Leading digital transformation is very different from leading more traditional transformation. In this article, I will highlight ten reasons why. For each of these areas, I will quickly describe what it requires from leaders and their organizations to successfully drive digital transformation and bring it to the next level. A 10 minutes read.
Wim van Hennekeler
Ten reasons why leading digital transformation is different
10 minutes read
There are hardly organizations anymore that remain untouched by digital transformation. Some companies have made significant progress with this, whilst others are in the early days still, with for example a digital market channel being launched in addition to their traditional go-to-market. Clearly, the Covid-19 crisis accelerates this transformation. It widens the gap between companies whose digital journey is well under way and those who are in the early stages still. Just think of how relatively easy it was for some to change to working from home. They already had the infrastructure and processes in place. People were used to videoconferencing. For others this turned out to be a serious challenge.
In terms of leadership aspects of digital transformation, a similar transition is emerging. Some companies become aware that digital transformation requires a different kind of leadership, but for quite a number of organizations this is relatively unexplored ground still. Often, their digital journey started under end responsibility of leaders without substantial personal experience with digital transformation. No surprise here. Many leaders are highly experienced professionals whereas digital transformation is a relatively new thing.
From a leadership perspective, digital transformation is a fundamentally different thing than more traditional transformation. Data analytics, robotic process automation, enhancing customer experience, artificial intelligence, internet-of-things and platforms are all disruptive and exceptionally interrelated. As a consequence, new dynamics occur that cover technology, operational processes, customer interfaces, capabilities, talent and more. All at the same time, with lots of interdependencies. Therefore, new leadership challenges emerge as well. It is time for a new digital leadership paradigm. If business leader understand what this implies for their roles and their organization, then they will be able to drive digital transformation more successfully.
In this article, I will highlight ten reasons why leading digital transformation is so different and quickly describe what it requires in each of these ten areas. I will draw from my experience as a leader of an organization delivering digital transformation with client companies, as well as my role as a sparring partner to their executives.
Many companies start their digital transformation with pilots in specific areas. It does make sense to start in pockets rather than going for a “big bang”. Given the complexity of digital transformation and the many interdependencies that come with it, a big bang may be a recipe for failure. Having said that, there are quite a number of companies that somehow get stuck in this pilot phase. They keep on treating digital transformation as a number of projects. They make people responsible for specific digital topics, which implies others are not.
Let me illustrate this with an example. I have often witnessed discussions in organizations around ‘who in the company owns its data’. Sometimes, the answer was the IT department, sometimes Marketing, sometimes even an individual person, like the Head of Enterprise Architecture. However, one could argue that specific answers like these are not correct by default. It may have been wise in the initial phase to allocate accountability around program management and budget, but eventually in a way everyone in the company owns its data. In a data driven company, all employees are aware of data being their gold mine for competitive success. They understand what this means for their own role.
This is not different for other areas of digital transformation. Besides, the mutual impact and interdependencies of all these areas are massive. There is no optimized use of data without artificial intelligence, underlying IT architecture as well as an underpinning data driven culture. This journey from “some digital” to “all digital” clearly is a key focus area for the company’s leadership. It’s about a different mindset. There is a tipping point where initial bottom-up initiatives need to be taken over from an overarching top-down perspective to bring the company to the next level in its digital journey. Some leaders miss that tipping point and their personal responsibility here. As a result, their companies keep running portfolios of digital projects. They get stuck in the “some digital” area whilst remaining far from “all digital”. They are losing momentum and market share, particularly during the Covid-19 crisis. Just have a look at the financial services sector for example, where we see huge differences across the globe in how banks are doing in this area, even within the same region.
Digital transformation is highly multidisciplinary. It is not just about IT, processes, marketing, user experience (UX), employee experience (EX) or organizational capabilities. It is about all of this and more. A typical reason for failure of digital initiatives, is that aspects like volatility and interdependencies are underestimated or simply not organized. For example, a digital solution developed by enterprise architects that does not fulfill the need of the customer, brilliant as it may be from a technology perspective. A new marketing channel not embraced by the organization as staff see it as a threat for their jobs. A nice portal of digital tools developed for field operators which they are not using at all as they have not been engaged and the portal does not solve any of their day-to-day issues.
