Digital Maturity Matters: A CIO’s Toolkit to Stay Focused as You Adapt to a Changing World

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Executive Summary

Today CIOs at middle market enterprises are navigating their digital journey amid difficult and unprecedented economic conditions, forcing business leaders to consistently monitor and frequently revise both short- and long-term strategies.

Since business strategy is intimately connected to digital strategy and speed of transformation, CIOs are currently under pressure to determine the best technology investments that will yield the highest return on investment (ROI) out of an often overwhelming list of competing projects and priorities. In this context, those promising the quickest and highest returns are likely to be given the green light.

Embarking on new IT projects without a proper understanding of the enterprise’s current state of digital transformation can lead to hasty investments in new technology prior to fixing critical issues in the existing digital landscape. Therefore it is critical for a company to benchmark and continually assess its digital maturity, which itself is a moving target. Understanding a company’s digital maturity is especially useful in two cases: internal board review, and mergers and acquisitions (M&A).

This whitepaper explains the importance of understanding the digital maturity of an enterprise and offers a best-in-class methodology through Pyxle’s own Digital Maturity Due Diligence (DMD) model.

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83% of business leaders struggle to make meaningful progress on digital transformation 

Digital Dexterity at Work [1] (Gartner, 2018)

Overview

Digital strategy plays a vital role in transforming organizations. Board and C-level leaders are eager to identify ways to increase digital performance and digital user experience, recognizing the direct impact they have on business growth. At all times, (and especially during difficult economic times,) IT investments must be made with the highest return in mind. CIOs must reprioritize and allocate their budgets wisely. CEOs have shifted their technology investment strategies from projects yielding long-term ROI over several years to those yielding short-term gains.

Recent evidence indicates  that the CIO now more than ever listens to COVID-19, and this in turn drives digital strategy and priorities[2](Gartner, 2020). Before January 2020 people had hardly heard of COVID-19; before February 2020 only a few communities knew of the virus; before March 2020 a mere handful of countries were directly impacted. According to the World Health Organization[3] (WHO, 2020), at the time of writing this document, more than 10 million infections are confirmed across 216 countries and territories, including a death toll of over 500,000. This has changed our lives in many ways, from work and education to social systems and lifestyles. According to the UN labor agency[4](UN News, 2020) nearly half of the global workforce is at risk as job losses increase due to COVID-19. As a result, C-level executives are pressured more than ever to analyze every business decision very carefully, including their digital portfolio, distinguishing “must do” items from “wish list” items.

CIOs today face pressing questions. What is the priority? Where should we spend more money and effort? Should we invest in new projects or fix existing problems?

These are not easy questions to answer within the boardroom. Nor are they questions that can be answered by an investment analyst or a marketing specialist.

The answers to these questions depend on four factors:

  1. Understanding the organization’s business model and strategy,
  2. Aligning the organization’s digital strategy to support the business strategy and its journey so far (digital maturity),
  3. Analyzing how the business model needs to evolve to support changes in demand, and
  4. Adapting the digital strategy to address a “new normal” in this post-pandemic context.

This whitepaper intends to address a key part of these aspects, i.e. assessing an enterprise’s current digital journey. Pyxle has built a comprehensive model to easily assess the enterprise’s digital maturity, identify gaps, and formulate actionable results to create value or eliminate waste. The model has combined industry best practices as well as expert entrepreneurial and transformational experiences. The model presented here provides today’s middle market CEO and CIO with a comprehensive approach to digital maturity, a vitally useful tool to navigate the enterprise through rough waters and beyond!

Abstract

The CIO needs a clear justification and the right set of information to answer a generic set of questions thrown at them by the CEO and the board – why, what, how, when, how much and so on. This is where the priority of the digital roadmap is key. The underlying issue for the board is how the CIO answers the prioritization question.

While there are many approaches to prioritize the digital roadmap, this whitepaper discusses Pyxle’s specific and systematic approach to help CIOs better understand the maturity of their digital landscape.

Here is the structure of this discussion.

  • Approach
  • CIO’s Challenges
  • Know Your Digital Maturity
  • Use Cases
  • Conclusion
  • References

CEOs are increasingly turning to digital investments to drive growth. In fact, 84% of CEOs expect digital initiatives to increase profit margins. To help drive that growth, CIOs must transform the parts of their organization focused on digital innovation, this includes:
(a) Shifting from a project-centric approach to a product-centric approach
(b) Rapid technology innovation
(c) Comprehensive product life cycle management

From Projects to Products[5] (Gartner, 2020)

Approach

A recent study reveals that the majority of organizations do not experience all the benefits of their digital investments because they tend to have a low level of digital maturity[6] (Deloitte, 2019). Though most CIOs recognize the importance of boosting their organization’s digital maturity to get the most out of their current digital assets, many struggle with how to go about it.

