A growing number of executives, though, are facing up to digital reality. They know that digital technology can significantly improve the performance of their current business. They know that first-movers have an advantage. And they are keenly aware that digital can give birth to entirely new business models that shake up sectors, leaving companies that fail to adapt struggling to survive (newspapers are a case in point). They have therefore taken steps toward transforming their businesses and Aloha Technology is helping them.
The guiding principles for Digital transformation roadmap can be defined below
Defining value
To set a digital transformation on the right course a company must place it at the core of its agenda, and understand the magnitude of that undertaking. It is not for the fainthearted, but CEOs are heading in the right direction if they grasp the fundamental importance of heavyweight management commitment, are willing to make significant investments, and set clear, ambitious targets.Secure senior management commitment
Any transformation will be dead in the water if it does not have the commitment of the CEO and the leadership team. That statement seems almost glib, given how often CEO commitment is positioned as the solution to any major challenge. But the CEO cannot simply sanction a digital transformation; he or she must communicate a vision of what needs to be achieved, and why, in order to demonstrate that digital is an unquestionable priority, make other leaders accountable, and make it harder to back-track.
Set clear, ambitious targets
To set the organization’s sights at the right level, investments need to be linked to clear, ambitious targets. This helps on three fronts. First, it signals the magnitude of what digital technology can deliver. Without targets, people who find it hard to accept that the old ways of doing things were massively inefficient might be content to sign up for a 10 percent improvement in cycle time, for example, when 100 percent is possible. External benchmarking can help in this respect by reinforcing the conviction that cutting the time it takes to, say, process a claims submission from 90 minutes to 20 is not good enough if someone else has reduced it to four. A company can be certain that if it does not match that benchmark soon, others will.
Targets are needed for each source of value creation—cost savings, revenues, improved performance of agents, and satisfaction of employees and customers—and for new ways of working and the new capabilities required.
Secure investment
Digital transformation is likely to require significant investment. European insurer Axa, for example, invested €950 million over just two years. Our experience suggests that in IT alone, companies with outdated systems might need to double their current spending over a five-year period. That investment is likely to result in lower profits for a while—but without it there is a serious risk to profits in the longer term. Importantly, companies will need to allocate investment both to improve the current business and to build new businesses as the insurance model evolves. To acquire expertise in new fields and keep abreast of innovation, for instance, insurers will need to invest in partnerships or a venture capital arm, perhaps both, as well as in their own innovation labs.
Launch and acceleration
It is easy to launch change initiatives. It is hard to keep them afloat and spawn more. Often companies decide to fund several, assign people, even set up separate units. But then the initiatives fail to take off and the old ways of doing business continue much the same—at which point executives wrongly conclude there is no urgency as the market is not ready for change.Start with lighthouse projects
To win early support, companies should start with projects that offer potential for significant rewards with manageable risk. Such projects include customer services activities and the redesign of the claims process, from the moment a customer needs to file a claim to the moment of reimbursement. Customers will be delighted, cost savings can be as high as 40 percent, and effectiveness, measured in return on investment, can rise by as much as five percentage points.
Appoint a high-caliber launch team
The importance of securing a highcaliber launch team, often under a CDO, cannot be overstated. A CDO can prove invaluable in co-ordinating a transformation—avoiding duplication by devising a methodology for the redesign of customer journeys that can be replicated across the organization as digitization efforts are extended, for example. He or she can also ensure the appropriate technology and skills are in place, decide the sequence of the transformation, monitor progress against targets, and ensure that tactical day-to-day priorities get the attention they need. But the role of CDO is a temporary one. At the end of the nineteenth century, many companies employed a chief electricity officer to ensure supplies of what was a new industrial commodity. A few years later, none did. Key recruits to the launch team include designers to contemplate customers’ unmet needs and inform the creation of experiences, products, and services; data scientists; scrum masters to facilitate agile development; and developers who can work in the modern IT environment. Roughly, an insurer with premiums worth more than $5 billion should expect to hire between 20 and 100 new specialists during the first 18 months of a transformation.
