The amazing challenge of digital transformations

Navneet Kapoor, CTIO, has written this opinion piece describing the amazing challenge of digital transformations – and why many companies struggle with it. This op-ed was recently published in the national Danish newspaper, Dagbladet Borsen.

In recent decades, technology and digitization have changed our society. It has changed how we communicate with each other and how we behave as consumers. Technological advances have had such a profound impact on business that many companies have either gone bankrupt or are struggling to remain competitive. Therefore, digital transformation has long been at the top of the agenda in most boardrooms.

At the same time, we are in a turbulent time, where record-high inflation, war and the energy crisis create uncertainty and place increased pressure on company budgets. It is a new situation that many company managers are forced to deal with in their planning. From my perspective, this should not result in a downgrading of digitalisation, because in reality a company’s robustness and ability to adapt to a changing world are inextricably linked to digital transformation in future business models.

There is no easy answer to how to implement a successful digital transformation, and few companies have reached the point where they can enjoy the fruits of their hard work. The fact that transformations are not fully realized is often due to a lack of a deeper understanding of which factors drive success. It is challenging for companies to make optimal decisions in areas that they have no prior experience and expertise in.

It is then more the rule than the exception that decision-makers in companies, when faced with choices in newer areas of focus, make decisions that are consensus-based and / or supported by external consultants. These “intermediate solutions” are typically considered less risky and will rarely result in a dismissal notice for the director responsible if the project fails.

An example is if a decision must be made about the execution of an important digitisation project. Here, various estimates will typically be collected on how quickly it can be rolled out and what pitfalls there are in the various solutions. One proposal might be an implementation cycle of five years, while a more radical solution would be nine months. Here it is my belief that many decision-makers are inclined to choose the middle path of three years. Ultimately, this way of making decisions can be the difference between success and failure. Because you risk coming to market too late with a product that, despite start-up difficulties, could have been well-received by customers.

In brief, the right decisions in a digital transformation can appear too risky for decision makers who do not have the relevant experience or expertise in the field; to them, the arguments for a rapid implementation of nine months will probably appear extreme. In many ways, a digital transformation is about understanding which of the so-called deviations from the norm are right for your particular company.

My hypothesis will undoubtedly be tested in the boardrooms in the coming years when economists predict low growth. What matters most – low risk or the possibility of gaining market share in the long term? Here we should remind ourselves that it is often under pressure that the best and unexpected creative solutions emerge.

A more specific example of the dilemma that directors face in the digital transition is which team to assemble for the task. For decades, many large companies have outsourced vital parts of their tech organization to external suppliers. It made sense at a time when technology was not considered a competitive parameter. Today, most people probably agree that the opposite is the case, but there are still doubts as to whether it makes sense to build an internal tech organization – e.g., due to the structural lack of qualified labour and competition for the best talents, or due to unclear visibility to persistent demand.

In my view, one of the prerequisites for speeding up the digital transformation is to have 70-80% of the tech skills internally. At the beginning of 2020, 70% of Maersk’s IT staff was outsourced to suppliers, which resulted in slow execution and limited readiness for change.

Therefore, we decided to build an internal tech organization with international class software engineers. A change that meant that we had to quickly hire thousands of people – and at the same time go on the hunt for the best talent from global tech giants and startups. Today, we have more than 5,500 tech employees – including 700 software engineers in Denmark – and we have reduced the number of external IT employees from 70% to 30%.

The odds of achieving an unconditionally successful digital transformation are generally low. At Maersk, we have come a long way in the last few years but have also faced setbacks along the way and have become wiser. The most important thing is not to lose sight of the digital transformation, even if one major crisis seems to replace the other in these years.
Source: A.P. Moller – Maersk