Developing an effective digital transformation governance model
Over the past few years, numerous businesses have transitioned to digitizing their data storage and management procedures. In fact, only in 2021, 81% of companies have embraced digital transformation to streamline their processes. In 2022, the global digital transformation spending was estimated at $1.8 trillion. And by 2026, it is expected to reach $3.4 trillion.
With clear objectives, accountability measures, effective governance, and monitoring strategies, the digital transformation governance model enables companies to navigate their digital journey effectively. Digital business transformation helps businesses achieve a harmonious balance between innovation and control, leading to digital transformation success.
In this article, we explore what digital transformation involves and highlight the importance of digital innovation. We also delve into the role of governance in directing digital transformations and why evaluating digital transformation is difficult.
Understanding digital transformation
Digital transformation refers to the incorporation of digital technology in all aspects of the business. This process changes the way companies operate and provide value.
The governance digital transformation involves six critical elements, as illustrated in the infographic below:
- Customer understanding is employing digital technologies to truly grasp what customers want and how they act.
- Customer touchpoints ensure that every online engagement is pleasant and entertaining for users.
- Digitally modified business entails modifying corporate processes to make use of modern technology.
- Top-line growth entails exploiting digital channels to increase revenue and reach.
- Process digitization is the replacement of outdated procedures with new, tech-savvy ones for getting things done faster and better.
- Performance management is using online tools to assess how things are going and identify areas for improvement.
This transforming path, however, is not without difficulties. Businesses frequently face change criticism, ROI measurement issues, insufficient digital resource allocation, and difficulties while evaluating digital transformation performance. However, elements such as board transparency and scaling digital infrastructure help businesses overcome these barriers and reach a successful digital transformation.
Realizing the significance of digital transformation governance
As organizations heavily invest in digital transformation, governance becomes crucial to efficient resource utilization, achieving strategic goals, regulatory compliance, fostering innovation, and responsible data management.
In light of this trend, companies are devoting up to 27% of their IT budgets to digital transformation in 2023. The aim is to improve communication, efficiency in production, and customer experience.
Effective digital transformation governance impacts the entire organization, covering aspects like traditional business governance, which ensures strategic goals and regulatory compliance. It also includes IT-business alignment, innovation governance, and data governance, areas where modern boards often lack preparedness.
Having a well-structured governance model provides two main benefits, such as:
- Enhanced accountability
Governance ensures that decision-makers are held responsible, promoting transparency and building trust among stakeholders.
- Consistency with business objectives
It guarantees that digital initiatives are in line with the company’s overall goals, avoiding misguided efforts and investments.
The infographic below shows additional benefits of a well-implemented digital governance model:
However, poor digital transformation governance framework is risky. Without it, there is a chance for the following negative outcomes:
- Technology not aligned with business objectives
- Investments in technologies that do not provide value
- Lack of accountability leading to potential operational and reputational damage
Tip: Board culture is critical in developing digital projects and governance. The governance structure, on the other hand, guarantees that this goal is not only aspirational but also successfully implemented.
The 5 components of the digital transformation governance model
When you start creating a digital transformation governance model, consider five main components and how they align with your company’s goals.
1. Leadership and ownership
For digital initiatives to succeed, leadership must be on board. When senior management shows support for digital transformation, it inspires enthusiasm and commitment throughout the organization.
- Senior management involvement
They should actively endorse and promote digital initiatives to play their part.
- Clear responsibilities
Management should also assign clear responsibilities and board member duties for each initiative. This could involve creating a dedicated digital transformation team or assigning responsibilities to existing roles.
Moreover, a proven way to seamlessly integrate digital transformation initiatives is through board succession planning. This way new board members understand digital priorities.
2. Clear objectives and KPIs
With any initiative, clarity is key. This operating model, especially given its scale and impact, is doubly important when it comes to digital transformation.
- Setting clear objectives
Every digital project should have well-defined goals that align with the organization’s overarching strategy. One helpful method for setting goals is using the SMART framework, which emphasizes making goals clear and measurable.
- Importance of assessment
Use key performance indicators (KPIs) to monitor progress, ensuring projects stay on track and deliver the desired results.
