Tim Bottke ADT podcast cover
Episode: 81

Tim Bottke - The financial returns of digital transformation

Posted on: 19 Jan 2023
Tim Bottke ADT podcast cover

Tim Bottke is senior Strategy Partner at Monitor Deloitte and Associate Professor for Strategy and Digital Transformation at SDA Bocconi business school.

In this episode, we talk about how businesses can get actual financial return on investment out of their digital transformation efforts. We support the discussion with insights from Tim's recently published book Digital Transformation Payday: Navigate the Hype, Lower the Risks, Increase Return on Investments, which hit the number two spot on the WSJ bestseller list mere days after its release.


Links & mentions:


“Would you do the right thing if in the time of your tenure, it's not looking good for the company, but the positive value will come once you leave? Or would you do digital washing?” 

Welcome to the Agile Digital Transformation podcast, where we explore different aspects of digital transformation and digital experience with your host, Tim Butara, content and community manager at Agiledrop. 

Tim Butara: Hello, everyone, thanks for tuning in. Our guest today is Tim Bottke, senior strategy partner at Monitor Deloitte and Associate Professor for Strategy and Digital Transformation at SDA Bocconi Business School. We have a really, really great topic for you today. 

We'll be talking about how companies can get real, actual financial value out of their digital transformation initiatives. And we'll be drawing on insights from Tim's book, Digital Transformation Payday, which just recently got released. Welcome, Tim, it's a real pleasure having you on the podcast with us. Anything you'd like to add here before we begin? 

Tim Bottke: Hi, Tim, I'm happy to be here. So, two Tims on one call, nothing can go wrong. 

Tim Butara: Yeah, I think we're off to a great start already. So the first thing I want to ask you today, Tim, is why do so many companies actually struggle with getting real value out of their digital transformation initiatives?

Tim Bottke: That's an easy question with a complex answer, as usual. So from my experience over the past 20 something years, and also based on the couple of years of research for the book, the one surprising element was that somehow people believe just because it's called digital, it's different from any other transformation which we used to have before. 

And the assumption behind that is that it's easy, that you just become agile, that you just implement a few technologies, that you change the culture to something more dynamic. And all these buzzwords and trends, you can read plenty in books, articles, all over the place. They made people forget that it's called digital transformation. 

So it's all about the transformation, not about the digital. Digital is just a tool which can help to make the transformation work. And when you see that it's about transformation, then you shouldn't be surprised that as for any transformation we've seen in the history of business, there is some failure rate and people say it's 70% for digital transformation. 

But the funny thing is, once you start researching where this number is coming from, it's usually coming from asking companies on their failure rates. So it's a very subjective number, and then it's referenced and cross referenced all over the planet and then it's going up usually in these references. 

But the true core is really it's just a risky thing to transform any company. And the word digital in front of that doesn't change that. Actually, you could even argue it makes it even more complex, because the end result of digital transformation is usually, or should be, simplicity, easier handling for customers, employees, etc. But the way to get there usually makes things much more complex at first. 

So why do they fail? Because any transformation has a risk of failing and that just needs to be factored in from day one. And if I tell clients how to budget transformations, usually you have to say, look, plan in some failure buffer because it's going to happen. Maybe you're lucky, you do it the right way. Probably it's more than just luck, it's also skill. But there are still some elements or many elements which can make you fail. 

Tim Butara: These were some amazing points to kick off the episode. I think that just this is super valuable already to our listeners. And I think it really highlights how we shouldn't always or we should never actually kind of make a huge or like a very close correlation between digitalization and digital transformation. 

We've discussed this a few times on our podcast. We've had guests explain the differences between digitalization on one hand and digital transformation on the other. But I think, Tim, that now you just kind of underscored everything and solidified why we should be making a distinction between these two terms. Awesome. 

Tim Bottke: Yes. Just to add to what you said, the problem is, it's not only about transformation, because very often we see companies – and there is also some more details on that in the book, but very often you see companies with the right attitude embarking on transformation but not having a strategy. 