Pyxle embarked on the journey of developing the DMD model by assessing industry best practices, tapping into the brain trust within our digital consulting team, and then coming up with a model that was both pragmatic and scalable. The primary construct of the Pyxle Digital Maturity Due Diligence (DMD) model was based on our experience and know-how in these areas.

The base DMD model and the thoughts were validated to ensure it is in line with research findings around digital maturity and acceleration. (These findings are cited within this whitepaper and listed in the reference section for those who wish to find more information.)

We then combined these findings with project and program reporting techniques and industry best practices for indicating an organization’s level of maturity in each area assessed.

Afterwards we showcased this model and framework to a few private equity groups with the aim of getting feedback prior to launch and to understand the market demand for such assessment. It was very encouraging to see the audience’s keen interest in this model, especially from the point of view of sustainability, corporate acquisitions, and corporate mergers.

Since we began to roll out of the DMD model in our digital consulting engagements, customers have welcomed the insights and flexibility of the approach to digital maturity as applied to their own organizations.

Figure: Pyxle Drives Digital Maturity

CIO’s Challenges

In transforming the organization to a better digital state, every CIO faces a unique set of challenges, which can be categorized into four key areas. Let us understand these first.

  1. Return on Investment (ROI) What projects yield the highest return?
    This is a perennial topic for every business leader. The CEO wants the best strategy to grow and increase shareholder value. The CFO wants to save on spending and avoid unnecessary risks for survival. The CIO must find the optimal solution for both, which requires understanding of both the “as-is” state and the “to-be” states. Guess what? Tough economic conditions set a moving target for digital maturity and the “to-be” state – but more on the moving target later.
  1. Technology What technologies are best and fit for purpose?
    Every technology is appealing in some way, and they all have a purpose. But the question is: do we need all of them? Technical leadership often adopts the newest technologies without proper due diligence. This can lead to the unnecessary use of complex technology for something simple, to the premature use of unproven early-stage technology for a critical business process, or the misuse of technology due to misunderstanding its purpose. In either case, the result is over-engineering and wasted resources. Therefore choosing the right technology for the right problem is an important challenge.
  1. Skills & Mix What skills are required and how do you transform your knowledge workers?
    Every CIO needs to understand emerging technologies better in order to leverage them in a rapidly changing world. Leadership and technical skills are both equally important. With the aim of keeping costs down, one must get the optimal balance of in-house and vendor (outsourced) resources. This includes the remote working conditions and rightsizing the IT organization.
  1. Cybersecurity What is the state of business resilience in terms of customer and in-house information?
    It is very important to maintain a process to secure data and information. The increased threat of ransomware during the pandemic (apart from all other threats) adds to daily challenges. As with the technology topic above, the CIO has to bring the optimal solution that is fit for purpose and not simply the latest technology trending in the market.

Know Your Digital Maturity

Digital maturity is a moving target. The more you get your enterprise to reach a certain level of maturity, the higher the expectations at the board level. At the management level the digital transformation leader must balance competing demands on IT from different business unit leaders for whom achieving their own IT wish lists is critical to their own agenda.

Inside the organization, often the departmental mindset is focused on achieving the best customer experience without considering the digital ecosystem needed to support it[7] (Deloitte, 2017). The CIO, however, is responsible for and entrusted with delivering the best value for the enterprise’s investments in order to achieve the organization’s strategic business goals. It is essential to harvest from the existing digital landscape before embarking on new digital initiatives. Building on the current “as is” state should be the primary driver for any successful change or transformation because it gives higher return for what has already been invested.

Therefore the CIO’s first step should be to assess the digital maturity of the existing digital landscape. This is where the Pyxle DMD model comes in handy. It helps the CIO achieve the best advancement within the existing digital landscape by defining the enterprise’s Digital Maturity Index (DMI) and remediation guidelines – vital tools for any digital transformation.

Pyxle tackles digital icebergs with a comprehensive approach to strategy, governance and execution.

