Digital transformation is a buzzword of today because it brings great promises to enterprises and new agile approaches allow to overcome hurdles of it. Yet, this is not that kind of experience that knows SERV+ company, quite the opposite.
This case is the first in a series which aims to illustrate difficulties which companies may struggle with.
The case SERV+
SERV+ is facing a strategic problem: “Its portfolio of customers is eroding, subscriptions are not able to compensate for the terminations”. On the other hand, insufficient margin does not make offers attractive enough compared to those of competitors. Business cycle of SERV+ being annual, most of customers take their decisions by the end of the year for next year.
To cope with this context, SERV+ executive committee has submitted to the company board a 2 components strategy: control of expenses to act on the margin rate and offerings competitiveness; conquest of new customers to increase subscriptions. The executive committee has made an assessment of investment and has presented a plan where investments would be financed by costs reductions.
Strategic initiatives were called across company and selected on the basis of these 2 objectives. As a backdrop, SERV+ IT Direction has launched a multi-year plan for recasting its IT infrastructure in order to meet digital transformation requirements: transactions dematerialization, recasting of portals and sites, business operation in real time.
What results were achieved?
Finance direction launched projects of costs control and Operations, projects of operational excellence. It came that projects have been underestimated, especially because diagnosis of existing situation has been inadequate. To achieve expected savings, several IT solutions required to be recasted. On the other hand, delayed savings did not allow to finance offerings modernization and conquest campaigns maintained or even increased the level of fees.
At the end of fiscal year, SERV+ was in a similar situation to that of the beginning of year with a customers portfolio even more reduced. For SERV+, outlook was troubled because company have developed same strategy while getting same results. Up to now, it has maintained the direction with cropping its margins. Today, it became clear that in the course of company history, punctuated of business acquisitions, SERV+ has never had to face a transformation of this magnitude.
We can summarize SERV+ executive committee error by: “to adopt a optimization strategy in front of business disruption milestone.” This error is common for businesses which face a radical milestone because they are inconsciously reluctant. For SERV+ , there was an emergency and digital transformation which is supposed to bring disruption does not respond to sort-term expectations.
On the other hand, once a decision has been taken, SERV+ steered transformation blindly. Indeed, business contributions would be visible only by the end of the year when constracts would be renewed, so it will have no steering indicators in the between. In addition, projects were managed individually, and not according to their contribution to objectives. SERV+ was unnable to restructure projects portfolio and redeem its investment, as it would have been able if it managed its portfolio taking into account strategic adherences as below.
for example, Project P08-2016 was designed to use data customers thanks to digital technology in order to better anticipate and avoid terminations. Campaigns have been conducted resulting in new fees with mixed results because terminations causes had not been sufficiently identified.
Finally, it sould have taken in account gains realization delay. Heavy investments must be based on expectations of long term gains relatively certain, while lighter investments can be backed to short-term gains, more risky. SERV+ has launched recasting of its IT infrastructure to foster its digital transformation backed to short term gains, difficult to achieve.
SERV+ is typical of digital transformation badly prepared. Business context has not sufficiently and properly been taken into account and, in the SERV+ case, it contributes to put the company at risk in place to put it on a trajectory of success.
SteeringSteering has been blind, he has driven the costs. Gains were assumed to come with costs. Insufficient details of link between costs and gains to decide of running projects reorientationsidentify levers of execution control and put in place a steering approach in accordance
|Level of decision||Error||Solution|
|Strategic||type of change has been incorrectly identified: optimization strategy instead of disruption strategy
Strategy decided is complex in its realization, risks have been incorrectly identified
|strengthening the strategic competence in performing a competitive intelligence systematic.
Well identify the risks in the light of the issues
|Planning|| Strategy bugdet estimation has not been scripted (optimistic, medium, worse)
implementation governance has not taken into account steering complexities
|Script planning and identify uncertainties of estimates
identify levers of execution control and put in place a steering approach in accordance
|Steering||Steering has been blind, he has driven the costs. Gains were assumed to come with costs. Insufficient details of link between costs and gains to decide of running projects reorientations||identify levers of execution control and put in place a steering approach in accordance|
|Projects||skills of execution were overstated, projects exceed the budgets and deadlines
Load of operations were more important than expected, people is resistant to change.
|take into account skills while choosing solutions and not just only costs and technical performance
Prepare change also using the motivation instead of consedering only training