Why you’re managing digital transformation wrong: Think portfolios

Does your organization take a one-size-fits-all approach to managing digital transformation projects? Consider breaking your projects into three distinct portfolios – and running one like a private equity fund
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Several years into the digital transformation era, failure remains a reality for many initiatives. There are any number of reasons for this: Lack of vision, resistance to change, limited funding or support, shifting priorities. However, there's one more issue at play. Woody Driggs, EY Americas Advisory Digital Transformation Wavespace Leader, says that too many companies take a one-size-fits-all approach to their digital transformation efforts.

All sorts of initiatives fall under the big tent of digital transformation: Applying Robotic Process Automation (RPA) or Internet of Things (IoT) technology to improve operational efficiency, building digitally-enabled products and services for market differentiation, taking advantage of digital technologies to access new markets or customers, or even harnessing digital to launch entirely new and disruptive business models.

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In the past, organizations could feel comfortable placing their digital transformation bets into investments of a certain type: say, efficiency and cost plays during a downturn, or revenue-generating opportunities in an upturn. But the pace has changed. “The challenge today is that we are living in a transformative age where more frequent and more significant change is required to compete and to thrive,” says Driggs.

3 types of digital transformation portfolios

Each category should be managed quite differently.

That’s why Driggs advises IT leaders to stop thinking about the broad category of digital transformation and start thinking about – and managing – their digital initiatives as portfolios of projects of a certain type.

Specifically, Driggs says most organizations will need to invest in three categories of digital transformation initiatives: protect, optimize, and grow. Each of these categories of initiatives must be managed carefully and in very different ways.

The “protect” portfolio

This category of digital projects includes those in the areas of cybersecurity, data privacy, reputation management, and regulatory or compliance activities. “These areas require consistent, diligent, and ongoing focus,” Driggs explains, “balancing implementation of new technology advancements with the risk of a major issue or failure.” 

The “optimize” portfolio

These digital projects aim to improve the performance of key business processes. “It is critical that these projects have a clear set of improvement objectives in mind for specific business processes and are able to sustain those new levels of performance over time,” says Driggs.

The “growth” portfolio

These are the high-risk, high-reward projects: Manage them like a private equity fund.

This will be the place where net new innovation resides. These are the high-risk, high-reward projects that one typically thinks of when talking true transformation. “This requires companies to encourage the generation of new ideas (both inside and outside traditional company walls) and to accelerate the process of ‘fail fast or scale fast,’” says Driggs. “Companies must create an environment where experimentation is encouraged, deeply researching customer needs and seeking alternative ways to satisfy those needs.”

Driggs suggests that the growth projects be managed like a private equity (PE) fund. “For a successful growth portfolio, a company needs to try to understand future trends and changes that will impact customers,” he says – for example, the ways in which Gen Z consumes services differently, or the shift in the healthcare sector from a focus on paying for procedures to paying for outcomes. “They then need to make a plan by working backward to apply resources to these scenarios while determining their market feasibility at the present time.” 

Who should lead each digital transformation portfolio?

Each of these portfolios demands not only a different approach but likely a different leadership profile.

“Organizations must get clear on the role of the chief digital officer or chief information officer or the transformation leader and align the skills of these individuals to the portfolios of investments that they are managing,” Driggs says. In some cases, companies create a new C-suite role: Read also Meet the Chief Transformation Officer: 8 key tasks for this new role.

As we recently noted, there is no one right answer to the question of who should lead a digital initiative. “It’s important to highlight that digital transformation can take multiple forms, with varying degrees of transparency to the customer or end-user,” says Brian Caplan, director with management consultancy Pace Harmon.

In a recent HBR.org article, two INSEAD management professors argued against putting digital experts in charge of digital transformation. A hotshot fresh off a stint at Amazon or Google might seem the ideal choice, they wrote, but a business insider may be better suited to oversee the significant organizational change required in the typical enterprise setting.

For detailed advice on how to choose the right person, read also: Digital transformation: Who should lead? 8 questions to ask.

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Stephanie Overby is an award-winning reporter and editor with more than twenty years of professional journalism experience. For the last decade, her work has focused on the intersection of business and technology. She lives in Boston, Mass.