Organize to promote new, agile ways of working
The way a company organizes itself is key to a successful launch. Setting up a digital unit independently of the organization will promote new ways of working essential for digital success, such as agile product development, test-and-learn methods that speed progress while keeping the focus on customers, and cross-functional teams that pool specific types of expertise.
Nurture a digital culture
We have touched upon how digital ways of working and thinking—fast, collaborative, empowered—will be the default mode of new recruits with digital skills. These methods also need to take hold across the organization, and now is the time to start nurturing them.
Scaling up
At the 18-month point, companies should be making good progress. They should have a handful of initiatives up and running and be starting to capture value. But just when everything seems under control is also the time to supercharge the transformation and do everything on a grander scale. The thoughtful sequencing of subsequent initiatives is key to this. In addition, close attention will need to be paid to building more capabilities. And to reap the full rewards of a transformation, eventually an entirely new operating model will be required.Sequence initiatives for quick returns
Sequencing with a view to quick returns is key to building scale fast. The more value a transformation captures as it progresses, the more it becomes self-funding and the greater the support it garners. Often a company’s approach is to let a thousand flowers bloom. But this spreads scarce resources thinly. Moreover, transformation incurs costs at a time when competition is probably putting pressure on margins. Hence the imperative to thoughtfully pursue a manageable number of digital initiatives to tend the performance of the core business while cultivating future sources of growth (see “Capturing value from the core”).
Build capabilities
By now it will be apparent that insurers will have to invest in more than just digital technologies themselves to scale up digital initiatives. Marcus Ryu, cofounder and CEO at Guidewire Software, contends that it is only by modernizing core operating platforms—most importantly policy administration, billing, and claims systems—that insurers can externalize the data and business logic necessary to deliver a satisfying digital experience for the policyholder or distribution partner.
Skills as well as systems will need to be boosted. But if a company struggles to hire 20 to 100 new people for the launch team, how should it go about hiring several hundred? Searches are likely to extend to developer communities and to technology conferences and similar events. The quest for talent might even lead companies to establish partnerships with software providers.
Adopt a new operating model
Whatever structures a company chooses initially, it will reach the stage when only a fundamental organizational redesign will do. Silos drawn along functional lines have always been a drag on collaboration and performance in large organizations. In the digital age, when companies need to reinvent the way they work on the fly, an inability to connect all parts of the organization to share data, expertise, and talent can be crippling.
That is why companies will have to lean away from a traditional matrix structure with rigid functional boundaries if the transformation is to succeed. They will need a network structure, organizing around sources of value, with product managers empowered to make decisions with implications that cut across functions. Teams will not be permanent. They will be dissolved when they capture the value at stake, then regroup around new sources of revenue growth or cost reductions. Some companies call them scrum teams, others tiger teams, portfolios, or tribes. Whatever the label, the ossified matrix is giving way to a more agile one. In other words, the entire organization, not just IT, will adopt an agile approach to working. “Agile principles are now standard operating procedure for software design,” says Marcus Ryu, “but they’re also applicable any time you need to orchestrate a large number of people to get something complex and multi-faceted done over an extended time frame.”
Conclusion
A closing thought, and perhaps one that reframes the challenge: the term digital transformation puts the emphasis on technological change. But it becomes clear to anyone who understands digital technology’s potential that what is afoot is less of a digital transformation and more of a fundamental rethink of the corporate model, for which digital technology is the catalyst. Sources of revenue, efficiency, and the organization’s structure are all up for scrutiny, as are talent models, which need to offer more flexible, more empowering, and more rewarding career paths. Some executives might feel the reframing makes the challenges more daunting still, others that it makes the opportunities more exciting. We are in the second camp. Aloha Technology will guide you to adapt digital transformation to increase your revenue.You can follow us on twitter @alohatechnology
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