”Income – costs = profit” – manager, do you understand this formula?
Have you ever heard of a construction project where you select the tools before knowing what you want to build and why? I doubt it. In many companies, this is business as usual as far as digitalisation is concerned. Changes are made with the hammer first – systems take precedence over business goals. Business manager, if you have ever felt a prisoner to IT, this text is for you.
Digitalisation requires technology. Even so, digital transformation is not a technology or IT project but a comprehensive business transformation. This is why it needs to be guided by business principles. Business is the master and technology the servant.
It all boils down to the familiar formula: income – costs = profit. When digitalisation is being planned, management needs to be able to say which of these three quantities will be affected by the transformation. It must always have a business driver.
A failed digital transformation can look like a fictional insurance company that has automated its customer service with a chatbot. The project focused solely on making the service more efficient. In practice, customers get frustrated with trying to communicate with the chatbot, feel they have received poor service, and take their wallets elsewhere.
In the insurance company case, automation did not produce any income, because the change was not based on business needs. This is what it is all about. Instead of measuring how big a share of customer contacts can be handled automatically, you should consider if the time saved can be used to support business strategy.
Business management will be held hostage to IT and technology as long as the capabilities of the organisation implementing the change are not sufficient and they are not in proportion to the company’s strategy.
In diffusing this hostage situation, money and power come into play: who controls the funds allocated to digitalisation? If business has a hold on the money to be used to buy technology, it will have control over how it is used, what kinds of tools will be chosen.
Ahold on the purse is not enough by itself. Skills are also needed. Business management needs to understand technologies essential to their business, at a minimum. I repeat: It is not enough that your IT director understands them, you, as the business manager, must understand them. Only then can you take charge of the business transformation and shake off the yoke of IT.
Business leader, are you putting your skin in the game? It’s a necessity if you wish to succeed, says Menno Huijben.
Digital transformation is not an IT project
Having read the previous chapter, if you thought you don’t have the time to concentrate on this – you are focusing on the wrong thing. What could be more important to a business manager than to control change pressures on your business as well as its development? These cannot be outsourced. CIO or CDO is your friend, but you carry the responsibility. Read this again: you carry the responsibility.
The tools or hammers to implement the change – platform technologies, low-code solutions – are a thing apart. The most important thing is that the ownership of the business change stays with you, business manager. You know how to consider the actions and tools using the most important formula: income – costs = profit.
You can answer important questions, such as will this increase our revenue, will this reduce our costs, or which strategic goal does this change support.
Digital transformation is a business project
Change of business model, new service model, the conquest of a new market, or withdrawal from a market. These are all business changes. Technologies are tools making them possible, but the business is always the underlying cause: income – costs = profit.
The desire to change has to come from the business: Which change are we reacting to? Why do we want to change? You need to be able to tell these reasons clearly to the organisation. Leaders have to inspire those around them to get excited about the change.
Corporate strategies talk about growth enabled by digitalisation, for example, improving customer service with digitalisation. What does it mean for the business, for real? Does a hypermarket possibly want to cut the cost of store personnel and customer service channels and let the personnel use their time on something that generates better revenue than talking to customers?
Successful change requires the right methodology
Business change is ultimately about identifying areas requiring development as well as change management. Large consultancies have world-class models for this, but they are not easy to adapt to the needs of medium-sized businesses or the public sector.
As an answer to the changing pressure of Finnish organisations, we have developed Business Technology Design methodology. It can be used in any business development project or framework, and it does not require a commitment to any technology. You can choose the hammer you like best.
This methodology helps you find what needs to be developed, whether you work in a social and healthcare organisation or medium-sized growth-hungry company, and whether your frame of reference is sales, production, finance, or HR. The Business Technology Design model uses a lot of time to identify change possibilities. It also helps you see how changes will affect different interfaces.
In the chatbot example, this could mean possibly mean you considering how the saved wages of the staff member answering customer messages personally will be used – for something productive or cut completely? What choices support business goals in the best way?
Remember: income – costs = profit
If you won’t remember anything else about this text, remember this: “Laws of business apply to business transformation.” Change is a strategic change that must be made for business reasons – not determined by technology or IT standards.
When you remember this, you can start looking at your business. What is the smallest thing you could change, what is the minimum viable transformation of your company?