Challenges of digital transformation: 5 lessons on coherence between strategy and digital transformation

The adaptation of business management systems in general, and the implementation of ERPs in particular, continues to be one of the digital transformation projects that require the most resources. However, it continues to provide one of the highest failure rates. Therefore, in terms of organizational performance, it continues to generate concerns in the C-suites. One of the most important causes of failures in the implementation of technology lies, although it may seem not very credible, in the lack of coherence between what the company intends and what the technological implementation seeks.

The Innova Institute of La Salle-URL has analyzed the ERP implementation work and the strains of strategic coherence of a group of companies, whose fictitious names are Alimentos s.a, Maquinarias s.a., Medicamentos s.a., and Productos Masivos s.a., all subsidiaries of multinationals established in the same country. From this analysis, five behaviors have been found that relate the competitive strategy to the digital transformation project. Five experiences developed as lessons, which explain the success in the implementation of the ERP. Strategic coherence and learning are demonstrated as the common thread that provides the value of the five lessons shared in this article.

Lesson I. The coherence between strategy and digital transformation: the “why” of all this

It has been argued that the success of digital transformation actions is determined by the innovation capacity of the IT units and their ability to pose organizational challenges that could take advantage of the new technologies. There have been many successes based on the ability to innovate in products and organizational processes. The La Salle-URL Innova Institute study proposes that even though this statement is true, it is not the only option. The coherence between the strategy and the digital transformation options, whatever each one of them, explains very well the success of the technological implementation.

Massive Products s.a. could be an example of an innovative company in IT, that is, by investing in IT, it systematically achieves product improvements or process redesign that translate into performance improvements. But this ability to innovate in IT investments comes from consistent behavior across IT units and organizational units. In other words, innovation is not an asset of IT units, nor is it an asset of organizational units. It is shared by all of them.

Medicamentos is not distinguished for being an example of an innovative company in IT. When implementing their ERP, they decided to assume only the basic functions of the ERP and did not initially propose changes in organizational processes. This way of acting was not a requirement on the part of the organizational units, nor was it intended to be a burden on the part of the IT units. Simply put, Medicamentos presents coherence between the aspirations of both units. In this way, both organizations were successful in implementing the ERP.

The analysis of the Innova Institute proposes that business strategy should be seen as a general framework that guides the direction of the company in the long term and the projects for the implementation of new technology, most of which can be carried out in a short or mid-term period of time, must be consistent with this strategy. In this sense, this coherence must be extended to all the systems that act in the actions that derive from the digital transformation, being it the IT units or the organizational units, and their ability to learn to overcome the situations of change derived from the digital transformation.

In this sense, the members of the C-Suite must ensure that the strategic approaches are assumed by all units and that there is clear leadership so that the strategy is clearly understood. When this is not the case, the required learning mechanisms should be arbitrated.

Lesson II. Strategy as a springboard for digital transformation

Strategic planning is defined as the art of formulating, implementing, and evaluating multidisciplinary decisions that enable business objectives to be achieved. It is easy to assume that digital transformation actions can help in this strategic development and, in the current context, one cannot avoid making strategic decisions without considering the effects of digital transformation. But how can IT units contribute if they are detached from the strategic challenges?

Alimentos s.a., a global food products distributor, had decided to implement a strategic plan and proposed to rethink its business processes. In this endeavor, digital transformation actions such as the renewal of its ERP occupied an important position. With the new strategic challenge, the digital transformation needed to develop it was pushed. The IT units had not evolved sufficiently to meet this challenge.

The Alimentos example is symptomatic of the learning that can come from a strategic approach. In other words, the digital transformation was driven by the strategic mandate derived from the new plan, despite the fact that there was no solid strategic coherence between the IT units and the organizational units, as was the case with the Productos masivos s.a. and Medicamentos s.a., cases mentioned in the previous lesson. The Alimentos s.a. strategic plan served as a trigger for the digital transformation action that the ERP implementation entailed. In short then, despite the heterogeneity of the strategic approaches, the firm and clear direction of the strategic plan made it possible to achieve the objectives in the ERP implementation. It is clear that the strategic plan's fuse effect is not immediate, but it shows that there may be management practices that achieve it and that these practices must take into account organizational learning processes that overcome any difficulties that may exist.

Achieving a mature strategic alignment between business strategy and digital transformation strategy is not easy. In addition to adequate planning and a paced development, it requires an organizational culture that acts positively on the alignment as a whole and may require a long time horizon to achieve it. In any case, the case of Alimentos explains that, based on a solid strategic plan, it is possible to implement organizational learning actions that allow, albeit opportunistically, to achieve the desired alignment. This forced motivation towards what is digital has shown that managers, in the absence of a favorable environment, can establish management practices that help them in this task.

Lesson III. Digital transformation as a strategic generator

It should be taken into account that the role that Information Technology (IT) plays in an organization is not only to provide service and guarantee the information and communication infrastructures but also to support the strategic initiatives of the business units. In other words, when a digital transformation process is initiated, IT must propose a technological architecture that allows not only this strategic development but also to carry out the organizational change that will be required to incorporate this transformation. Obviously, all this will not be possible without technological leadership, in the broad sense of the term, from the IT units in the business units and accepted by them.