3. Cross-functional collaboration
To truly realize the benefits of digital initiatives, fostering a culture of collaboration across teams is vital.
- Breaking down barriers
Encourage different stakeholders from various departments to communicate and collaborate on digital projects. See below for a case study on Microsoft’s approach to cross-functional collaboration, which led to successful digital transformation.
- Agile project management
Facilitate efficient cross-functional collaboration with agile project management. Enable teams to adapt to changing digital requirements and deliver results effectively.
- Success story
Microsoft faced tough competition from IT giants like Apple, Amazon, and Google. To stay ahead, the company changed its digital governance and strategy to focus on democratizing its technology for both consumers and businesses.
They partnered with other computer giants like SAP and Oracle to create Microsoft Azure, the world’s second-largest cloud platform
In conclusion, this move drove the company’s market valuation above $1 trillion, with its stock price growing from $38 in 2014 to over $136 in 2016.
4. Risk management and compliance
Embracing the digital frontier comes with risks. However, thoughtful risk management and compliance processes effectively navigate these challenges.
- Identifying risks
Proactively monitor potential threats and challenges associated with new technologies or digital initiatives. The growing significance of risk management as a key component of any thriving business plan is visible from the growing value of the global risk management software market which is forecasted to reach $23.57 billion by 2028.
- Compliance and data security
Ensure that all digital projects align with industry regulations, especially cybersecurity. According to Ernst & Young’s survey, 64% of respondents indicate that cybersecurity is the primary board’s concern in 2023. Moreover, Bob Kress, Accenture Securities Managing Director, anticipates an uptick in cyber attacks within corporate governance, attributed to geopolitical unrest.
5. Budgeting and resource allocation
Efficient use of resources is pivotal for successful digital transformation. If you’re aiming to maximize the impact of your digital initiatives, consider the following:
- Allocating the budget wisely
Understand where funds need to be channeled most urgently and allocate accordingly. It is essential to have a clear understanding of the project’s scope to create a realistic budget. Otherwise, you risk underestimating or overestimating the cost and time commitment necessary for your project. The study surveyed C-level executives and revealed that around 13% of SMB organizations had unrealistic budgets for their digital transformation plans.
- ROI analysis
When companies need to make important decisions about how to allocate their resources, they usually try to figure out which options will give them the best return. ROI analysis helps to allocate budget towards the projects that provide the greatest benefits. Additionally, ROI analysis promotes financial prudence and efficient resource allocation for maximum impact.
Tip: When companies begin on their digital transformation path, using technologies like board portals or VDRs may considerably ease the governance process. iDeals Board ensures that all stakeholders are informed, aligned, and working towards the shared objective of digital innovation. Learn more about how board portals may help your digital governance approach.
5-step roadmap to digital transformation governance
Digital transformation requires a strong governance model to guide and oversee the process. Following a structured approach ensures optimal results. To successfully undergo digital transformation, follow these five steps:
- Assess your current digital capabilities and set clear objectives that align with your business strategy.
- Engage key stakeholders from various departments to gain valuable insights that will shape the transformation journey.
- Design a flexible implementation framework that adapts to new technologies and changing governance models. Then, use this framework as your roadmap.
- Consistently monitor progress against set objectives. Regularly measuring progress against set goals, identifying and addressing issues promptly, and continuously refining processes are essential to maintain the transformation.
- Regularly review and adjust your strategy based on feedback and new developments. Recognize that digital transformation is an ongoing initiative, not a one-off project.
Success stories: lessons from the frontlines
As digital transformation and corporate governance evolve, companies worldwide are redefining their strategies. Let’s explore two outstanding examples: Amazon and Tesla.
Amazon
Amazon Business is an excellent illustration of how a leading consumer company adapts to the B2B realm to meet the digital demands of customers. This platform offers a marketplace for corporations to procure from Amazon and third-party vendors. Additionally, individuals can buy products for their organizations and incorporate order approval procedures and reporting.
Amazon made significant adjustments in light of its objectives:
- By selling over 250 million items ranging from cleaning supplies to industrial equipment, Amazon built a comprehensive platform for B2B merchants.