And why is this important? It's very simply, very often I hear these days, we no longer need strategy. It's all agile, dynamic, reacting to what happens in the market. We need to be flexible, adaptable. I think I can write another book of famous buzzwords which never help. And very often companies forget that the real aim of the transformation should be to help a strategy which helps the company to win against competitors in the marketplace. That should be the core of it. 

And very often, we all know, everyone in the business knows, very often companies in the market, they all transform more or less in parallel. They all use more or less the same platforms, the ones we know, the same CRM systems, the same product catalogs, the same front-end architecture, et cetera. Because, yes, it makes a lot of sense to take something out of the box and not to customize everything. 

And then after a few years and some failure, they find out that it's not helping them to differentiate against the others. So they spend hundreds of millions and then everyone is more or less in the same place because there was no strategy. What to do this all for. That's then the second reason why the transformation fails. Not because the transformation was not skillfully executed, but because it's like you run as fast as you can, just in the wrong direction. 

Tim Butara: Yeah, it's like, how do you know if something is working if you don't know what the thing is that should be working. 

Tim Bottke: Yes, and it's like you can get lost. And I'm often asked, what technology do I need to watch? And then I say, all of them, because usually it's not a single one. It's a combination of technologies which you need to apply to make sure you win against competition. If you just use one, if you use it out of the box, then there's no surprise that someone else will do the same and you end up being head to head. And then it's all about who's better at execution, that's also a skill, but the strategy makes a difference. 

Tim Butara: And it's not just about what technology you adopt, but it's also a question of how you adopt it. Right. You can have the best technology ever, but if you're not leveraging it in the best way possible, then it can't do you as much good than if you would have. 

Tim Bottke: Yes, that's very clear. You will see. And I spend some time on that in the book as well. It's like, in the end, it's about the end to end approach towards the transformation. And technology is not even just one element. It's only a sub element of what I call the catalyst for the transformation. It's also about the people, the workforce, it's about customers actually having demand for what you're planning to build. It's about the funding you have. And there are many, many factors which make the transformation run or even not. And technology is just one of them. Even though I love technology, don't get me wrong, one just has to be clear that it's just a tool in the end. 

Tim Butara: Yeah, that was perfectly said. And now if you move maybe into the practical part of the discussion. So I'm wondering, so, with all this in mind, how do you even effectively measure the value or the ROI of a digital transformation initiatives? What are the key resources or the key strategies, tactics for doing so? 

Tim Bottke: I would say that's more of an art than a science. So I think the starting point always has to be to accept that you need to have some measurement in place, even though it might not be perfect, and that you cannot go down the route. Like some people saying, look, it's digital, it cannot be measured. I think that's terribly wrong. 

So forgetting about the basic rules of business is certainly not a great starting point when embarking on this measurement journey. And then you have a wide tool set available; one that I'm not so much in favor of, are all these digital and maturity frameworks, which basically work – you invent some dimensions, then you invent some criteria for these dimensions, and then, I don't know, you put your company on this scale somewhere on the lower end. You put some companies, like the Hyperscalers or others, on the higher end, and then you tell your management, look, we have a long way to go. We are not mature yet. We need to move. 

That's a very qualitative way, maturity measurement. There are hundreds. Every company who wants to sell services to other companies has some kind of maturity assessment because it's a perfect sales tool. You just show how bad the company is you want to sell something to, show them the vision, how great they could become, and then you tell them, just sign the contract with me and I'll get you there. 

That's the first big area. The problem with this area is maturity is not showing strategic success because it's not vis a vis competition, and it's not really objective in any way. So you can define it in any way you like. It's a great tool for change or starting the ambition towards transformation, but it never replaces strategy. 

And then you have the things which are more around the measurement side. On the one hand, what I heavily use also in the book and in the empirical research for the book, is you can make sure that companies follow what they promise to deliver, so what they say in the annual reports, and then check whether this has been implemented, and then measure how far they come in terms of how much, how digital are they and what they are saying. But that's what I call references to digital. So it's one way of measuring from the outside. 

