The consulting industry loves to overwhelm. This was the topic of my previous post. Consulting as an industry uses the concept of Digital Transformation to overwhelm their clients and convince them that the complexity of the mere definition means the subject is far too complex to accomplish without extensive outside (i.e. consulting) assistance. In the last post, I began the discussion of Digital Transformation and my industry’s ability to make it more complicated than necessary. Now I will dive into the specifics of my simplified explanation from the previous post.
Digital Transformation is the use of modern computer tools to create transactional visibility across an entire company for the purpose of improving business performance.
The factors that will impact a company’s ability to create transactional visibility involve many aspects of the company such as the leadership philosophy, the internal processes, the underlying systems, and the willingness to create visibility (willingness being the most important ingredient in this recipe for success).
The heart of Digital Transformation is visibility of transactions. Let me explain in more detail by sharing a bit of business history.
Transactions are the events within a business that create value. Similar to how “plays” are transactions in football to create or prevent “scores,” there are transactions within every company to create value. In the case of a classic manufacturing company, the most significant transactions are:
There are many other transactions that take place within a company, but the ones listed above will be used to illustrate my point. Now, here comes the history lesson… Before computers, transactions were tracked and recorded on paper and then those paper documents were passed from department to department as the order moved throughout the company. Each department perfected their own ability to manage their part of the equation, many times within their own four walls and at the expense of other departments within the company.
The movement of orders through a company resembled a relay race as the paper documents were passed from department to department just like a relay baton. The result was almost always “departmental possessiveness” or the creation of silos, as we consultants like to call them. (See below)
The strong feelings of “departmental possessiveness” grew, and the efficiency of one silo would often become the justification for the “keep out” sign intended for anyone else in the company who was not in that particular department. As time went on, the silos became taller and the walls of those silos became thicker. Each department, over time, would know (and care) less and less about what happened within the other silos. Eventually, the silos became fortresses, and the departmental inhabitants became more and more possessive about the knowledge and tools within their domain. What each department saw of the transaction was only related to their activity. Anything else was “none of their business.”
Engineering didn’t see the Sales information, Sales couldn’t see the billing information, Purchasing couldn’t see upcoming orders, and Accounting chased everyone around trying to reconcile everything. As companies tried to improve, executives pushed harder on each silo owner to be more efficient, and thus the managers of each put pressure on the people working within their silos, and the walls (lack of visibility/communication) became even thicker and higher.
Around the ‘70s came the computer. Companies began to demand software that would “do what their old manual system would do,” and the software developers followed their customers’ leads. The result was a faster, more efficient way to commit the business sins they were already committing. Part of the problem was the early state of computers, but that was only one piece of it. Business thinking didn’t change, so what most companies ended up with was an expensive duplicate of their manual system. Into the 1980’s, as data now flowed into each silo, often incomplete and poorly planned, the silo owners started to supplement the data with Excel and bolt-on solutions that created that silo’s own version of reality. By the time a transaction had flowed throughout the company there were as many versions of the truth as there were silos.
There was little (or no) thought about sharing data with up-stream suppliers in order for them to help a company better plan, and heaven forbid a company provide live data to customers! Any request from a customer caused a firestorm of activity to come up with a reasonable answer to whatever question may be raised during the life cycle of an order.
You might be asking what all of this history has to do with Digital Transformation. Like I mentioned before, Digital Transformation is about visibility. That includes visibility between silos, both those horizontal and those vertical. It consists of executives who offer visibility of their objectives and their fears to everyone in the company. It means Engineering, Sales, and Production all working through problems (and opportunities) together. It means Purchasing is working closely with Sales and Production to make sure the right materials are in place at the right time and the right price. And yes it means line workers working with plant managers to become better. It also means things like Sales working with Shipping to better serve the customer.
The list should, and does, go on and on because the transformed (referring to digital transformation) company never stops finding ways to make transactions more visible for the betterment of the company. What a newly digitally transformed company looks like is below. Silos start to crumble and transactions become more visible as they flow through the various parts of the company. The truth becomes iterative as each group adds to the original transaction instead of creating their own version. There is less fear of mistakes because everyone starts to work together to solve them.
The knowledge within silos is spread throughout the organization and what should emerge is no longer the visible silos, but the visibility of the transactions as they flow throughout the company. Modern technology makes this possible, but the task is far more than buying a new ERP system. So what is required beyond modern computer systems?
Here is a starter list:
- executives who embrace the value of transparency at all levels
- a culture where visibility is used to improve, not to criticize
- the mindset that we can always improve
- the motivation and incentives to create an environment where the company is far greater than any individual silo
This is where consultants bring value and is why so many ERP consulting firms are now offering services beyond mere ERP selection. A true transformation often requires training for executives and managers to equip those leaders with the tools for change within their areas of control. Continuous Improvement services help identify areas that might be essential needs in a new ERP system. Even Executive training on how to build a new culture of visibility (and how to enforce it) might be necessary. It’s not an easy undertaking, but it’s worth it!
My next post will focus on many things a company must tackle in order to execute a true transformation. It takes time, money, and maybe the most difficult part, a new mindset of leaders/ executives and then throughout the company. By working step by step, you can get your company working in this better environment, and everyone will benefit from the results.
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