How to Assess Digital Maturity

Every business today is becoming a digital business, but the extent varies. The key is whether business leaders understand and drive the necessary changes to stay competitive.

You’ve likely made strides towards digital maturity, but how far have you really come? What future steps need to be taken? Ensuring that your actions are sustainable is crucial for continued growth.

Answering these questions can help you evolve into a digital leader. The best companies don’t just rely on past and present successes. They look ahead, charting bold new paths and continuously reinventing themselves. I’m excited to help you navigate this journey. If you’re ready to begin, let’s take the first step together.

Digital Transformation and Digital Maturity

The term “digital transformation” is frequently mentioned, but what does it truly mean? Many companies believe that merely investing in modern technologies equates to digital transformation. While technology is crucial, it is just a small part of the journey. True digital transformation requires changing how people work and the methods they use. Without these changes, you won’t achieve full transformation.

Digital transformation should impact your entire operating model and every aspect of your business, including people, skills, processes, and technology. To achieve meaningful outcomes and sustainable performance in the digital world, you must think comprehensively. How will you evaluate your progress and determine what remains to be done? A digital maturity assessment can be helpful.

The Journey to Digital Maturity

Step 1: Digitization

The first step is digitization, which involves converting analog or physical information into digital format. Most businesses have already digitized to some extent. For instance, in the early days of the internet, automakers put some product information online. This was an example of digitization.

Step 2: Digitalization

The next step is digitalization, which involves using digital technologies and approaches to improve business models and processes. As recently as 2011, General Motors executives considered self-driving technology too futuristic to address. However, as technology advances, some traditional companies move towards digitalization. They often create separate digital groups within their businesses to experiment, while still relying on legacy skills, processes, and technologies for most operations.

Step 3: True Digital Transformation

The final step is true digital transformation, which is the coordinated digitalization at scale. This transformation should permeate the entire operating model and all aspects of the business, including people, processes, technologies, and metrics.

Evaluating Your Position

The words you use matter. It’s important to evaluate and develop an accurate depiction of where you are on the continuum of digitization, digitalization, and digital transformation. Plot your course for continuous maturity and advancement.

Speed is the New Currency of Business

Change is happening faster than ever before, and this pace will only accelerate. It might sound surprising, but consider this:

• It took automobiles 62 years to reach 50 million users.
• The telephone took 50 years.
• Electricity took 46 years.
• Credit cards took 28 years.
• Television took 22 years.
• The Internet took seven years.
• PayPal took five years.
• Facebook took three years.
• Twitter took two years.
• Games like Fortnite can reach 50 million users in just a few months.

Adapting to the New Reality

Many businesses struggle to keep up with this rapid pace. To help your business speed up, consider the acronym STAC:

Simplification

Simplification is the first step toward speed. Companies are often good at adding new processes and technologies but not as good at retiring the old and redundant ones. This can lead to unnecessary complexity. To simplify:

• Catalog Processes and Technologies:

• • • Begin by listing all current processes and technologies within your organization.
    • Identify overlaps and redundancies.
    • Determine which processes and technologies are outdated and which are essential.

• Retire the Redundant:

• • Develop a plan to phase out outdated and redundant processes and technologies.
  • Ensure smooth transitions by training employees on new systems and processes.

Transparency

Transparency helps you reach your goals faster. Develop clear strategic plans that outline where your company is headed and ensure these plans connect with the work your team is doing. By making your plans transparent:

• Develop Clear Strategic Plans:

1. 1. • Create detailed plans that outline your company’s goals and the steps needed to achieve them.
      • Ensure these plans are easy to understand and accessible to all employees.

• Align Team Efforts with Strategic Goals:

1. • Communicate how each team’s projects contribute to the company’s overall strategy.
   • Regularly update the team on progress and any changes to the plan.

Accountability

Accountability is crucial for delivering results. The key to accountability is measurement. What gets measured gets done. To enhance accountability:

• Implement Metrics:

1. 1. • Develop metrics to measure the health of your business and track progress towards goals.
      • Ensure these metrics are relevant and provide actionable insights.

• Assign Responsibility:

1. • Designate individuals or teams responsible for each metric.
   • Hold regular reviews to discuss performance and address any issues.

Collaboration

Collaboration is essential in today’s business environment. Collaborate across traditional disciplines within your organization, such as marketing and IT, to drive more value. Collaboration should also extend to:

• Internal Collaboration:

1. 1. • Encourage cross-functional teams to work together on projects.
      • Break down silos and promote open communication between departments.

