Succeeding at Digital Transformation
By: Ashish Deshpande
Tags: Disruption, Transformation, Enterprise, Digital, Technology

INSIDE THE ENTERPRISE

This is the second in a series of perspectives on IT in the enterprise, informed by experiences and observations over nearly two decades working at the intersection of business and IT in a large global energy company.

Introduction

Information Technology is well recognized as a critical business enabler and has been a key component of business transformation efforts since the 1980s. What has changed in the 21st century is the relentless rise of digital enterprises with completely new digital business models, disrupting one traditional business after another. Today the typical transformations of old would be woefully inadequate, and those enterprises that were not born in the internet era are regularly forced to embark on programs of Digital Transformation. Unfortunately, a very large proportion of these programs fail. In this article I examine what are the typical causes behind these failures, and what steps can be taken at the business unit or enterprise level to improve the probability of a successful outcome.

Approach

Digital Transformations are fundamentally Business Transformations so the approach I take is to discuss two perspectives on why business transformations fail and two which are more specifically focused on digital transformation. In the first category we have ‘Leading Change — Why Transformation Efforts Fail’, by John P. Kotter in Harvard Business Review (originally published Spring 1995), and an interview with McKinsey’s Seth Goldstrom on ‘Why Transformations Fail’ (Feb 2019). On digital transformation we have from Christy Pettey in Smarter at Gartner ‘Avoid These 9 Corporate Digital Transformation Mistakes’ (Jul 2020), and ‘10 Reasons Why Digital Transformations Fail’ by Clint Boulton in CIO magazine (Jun 2020).

Next I identify pitfalls which have tended to be persistent, and others which are specific to Digital aspects. Finally I note mitigations or remedies that could reduce their occurrence and impact, and improve the odds of success.

I have liberally re-used material from the above-mentioned authors, my purpose being to give present a concise overview and synthesis of the topic and hopefully saving readers many hours of preliminary research on the internet.

Issues in Business Transformation

Kotter sees the transformation effort progressing through a series of stages, each critical in its own right and needing to be done properly and in the right sequence. He identifies these as follows-

Establish a sense of urgency

Form a powerful guiding coalition

Create a vision

Communicate the vision

Empower others to act on the vision

Plan for and create short term wins

Consolidate improvements and produce more change

Institutionalize new approaches

Pitfalls abound (see Table 1), with the majority directly a consequence of organizational inertia and gaps in leadership composition, alignment, capabilities or communication. A particularly interesting pitfall is the tendency in some quarters to declare victory at the first opportunity, effectively scuttling further transformation efforts, diluting the intended change and hastening a reversion to ‘business as usual’.

Table 1

Now coming to the weaknesses identified by Goldstrom two decades after Kotter, we see that his cautions relate to some softer aspects such as being insufficiently ambitious about outcomes, lacking a growth focus, the need for collaborative working, and needing an ‘and’ rather than an ‘or’ mindset.

Both emphasize the need to systematically proceed with the transformation effort through its various stages, getting the right people in the right jobs, and making changes wherever there is a lack of either will or skill.

Goldstrom makes important points about the need to align incentives with behaviors that will drive the desired outcomes, and the necessity of proper tracking systems.

Issues with Digital Transformation

Some of the points noted by both Pettey and Boulton (Table 2) are business and general issues that are very much in play even in Digital transformations. Though worded differently they are closely related to pitfalls earlier noted by Kotter and Goldstrom. The foremost the inability to articulate a vision that the whole organization can embrace and align with. Another big one is organizational silos.

Table 2

Both Pettey and Boulton highlight the need to focus on customer needs and competition. Pettey makes important points about seizing the opportunity provided by digital transformation to reinvent how an industry operates, rather than being satisfied by incremental changes. Both advise action rather than overplanning or ‘wait-and-see’. Bouldton highlights how disruptors typically move an order of magnitude or two faster and achieve greater scale than incumbents, especially when there are network effects involved.

Adequate talent and a learning mindset are key ingredients especially in the digital aspects of a transformation, both are in short supply. Consequently there is often a high degree of talent churn which then impacts continuity and timely achievement of Digital goals.

Improving the Odds of Success

Kotter has some key recommendations –

Convince at least 75% of managers that the status quo is more dangerous than the unknown

To achieve a coherent effort that is both sufficiently powerful and disruptive, form a cross-functional team under a senior line manager outside the normal hierarchy

Communicate the vision constantly, model desirable behaviors

Encourage risk taking

Define visible performance improvements, and reward the employees that achieve them

Articulate connections between new behaviors and corporate success, develop the next generation of leaders

Goldstrom makes some distinct points-

The change story must be compelling from a hearts-and-minds perspective … not everyone contributing to the transformation will be excited about company financials and stock price in the same way as top management who have incentives linked to them

Goals should be set at the full potential of the organization, rather than at a level that is comfortable (which will ultimately not be transformational)

Have the courage to make personnel changes, and do it early … this will get the whole organization energized and excited

Examine talent-to-value for the top 100 roles in the organization, the mix needed in the future will be different than in the past

Obsess about growth .. sales, pricing and step-out growth

Pettey emphasizes the following points-

Focus on the business model, not the operating model …prioritize the market and how it will be monetized over efficiency and effectiveness

Set goals for structural transformation, supported by adequate investment … digital business works at the level of revenue and business model change and product re-invention

Focus on learning and growth

Plan less, do more … embrace lean startup thinking, release a minimum viable product and then improve it with customer feedback

Focus on the needs of markets and customers first, then deploy technologies to address them … do not select technologies and then look for applications

Understand and then exploit the power of culture to drive change

Boulton highlights some additional steps -

Ensure strong CEO sponsorship

Business leaders should get a strong understanding of what needs doing in a digital transformation as well as how to go about it, before embarking on the transformation … what are the talents and technologies required

Begin early, do not wait …gather velocity and maintain it, digital disruption happens fast so time is of the essence

Work on attracting/accessing capable talent … they are in short supply, so learn how to retain them or continuity will suffer

Conclusion

One needs a sense of urgency, imagination and vision to begin a successful Digital Transformation, grounded in customer needs and an understanding of the competitive environment. There are quite a few pitfalls one is likely to encounter along the way, however strategies and methods exist to address those. A lot depends on getting the right people in place who have both the will as well as the skills, and being able to hold on to them.

Therafter speed, individual and collective motivation, enthusiastic collaboration and focused action is what will make the difference. And persistence will lead to success.

Thank you for reading this article! I welcome your comments below.

— Ashish Deshpande