Photo by Ian Schneider on Unsplash

How digital transformation will remain forever relevant.

For the last few weeks, I’ve been reading about digital transformation, and I’ve noticed that its definition is in contention. Every author is making the phrase fit his or her agenda, using it in abstract argumentation with minimal relation to its original meaning. I believe that this misuse as such has caused the phrase to lose its punch over the last few years. However, while the term might be moving up the list of overused buzzwords, its original meaning is still very much relevant and worth learning.

By definition, the word “transformation” suggests a beginning and an end, yet digital transformation has neither of those. Tomorrow will continue to see new technologies as quickly or even more quickly than today. As such, there will always be a need for businesses to respond to change, whether they want to or not.

Inadvisedly, the word “digital” causes some people to assume that the change will primarily involve the implementation of new technologies. While technologies undoubtedly will be a part of the transformation, their implementation won’t be the primary part.

Technology will be one cause of many. However, digital transformation isn’t about causes; it’s about outcomes and how we respond to them. An example of such is the food industry. In Europe, we have Just Eat, a service that allows you to order food online. The service has already caused disruption, but in reality, a service like that could disrupt much more. It’s not hard to imagine restaurants without dining areas living entirely off online delivery orders. While Just Eat and its technology might have been the cause, it’s the people who are ordering food online that force change. Airbnb is another such example.

Responsibility starts with leaders and ends in culture

With change happening, how are businesses preparing for it? Last week, I read a report by MIT and Deloitte that surveyed 3748 digital business executives. It found that nearly 90% anticipate that digital trends will disrupt their industries either to a great or moderate extent. It also finds that only 44% think they are adequately preparing. This is a rather significant disparity but one that is not entirely unexpected. As much as we know that disruption is inevitable, we also know that changing businesses is hard.

If you are a leader or manager, it is, however, your responsibility. The change is happening, and it’s your job to decide how your business is going to respond. Transformation simply made the first move; the next one is yours: disregard or adapt. This is a hard question that is only made harder by knowing that you will be judged not only on the actions you take but equally on those you decide not to take. Luckily for you, you aren’t alone; there are thousands of people going through the same problem. As such, data such as that from the MIT and Deloitte survey becomes very valuable. It means you no longer have to rely solely on your own experience; you can make decisions based on the experiences of thousands.

An experience, as such, can be found by observing the data in the report; it discovers that a set of characteristics is more consistently present in digitally maturing companies than in early-stage ones. Knowing about data like this could benefit business leaders by helping them make better decisions and better understand what makes companies better at adapting to this type of change.

A natural search for these types of answers often ends in articles outlining the characteristics of successful companies, such as “10 Ways Successful Companies Digitally Transform.” We have all seen these articles; they put forth the premise that replicating success will lead to success. This is a misconception. Daniel Kahneman, a Nobel-receiving psychologist, mentions them in his book, Thinking, Fast and Slow. He explains that people tend to misperceive causes of events by attributing positive outcomes directly to factors within one’s control but negative ones to external factors.

This type of misconception is what drives the increasing popularity of articles exploring events surrounding all sorts of successful businesses. We seem to think that mirroring those with success will have a greater impact than steering clear of mistakes when in fact, it’s often the opposite, even more so when it comes to digital transformation. To avoid such mistakes, we should base observations on things such as characteristical or cultural differences rather than on single points of actions. That is another reason why looking at the kind of data made available from the survey could prove very valuable because it shows just that.

Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips, David Kiron, and Natasha Buckley, Aligning the Organization for It’s Digital Future, Figure 6, July 26, 2016

What can we see?

A worthy example could be the bit of information in the photo above. It lists the results of asking respondents to evaluate multiple parts of their organization. In doing so, it exposes the before-mentioned characteristics, and for the maturing companies the report sums them up as the following:

  1. Larger involvement in risk-taking, agility, and collaboration.
  2. High senior commitment and low turnover.
  3. Self-investment and development of in-house talent.
  4. Soft-skills valued more than technical knowledge.
  5. Digital congruence: alignment of culture, people, and structures.

This list enumerates valuable traits that any company should want to develop. As such, it may be easy to assume that as companies become more mature and experienced, they develop these characteristics. However, the report states that a broad range of businesses, old and new, were lacking in these skills.