• External Collaboration:

1. 1. • Partner with strategic vendors and engage with the venture capital community for new ideas and innovations.
      • Network with peers and other companies to share knowledge and best practices.

• Customer Collaboration:

1. • Involve customers in the innovation process by seeking their feedback and testing new ideas with them.
   • Use customer insights to refine and improve your offerings.

Increasing Speed and Innovation

In a world where speed is the new currency of business, adopting the STAC approach can help your company stay competitive and thrive. By focusing on simplification, transparency, accountability, and collaboration, your business can generate more ideas and execute them faster. Embrace these principles to thrive in a world where speed is the new currency of business.

• Regular Assessments:

1. 1. • Conduct regular assessments to measure the effectiveness of your simplification, transparency, accountability, and collaboration efforts.
      • Use these assessments to identify areas for improvement and make necessary adjustments.

• Stay Agile:

1. • Be prepared to pivot and adapt your strategies as needed.
   • Keep an eye on emerging trends and technologies to stay ahead of the curve.

The New Sources of Competitive Advantage in the Digital World

Gaining a competitive advantage over your competitors is a key question for any for-profit company’s executives. But is the answer to this question the same today as it was 20 years ago? Let’s explore.

Traditional Sources of Competitive Advantage

Michael Porter of Harvard Business School, in his seminal work on Competitive Advantage, identified key sources of advantage:

1. Cost Leadership: Becoming the lowest cost producer.
2. Differentiation Focus: Differentiating within one or a small number of target market segments.
3. Differentiation Leadership: Targeting larger markets to gain an advantage across an entire industry.

While these concepts remain relevant, the digital economy has introduced new nuances.

Customers now have more complete and up-to-date access to information about your products and your competitors’ products. They seek emotional connections with the products they use, demand sustainable solutions, and expect continuous innovation.

Seven Sources of Competitive Advantage in the Digital Age

1. Stickiness
2. Barriers to Entry
3. Inimitability
4. Trust and Love
5. Scalability
6. Sustainability
7. Speed

Stickiness

Stickiness refers to how indispensable a product becomes as more people use it. For example, Slack excels at this. The more a team uses Slack for messaging, documents, and integrations, the more valuable it becomes, making it hard to switch to a competing service. On weekdays, Slack users are connected to the app for an average of 10 hours and are active for over 140 minutes each day.

Barriers to Entry

In the workplace messaging space, products gain additional value as more people use them—a phenomenon known as the network effect. Slack grew rapidly through strong word-of-mouth, and now the market is tough for new entrants, leaving space mainly for large players like Microsoft.

Inimitability

While Slack’s product is not radically advanced, its key differentiator is its ease of use. With an intuitive interface and a focus on a few core functions, Slack has built a loyal community. While the product itself can be cloned, the community’s loyalty cannot.

Trust and Love

Slack’s easy-to-use product, combined with its authentic, funny, and transparent voice, helps build credibility with its customers.

Scalability

To scale as the company grew, Slack developed a dedicated team to ensure its system could handle increased demand.

Sustainability

Slack focuses on three strategic priorities for sustainability:

1. Platform Play: Investing in a vibrant ecosystem of tools and apps that integrate with its platform.
2. Enterprise: Offering Slack Enterprise Grid for larger organizations, competing with Microsoft Teams.
3. Intelligence Layer: Leveraging machine learning and AI to enhance the usefulness of information shared on Slack.

Speed

Slack’s singular focus on its chat app, unlike larger competitors with multiple priorities, allows it to move quickly and maintain a laser-like focus on its core product.

Plot your products against these six factors. Identify where you are succeeding and where you are falling short. Bring together a diverse set of teammates to develop strategies for capturing the advantages of each factor. In the digital age, these factors will help you gain and maintain a strong competitive footing for the future.

Innovation Labs

Creating new approaches can sometimes be best achieved on the periphery of your existing business operations. This way, you avoid disrupting your core business to the point of frustrating customers and losing revenue. One effective strategy is to develop an innovation lab. These labs allow companies to:

• Hire new types of people with modern skills.
• Leverage or redefine new processes.
• Utilize new technologies.

Purpose of Innovation Lab

The initial goal was to create a distinct environment from main headquarters, allowing lab to:

• Hire the next generation of employees.
• Implement modern processes.
• Develop and leverage cutting-edge technologies.