From the inside, you can measure all these indirect KPIs, which are not really financial. You can measure, I don't know, the net promoter score, digital first rates in call centers. They're endless numbers. And all I'm saying is don't overdo it with the numbers. Pick the right ones and follow them. And only then you can do the more fancy stuff where you can see, does a change in one of these indirect KPIs lead to financial impact? 

And there's a lot of analytics going on, improving more and more. It's more art than science, but that's something you can do. But what the book is mostly about is then in between all this and how shareholders see what you're doing, there's this kind of black box, which is a subjective evaluation of shareholders and markets and stakeholders outside the company of what you do. 

And I wasn't sure from the beginning of the research whether actually all shareholders would always value digital transformation as something good. The good news is, on average, they seem to do. The bad news is there is a very high variance. So it can happen that shareholders actually punish you for being too digital at the wrong point in time, or at least not reward you the way you always wanted. And that's what I measure, based on a big data set, 20,000 companies, in the book, and dig deeper into these things. And yes, there is value in digital transformation, but not for everyone at every point in time. And that explains also why people are often frustrated. 

Tim Butara: And also one thing that I kind of asked myself is, you said that a lot of them know that digital information is good and they should be doing it. But I'm wondering, why do they know it? Do they know it because it's a trendy buzzword or do they actually see the real value, the real transformation potential they could get out of it? I think that's an important distinction to kind of be aware of. 

Tim Bottke: Yeah. And you cannot look into people's head and obviously if you would ask a manager, do you do that because, I don't know, vendors, publications, the media, they tell you disrupt yourself before being disrupted, or all these like yeah, actually nonsense sayings because it's not about disrupting yourself before being disrupted, it's having a strategy which will help you win. That's the starting point. 

So yes, no one would then answer, I do that because I love buzzwords and because I feel pressured. Everyone would say, no, I do it because I believe in it. But you're fully right. My strong belief, based on all these years working in the space is that very often– we talk a lot about greenwashing today, but there's also digital washing, okay, where people just say, look, I'm now digital, management now wears jeans and trainers. We say Agile a few times a day. But other than in our development teams where we do DevOps, we don't really change the real operating model of our company. So maybe the business is now Agile, but then they hit the release train of the still waterfall driven legacy implementation system. So it's a good question, but you cannot look into people's head. But I'm sure you're right. It's not always the business rationale which is driving this. 

Tim Butara: I think that we are still also in this kind of transition period where people are still kind of figuring out best practices. A lot of companies, a lot of businesses had to kind of start these digitalization, digital transformation efforts so quickly, in such an almost forced manner, that it would be much weirder if they all were kind of fully on board, they all understood exactly why they were doing what they were doing. So I think that we'll still be kind of getting to those points. 

Tim Bottke: Yes. And I think the tricky thing is that many companies, I think for good reasons, and when they start this experiment, they start somewhere which I call the frontier of the business or in adjacent areas of your business. So where the good thing is you can more easily make things happen. The good thing also is that if it fails, it's not really having huge impact on the core of your business. 

The bad thing is if you don't plan your experiments at the frontier of what you're doing to basically be reflected and used in the core of your business, you're not really moving the needle. So we all know there are so many pilots, MVPs, it's all great, but if these do not scale, then yeah, then it's just a little toy experiment, nothing else than that. 

And that's why, no surprise, many people started these experiments for different technologies. But it's never, hardly ever than the big thing. But it's now changing. And now that the crisis, the geopolitical crisis, the corona times, now that all that is combined, people start looking much more into, is there a payday, a payback for what I'm actually doing? And can I see the payday or payback while I'm still in charge as a manager? Or will it be once I've moved on, which is also an interesting psychological element, because would you do the right thing if in the time of your tenure, it's not looking good for the company, but the positive value will come once you leave? Or would you do digital washing? 

Tim Butara: Wow, that's mind blowing. I think that this is a topic that probably almost needs a discussion, a dedicated discussion of its own. So we might need to meet for another episode. 

