The journey of a company towards digitalization has a unique starting position that is largely defined by competitive position and culture. It does not have, however, a definite destination, as change is likely to keep accelerating. In the words of an recognized expert on interesting journeys:
The author’s of “Leading Digital” (see sources) identify the starting points for any digital transformation in just two dimensions:
- Digital capability: All the different functions and uses of digital technology at a company at this point of time
- Leadership Capability: The overall leadership capability independently of any digital know-how
Given these two dimensions they come up with four positions for a company to be in.
The interesting point of this is not that every company should strive for digital mastery, but that leadership capability is most important. This is not the management of single departments like IT or ecommerce, this is how leaders behave in all aspects of daily work across the whole company. Here is major caveat to be explored, as traditional leadership models will fail in the context of digitalization.
The traditional way to take up this challenge is to kick-off a major corporate transformation program. Typically all business transformation programs can be broken down into 6 unique phases:
- Visioning: Building a high level “raison de être” for the organization, a battle cry, an inspiration
- Strategy definition: Breaking down the inspirational vision analytically into inputs, capabilities and outputs, investment and profit and loss
- Definition of to be operating model: Breaking down the capabilities – which describe what to achieve – into process models, processes and organizational changes – i.e. how to achieve the intended results
- Transformation Plan: Building an action plan, a time line, a financing plan, a change management plan
- Transformation execution: Employ traditional project management to get the organization from A to B
- Sustain changes: Follow up on results, adjust were necessary, tune operations
This is the traditional business transformation theory and practice today (see for example Gouillart/Kelly “Transforming the organization”). Try to skip one of these phases and the transformation will likely fail. Try to go light on vision or strategy and the transformation will fail. Be excellent in vision, strategy, the operating model, the planning and even in transformation execution but neglect to monitor and incentivize sustained changes and a company will have deployed a wonderful new system and processes, but employees may circumvent all changes and will find ways to return to the old way of doing things. Typical failures are:
- The vision is hollow e.g. “We will be global market leader in segment X by 2020!” in contrast to the excellent vision which propelled Microsoft in the 80’s and 90’s: “One PC on every desk.”
- The strategy is just a list of intended results, i.e. “we will grow to 1 B€ Revenue while increasing profits” instead of a list of actions that explain how to position the company and what to do to achieve this position (see Rumelt “Good strategy – Bad Strategy)
- The ability to execute is minimal. Lots of planning, but attention to project execution is left for the underlings without enough follow up, adjustment and support
- Markets shift over time, Priorities shift over time, key personal leaves and join the company. A plan, broken down phase wise, “water fall” like transformation initiative, that takes time over months or even years, is often generally not flexible enough. By the time the program reaches the sustain phase results might be meaningless or sponsors might not be available for the sustain phase
This list is endless. There is no solid data on how many major corporate initiatives fail to produce even near the intended results, but it is likely to be about more than half that fail. An interesting, typical war story on a failed initiative is available in Yourdon, Edward: “Death March”, 2003.
A traditional transformation program is demanding and needs extremely skillful leadership. And a program to achieve digitalization of a company is even more difficult, as described in the last posts:
In face of all these challenges, it seems reasonable to assume that digitalization programs fail at even a higher rate than 50%. So what is a CEO to do if chances of success are so dismally low?
- Resign herself to the fact and accept the low odds of succeeding. Start a traditional transformation initiative nevertheless and hope that at least some of the targets will be reached
- Stay on the conservative side, go for second mover advantage and be ready to imitate what has proven itself in the market place
- Find a new way of approaching transformation that raises the chance of succeeding
The first alternative seems bad at the surface, but given the social acceptance of conforming to established business practices and the lack of know-how and reflection seen in todays organizations, even on board and supervisory board level, this is the most likely route a conventional CEO will take. “We are going to do something big about digital!” – that is a message a supervisory board likes, because it is the main stream thing to do. The exact details elude the supervisory board, so the CEO gets away with it. For an empirical survey on the stage of leadership in todays companies refer to Pfeiffer, Jeffery in “Leadership BS”. Token Initiatives are often what is called for in a world where the principal-agent problem (see Theory page) has run amok in public listed companies.
The second alternative, going for second mover advantage is something that I personally love. Let other companies experiment and fail, be watchful, but not passive and invest to have everything in place to act with speed and decisiveness if the opportunity is there. The problem with this strategy is twofold: First, second mover strategies often provide an excuse for complacency, are used to rationalize passivity and dedicating resources elsewhere. But inactivity results in the company to not be ready when the opportunity is there. An example is the use of RFID Technology in stores for automated replenishment or in store tablet assistant selling by store assistance to customers. It’s ok and probably wise not to invest too early too much in these technologies, but it is not wise to neglect to conduct small scale experiments or solving the bigger underlying IT architectural problems of a lack of store connectivity via wireless and broad band or fixing the fragmented ERP landscape to achieve a single source of truth. Being a second mover means being able to act fast if the opportunity is there. To act fast, a company must be prepared. This preparation is a set of projects in itself.
The third alternative is doing digital transformations not according to the books. Conventional organizational and management theory sees the company as a machine: You plan a machine, you build a machine, you run a machine. It is about strategy (phases 1 to 3) and execution (phases 4 to 6). It is about process and roles, work flows and operators. There are a couples of authors (e.g. Kotter; Laloux) which argue for a new dominant metaphor for companies. No longer is a company a machine. Instead it is to be seen as organism, with less Command and Control and more autonomy for the workforce. Mission Control has a central role here – indicating the extreme usefulness of the “organism” metaphor for a digitalization initative.
But before getting to much in the metaphysical Ying and Yang world of organizational development theory, lets look at the more mundane, practical aspects first. So what practical steps are to be done in IT, what about customer centricity, about big data, about work organization? After we went into details about these practical actions, we will be ready to tackle this third alternative, which is a far cry from todays organizational models.