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Digital strategy and value creation

About the blog

Will Sarni
Will is an internationally recognized thought leader on water strategy and innovation. He has been a sustainability and water strategy advisor to multinationals, water technology companies and NGOs for his entire career.

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  • Digital strategy and value creation

Artificial Intelligence (AI) technologies in the private and public sectors are increasingly dominating the overall digital transformation trend. This acceleration of interest in AI technologies has given me pause to revisit lessons learned from digital transformation strategies and value creation. I believe that the adoption of digital technologies, including AI, needs to be driven by a well-conceived business strategy to create business value.

I will start with lessons from a significant body of research on digital transformation discussed in the book The Technology Fallacy: How People Are the Real Key to Digital Transformation (Gerald C. Kane, Anh Nguyen Phillips, Jonathan R. Copulsky and Garth R. Andrus, August 23, 2022, The MIT Press). This body of research provides valuable insights into digital transformation strategy and execution relevant to adopting digital water technologies.

The book explores the misconception that successful digital transformation solely depends on technology adoption. It argues that while technology plays a crucial role, the key to effective digital transformation lies in understanding and addressing the human aspects of change.

The authors conducted extensive research and interviews with executives from various industries to identify common challenges and misconceptions surrounding digital transformation initiatives. They found that many organizations focus too much on acquiring the latest technologies without adequately preparing their workforce or addressing cultural barriers.

Many organizations focus on acquiring the latest technologies without adequately preparing their workforce or addressing cultural barriers

The book outlines several key themes. The first one is a people-centric approach: it emphasizes the importance of prioritizing people over technology in digital transformation efforts. Organizations need to invest in developing digital skills, fostering a culture of innovation, and empowering employees to embrace change. Secondly, leadership and culture: a successful digital transformation requires strong leadership and a supportive organizational culture that encourages experimentation, risk-taking, and collaboration. Talent management is also emphasised: organizations must attract, retain, and develop talent with the necessary digital skills and capabilities to drive innovation and adaptation. Effective change management strategies are likewise essential for navigating the complexities of digital transformation and overcoming resistance to change. A final theme is continuous learning: digital transformation is an ongoing process that requires continuous learning and adaptation to stay ahead of technological advancements and market disruptions.

The human capital learnings conclude that digital transformation brings significant value to the workforce and human capital by empowering employees, enhancing their productivity, and fostering professional development. Let us explore some key aspects of the value it provides.

Skills development: digital transformation necessitates the acquisition of new digital skills and competencies. Organizations invest in training programs and resources to upskill or reskill their workforce, enabling employees to stay relevant in a rapidly evolving digital landscape. This enhances individual employability and strengthens the overall talent pool within the organization.

Empowerment and autonomy: digital tools and technologies empower employees by providing them with access to information, resources, and decision-making capabilities. With the right digital infrastructure in place, employees can work more autonomously, collaborate across teams, and contribute to innovation and problem-solving.

Flexible work arrangements: digital transformation enables flexible work arrangements, such as remote work and flexible hours, which can enhance work-life balance and employee satisfaction. This flexibility allows employees to manage their personal and professional responsibilities better, leading to higher levels of engagement and retention.

Collaboration and communication: digital tools and platforms facilitate collaboration and communication among geographically dispersed teams. Employees can collaborate in real time, share knowledge and best practices, and work together to achieve common goals. This fosters a culture of teamwork, transparency, and innovation within the organization.

Data-driven insights: digital transformation provides employees with access to data-driven insights that can inform decision-making and improve performance. By leveraging analytics and reporting tools, employees can gain a deeper understanding of customer needs, market trends, and business performance, enabling them to make more informed decisions and drive better outcomes.

Career advancement opportunities: digital transformation creates new career advancement opportunities within organizations. As employees gain new digital skills and competencies, they become eligible for roles in emerging areas such as data analysis, digital marketing, and cybersecurity. This enables employees to pursue career paths aligned with their interests and aspirations, leading to greater job satisfaction and retention.

Employee engagement and satisfaction: by investing in digital tools and technologies that enhance productivity and streamline workflows, organizations can improve employee engagement and satisfaction. When employees have the tools they need to perform their jobs effectively, they are more likely to feel valued and motivated, leading to higher job satisfaction and retention.

Digital transformation brings value to the workforce by empowering employees, enhancing productivity and fostering professional development

In addition, the research provided in The Technology Fallacy is directly applicable to the challenges facing the water sector such as the slow speed of innovation, an aging workforce, and the need to attract talent. Specifically, the value of digital adoption includes: (1) research shows that respondents prefer to work for a digital leader; (2) digital maturing organizations attract digital talent; (3) digitally maturing organizations create an environment for learning, and (4) a lack of digital opportunities may increase attrition. By investing in the digital skills and capabilities of their workforce, organizations can position themselves for success in the digital age and create a more engaged, motivated, and resilient workforce.

As a final thought on digital transformation and value creation, I would like to point to a recent article from McKinsey published in the MIT Sloan Management Review which emphasizes the importance of using business value metrics instead of technical metrics when evaluating AI/machine learning project success (“What Leaders Should Know About Measuring AI Project Value”, February 7, 2024).

The author states that “when evaluating ML models, data scientists focus almost entirely on technical metrics like precision, recall, and lift, a kind of predictive multiplier (in other words, how many times better than guessing does the model predict?).” The case is made that these metrics are “critically insufficient” as they provide a measure of the relative performance of a predictive model, in comparison to a baseline such as random guessing, but provide no direct reading on the absolute business value of a model. Instead, the focus should be on business metrics — such as revenue, profit, savings, and number of customers acquired. These metrics relate directly to business objectives and are core to building a “bridge between business and data science teams”.

In summary, when considering digital technologies such as AI, strategy comes before the technology selection, and business metrics must be used when evaluating value creation. I believe this way we will have an improved chance of a successful implementation of digital technologies and quantifying the value of the investment.

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