Tim Bottke: Happy to. Yes. 

Tim Butara: Awesome. We'll talk about that. But one other thing that I wanted to ask here is, so, if we're already kind of talking about why somebody is doing something, what the reasons are behind digital transformation efforts. I think a similar kind of, I don't know, big trend or rising trend that's almost, for some companies or in some cases, it's more a buzzword than an actual business benefit, is being data driven. And I'm wondering, how does being data driven factor into kind of seeing this ROI, this return on investment of your DT efforts? 

Tim Bottke: Yeah, obviously, I think one of the major ideas why digital is such a good thing, not only for company financials, but also for customers, for everyone involved in the customer journeys, which you build when you become more digital in your go to market, I don't know, across channels, app, digital first, all these buzzwords. I think all these things, they produce a lot of data, a lot of data on the customer as such. And then the big question is, what do you do with all this data? 

And then we have all these fantasies, which are probably globally more true than they are in Germany and in Europe because we have the GDPR. So I think I've seen so many bright ideas where I would say, look, everyone would love it. Probably the customer would love it, the CFO would love it because you can construct some financial positive impact of doing so, in preventing churn, in increasing cross sell, in just making customers more happy, making life easier. There's so many good things. 

So the data driven core is important for digital. It's just that to make it happen in Europe requires a lot of work, which is not as exciting as defining the use case, which is protecting customers also from their data being misused. So I love data driven business models. I've just seen quite a lot of hard work needed to happen to make them actually work. 

So it's all about the data, because you produce such a lot of data, and then we come back to what analytics can do these days. And then I've seen great things now with machine learning and all these things. Let's put another buzzword on it – AI, which often summarizes things which have nothing to do with AI, but still, you can do great things, and that's where the data driven value really is. But mind, always mind that we also need to protect the end customers, and they deserve to be protected. I strongly believe in that. It's not just about making them happy. It's also protecting their privacy. 

Tim Butara: There always has to be this balance between CX and innovation on one hand and privacy on the other. And you mentioned GDPR in Europe, but people who are really into that probably know that this is something that's kind of scaling across the entire world. It's not going in the inverse direction. It's much more likely that in the coming years, a lot of countries globally will have similar privacy regulations. 

So even if the tasks might be easier for somebody in, let's say, Colorado or somewhere else in the US other than California, which has its own privacy regulations already, but even if this might be easier for those locations right now, it might not still be true in, let's say, five years time or so. I guess they need to plan for that as well. 

Tim Bottke: Yes, I think it's always right. And that's more or less also why the overall digital transformation needs to be seen end to end. I would always come from the customer perspective, so I think the data driven approach is not to deprive customers of the value in their data. It's giving them value, which makes them freely give some of their information to you. Because if everyone would have followed this approach, I think not so much regulation would have been needed. 

Tim Butara: Yeah, exactly. 

Tim Bottke: Often people were just never asked, and then the value of that data was captured by someone else. And that's, I think, why regulation is a good thing in some cases. 

Tim Butara: So taking everything that we've talked about so far into account, is there like a framework or a process that can help business leaders see the ROI and get the most out of their digital transformation efforts? 

Tim Bottke: Yes, I'm a consultant, so obviously I love frameworks, but I obviously also have a framework in the book because I'm a consultant. I think I cannot do otherwise. But I think my key message is actually different. It's not about the framework. What I want to show with my framework is rather that to succeed in digital transformation, you need to see the whole journey end to end, and whatever combination or colorful PowerPoint you use, I don't really care. I think it's important to have all the elements in place, and I use a chemical reaction analogy for this because I think that's for me, an easy way to remember. 

So before you do any experiment, everyone remembers from school, you need to think about what the experiment should be and what do you need. So you need a design for the experiment and so you need a strategy for the digital transformation experiment. Then you need the catalyst to make your experiment run. That's technology, that's the workforce, customer demand, there are many elements in that book. 