Many companies are organized in silos: dedicated departments with people with similar skillsets. These silos are typically represented in the Management Team or Board by their leader like the CIO, CMO, CFO et cetera. Collaboration between departments is not always well developed. In recent years, agile working and DevOps have emerged, which is a good thing. Yet, its scope is specific, like application development which then sits in the CIO’s silo.
Digital innovation requires a way more integrated approach. It requires organization models that mobilize experts across disciplines. I have seen great examples of speedy development of digital solutions that were very successful in the market, particularly because they had been organized in a truly multidisciplinary way. This includes a case in the manufacturing industry where enterprise architects, marketing experts, supply chain professionals and behavioral specialists had been working closely together. Not an easy thing to organize, as you will have to manage the typical challenges that come with differences in background, expertise and personal style, but the eventual impact can be serious.
From a leadership perspective, clear messaging and exemplary behavior are required to drive multidisciplinary teams like these. This includes strong alignment of the various CxO’s. Many have built their careers in a silo model, leading teams reporting to them. They have been accountable for their team’s performance to their fellow CxO’s. Successful digital transformation requires a different leadership model. Board members are executive colleagues working closely together, coaching and challenging multidisciplinary teams. They don’t sit on the top of their pyramid, shouting at each other from a distance.
Learning is a key thing in digital transformation. We cannot draw from experience from earlier decades. There has never been digital transformation earlier on. Learning quickly from success and failure is essential. Learning is also important in another way. From the initial stage of technology-push, many companies have now entered the phase of customer-led digital innovation. By for example analyzing customer data, they better understand what drives the customer’s behavior and what the customer’s needs and drivers are. This definitely goes for the area where the customer “does not know what he does not know.” Nobody has ever asked for an iPhone to be developed. Yet, when it hit the market it proved that Apple had very well understood the drivers of the customer.
Traditionally, we learn from people who are older, wiser and more experienced. This goes for the relationship between master and apprentice, teachers at school, mentoring and learning-on-the-job. Whilst most of this is still relevant, in digital transformation we learn a lot from young people. They are the customers and decision makers of the future. They are digitally savvy. Design thinking, which is a cornerstone of digital transformation, is a natural thing for younger people. If you see a slide with lots of information, text, numbers, colors that require a lot of cognitive energy to digest, there is a fair chance that it may have been drafted by someone who learned to work with PowerPoint in the nineties. However, a picture (I am not using the word “slide” deliberately here) that is simple, with hardly any text, nice to look at, easy to comprehend and not only appealing to your brain but also to your feeling, may well be created by someone who is in her or his twenties. Needless to say, the second one conveys a stronger, unambiguous message.
We need to start learning from the generations of the future. In my company we ran a program for a client in the telecoms industry with workshops in the five cities across the world with the largest penetration of mobile telephony. The participants were children. The words “phone” or “connectivity” were hardly used as they did not mean much to them. The sessions were about their ideas, needs, creative suggestions, things they constructed themselves with paper and other materials. Additionally, we did a lot of research. The company learned an awful lot from this. This included their board members who attended these workshops as well.
Some companies are known for one big thing that its leadership continuously reinforces. An airline company claims to provide the best service in the world to its customers. It’s their key message, everywhere, always. Every employee is aware of this mission. It is a core capability of this company to be extremely client focused. It will not offer the cheapest service as this high service level comes with a price. This is very different in the case of a price fighter in the same industry. Here, the customer will experience less service. For most customers that is OK. They find the lower price more important. A key organizational capability of this organization will be efficiency. It is their one big thing. Many employees will be cost aware.
In the digital era, this is more complex and ambiguous. Enabled by artificial intelligence (AI) and data analytics, companies can become very customer centric, whilst at the same time robotic process automation (RPA) can fundamentally improve efficiency. Organizations cannot just be customer centric or operationally excellent, they need to be both. Besides, they need to be creative, innovative and entrepreneurial on the one hand, but compliant on the other in areas like cyber security, reputational risks, finance and regulatory. Some of these risk areas are relatively new, and their impact potentially high.
