Triggers for business and digital transformation

The starting point for digital and business transformation can be caused by different impulses:

• new ideas
• competitive threats
• fundamental changes in the customer base, such as a demographic change.

Most successful projects do not start with a grand master plan which is then being followed in all detail. Instead, the successful projects start with an idea, a business case or even only with the incubation of an idea. This first step helps you to make sure that idea or product is designed, tested, refined before it is spreading through out the organisation. Or they are being standardized as a successful process, pattern or practice.

Even though your project may start on on a small scale or even as an experiment, it will soon start touching other parts of the organisation, of the ecosystem and supply chains. It has to touch these areas in order to be transformative. And that is the moment when the touch points, the feedback loop and the collaboration become critical elements in your project.

The Anatomy of Digital and Business Transformation Dynamics

But how do you know if a project has a potential to succeed and what the implications are? This is particularly challenging when there are interdependencies and feedback loops. For example:

• Customers are not adopting your new product. At the same time your legacy product is becoming obsolete. Customers are churning away. Revenue is declining. This leaves even less room for innovation projects.
• The first attempts to launch your new product failed. The people in your organisation are gravitating back to the legacy product. And your digital talent pools is shrinking, reducing your ability to transform and innovate even further.
• The new product has been developed with existing capacity and underutilized resources. As managers shift their focus to existing business, the new product is making less progress. This makes it difficult to release an improved version of the product.
• In the meantime your management team has created the capacity and supply chains to deliver the product and to serve clients. Back paddling would be costly and create a reputation issue with partners and potential clients.

All these feedback structures have the potential to create unforeseen and often unintended consequences.

How can you manage such a system as a whole? This is pretty challenging. But a good starting point is to understand the dynamic behaviour of the sectors and the dependencies and impact on each other.

Let’s take a look at the fundamental dynamics in each sector.

Dynamics of developing new products and services

Your new product and service development process plays a central role in your transformation strategy for several reasons:

• It is highly linked to all the other areas.
• It determines your ability to unlock future generate revenue streams.
• Customer retention is driven by your ability to respond to quality issues or new requirements.
• A product quality problem sends ripple effects through the entire organisation and may block progress in other areas for months.

Why projects run late and over budget

But one of the most fundamental challenges during a new development project is caused by the project itself. At the core of every project is a feedback structure which determines your team’s ability to stay on track in terms of budget, schedule and quality. In upcoming posts and episodes we will hear more about that. Watch the videos from the Transformation Dynamics Summer Academy to get a first overview. The first video is an introduction to this topic. And in the second video I am talking about some advanced topics such as the impact of scope changes.

The inherent feedback structure of product and service development leads to complex and non-linear behaviour of the project management system.

First things first

Before you even get started on your new product or service development effort, make sure you have the basics in place:

• Customer and audience listening and feedback systems.
• A project management approach and system to track task completion and progress.
• Feasible project plans.
• Management KPI dashboard.
• Collaboration and communications tools.
• Innovation roadmap.

Again, the ideas for new products and services can come from different “aha”-moments. And the idea may surface during a strategy planning workshop, a customer conversation, competitive analysis or in other forms. Make sure to have a place and funnel which captures your new ideas in order to assess and implement the winning ideas. For example, for growth marketing ideas you may want to have weekly session in which the growth team. The agenda is about going through the ideas, pick the most promising and feasible idea, implements and check the impact.

Dynamics of Growth

How does your audience respond to the new product and services? And what is the rate of adoption? This depends again on

• the feedback structure
• strategies and tactics you choose
• allocation of resources in terms of timing, amount and area of impact.

For example, if the feedback structure is characterized by strong feedback loops your product may see. This causes accelerating growth or the product message may even go viral. In this case the word-of-mouth feedback kicks in and contributes to the growth. And this is usually desirable because word-of-mouth promotion is powerful. And it is way more cost effective and efficient than spending your marketing budgets.

Word-of-mouth promotion can be more powerful than any other marketing efforts

But in case of weaker feedback, the rate of adoption and market share attainment depends more on the productivity and effectiveness of your sales process.

The S-shaped growth curve

As a starting point, make sure you understand the s-shaped growth curve and how the feedback structure of your market system is driving a more or less accelerated growth.

The videos on growth from the Transformation Dynamics Summer Academy are a good primer.

Organisation Transformation Dynamics

Your best idea does not just happen just because it is a great idea. It takes the commitment and contribution of people in your organisation and in your ecosystem, including suppliers, co-innovation partners, and sales partners.

But even if you consider only your internal organisation, you will find that bringing a new idea to the market place is a fairly complex process. And again, the internal feedback structures determine your progress, the rate of change and the success potential. As a rule of thumb:

Success = Quality of the idea * Motivation to implement

For example, if your new product is ready, but the sales incentives are not aligned then it will go nowhere. The sales team and the sales channel is unlikely to pick up the the product.

How to get started with digital and business transformation?

But many organisations are struggling with even more basic challenges: How

• convince the team that this innovation is not just an option or fad?
• make sure that the real progress is also perceived by the team?
• make sure that an innovative process is being adopted by the entire organisation?

Perception is Reality.

Here are some of the basic ideas for you to consider for your transformation and innovation initiative:

• Establish a transformation change team.
• Build up a growth team early, including the key roles to make the idea successful.
• Consider a “branded project”.
• Ensure communication of progress and success stories.
• Re-align the KPIs and incentives with the goals and strategy of your transformation.

The videos of the Transformation Dynamics Summary Academy offer an introduction in this topic.

In the video about Organisation Dynamics I am talking about some of the core feedback structures and the resulting dynamics. Notice how similar the internal adoption is to the external adoption in the market place.

The sequel video talks about the tipping point in the change initiatives.

Customer Success and Retention

The focus on customer success is increasing. As more companies are moving their business model from a traditional approach to an “…as-a-service” model it is vital to pay more attention on customer retention. This shift towards a Software-as-a-Service business model requires new internal processes and a different approach to customer service and support.

One question to consider is how to migrate an existing customer base to a new solution. You want to make sure that you are loosing the least number of possible and that you safeguard your revenue stream.

When it comes to retention it is important to understand the composition, activity and the dynamics of your customer base. Implementing a customer success team can help your customers to be productive on the new product and it helps you securing your revenue streams, which again is needed to keep up the pace of innovation.

The existing customer base is not only a source of recurring revenue, but it may also help you win new clients.

Ideas to get started with Customer Success

Some basic ideas:

• Implement a customer satisfaction survey.
• Run a continuous lost customer survey.
• Establish a customer success team.
• Implement a product feedback process. Make sure to categorise the feedback by impact on winning new customers and retaining existing customers.

You may find the following videos of the Transformation Dynamics Summer Academy helpful to get more familiar with the system dynamics in this area:

• Churn reduction and retention strategies and tactics.
• Migrating your customer base.

Conclusion

Digital and business transformation, innovation and growth initiatives are challenging. Funding and technology is usually not the problem. But the difficulties emerge during the project, while the seeds for the challenges are often planted at the beginning. The world is becoming more connected and the rate of change is increasing. This drives the hidden dynamics which often lead to a higher degree of uncertainty, complexity and risk and finally to unintended consequences.

As a manager, decision maker and contributor you can improve the success potential of your projects by understanding the key business dynamics:

• Project dynamics
• Organisation dynamics
• Growth dynamics
• Customer base dynamics
• Supply chain dynamics

With this new system mind-set you will be able to design, implement and optimize successful strategies and resilient business models.

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