Digital Transformational Drivers

“Same glass, different angles”

Like a prism, the DMD model uses three different angles or aspects in assessing the enterprise’s digital maturity:

Diagram for Pyxle's Digital Maturity Due Diligence (DMD)
Figure – Digital Maturity Due Diligence (DMD) Model
  1. Fundamentals of Digital Maturity
    The DMD model assesses the three fundamentals of any enterprise’s digital transformation framework to ensure they are geared to the highest level of digital maturity.
    1. Strategy – the alignment of your digital vision and roadmap to the business vision.
    2. Governance – the ownership of driving digital transformation, change management within the enterprise, and the standards and compliance levels for information security.
    3. Execution – the ability to drive digital transformation at the right speed to achieve the digital strategy.
  2. Levers to Increase ROI

    The DMD model assesses digital maturity from three dimensions related to the enterprise’s historical technology investment and ROI.

    1. Simplification – the level of offloading complexity and reinventing processes and technology for the sake of simplification.
    2. Utilization – take full advantage of existing systems within the digital landscape to maximize the value and ROI of the technology investments.
    3. Insight – availability of the metrics needed for strategic and tactical decision making.
  3. Digital Ecosystem

    The DMD model analyzes the enterprise’s digital ecosystem from six perspectives.

    1. Technology & Applications – analyze the strategy and operation of technology and software systems within the enterprise; its ability to support business operations in terms of automation, the stability of those systems, life state and viability.
    2. People mix – evaluate internal and external skills used within the IT organization and assess aspects of IT human capital including the performance and skill alignment of IT staff and vendors.
    3. Practices and Standards – A look at processes, standard operating procedures, best practices, and compliances; processes followed in day-to-day operations, digital governance and portfolio management, adoption and adherence to physical and information compliance requirements or standards needed to ensure business resilience.
    4. Physical Assets – evaluate the infrastructure and network; the reliability and sustainability of the hardware and network in which the digital ecosystem is hosted, and remote working ability where/if necessary.
    5. Digital Assets – Your intellectual property (IP) and any other digital treasures; authenticity and maturity of the processes, tools, and environments within the digital enterprise.
    6. Data and Insights – Looking at data systems, information collections, and analytics; accessibility of the right level of data and analytics and its ability to support a future state.

Digitally savvy executives are already aligning their people, processes, and culture to achieve their organizations’ long-term digital success.

Aligning the Organization for its Digital Future[8] (MIT Sloan, 2016)

Levels of Assessment

The DMD model has two different levels of assessment to understand the digital maturity of the enterprise with the guidance of simple playbooks and a scoring system.

Pulse Playbook

The Pulse Playbook is a quick assessment of digital maturity using the DMD model. The goal is to get the “digital pulse” of your enterprise: to understand the current state of digital maturity at the fundamental level, i.e. across strategy, governance, and execution. The playbook results in a digital maturity index (DMI) score along with recommendations for the CIO, which may recommend a more comprehensive Deep Dive analysis.

Deep Dive Playbook

The Deep Dive Playbook is a detailed assessment of digital maturity using the DMD model. The goal is to understand all the Digital Transformational Drivers (fundamentals of strategy, governance, execution; plus the levers of simplification, utilization, and insight; and the digital ecosystem within the enterprise) in order to identify a comprehensive digital maturity index (DMI). This playbook’s outcome also consists of remediation guidelines to fix the identified key concerns, thereby achieving the highest maturity level possible with your current investments.

Tailormade DMD

Every organization is unique, and the purposes for undergoing a digital maturity assessment can vary. For this reason, it is important at the outset of the engagement to tailor the Pyxle DMD assessment to fit the purpose and intensity required by the business. When applying the Pyxle DMD to an enterprise, it is essential that the purpose of the assessment is clearly defined (discussed later under the Use Cases section). In addition, it is crucial to define the level of detail required for analysis of the transformational drivers, since the intensity can vary from enterprise to enterprise.

There are five factors to determine the level of customization required in the DMD process.

  • Use Case – the purpose of the engagement (covered in the next section).
  • Baseline of the Result – whether the DMD outcome is expected to lead to further work on the digital landscape.
  • Areas of Attention – if any special attention is requested by the enterprise in any aspect of the Digital Transformational Drivers.
  • Lifecycle State of the Enterprise – whether the enterprise is a startup, a growing company or mature enterprise.
  • Benchmark – repeat exercise of the lightweight DMD process for the purpose of confirming that key issues are fixed.

Use Cases

The Pyxle DMD model can serve different purposes in the digital transformation journey of an enterprise, depending on the lifecycle of the enterprise and macroeconomic conditions. Assessing its digital maturity is critical wherever the organization may be on its digital journey.

