May 28, 2014 1 Comment
Much has been made recently of the imperative to fully transition our businesses into the modern digital world. It now hardly needs to be said at this point. There is even some encouraging news for traditional enterprises: The latest data from Forrester shows that companies are indeed at long last making digital transformation a top priority, with 74% of executives saying that they currently have a strategy to get there.
Yet “having a digital strategy” can also mean just about anything, depending upon who you ask. At this point however, there are basically two main forks in the road to digital for most organizations:
There is the ‘bolt-on’ strategy, which typically means adding a few new digital channels to existing touchpoints — typically social and mobile — and maybe creating an associated but minor sideline business with some digital revenue.
Then there is the ‘digital transformation’ approach to digital. It’s a full-on, meaningful reconception of the business, often using a startup or incubator model, with the intent to re-imagine a digital native organization with all that it entails, from new business models, culture shifts, remodeling of the structure and processes of the business, and rethinking of the very foundations of the enterprise across the full spectrum of digital possibility.
Unfortunately, the latter approach also has many of the characteristics that corporate leadership tends to avoid: a) The big bang initiative which has a high likelihood of failure, b) cross-silo involvement, meaning it will encounter numerous bureaucratic and political obstacles, and b) the likelihood of of success being dependent on securing rarefied talent with scarce expertise that crosses the domain of the business, the world of strategic emerging technology, and next-generation IT.
The reality is that both forks have real risks: The bolt-on approach is too little and too incremental to have the requisite strategic impact, though it’s certainly a valid interim approach (as long as it’s not the only one.) On the other hand, the full digital transformation model entails a major investment and commitment across the organization with a seemingly all-to-uncertain outcome.
Yet, the latest data tells us unequivocally that the act of doing nothing — or just too little — is also sure to fail. The march of technology is wiping out traditional companies faster than ever before, and the pace is only accelerating.
Another way of putting it is that the CEOs, CIOs, COOs, and CMOs — the four roles most directly responsible for guiding this transformation — will secure rewards for their organizations that are directly commensurate with their commitment to drive broad digital adaptation and change. For the data is unambiguous: Those that don’t fully align with the state of the marketplace will be absorbed by those that do.
Thinking Like a Digital Business
What can organizations do if they are serious about their responsibilities to lead the business into the future? Several clear options are emerging:
- Seek out digital change. Avoid having it imposed. Successful next-generation enterprises — see the start of my 2014 NGE target here — won’t wait until adopting new digital channels, tech, and business models are unavoidable. They will pro-actively seek them out, learn them early on, experiment, and be ready to grow when they mature. Even fast-followers will be at risk if they don’t avidly seek out new opportunities. Dave Gray has previously pointed out research from Shell showing that the longest-lived companies are pro-active seekers and explorers of new markets. What’s more, digital change is now nearly continuous, and the organizations must establish long-term processes that tap into and pull these changes into a new “digital metabolism” that makes incorporating strategic innovation both routine and sustainable. Organizations that only respond to change will always be several steps behind those that are change-seekers. Finally, be bold it seeking out these changes. As the latest McKinsey report on digital transition notes, the winners will “be unreasonably aspirational.”
- Cultivate capabilities to support multiple operating models. As John Kotter pointed out this week, there is now “an inseparable partnership between hierarchy and network.” We will have two and probably more major operating models in our organizations going forward, at least the legacy and the digital. We must operate and exploit each of these systems to their fullest — and together — to produce competitive and effective results today. To get there, successful leaders will strategically enable the shift of hierarchy into much more network-centric models, while cultivating the strengths of both simultaneously. Since most organizations currently have significantly underdeveloped networked operating models, this will require special investment and integration into the digital transformation process.
- Understand and absorb the new competencies of digital across the organization. If one thing stands out clearly when I look at digital transformation efforts, is that they are often led by those who are experts in the existing business, who often don’t have the competencies in the digital space. It’s not that it can’t be learned, but it is a fast-growing and already enormous field. The profound difficulties that many transformation efforts have encountered, despite the vast on-hand resources including thousands of workers and millions of customers, has been to the distinct boundary of and very different rules for success between legacy business and digital business. I recently summarized what many business leaders don’t quite get right in their mindset and assumptions when it comes to digital transformation, but it boils down to deeply understanding and emulating what those successful in digital have done to get there. Understand the power laws of digital business, deeply absorb the concept of engaging with and co-creating new products and services with digital ecosystems, and wielding powerful new ways to scale innovation.
This is not to say that businesses have not already extensively digitized. They have, but as Sameer Patel recently pointed out, they generally have not transformed. The single biggest obstacle to successful digital transformation is a broad shift to a ‘native digital’ mindset that will consistently inform broad action. I’ve come to believe that traditional companies can make this transition, but only if they decentralize tech innovation that is coupled with a supportive new network operating model, while carefully controlling downside (typically security, data control, etc.).
So, while bolting-on a digital mindset may lead to some short-term successes, it will certainly stunt the future of your organization. Instead, employ internal and external networks to create a naturally-supportive environment where digital change is far more scalable, emergent, adaptive, and continuous.