Digital Transformation and Efficiency

Jake Freivald
August 29, 2019

Corporate transformations are hard. Digital transformations are harder. From McKinsey in late 2018:

Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. This year’s results suggest that digital transformations are even more difficult. Only 16 percent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 percent say that performance improved but that those improvements were not sustained.

One might be forgiven for one’s skepticism that this whole “transformation” thing is working out.

McKinsey also tells us that corporate life spans have been cut by 80 percent over the past 60 years – from an average of 75 years in 1955 to 15 in 2015. Could it be that increasing transformation efforts and greater data complexity are making it harder for companies to grow sustainably?

Successfully transforming companies focus relentlessly on a clear set of objectives. I covered that when I talked about what digital transformation means for CFOs and COOs. But there’s a particular element we need to drill down on to understand the dangers inherent in digital transformation: Efficiency.

Here’s why.

When we try to implement a digital transformation, everything we do brings uncertainty. And uncertainty is sand in the gears of an efficient operation. There’s no way to avoid it – uncertainty is part of any complex human endeavor – so our objective must be to control and mitigate it.

We control uncertainty by focusing on key requirements and metrics, as discussed in my previous CFO and COO blog posts. In the chrysalis metaphor of my original digital transformation post, the reduction of uncertainty is equivalent to ensuring that every cell and protein knows its part and is pulling in the same direction to create the butterfly.

Focusing on a reduction in uncertainty will help direct the transformation that we want to effect. But that focus requires more effort, time, and communication – all of which can slow down the processes that we’re engaged in. Slowing down those processes means we’re not conducting business as efficiently as we need to. Worse, that usually means we’re not doing as well with our old business model (because we’re focusing more on the new one) and we’re not executing properly on the new one.

A lack of efficiency means we’re starving the old business models before the new ones can thrive. Is it any wonder that 84 percent of digital transformations fail?

Two things come out of this, from my perspective.

First, people involved in a digital transformation must stay ruthlessly focused on efficiency. Various forms of efficiency must be on the list of key metrics monitored across the entire organization. When efficiency decreases, business leaders must understand the need to root it out.

Second, many of the companies that want to attempt a digital transformation should first get good at being efficient during transformations.

That takes some unpacking, so let’s consider healthcare. If you’ve ever been to a really modern health facility, you may have noticed the astonishing level of efficiency they’ve achieved: Every doctor you see (your primary care physician, cardiologist, and orthopedist, say) all have the exact same information about you; the radiologists, nurses, and other caregivers know what you need before you talk to them; the follow-up is stellar because everyone knows what’s supposed to happen. Everyone is aware of everything about your care journey regardless of whether it took place in an outpatient facility, in a hospital, or in a doctor’s office.

They’re still delivering the same product: good health, brought about through diagnosis, communication, planning, treatment, monitoring, and aftercare. Only a relatively small portion of a healthcare organization is dedicated to transformational approaches to those basic processes.

But because the efficiency of their processes have improved, they’ve changed patient experience and satisfaction. They’ve contained costs while improving outcomes. They’ve figured out how to onboard technologies that make them efficient – and how to make that onboarding efficient as well.

By becoming good at maintaining efficiency during a transformation, they can continue to transform themselves – perhaps by behaving like a health insurer as well as a healthcare provider, for one common example – without learning to be efficient at the same time they’re trying to learn how to become a different business.

It’s often important to start a radical transformation small and think big. The “start small,” whatever it may be for you, should be focused on efficiency as one of its top objectives. And when you get bigger, focus on the lessons you’ve learned about efficiency to drive your larger digital transformations home.

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