Let us now look at how this model enables the board and CEO to finetune the business journey. The CIO is the key person who should undertake this exercise.

1. Self-Assessment

This is a situation where the CIO wants to understand the digital maturity of the enterprise from a strategy development point of view. The underlying objectives of determining the digital maturity and identifying the root causes with remediation steps could be either to:

  1. Raise the level of maturity and improve the ROI of current investments.
  2. Understand the gap in order to implement a new strategy that aims at a higher level of digital maturity (once more, note digital maturity is a moving target).

2. Mergers and Acquisitions (M&A) ​

In this scenario, the Board and CEO want to merge with or acquire another enterprise and will engage with investment and equity specialists to do the M&A due diligence process.

Many M&A’s could achieve better returns if they paid more attention to digital maturity. Sadly it is often the case that M&A consultants downplay or ignore its importance. At a minimum, the digital ecosystems of the two enterprises after the merger or acquisition should perform as intended prior to the merger/acquisition. The typical M&A due diligence activities focus mostly on financial, legal, operational, business model and other aspects, but not on digital maturity.

A study by McKinsey’s post-merger management indicates[9] (McKinsey, 2011) that 50-60% of the activities that intend to capture synergies are strongly connected with the digital ecosystem.

At Pyxle, we firmly believe the DMD assessment should be included as part of both the pre-merger and post-merger activities, in order to ensure that performance expectations are met. The outcome of ascertaining digital maturity and identifying root causes is to deliver M&A remediation steps so that the two business entities perform as expected, post-merger.

Many mergers don’t live up to expectations because they stumble on the integration of technology and operations. But a well-planned strategy for IT integration can help mergers succeed.

Understanding the strategic value of IT in M&A[9] (McKinsey, 2011)
Figure: IT Synergies in mergers and acquisitions

3. Separation

Another very useful case to apply the Pyxle DMD model is when the board and CEO wish to separate an enterprise into two or more different legal entities. Like the M&A process, a digital maturity assessment should be a part of the separation process in its planning stages. 

We strongly believe the Pyxle DMD assessment should be included as part of both the pre-separation and post-separation activities, in order to ensure that performance expectations are met and the results properly delivered to each new separate entity. The outcome of ascertaining digital maturity and identifying root causes is to deliver separation remediations steps so that the separated businesses can perform as expected post-separation.

Benefits of DMD and DMI

The key benefit of the DMD assessment and understanding the DMI of the enterprise is to ensure any issue is fixed before continuing with the transformation process or investing in any new initiatives. At Pyxle, we find that many companies undergoing the assessment show a disparity between their internally perceived level of maturity and their actual level of maturity. A study carried out by McKinsey reveals that enterprises with higher digital maturity achieve higher business performance and higher ROI on their digital investments[10] (McKinsey, 2015).

Figure: Digital Maturity and Enterprise Performance

As a result, we’ve designed the Pyxle digital maturity assessment model to provide the following benefits from a financial and risk management point of view.

  • Identify quick wins to expedite digital transformation required to support the business vision.
  • Identify pathways to achieve the highest ROI from every digital transformation initiative that was recently completed or is in progress.
  • Ascertain existing knowledge within the IT organization and where to invest for better outcomes.
  • Understand “must have” vs “good to have” initiatives and make go/no-go decisions.
  • Find out the standards and practices within the enterprise with a view to assess vulnerabilities and the importance of implementing solutions to minimize exposure.
  • Understand the valuable digital assets and the steps required to secure them.
  • Understand the gap between the data/insights required against what is currently available so the plans can be implemented to get the right level of insight.

Conclusion

The issue of aligning digital strategy to business vision is key in every stage of the lifecycle of an enterprise. Whether it is a self-assessment, an M&A activity, or a separation activity, the Pyxle DMD model plays a pivotal role in determining the organization’s digital maturity and possible remediation steps.

The aim is to ensure the enterprise gets the most out of its digital investments. It is costly and time consuming to fix issues while on the business growth journey or digital transformation journey. As the saying goes, it is best to fix issues early in the journey, rather than later.

Often the existing digital state and maturity are ignored when business leaders create their digital transformation strategy. The digital transformation journey is more likely to be successful when fundamentals come first: assessing the maturity of the strategy, governance, and execution are key parts of understanding what needs to change.

At the same time, it also happens that existing processes are often ignored, and investments are made in new projects without fixing the gaps in the current state. Therefore increasing return on investment depends on improving the levers: simplification of business workflows, utilization of digital resources, and clear insight into the business.