Managing this increasing organizational ambiguity is crucial, and not an easy thing to do. Just think of an example a couple of years ago of a bank that intended to use their customers payment data to tailor its service offering to these customers. It had to stop doing this because consumer organizations and politicians considered this a serious threat for privacy. The bank argued that their new data policy in the end would be in the interest of the client. Yet it had underestimated the privacy risk dimension and potential reputational damage resulting from it. Today this bank is way more advanced in how it balances these areas, but it had to learn how to manage the ambiguity that comes with digital transformation.
Digital transformation requires organizations to be fast, agile and empowered. A traditional bureaucracy with lots of command and control mechanisms will struggle with its digital journey. When working with partners like start-ups, software vendors, system integrators, think tanks and universities, employees should have a clear mandate. No need to get back to their bosses for approval of all kinds of smaller things. Empowerment of the edges of the organization.
Around ten years or so ago, a number of large corporates started digital incubators. They assumed their own bureaucratic culture and slow decision-making processes would easily kill most of the digital initiatives. Today, the stage where companies can afford to delegate or outsource digital transformation is over. This is becoming a core competency, even more accelerated by Covid-19.
CxO’s often state they will need to hire a lot of new digital savvy people as their current teams according to them lack these skills. The Talent Trend report of Randstad in 2018 revealed that only 11% of CxO’s intend to train and reskill their teams whereas no less than 59% will recruit from the market. The question then arises: where are all those digitally skilled people in the market? Already from a mathematical perspective this will not work. Sure, it will always be important to hire good people, but companies have no other choice than to fundamentally reskill their own people to make them successfully drive digital transformation. This will help propel a digital culture.
Increasingly, companies are working in digitally enabled smart coalitions. This includes alliances with partners in value chains like suppliers and clients, but can also cover other companies including competitors, knowledge suppliers, digital agencies, government organizations and NGO’s. New ecosystems are emerging rapidly. Platforms often work as their catalyst, sometimes blockchain based, like in trading platforms.
Ecosystems can also aim at achieving specific goals beyond traditional company targets. Think for example of the circular economy or climate change. A company can hardly ever drive sustainability on its own. It needs to trigger smart and reconfigurable networks across their value chain.
From a leadership perspective, this provides another specific challenge. Take a quick look at the Management section in bookstores at airports. Almost all books are about how to run a company. Your company, that is, or your team within that company. A clearly defined organizational entity with clear boundaries. A thing you kind of control.
Ecosystems are different. Ecosystems are hybrid combinations of organizations with a different background. For leaders who have made their careers in the “how to run your company” way of thinking, this is new. You can’t manage an ecosystem as if it were your company, simply because you have to share ownership with others. Ownership is not even the right word. Ecosystems are about a joint mission, for which leaders of participating companies are key ambassadors. This requires more visionary thinking and more awareness of the added value that the leaders’ company can bring in a broader context.
Digital transformation is about radically new things, often designed in co-creation by teams from different backgrounds. Ideation is a key step in this process. The same goes for prototyping as the next step, for example for a minimal viable product, or, a “minimal loveable product”. Creativity, design thinking and knowledge about what drives the customer’s behavior are key ingredients of digital innovation. Try this with a team of likeminded people who have been working together for a long time, with similar careers, gender, cultural background, attitude. Then try it with a team that is highly diverse in all these areas. Most likely, the second team will need a little more more time to get up to speed, but will come up with way more disruptive and creative ideas.
Digital innovation does not work with a tunnel vision. It only works when different viewpoints and ideas are articulated, based on which new solutions can be developed. It is not an incremental thing but often about breakthrough innovation. Diverse teams can be way more disruptive.
This marks a next step in how leaders should embrace diversity. Diversity is not just a good thing to do for society, for equal chances between different groups, or for ethical reasons. True as all of this is, in digital transformation diversity is also a key requirement from an innovation perspective.
Ask a seasoned program manager to come up with a definition of transformation. You will have a fair chance that you will hear back that transformation is about taking a status-quo through a period of transition to a different status-quo. A new IT system successfully implemented. An integration completed following an acquisition of another company. Outsourcing of a specific process up and running. A well-known analogy for this type of transformation is “freeze, unfreeze, refreeze”.
Digital transformation is never completed. Once a company successfully implements new digital processes, new opportunities arise. A lot is happening in parallel. Even the transition to “all digital” as mentioned earlier on, does not mean that by then the transformation is completed. On the contrary, in a company that is “all digital”, digital innovation will be on-going, across the board. It’s a start. Not an end.