- It introduced free two-day shipping on orders of $49 or more, as well as unique price cuts. It also provided buy system connectivity, tax-free purchases from qualifying clients, shared payment options, order approval procedures, and better order reporting.
- In a live expert initiative, Amazon allows manufacturers to connect with buyers and address product questions.
The results
Amazon has the potential to enter the U.S. B2B wholesale market, which is worth an estimated $7.2 to $8.2 trillion in 2014. Initially, they generated income by levying sales commissions on third-party vendors, based on the type of product and volume of the order.
Tesla
There is another successful case of Tesla, that aims to showcase the superiority of electric cars over gasoline ones through digital transformation. Tesla revolutionized the electric car concept with advanced technology and software. Their digital-first approach accelerated global EV adoption.
Tesla went its way and made three key changes:
- Connected car and over-the-air (OTA) updates
Tesla uniquely introduced OTA firmware updates, streamlining vehicle maintenance and addressing issues, like power fluctuations, remotely.
- Autonomous driving
Tesla’s autopilot, while requiring driver engagement, managed major driving tasks, elevating safety and the driving experience.
- Data analytics
Tesla leveraged data from 8 billion miles driven, vastly surpassing Waymo’s data, to gain invaluable insights into demand, feedback, and trends, enabling precise innovations.
The results
Tesla’s over-the-air upgrades reduce carbon emissions and the need to visit dealerships, saving customers time and money. In 2021, they delivered a record-breaking 936,172 vehicles, an 87% increase from the previous year.
Lessons to learn from
- Offering a diverse range of items makes a platform more desirable to a diverse range of businesses, servicing numerous needs and sectors from a single marketplace.
- Amazon’s success in the B2B space demonstrates the value of adaptation, recognizing consumer demands, and capitalizing on existing capabilities to enter new areas.
- Embedding digital transformation at the heart of corporate processes may result in unrivaled benefits and help firms stand out in competitive marketplaces.
- By concentrating on improving the user experience firms increase brand loyalty and value.
- Since the digital world is always changing, digital leaders should foster a culture of continual learning and adaptability.
Navigating the challenges of implementing digital transformation
While companies are ready to adopt digital innovation, there are still challenges in properly planning and executing these changes.
According to Deloitte, during the pandemic, 85% of CEOs initiated digital transformation efforts. Many businesses, however, still lack a clear plan for integrating multiple technologies.
Successfully navigating the complexities of digital innovation requires clear strategies. An impactful approach includes welcoming new board members with diverse expertise, which brings fresh perspectives for an informed decision-making process. Below, we outline three predominant challenges companies face in their digital transformation journey, accompanied by potential solutions:
1. Lack of dedicated IT skills
| Challenge | Solution |
| As companies adopt modern technologies, they’re confronted with a shortage of specialized IT skills. Areas like cybersecurity, advanced data analytics, and compliance with regulations like GDPR are especially challenging. | Invest in ongoing training and skill development. Collaborate with educational institutions or IT boot camps, offer competitive salaries, and foster a supportive work environment to attract and retain talent. |
2. Lack of organizational change management
| Challenge | Solution |
| Digital tool introductions often encounter resistance from employees. | Develop a comprehensive change management strategy that emphasizes both the technical and human aspects of transformation. Educate employees, address their concerns, and facilitate a smooth transition. If the role of board members in facilitating change is crucial, see our dedicated article about the board recruitment plan for nonprofits. |
3. Evolving customer needs
| Challenge | Solution |
| Customers now have elevated and ever-changing expectations. Businesses must adapt rapidly to meet these demands or risk falling behind competitors. | Implement regular market research and customer feedback mechanisms. Continuously adjust digital strategies based on real-time insights from the market and industry trends. |
Key takeaways
- Incorporating digital technology across corporate operations improves value delivery and necessitates a better knowledge of consumers and the upgrading of business procedures.
- Effective digital transformation governance framework integrates activities with company goals, guaranteeing consistency and responsibility.
- Continuous training, change management, and market research help to overcome IT skill gaps, poor governance, internal opposition, and altering client demands.