Finally, the CIO’s IT organization plays a huge role in achieving high digital maturity. The digital ecosystem includes those aspects of a holistic IT organization and its maturity which are critical to business success. Remember, since digital maturity is a moving target, ascertaining the state of maturity of the digital transformational drivers (fundamentals, levers, and the digital ecosystem) is a critical part of any successful digital transformation.

The CEO’s dream is to save on spend and invest in places where it is most needed, especially during times of crisis and recovery. Many enterprises struggle to understand their digital maturity and the best way to achieve their digital transformation goals.

This whitepaper has shown an easy and practical way for CIOs and business leaders to understand their organization’s digital maturity, using the Pyxle Digital Maturity Due Diligence (DMD) model. Contact us to find the best ways to achieve your digital transformation goals without spending aimlessly on new technology projects. After all, you need to save and look at the world beyond the current COVID-19 pandemic and economic crisis.

References

[1] Gartner. (2018). Digital Dexterity at Work, Gartner Executive Guidance Q3 2018 Edition [Web log post]. Retrieved June, 2020, from https://www.gartner.com/en/executive-guidance/digital-dexterity-at-work

[2] Witty, R. (2020). Leading Through COVID-19: CIOs’ Short- and Long-term Actions [Video blog post]. Retrieved June, 2020, from https://www.gartner.com/en/webinars/3981643/coronavirus-outbreak-cios-short-and-long-term-actions

[3] Coronavirus disease (COVID-19). (2020). Retrieved June, 2020, from https://www.who.int/emergencies/diseases/novel-coronavirus-2019

[4] Nearly half of global workforce at risk as job losses increase due to COVID-19: UN labour agency. (2020, April). UN News. Retrieved June, 2020, from https://news.un.org/en/story/2020/04/1062792  

[5] Van Dam, L., Kutnick, D., &; Van Ommeren, E. (n.d.). From Projects to Products. Retrieved June, 2020, from https://www.gartner.com/en/doc/3852270-from-projects-to-products-three-essential-actions-for-every-cio-aiming-to-transform-their-digital-organizations   

[6] Gurumurthy, R., & Schatsky, D. (2019, March 13). Pivoting to digital maturity. Retrieved June, 2020, from https://www2.deloitte.com/us/en/insights/focus/digital-maturity/digital-maturity-pivot-model.html

[7] Kark, K., Abbatiello, A., Shaikh, A., & Brown, C. (2017, October 20). Stepping up: The CIO as digital leader [Web log post]. Retrieved June, 2020, from https://www2.deloitte.com/us/en/insights/focus/cio-insider-business-insights/cio-leading-digital-change-transformation.html

[8] Kane, G. C., Palmer, D., Phillips, A. N., Kiron, D., & Buckley, N. (2016, July 26). Aligning the Organization for its Digital Future [Web log post]. Retrieved June, 2020, from https://sloanreview.mit.edu/projects/aligning-for-digital-future/

[9] Sarrazin, H., & West, A. (2011, January 1). Understanding the strategic value of IT in M&A [Web log post]. Retrieved June, 2020, from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/understanding-the-strategic-value-of-it-in-m-and-38a

[10] Catlin, T., Scanlan, J., & Willmott, P. (2015, June 1). Raising Your Digital Quotient [Web log post]. Retrieved June, 2020, from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/raising-your-digital-quotient

[11] Measuring Digital Maturity to Drive Superior Performance. (n.d.). Retrieved June, 2020, from https://www.bcg.com/capabilities/technology-digital/digital-maturity.aspx

About the Author

Anura De Alwis, Pyxle CEO

Anura De Alwis

CEO
Pyxle International Private Limited

Anura De Alwis is Chief Executive Officer of Pyxle and drives the corporate strategy and execution. He joined Pyxle in 2019, bringing more than 29 years of corporate leadership and technology advisory experience.

Anura is a visionary leader and serial transformer, who is passionate about digitally transforming business, maximizing ROI, and delivering true shareholder value. He has grown global organizations of varying sizes from small startups to large enterprises. Working closely with investors and management teams, he has successfully set up three technology startups, inspired their growth and led them to successful M&A exits.

Anura possesses experience in strategy, advisory, business transformation, and governance functions across Asia Pacific, Europe and North America, serving multinational corporations including Pearson, EY, Telstra, Hewlett Packard, Nokia, Tabcorp, British Telecom, Verizon, Singapore Power and Virtusa.

Acknowledgements

The author would like to thank Amal Fonseka for his contributions on digital advisory.


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