Best Practices for Digital Transformation

Interviews with almost 100 chief transformation officers, chief digital officers and other top executives at over 80 global companies — all established firms with a long history — asking about their best practices for tackling the digital transformer’s quandary. Success requires five elements.

In 2016, executives at Saubermacher, a waste-management company in Graz, Austria, executed the first step in the firm’s digital transformation and ecosystem strategy. They created Wastebox , an app-based waste-disposal platform, connecting construction companies with waste-disposal firms. The chief marketing officer, Andreas Opelt, told us that Wastebox garnered a significant valuation only two years after inception and that it caused one of the global industry leaders, Veolia of France, to seek out a partnership with Saubermacher.

But Saubermacher faced one core quandary: How could it maintain profitability in its legacy business activities while reaping the full potential of this new digital-ecosystem business?

We conducted interviews with almost 100 chief transformation officers, chief digital officers and other top executives at over 80 global companies — all established firms with a long history — asking about their best practices for tackling the digital transformer’s quandary. We found that success requires five elements:

LEADERS UNDERSTAND THERE’S A PRESSING NEED TO PURSUE A DUAL BUSINESS APPROACH: To lay out a strategy for how to act, leaders have to realize why their organizations must transform. Companies may need to respond to newly emerging competition or changing customer preferences. They may need to play catch-up as they see their market shares dwindling, or they may seek to create novel value propositions for new customer profiles.

COMPANIES HAVE COMPLEMENTARY STRATEGIES AND BUSINESS MODELS FOR THEIR LEGACY AND NEW BUSINESSES: First, organizations need to focus on how digitization can help safeguard competitiveness of the core business. Second, organizations need a strategy for how the disruptive digital business will generate additional growth. Third, organizations need to consider interactions between the core and the new digital business.

COMPANIES HAVE THE RIGHT TALENT AND MINDSET: Digital transformation is possible only with the right staff and leaders. Across both businesses, the most important levers in this respect are retraining and hiring. One major challenge resides in reconciling two leadership approaches in one organization. Organizational culture also needs to shift toward embracing change. Promoting customer-centricity and radical experimentation is crucial.

COMPANIES HAVE THE RIGHT INFRASTRUCTURE: Digital transformation also requires new structures, processes and technology. Managers need to reflect on whether they have opted for the right organizational design to link the two businesses. The goal is a design in which digitization efforts permeate the entire organization. Firms must also consider external partnerships that can help them create new customer-value propositions. Switching to a more agile setup, reliant on rapid prototyping and adaptive planning, allows organizations to integrate user feedback along the development process.

COMPANIES HAVE TO MEASURE PROGRESS AND RESULTS FOR BOTH BUSINESSES: Initially, key performance indicators will be different for the legacy and new businesses. For the legacy business, traditional KPIs such as metrics related to cost savings or efficiency will suffice for measuring impact. For the new digital business, KPIs have to evolve according to the three stages of development: ideation, incubation and commercialization.

Skillfully mastering legacy and new businesses is certainly a challenge. But, as Saubermacher’s experience shows, it’s one that can come with many rewards.

Copyright 2019 Harvard Business School Publishing Corp. Distributed by The New York Times Syndicate.