How to start a digital transformation in your business

OPINION / 27th June 2017

Digital transformation strategies are often focused on how to create digital-first businesses from scratch. Yet the advice given to start-ups is vastly different to that given to those running established businesses, with an existing infrastructure, sales channels, employees and an organisational culture to contend with.

The path to instigating and implementing digital transformation will vary from business to business, and there’s no right or wrong way to do it. The route you’ll adopt will depend on where you start, the culture of your organisation, and the risk tolerance of your company. But broadly speaking there are five models you can take to adapt and grow your business in a digital age. These are:

1.     The Venture Capitalist model: Invest in new start-ups, let them grow and then buy them

Many companies take a VC approach to digital transformation – take the predominantly US based VC, Verizon Ventures. It invests in a portfolio of innovators who are not part of its company, and are not their employees. They take the view that some of the businesses they invest in may take off, and if they do, they look at ways these start-ups can add value to their own industry, then they acquire and integrate them into their existing businesses.

Here in the UK companies are taking a similar approach. Take the acquisition of  the fintech start-up Parmenion last year by Aberdeen Asset Management. Its chief executive Martin Gilbert said at the time that buying Parmenion would help to put Aberdeen Asset Management at the “forefront of the digital revolution within the industry”, and would help stave off competition from robo-advisors.

2.     The innovation team: Form an isolated team, let them explore & experiment, then bring them in-house

Another approach is to create an “innovation team” that’s isolated from the rest of the company; you let them explore new, maybe even crazy ideas and let them develop and test them before bringing them in-house.

Mondelez, the US confectioner, for example has innovation labs that it calls ‘garages’ located around the US. These garages have innovation teams testing out ideas that are a little further afield from their current products. The innovation team play around with new flavour combinations and continuously experiment, inviting customers in for trials, before rolling any new products out into the market. 

Banco Santander, the Eurozone’s largest bank, created its own innovation lab several years ago to help it undergo its digital transformation. This team was tasked with anticipating consumer trends and creating innovative solutions to meet the new needs of digitally-savvy consumers. In the last few years the innovation lab has created and launched three new products, Santander Select (for high-income clients), Santander Advance (for SMEs) and Santander Passport (for companies) and introduced competitive payment solutions, such as mobile wallet and digital payments, across the banking network as a result.

3.     The competition model: Incentivise innovation from within your organisation

Other companies prefer the competition model approach to digital transformation and run in-house innovation sprints or boot-camps, which are open to anyone in the organisation. They ask their colleagues, from across their organisation, to come up with innovative ideas and ways to improve the running of the business. They incentivise this approach by allowing the people with the best ideas to receive funding and time away from their ‘business-as-usual’ jobs to develop their ideas into new business models.

E-TRADE, the New York-based online discount stock brokerage firm for self-directed investors, is a company that's done this for example. It led an innovation boot-camp as a contest. It opened the competition up to anyone in the company. People were invited to form a team, come up with an idea or way to improve the business and submit it for consideration. The prize was $20,000, a chance to develop a prototype and then, going forward, be part of a team who tested the idea to see if it could work to enhance the company.

4.    The continuous innovation approach: Undertake rapid experimentation, continuously

This is the approach the tech-giants like Google and Facebook take. Amazon also adopts this strategy. However, larger, more traditional firms are embracing this business model too.

Intuit, the multinational software company, has set itself a goal of having everyone involved in experimentation. It now has hundreds of what it calls ‘catalysts’, people who have been trained in methods of rapid experimentation, who go around the entire company and work with any teams to improve their ways of working. It uses the same process with its legal team, with its human resources team, with the order procurement team, asking each how they can improve their jobs and output.

5. The skunkworks initiative: Set up a hybrid team that marries in-house talents with experts from the outside

As many organisations are not set up to move at the speed demanded in the digital world setting up a hybrid team, or “skunkworks” (utilising a mix of external and internal expertise) can be a good way to start. These can facilitate rapid product development, tangible prototypes that can be used to present business cases, as well as enable transform agents to get buy in from around the organisation. Skunkworks are also a good way of sharing knowledge, which an organisation can then use to take the function in-house over a period of time.

This approach has been adopted by many industries, in particular it has been successful in the rethinking of transport solutions. The most innovative RailTech event in Europe, HackTrain, is an example of skunkworks working well in practice. Each year 100s of the brightest developers, designers and entrepreneurs gather together to solve some of the rail industry’s greatest challenges. Many of the solutions born from the skunkworks approach, such as flexible tickets, ticketless ticketing and crowd-solutions in stations, are being adopted by rail operators right now.

ORM’s view 

We have seen examples of all of these different models across the companies we have worked with, some successfully implemented and some not. The key is that no matter which one is used, your approach needs to reflect the realities of your organisation’s culture, structure and desire to invest.  At ORM we work with a multitude of different brands, each with their own unique approaches to digital transformation. Get in touch with us to find out more about how we can help you start your digital transformation.

Andy Farmer Andy Farmer Executive Director, Strategy Andy Farmer