Sure, most digital projects have a well-defined deliverable, with clear accountability and roles attributed. Just like other projects. For example, a new digital document process in an insurance company where customers can upload documents instead of all the paperwork they had to complete and send back by mail. At some point in time, this new process will be up and running. Yet, it is only a start. It opens a wide perspective of way more customer centric and automated opportunities.
Organizational structures will need to facilitate change. They can be hybrid and easily reconfigurable, centering around specific solutions, products or customer experience areas. Leaders don’t lead their organization from A to B anymore. B will soon turn into C, and so on.
A key learning point of the Covid-19 crisis is that working remotely in many cases turned out to be less difficult and more effective than many originally anticipated. True, it is not always ideal, sitting behind your laptop going from one Zoom session to another Teams meeting, all online, all day long. This creates issues as well, for example from an ergonomic perspective. Yet, a recent KPMG study revealed that 70% of CEO’s of over 300 large companies across the world say their organization will never return to how it used to work before the pandemic and will fundamentally review its office space policy. There is no doubt that the impact of Covid-19 occurring in the era of digital transformation will be a catalyst to new ways of working. Face-to-face meetings will be way less frequent and, in many cases, not the standard anymore.
This creates new challenges from a communications perspective, but new opportunities as well. This is not just about remote ways of working, collaborating and communicating. It is also about enhancing the quality of face-to-face. These aspects go hand in hand. In traditional management team meetings, how often does the physical aspect of meeting face-to-face bring added value? Just think of typical meetings with a standard agenda, an overview of financial results, each member giving an update of his or her own unit – and you will easily be bored. Vice versa, I know global leadership teams with monthly online video meetings as their normal way of working for more than ten years already. However, when they physically came together once a year for a two-day session, they almost did the same thing. They followed their monthly agenda, only more extensive. The physical aspect as such provided little additional value.
What both examples have in common is they miss the specific opportunities that meeting face-to-face potentially offers. Here is an area we need to fundamentally rethink, and it is a leadership issue. Any business update can be done online. Face-to-face meetings should seek to optimize the value of being together. For example, by discussing strategy, co-creating innovative initiatives, understanding each other’s personal drivers, discussing and optimizing team performance, challenging each other, bringing new or crazy ideas to the table, and so on. These meetings should be fun, inspiring, rewarding but at the same time provide a platform on which doubts, concerns and differing viewpoints are shared. And what if face-to-face meetings are difficult to organize or if it is not a wise thing to do from a health perspective, so all meetings remain remote? Then it still makes sense to distinguish between business update meetings on the one hand and brainstorm meetings on the other, for which some great tools for online collaborative working are available.
Finally, digital leadership is different as well in terms of the strategic value it brings to the organization. Some key elements will not change. A company’s leadership is responsible for the strategic direction. It should be inspirational and visionary. Yet, in the VUCA world (volatile, uncertain, complex, ambiguous) new leadership challenges arise. Leadership in the digital era is more multifaceted. A different mix of capabilities and focus areas are required, with a passion for digital transformation as a key ingredient.
Consider decision-making as an example. Typical control mechanisms of traditional business structures are eroding. Companies need to be innovative, fast and agile. From a leadership perspective this implies a significant shift. A leader is not just a person at the top where eventually all decisions, including the smaller ones, are approved. Sure, big things remain their responsibility, but traditional bureaucratic decision-making processes just require too much time. In the new world, strategic value added by leadership to the organization needs to focus more on its key values, on the strategic ambitions, on the purpose of the company. A strategic framework, if you will. As a result, employees can take empowered decisions in the spirit of values they share in line with the strategic direction of the organization.
Digital leaders should be interested in and aware of new opportunities. More than once I heard business leaders state ‘I have an iPad, so I am digital.’ It’s not just about the tools. It’s way more about understanding how digital transformation can enhance customer experience, realizing the potential impact of emerging technologies and closely monitoring what competitors, start-ups and potential partners are doing in digital innovation. Leaders should be visible on social media and have followers. Even if they use a traditional notebook, which by the way I see creative people often do as they find it easier to conceptualize ideas and thoughts with a pencil on paper. It’s really not about the iPad…
© Wim van Hennekeler, 2020