Maquinarias is another example of an Innova Institute study on ERP implementation. Maquinarias s.a. is a multinational company that manufactures and distributes vehicles and other tools for agricultural work. The IT unit of Maquinarias, contrary to the case of Alimentos, has always been a pioneer in the use of new technologies for information processing and management. When implementing ERP, the Maquinarias business units did not consider any significant change in their ways of operating. According to the manuals on digital transformation, the success of the implementation was more than questioned. Despite this, the ERP implementation at Maquinarias was, as in Alimentos s.a., a success.

Additionally, as early as 2011, studies conducted by IBM Institute for Business Value and McKinsey & Company proposed that there were different challenges to achieve digital transformation and that one of the paths to successfully embrace it consisted of first creating and integrating digital operations, and then addressing the customer's value proposition. Highlighting that there are contexts in which to expose how IT can lead the process that will drive the strategy. 

That was the role of Maquinarias' IT unit. Taking the lead in the innovative implementation of ERP, it was able to generate change in the business units. Through appropriate learning actions, the vision was achieved so that the ERP benefits were taken into account to develop their strategic aspirations and thus bring about the organizational change that resulted from them. On top of the C-suite table lies the challenge of leveraging the leadership generated by the IT units to ensure that they contribute positively to the organization's strategic challenges.

Lesson IV. Technological opportunism is viable. Not everything is strategy

From time to time, the business environment is surprised by waves of new technological tools, causing companies to be driven to adopt the new technological "fashion" opportunistically.

This is the case of Medicamentos who, without having a clear alignment, decided that they could not miss the opportunity to take advantage of the new warehouse management systems and take advantage of the ERP features to achieve it. It was decided to follow the best practices suggested by the consultants and, with this, specific changes were driven to achieve the renewal of the warehouse management. The opportunity to use the technology-enabled a successful ERP implementation.

In Innova Institute's studies on digital transformation, scenarios have been found in which there is no prior strategic agreement for the implementation of the new features. However, the organization finds that it can learn from this window of opportunity and take advantage of it. It is also worth noting that this scenario can happen even for features of a newly implemented technology that were not predestined by a previously planned strategy to be used by the company, but are discovered from the learning experienced during the implementation.

As in most of the reference cases used, it is organizational learning, the way in which the organization learns in the new situation, that triggers the coupling between the IT units and the business units. In the case of Medicamentos it is not known who came first, but from the interaction of the IT and business units came a way of supporting warehouse management that was not previously foreseen. From the learning of both units came an opportunistic use of ERP to support warehouse management needs.

The Innova Institute believes that it still needs to go one step further. It will be the technology decision-makers within the organization who will have to decide how each opportunity encountered in the digital transformation process can be exploited, as the new benefits discovered may be far removed from the organization's usual practices and initial strategic mandate. Therefore, they will require the appropriate actions from the organizational learning to be obtained and implemented. The big challenge from the C-suite is how to incentivize these learning opportunities.

Lesson V. The broad conception of alignment in ERP implementation: demystifying ICT strategic alignment

Certain theoretical models postulate that the degree of alignment that exists between the organization's strategic approaches and those of the IT units is a good predictor of the outcome of digital transformation. In other words, the greater the alignment between the organization's strategy and the strategy of the IT units, the greater the potential for success in digital transformation.

In recent years, there has been a need to refine this model, considering the role not only of strategic alignment but also of strategic coherence. Cases have been found in which at the beginning of the ERP implementation there was no clear strategic alignment, but this was not an impediment to achieving positive results.

Taking as a reference the case studies of the Innova Institute of La Salle-URL, in Medicamentos s.a. the strategic coherence derived from the implementation project and the learning and empowerment of the participants made them capable of facing the initial difficulties. In Productos masivos s.a., leadership, based on strategic coherence, becomes a driver of change and learning for the company's organizational innovation.

In short, regardless of prior alignment, strategic coherence and leadership for learning get the units to flow towards the objectives of digital transformation. But what happens when there is a manifest lack of strategic coherence between IT units and business units? In these cases, the Innova Institute has detected occasions of success in ERP implementation thanks to the renewing effort of organizational learning.

The Alimentos s.a. case shows that the initial lack of strategic coherence is channeled through the leadership of the strategic plan and with the motivation for the IT unit to learn the new challenges in the implementation. In the same way, Maquinarias expresses its leadership through the IT unit's commitment to technological innovation and the C-suite's sponsorship of the organizational units' learning.

With all this, the Innova Institute of La Salle-URL analyzes that the lack of strategic alignment should not be seen as an impediment to achieving a successful technological implementation, but as an environmental factor that the C-suite will have to manage in the digital transformation. In short, expecting a high strategic alignment should be considered a utopian pretension, and therefore, the actions derived from the digital transformation must ensure the learning that minimizes the lack of alignment.

This article was written by Francesc Miralles, Eddy Morris and edited by Cristofer Fernández Pérez