As the lab’s practices, processes, and technologies proved effective, they were gradually introduced to the broader main business. This approach, often called “innovating at the edge,” allows for a smooth transition from old methods to new ones.

Recommendations for Creating an Innovation Lab

1. Create a Dedicated Team:
   • Establish a team focused on innovative, digital-centric ideas.
2. Mandate for Innovation:
   • Give the team a mandate to try new things, even if it means potentially cannibalizing existing products. It’s better to replace your own products than to let a competitor do it.
3. Empower the Team:
   • Allow the team to hire new staff, leverage new processes, and integrate new technologies.
4. Focus on Scalable Ideas:
   • Ensure that the team is working on ideas that have the potential to grow the entire business. Success should be measured by the ability to scale and contribute to overall business growth.

By following these steps, an innovation lab can become a source of inspiration, innovation, and growth for your company. Allowing great liberty to test new ideas, learning from failures, and focusing on scalable solutions can significantly enhance your business’s future prospects.

One-Speed Business

During digital transformation, businesses often find themselves operating in both traditional and new ways simultaneously. Some believe this “two-speed” operation is the new normal, especially for established companies that can’t afford to halt operations during the transition. However, I advocate for a vision of becoming a “one-speed” business instead of maintaining a dual approach.

Key Steps in One-speed Transformation

• Hiring for Learning Agility:

1. 1. • Focus on hiring team members who were eager to learn and develop future skills, rather than being content with their current abilities.

• Adopting Agile Development:

1. 1. • The company shifted from traditional sequential methods to agile, iterative approaches. This change engaged the project or product’s intended audience during development, allowing for early validation of value. Projects or features could be quickly canceled if they didn’t meet value expectations.

• Establishing Innovation Labs:

1. • Create innovation labs to explore new technologies, thinking about the future of your business. These labs test and validate trends like machine learning and artificial intelligence, incorporating successful prototypes into scalable solutions.

The Vision for a Digital Future

My vision is to transition fully into the digital world, eliminating the old ways entirely. This “burning of the ships” moment ensures that there is no return to the previous methods, compelling everyone to embrace the new digital reality. Commitment to digital transformation is crucial; a bimodal approach, where the old and new coexist, isn’t sustainable in the long run. Full dedication to the digital future offers the greatest rewards.

The Importance of Developing Ecosystems

When you think about your competitors, some obvious examples come to mind. These are companies whose products or services overlap with yours. Examples include:

• Coca-Cola vs. Pepsi
• Ford vs. General Motors
• Delta Air Lines vs. United Airlines

But how does the digital economy change the nature of competition? The shift is significant. Traditional company-to-company competition has evolved into ecosystem-to-ecosystem competition.

The Role of Ecosystems in the Digital Economy

In the digital age, delivering products and services requires developing partnerships in new ways:

• Technology Partners:

1. 1. • Companies often rely on software as a service (SaaS) providers.

• Open-Source Technology Providers:

1. 1. • Companies leverage existing technologies instead of reinventing the wheel.

• Staff Augmentation Providers:

1. • Temporary skilled personnel are brought in for specific projects or to manage demand spikes.

Each type of partner innovates at different paces and in various directions, making it crucial to choose partners wisely and replace those that don’t add sufficient value.

Measuring Value Differently

Today, value needs to be measured beyond traditional metrics. Consider the following factors:

• New ideas generated or introduced
• Speed of bringing new products to market
• Contribution to customer satisfaction
• Impact on top and bottom lines

These are the true value metrics in the digital economy.

Viewing Vendors as Sources of Inspiration

Your vendors should be seen as sources of inspiration, not just fulfillers of work. Engage strategic partners more deeply to tap into their diverse experiences. This broader group can offer valuable insights and innovative ideas.

Expanding Your Network

Your ecosystem should include peers from other companies. It’s easier than ever to connect with peers through:

• Social networks
• Industry conferences
• Direct outreach (e.g., phone calls)

By seeking advice from those in similar roles, you can emulate their successes and avoid their mistakes.

The Principle of Reciprocity

Be ready to offer advice to others as well. Operating under a principle of “give a little to get a little” strengthens your ecosystem.

A robust ecosystem gives you advantages that competitors might lack. Embracing ecosystem-to-ecosystem competition is the path to better performance in the digital age.