sparks on a train track
Altimeter's third "State of Digital Transformation" report finds organizations falling behind when it comes to digital transformation efforts PHOTO: Jeremy Perkins

Think your company is far along in its digital transformation progress? If you're like many companies, you're probably kidding yourself.

According to recent data from San-Francisco based Altimeter, a Prophet company, too many businesses continue to take piecemeal, reactive approaches to digital transformation, latching on to isolated goals, departments or technologies without creating cohesive, organization-wide efforts. This marks the third time in as many reports that data uncovered companies overestimating their maturity level.

The research advisory firm surveyed 528 digital transformation strategists and executives leading change for its third “State of Digital Transformation Report.”

Creating Digital Transformation Strategy in a Vacuum

"A lot of digital transformation efforts I see today are all over the place," said Brian Solis, lead author of the report and principal analyst with Altimeter.

Companies emphasize the digital in digital transformation and they are looking at modernizing customer experiences; but a lot of this is done in isolation of one type or another, according to Solis.

He pointed to one of the report's findings as evidence: in spite of customer experience consistently topping digital transformation priorities, only 34.8 percent of companies reported having mapped out the customer journey in the last year, a significant drop from 54 percent the previous year.

Solis saw this trend as disturbing, "a lot of companies are making investments in digital transformation roadmaps in the name of customer experience without actually knowing their customers."

Defining Digital Transformation

One of the factors going against digital transformation is its buzzword status.

According to the report, "Achieving buzzword status seems to be diluting the importance of digital transformation as a C-Suite imperative."

Altimeter defines digital transformation as:

"The investment in and development of new technologies, mindsets and business and operational models to improve work and competitiveness and deliver new and relevant value for customers and employees in an ever-evolving digital economy."

The definition evolved from last year's report to include employee experience's role in digital transformation initiatives.

Who Should be Responsible for Digital Change?

Digital transformation was at one point considered an IT project. This year, it returned to those roots.

The report found CIOs supplanting CMOs as the leader of digital change efforts. Thirty-four percent of respondents in the 2016 identified CMOs as digital transformation leaders, while only 19 percent named CIOs. CIOs landed on top this year with 28.2 percent, while CMOs dropped down to 22.9 percent.

Solis categorized the shift as a mixed bag, "For advanced companies … I think there's good news in the CIO taking over leadership of digital transformation... I also think that there is still too great of an emphasis on the technology."

Technology clearly acts as an enabler of digital transformation, helping companies become more agile, responsive and able to test and learn. But the technology-only approach leaves out the more important cultural shifts required to ensure ongoing transformation efforts.

Ownership, therefore, doesn't really concern Solis. "It doesn't matter who owns it. Advanced companies realize it [requires] a cross-functional stakeholder group to take ownership of [digital transformation] — because it's everything — and [this group] reports directly up to the C-suite or to the board."

One change that is worth noting in the ownership category was the marked rise in Chief Digital Officers, named as leaders of digital change initiatives 8.1 percent of the time. This growth points to a larger trend: the parallel paths digital transformation initiatives and innovation initiatives travel.

Baking Innovation Into a Company's DNA

While the report notes the two efforts still act independently from one another, they are however, increasingly intertwined.

Solis noted innovation suffered from a similar fate as digital transformation noting,"like in digital transformation, [companies] we're prioritizing cool startups and cool technologies, trying to plug into that expertise or those capabilities, but still without having the executive level or operational level of becoming innovative as a result. What I've observed is most companies think they're being innovative when they're really being iterative."

In both cases, the risk-averse nature of most businesses prevents them from committing to the scale of change necessary to prevent the efforts from becoming a one-off experiment.

"The operational models of most companies are designed to be risk averse," said Solis. "The idea of innovation was always about risk versus reward. And so it's this mindset within the organization that is its own inhibitor ... [this is] one of the reasons why it's so difficult to be customer-centric, because we're beholden to shareholders and stakeholders and quarter to quarter reports that all get in the way of making these bold moves."

According to the report, leading companies share a few common traits.

  • They prioritize customer experiences and employee experiences to inform innovation roadmaps
  • They've increased spending on innovation programs
  • They encourage a culture of innovation.

Organizational investments in innovation according to Altimeter's third State of Innovation report

The Dual Mandate of Customer and Employee Experience

The customer experience consistently tops the list of why organizations undertake digital transformation initiatives. But this year, Altimeter introduced employee experience as a critical driver as well. "The employee experience is a crucial, yet often overlooked, element of successful digital transformation."

While the debate will continue about the relationship between positive employee experience and positive customer experience, Solis points to company culture as the "number one inhibitor" of transformation (and innovation) efforts.

Once again, leading companies have already made efforts to improve employee experience, including creating training programs (62 percent), investing in new expertise and job creation (52.8 percent) and launching reverse-mentoring programs (35.6 percent).

The report predicts that need to improve employee experience will only grow in the coming years.

Opportunity or Threat: You Decide

Businesses have an opportunity with digital transformation to move beyond just keeping up with the times to modernize their businesses and operational efficiencies to stay competitive. 

Signs of progress are out there.

It's up to businesses to decide if digital transformation will become a "critical opportunity" or a "viable threat" for their business. 

The report is available for download on the Altimeter site (registration required).