Then you need to decide what the reactant of the experiment is supposed to be. Is it the adjacency of your business? Is it the frontier? Or is it the core? Then you need to decide what your reaction mechanism is in the digital transformation case, do you go agile full steam? Do you still go waterfall? And I am not against waterfall by definition, they are good elements and good projects where they are needed. 

Or if you decide to go the apparently or seemingly easy way to make something hybrid, have you planned that well enough that actually you're not having an agile team running at full speed against a release train wall in legacy IT? So that needs to be well defined. And then you have the outcome, the measurements we already discussed, and then you more or less have covered everything end to end and only that then can translate to the value dimensions we've discussed. 

But as I said, no one should care about what framework to use. The key mindset is end to end view, not just picking some elements which you like, technology, agile, whatever, then the buzzword is pretending or believing that that's solving your problem. 

Tim Butara: I think this is the case, and it's true with most of the discussions around and about digital transformation, is that the mindset is the key thing that will allow you and enable you to succeed. If you're just doing all the other changes without having the right mindset, then you might as well not be doing all those changes. 

Tim Bottke: And the mindset is built by having a strategy. I always come back to that point. Obviously, I'm a strategy consultant, so people will say, what else should he say? But it doesn't have to be fancy PowerPoint, but the plan to make you win in the marketplace needs to be there before you start. Otherwise you just don't win, or just by luck. 

Tim Butara: But what if you do have that plan in place and then you realize that the plan, the strategy, the current transformation that you're undergoing isn't really producing the desired results, isn't giving you the desired ROI. What can you do? What should leaders and CxO roles do in such a case? 

Tim Bottke: I think the challenge for today's leaders is that actually a plan is probably the wrong word for it, because, yes, the times have become so much more dynamic that you cannot make a four year plan and just believe it's going to happen. It almost never does. And then we come back to what we discussed before. So you need to be flexible in adjusting, but in the end, it's then always a circle. So you make your strategy, you start implementing it to win in the marketplace. You monitor what's happening outside. If you see something changes, you adapt, you remake it, and then it's running in circles. 

Then what management should do, and that sounds pretty simple, but it's a very hard thing to do, is always watch what's happening. And that can be new technologies coming, new competitors entering the market, your workforce not resistant to the change, which we're believing that now everyone is happy of delivering in Agile, in squads or whatever, and then you find out, no, they are not. 

So you need to monitor everything. And I think my key message to management is you need to have an eye for the detail. And that's why, there's a quote from Menken, which I also use in the book, that for every complex problem, there is an answer which is simple and wrong. 

And that's really why I believe management has a much bigger challenge than ever before, because there are so many more elements moving in and about to take care of, and you just cannot afford to not monitor them. No chief commercial officer can afford to not understand technology. I'm not saying being able to do, I don't know, to handle Jupiter notebooks. I'm just saying being able to understand what the technologies can do and how they can be combined for winning in the marketplace. 

So you cannot stay away from this. And I strongly believe, let's see, we can talk in ten years, that by then many management teams will be much more technology savvy than they are today. And the advisory boards as well. It's already changing. 

Tim Butara: As we talked about before, this is the period of big transformation. Of the big transition. And yeah, I think that just if we do realize our next discussion, as we also mentioned earlier, I think that we'll already be discussing things differently and see the changes then. Yeah. Tim, this has been a fantastic discussion. It was enjoyable, insightful, and I think that our listeners who are listening right now are definitely agreeing. But if these listeners would like to learn more about you, reach out to you, or order your book, where can they do that? 

Tim Bottke: It's easy. It's available in all major retailers online, offline it's called Digital Transformation Payday. There you can order, and there you can also go to our website, which is called digitaltransformationpayday.com. There you can find more and also ways to order if you didn't find the shop directly by googling. 

Tim Butara: Awesome. We'll also include everything in the show notes just for easy access. And Tim, thank you again. This has been great. Thanks for joining us. 

Tim Bottke: Thanks, Tim, for the discussion. A pleasure. 

Tim Butara: Same here. And to our listeners, that's all for this episode. Have a great day everyone, and stay safe. 

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