Digital Transformation » For cost transparency in digital transformation, go agile

A “catastrophic waste of public money”, declared the Public Accounts Committee when assessing the Ministry of Justice’s electronic tagging service in January 2018. The Ministry of Justice, it said, had taken “an all-singing, all-dancing approach” to what could have been a relatively simple procurement exercise. To make matters worse, the project was running five years behind schedule at an estimated cost overrun of £60m.  This isn’t unusual, nor is it confined to large public sector projects. Digital transformation projects in business are regularly subject to major delays and mounting costs.

The speed of technological change and the inability of most organisations to adequately respond to that change are the reason why long-term digital transformation projects often go wrong. The latest smartphone apps normalise new technological advancement; we simply expect to have the latest technology and don’t understand why our IT supplier can’t keep up.  They probably can, but is that what you bought or contracted?

If an organisation’s end goal is the latest, greatest innovation, it will likely struggle to get there.  The project goal posts will keep moving, the end point will get further and further away, creating a continuous creep in scope, which is why ‘traditional’ digital transformation is prone to spiralling costs.  However, there is another, more agile approach that brings greater cost control and transparency and, ultimately, programme success.

The traditional way

In the days of slower tech advancement (i.e., the 1980’s, nineties and noughties), the emphasis was on processing power, speed and efficiency. Driving down cost through efficient use and deployment of hardware and software was the order of the day. In the breakneck speed of the last decade, however, companies have diverted their attention to competitiveness in the marketplace and speed of deployment, as they see fast digital transformation as critical to success.

Traditionally, businesses have scoped digital transformation programmes as if they were an “IT” programme, but this approach is almost bound to fail. The ill-fated NHS National Programme for IT is an example of what can wrong when organisations are too wedded to a technology rather than a business outcome. In a drive for interoperability and data normalisation, the NHS tried to impose a common IT solution across its Trusts, at the same time as encouraging and rewarding them for innovation and efficiency. A juxtaposed directive, some might say.

Compare that to the deregulation of energy supply that focussed multiple disparate suppliers and distributors on a common process and data flow but left the choice of technology up to them. Electricity deregulation was implemented smoothly and allowed consumers to buy electricity from suppliers like Tesco, even when they don’t so much as supply a single socket to a household.

Digital transformation projects are not about delivering a new IT solution. They are business programmes with desired business outcomes, whether that is improving the customer experience, delivering product faster or making the workforce more efficient. And technology is the enabler – not the end point. In most cases, the business outcomes or business benefits of digital transformation have a tangible value. But if, as has historically been the case, the programme ties itself to a technology blueprint at the start, then those business and cost benefits are going to erode as technology advances and capabilities change.

Traditional large-scale IT programmes typically deliver benefits at the end of the project. This makes the lives of FDs and CFOs frustratingly harnessed to trying to constrain the cost overruns and being held to ransom about how these constraints might affect the final output.

Unanticipated technology changes, resulting from suppliers dropping support for intended products, are another popular way to increase project budgets. While provision for such changes should be made in the plan, it is remarkable how ill-prepared businesses often are, especially when programme timelines extend and support end dates seemingly come out of the blue.

The new agile way

A digital transformation programme should be designed as a roadmap that breaks large programmes down into smaller steps and is constantly appraised and updated, something Gartner refers to as ContinuousNext. This is a new spin on an old technique; the 5-year corporate plan has been around since the 1960’s and linking this plan to technological opportunity, business benefits and outcomes is a natural progression of joined up thinking. Like any plan, the component parts should be reviewed regularly and, if necessary, revised. The outcomes may change, as may their financial impact, in line with changes in business priority or available technology.

Financial transparency

The key to financial success starts at the planning stage, with a clear understanding of the desired business outcome and what it will take to get there. Organisations should consider the problems that need to be solved within the business (Problem Statements), how they might be solved (Improvement Opportunities) and how this can be achieved (Key Enablers) in order to reach the desired outcome (see table below).

Of course, achieving the desired outcome may mean fixing a whole host of problems, realising a number of opportunities and implementing multiple structural changes, all of which can be defined in terms of the financial value they will contribute towards the overall benefit.

Defining the benefits in this way enables each step of the roadmap to be broken down, delivered and justified in its own right. Rather than measuring if they are spending money in the way they said they would at the outset, businesses should instead set out the objectives of the journey and measure whether or not they are being met. This requires a different mindset.

The agile plan can then be built, with priorities defined based on business value and financial contribution and measured in more bite-sized chunks. This in turn means that the business plan has the flexibility to change direction while keeping a dynamic eye on the overall impact on business benefits.

Of course, failures and challenges will still arise, but the impact is minimised and the financial cost or lost opportunity gains transparency when the programme is a series of small, manageable steps rather than a single, long journey.

Making agile a reality

A plan’s certainty drifts over time and changes with skill and capability. While a 3-6 month plan can be delivered with some confidence, that confidence ebbs and flows from the 6-month point and can probably be determined as a “best guess” at the 24 month stage.

For financial certainty it is therefore better to establish the benefits that will be delivered within a 3-6 month window and deliver, measure and budget against that timeline. Allowing for a period of contemplation and potential reshaping or redirection helps keep the digital transformation in line with reality and prevent mindless overrun caused by driving towards an out-dated set of goals and objectives.

The common themes with headliner project failures are big numbers and even bigger aspirations. This is understandable – the objectives of these large digital transformation programmes are usually well thought out and admirable. There is nothing wrong with budgeting for the big picture per se, but the key is to plan for change, realignment and redirection.

It is the responsibility of the financial commissioners of this work to ask how the tasks can be structured in a way that delivers the business and financial benefit in increments and, as such, commits the organisation to less risk. By providing break points and strategy reviews, the organisation is better able to avoid going too far down a failing or out-of-date path and can choose to redirect.

Step5 specialises in complex change programmes and in recovering programmes that are failing to meet their objectives.  Clients include large private and public sector organisations such as the Department for Business, Energy & Industrial Strategy, Experian and BNP Paribas Personal Finance UK.  

Step5 consultants have worked on some of the UK’s most challenging change programmes – from the £1 billion recovery of the spine programme for the NHS to the management and delivery of all telecommunications for the London 2012 Olympics.

 

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