Where Digital Transformations Go Wrong in Small and Midsize Companies

Digital transformation is a hot topic, but most leaders don’t understand the full scope of what it means. At a recent class in Drexel University’s Executive MBA program, one of Microsoft’s highly respected technology executives and global C-Suite advisors, April Walker, presented this definition: “Digital transformation is not just ‘doing digital.’ Digital transformation is a deliberate, strategic repositioning of one’s business in today’s digital economy.” She went on to share that businesses of all sizes can no longer get away with using digital tools to simply enhance and support traditional methods of doing business.

The current economic environment threatens the success — and perhaps even the survival — of many small and midsize companies, because larger organizations are increasingly able to provide personalized experiences to their customers, in literally any way their customers choose.

Most leaders of these smaller companies have already made significant digital investments to support their businesses operationally. They may have implemented technologies across a broad spectrum of business functions, like HR, governance and cybersecurity, customer relationship management (CRM), enterprise resource planning (ERP), and finance and risk, but stopped short of investing in AI or predictive analytics. But even as teams continue to work hard to harness all the data being generated by these technologies, it still takes longer than it should to get answers to basic KPI questions that are critical to running the business, such as those around customer churn, retention and satisfaction rates, employee satisfaction and turnover, average deal size, or billings by key products and services. Even more frustrating is that, when the reports are finally delivered, they lack insights into why the changes are occurring.

Assuming you have the above in place, what digital strategies are most small and midsize businesses missing? The answer is two-fold: understanding that you need specialized business analytics expertise on your leadership team and that you need to change how your organization makes decisions.

Hire a Data Scientist and Implement a Data-Driven Decision-Making Culture

An April 2020 Oxford Economics study uncovered a sense of unpreparedness among 2,000 small and midsize businesses surveyed across 19 countries. Approximately half of participants reported that the pandemic brought a series of operational disruptions and market volatility that has challenged their ability to serve customers reliably, engage employees authentically, and build trust with their partners. Although that may not be entirely surprising, more revealing was how they viewed their access to data-driven insights to support their goals and digital transformation efforts. Fewer than 40% said they have all the data needed to support analytics-based decision making. Gaps in data collection and analysis hinder small and midsize businesses’ ability to offer customers personalized connections. As a result, 67% of those surveyed said that this data deficit is giving larger organizations a stronger competitive advantage due to the more sophisticated analytics capabilities they have in place.

In today’s digital world where customer, operating, and financial data is being collected at an exponential rate, you need the specialized expertise of a data scientist to help you develop a business intelligence strategy to meet your goals, boost profitability, and drive success. First, they will make sure your data is in good shape to accelerate problem solving and business growth. From there, they will develop a technology architectural plan. The plan, which should be high-level and proprietary to your business, will outline how to store your company’s data, which will most likely be in a highly scalable, cost-effective, and secure cloud environment like AWS or Azure.

The plan will also include technology solutions to ensure you meet your corporate governance requirements, and it will enable a full range of analytical capabilities that connect and share information across all functions of your organization. It will also include a data visualization layer, which will allow you to see your prioritized performance metrics quickly and easily, accelerating your organization’s decision making to near or real time.

With this in place, you, your data scientist, and their peers will develop processes across your organization to foster a data-driven decision-making culture for a customer-centric organization — without bias. They’ll ensure you’re working with just the right data based on measurable goals or KPIs and have the ability to understand trends, seek out opportunities, and identify issues before they become barriers to profitability. They’ll also analyze patterns and utilize them to develop strategies and activities that benefit the business in a number of areas.

While you may not be entirely on board with AI and predictive analytics, small and midsize companies should aim to adopt these tools over the coming years — especially as many competitors begin to personalize customer interactions using AI-driven software and chatbots and increase efficiency with robotic process automation. Specifically, supply chain leaders across many industries are using these technologies to power their strategically repositioned, customer-centric organizations. By going above and beyond conventional approaches of doing business, leaders are able to consistently deliver more resilient supply chains, higher levels of innovation, increases in customer and employee satisfaction, and improvements to overall efficiencies and financial growth.