So, the first objective will be to figure out what makes early-stage companies be consistently inadequate as per the characteristics above and what is causing all businesses to go through a similar adaptation process. One would expect most companies to value the traits listed above. After all, they have been a hot issue for the last ten to twenty years. Companies want flat structures featuring collaboration, risk-taking, agility, and self-investment, but apparently just not when it comes to their digital development efforts.

Going back to the data, isolating early-stage companies, we see that only 15% feel they are prepared for the coming digital disruption. Keep in mind that this is among the same companies where over 90% found the disruption inevitable. If we isolate the maturing companies, the confidence grows over four times: 78% feel sufficiently prepared. Thus, as companies get more experienced and transition further along their digital journies, they put greater value in preparation, which makes you wonder why early-stage companies are reluctant to prepare for what they find inevitable.

This reluctance could insinuate early-stage companies as failing to understand not just the significance of preparation but also the fundamental process of digital transformation. I can’t blame them; digitalization is a complicated and expensive process. It comes with upfront expenses, employee hesitation, and doubt, and all of this can come before any sign of success. That is what makes great leadership so necessary. Without direction, it becomes too easy to lose track, switch priorities, or get frightened into mitigating losses. Frighteningly, it would seem that for some companies, great leadership isn’t sufficient. To make the required changes, they need visionary leadership.

Visionary leadership should be home-grown

Now, how do we go about finding visionary leadership? It seems like quite a requirement for anyone in any position to have to be visionary to fill a role correctly. I know I would be skeptical about any job listing that required me to be a “visionary.” So, if we can’t recruit for it, what can we do?

The third characteristic from earlier — self-investing and developing of your own talent — touches on a solution. Digitally maturing companies are much better at not only keeping but also developing their employees. The survey found that more than 50% of respondents from digitally early-stage companies are planning to leave within three years; in maturing companies, that number is just half of that. In a market where finding real talent is very difficult, not losing what you already have should be a top priority. Surprisingly, the report affirms this isn’t just a trend among young or junior-level, employees; 30% of director-level leaders are preparing to leave in less than one year.

I am sure we can all agree that high turnover harms not just the business’s capacity but also its culture. It’s a vicious circle; people leave because of a deteriorating culture, causing the culture to deteriorate further. So, how can you stop it? How have the digitally maturing companies managed to stop it? Interestingly, the respondents’ answers, when evaluating different cultural components within their organization, might provide a clue, as the answers seem to reveal a relationship to their stage of digital maturity.

Remembering back to the chart of characteristics we saw early-stage companies as having “a low appetite for risk, a hierarchical leadership structure, work performed in silos, and decisions based more on instinct than on data.” This is a familiar sound that makes up a lot of the same characteristics companies have spent the last 10 (or 20?) years trying to change. Still, they seem to get reapplied again, almost as if we haven’t learned anything from the last decade.

It might be due to the very nature of digitalization. It’s big, it’s complicated, and our experience tells us that big and complex things need to be broken down. That is why a majority of companies start with a task force and a handful of visionary employees. A small group is simply easier to manage, monitor, and align with the same vision. However, if we have learned anything from the last paradigm shift in business, it is that you don’t make cultural changes by deploying small groups.

To change company culture, you need broad inclusion beyond a particular department or division. No, it can’t start with a single department and spread. That just creates a business that operates within your business. While it might be profitable, it adds short term-value and only differentiates itself from the rest of the business and its overall strategy.

It is a time of change, and we aren’t going to change our businesses much if we continue to do business the same way we have for the past decade. The report has a fitting quote from Richard Gingras, the senior director of news and social products at Google Inc.:

It is very easy for companies to find solace in what they have been doing and be reluctant to consider how to change it. It’s much easier to start with a clean slate and build from there. Organizations need to look at the market and its opportunities instead of taking an existing product or business model and trying to make it fit a new environment.

What’s next?

The world is changing, and so is your organization. If you want to remain competitive, you need a culture that is ready for the constantly evolving demands of the digital world. Invest in your employees; they are your primary driver in the transformation. In a time like this, the biggest risk isn’t investing in new technologies; it’s refusing to allow your employees to induce new things through experiences and instead forcing them to operate an old business practice in a new business world.

I feel it is very fitting to end with another quote provided by Google’s Richard Gingras from the report:

The main issue is whether or not companies fully accept that this is a dramatically different marketplace and a dramatically different world, […] In my own personal analysis, not accepting that still holds back many companies. They just don’t recognize how extraordinarily different the world is.