementally automate. But you have to be careful here, too. Many of these services may not be as differentiating five years hence as they are now.
Ask yourself the question: Is the business process adding value to the business and to customers? Indeed, you want to move as many initiatives as you can into the utility services bucket to improve efficiencies. You then can focus on enhanced services to grow your organization, define new markets, and create a competitive advantage.
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