Transform Your C-Suite into Digital Leaders

In our combined 60 years of experience, we’ve found that change is always most difficult at the top. The primary goal of having a strategic data scientist on your leadership team (known as a chief data officer in larger companies) is to improve the value you’re getting from data and analytic investments. They will be successful if they treat data and analytics as an asset, create business value, increase data sharing, and ensure that your organization’s decision making is data driven. For those things to actually happen, your entire leadership team must align with and support them and play an active role in ensuring their success. Throughout the process, each of them will also learn how to be an analytics-enabled, digital leader.

Not all leaders are interested in or willing to embrace being a digital leader, however. The simple comparison chart below uses the standard “7 Ps of marketing” to illustrate the typical strategic thought processes of today’s leaders.

The Ambidexterity Exercise

Skills analysis for today’s top-performing leadership teams.

Standard marketing elements to help leaders strategically position their business What leaders from an analog business think about What leaders from a digital business think about What ambidextrous business leaders think about
PRODUCT What can we sell, in what volume, that makes the most money? How do we create value for our customers? How can we reimagine each of our businesses from a truly customer-centric perspective and determine which analogs can be exploited and which digitals should be explored?
PRICE What is the highest price point customers will pay; how does it compare to the competition? How can we capture value for our ecosystem and share value with our strategic business partners? Before diving deep into this important topic, how does our balance sheet change when rethinking strategy, culture, talent, and operating models to support a hybrid business model?
PROMOTION Who is our customer? What is our message? Where can we reach them? How can we bring value to the community and optimize network effects? Before diving deep here, make sure value creation for customers and the power of strategic partnerships is clearly understood for analog and digital, and in particular, defining the customers who value both.
PLACE Where do we want to sell our products and/or services? How do we scale to serve the world? Before diving deep here, understand value creation and the power of strategic partnerships for both analog and digital businesses, and in particular, defining the customers who value both. When is location relevant and to whom?
PEOPLE What customer service model do we need to satisfy our customers? How can we leverage our culture and talent to foster lifetime value with our customers? What value can we bring to our community? What skills and talent (existing or through recruiting) are needed for future sustainable success as a hybrid business? What talent gaps do we have? What are our talent hiring and learning development strategies to correct this?
PROCESSES How can we make and deliver our product and/or services in the most efficient and cost-effective way? What technical architectural plan, data strategy, and experiences do we need to create, capture, share, and deliver value to our customers? How can we unlock and leverage our data to propel continuous innovation and improvement lifecycles for both analog and digital businesses?
PHYSICAL EVIDENCE What physical product does our customer receive? How do our customers define tangible and intangible value? How do we define this, now as a hybrid business?
© HBR.org

Is your organization made up of leaders with analog expertise who are generally product focused, driven by profits, and constantly aware of external forces — especially from their competitors? In contrast, do you have leaders with digital expertise who are customer focused, driven by delivering value through technology, and constantly looking for strategic business partnerships to grow their ecosystem — especially from competitors who can deliver value better than they can? Or do you have an ambidextrous leadership team, which is a hybrid of both? By creating a culture of ambidexterity within your leadership team, you’ll be able to be able to remain competitive in your current core markets while also winning in new domains. In our experience, a leadership team comprised of both areas of expertise is ideal.

Take the time to simply understand these different perspectives and where your company fits on this chart. It can help you establish a starting point for how to begin and improve your work to transform your organization into a digital business for current and future success.

For generations, small and midsize businesses have enjoyed a distinct competitive advantage of strong, loyal relationships with their customers. This bond was forged by consistent and continuous levels of personalized service and experiences. These relationships generated meaningful insights or business intelligence that allowed companies to continuously improve, add value, and stay ahead of their competition. Another distinct competitive advantage was the ability to make and implement strategic decisions at a speed their larger competitors could never hope to replicate.

Now more than ever, it’s important to recognize that your digital competitors, who are using speed as their competitive advantage, are disruptors by nature. If you wait to be disrupted, it could end your business. To avoid this all-too-common pitfall and ensure sustainable success, do not wait. Be deliberate about not delegating. Take ownership to transform your organization now — before someone else does it for you.