In Digital Transformation, Culture Change Goes Hand in Hand with Tech Change

I’ve spent a lot of time in the last few years identifying the best approaches for that urgent enterprise topic of our time, digital transformation. When I first started, I often looked to top examples of organizations that have started the transition and made good progress (see sample case studies below.) More recently I’ve derived insights from my work directly with a number of organizations on their individual transformation journeys.

Ultimately, however, I have determined that the short answer is one you that might expect: There is no single blueprint for transformation that works well for everyone.

Instead, the right steps very much depend on the organization itself. We also know now that there are indeed common success factors we can apply, if we can adapt them to our organizations. Generally, I’ve found that the best method is to employ heuristics on an established framework that takes an organization’s industry traits, cultural inclinations, organizational strengths/weaknesses and uses a generative process to create a starting point for change.

The resulting adapted framework is informed by best practices and industry lessons learned so far. A good place to start for these is Perry Hewitt’s 10 best practices for digital transformation which she developed when she was Chief Digital Officer at Harvard.

The framework is balanced so it neither focus on technology or change management. In fact, the starting point must be one that steadily shifts both the technology foundation and the people of the organization in unison towards both planned goals and emergent opportunities. This starting point then continues to evolve as it learns from early experience. The overall process usually works best when realized on a supporting platform that enables open communication, enterprise-wide learning, digital channel leadership, stakeholder empowerment, and enablement of a network of change agents across the organization. This is the change platform I’ve been discussing in the industry lately, and is typically an online and offline community of practice.

The Stages of Culture Change for Digital Transformation

Rapid, Sustainable Digital Change Requires a Platform

Having an effective change platform is critical, as it’s the people side of digital transformation that is the hardest part by far, which we can clearly see from a great set of recent data by Jane McConnell. By far, the most significant challenge is getting the organization to collaborate across functions and silos, given disparate priorities, timelines, and lack of mutual familiarity. Without this, fragmented results and disjointed digital experiences are too often the outcome. It’s only by having a common and participatory venue to discuss, plan, and execute that effective transformation can take place. Thus, as Ron Miller has noted: Digital transformation takes true organization-wide commitment.

I typically employ a cultural change map — generically presented above, but adapted to the specific organization — to communicate some of the key aspects of mindset that has to shift to support digital transformation efforts.

The digital transformation effort then uses strategic education, mentoring, and specific activities (these might be hackathons, MOOCs, certification efforts, reverse mentoring, and #changeagents outreach) to proactively shift mindset across the organization and build the requisite digital skills and ideas. These include counter-intuitive notions that can be hard to otherwise learn: Designing advantageously for loss of control and using the intrinsic strengths of digital technology to change more rapidly and scale out faster.

As the organization comes together and engages together on the change platform, it then generates the framework to identify their starting point and guide the ongoing process using rigorous measurement and action-taking, which are two other key success factors, though proactive communication remains the most important action to take (again, why the change platform is so critical).

An Adaptable Framework for Digital Transformation

Communication isn’t sufficient by itself however. Effective action is required. The digital transformation framework above is therefore also very focused on day-to-day operations supported by an ongoing redesign of core business processes that is adjusted continously through early data from careful measurement of early prototypes and pilots. Of course, there are more details involved, but this is the high-level process that I’ve both used and seen work at large organizations to close the execution gap and create sustained and successful transformation.

Leading digital transformation case studies

Burberry’s All Encompassing Approach to Digital Transformation

Travelex and Their Digital Transformation: Communicate, communicate, communicate

How Nordstrom executed cross-silo digital transformation for the long haul

How Tesco used a diverse “community of colleagues” to drive digital transformation

Additional Reading

The Building Blocks of Digital Transformation

What Organizations Should Do in the First 100 Days of Digital Transformation

New Methods Leaders Can Use to Drive Digital Transformation

Vital Trends in Digital Experience and Transformation in 2016

This year I was invited again to come to Dreamforce in San Francisco and present on the latest developments in digital experience and digital transformation for the conference’s Emerging Tech Trends track. Surprisingly well-attended given the satellite location of the track at the Hilton Union Square, having to prepare this session is always a good opportunity for me to go over my research in the last year and map out what’s likely going to happen next.

For myself at least, it’s clear that human change has become closely linked to and as important as digital change, so I have divided up the trends list in the last two years into a tech dimension and a human dimension.

The bottom line: How we think, work, and react as people has tremendous impact on the usefulness and effectiveness of emerging technology. It’s what separates the digital native from those who are just beginning the journey. For example, those not inclined to share information won’t get much use from the technologies and techniques of social business, nor will those who are uncomfortable and unused to spending time in virtual worlds be able to take advantage of the rich opportunities of virtual reality. And if we’re not changing our leadership skills to be more network-centric as opposed to hierarchy-centric, then much of the business value of digital experience and engagement is wasted on us. The list goes on.

What’s more, not only are we co-evolving with our tech, but we need to understand how we need to change just as much as the technology is changing. This is required in order to a) understand the art of the possible and b) to be able to access technology’s unique and historic new value propositions.

What's Next in Digital and Social Experience and Digital Transformation in 2016

Another point I make early in the presentation is the technology is changing exponentially right now and has climbed into a rather steep part of the curve, yet our organizations just don’t change on the same curve. Instead, we change far more linearly, at best logarithmically (see slide 8.) That’s not to say that that enterprises can’t organize themselves to change much faster, but in order to do so we must employ fundamentally new ways to transform organizations. Certainly, some organizations are adapting faster and digital transforming more sustainably (see data on slide 4.)

Sidebar: I’ve recently been exploring what these new models for sustainable yet highly scalable models for digital transformation, even proving them out on client projects I’ve been working on over the last few years. The key seems to be a more network-based, decentralized, and emergent approach I’ve called a Network of Excellence.

Emergent Tech Trends Inputs

For this year’s round-up of emerging tech trends, in addition to original research, I used as inputs several items:

Major new additions to the list include digital assistants/bots/chatbots, blockchain, omnichannel, workplace app integration, and collaborative EMRs, along with significant tweaks in a variety of the existing trends.

You can see the whole deck with an overview of each trend on Slideshare. I’ll post any video that is produced as well.

Also, in other Dreamforce news, you can review my live blog of the main Dreamforce keynote as well as my current assessment this week of the Salesforce platform and ecosystem.

Additional Reading

Digital priorities for the CIO in 2016 | ZDNet

The Building Blocks of Digital Transformation: Community, Tech, Business Models, and a Change Platform

The Building Blocks of Digital Transformation: Community, Tech, Business Models, and a Change Platform

I’ve been making the argument lately that the single largest obstacle in successful digital transformation is change itself. Surprisingly, the arrival of new technology is generally not the large hurdle to becoming more digital in a meaningful way, though it certainly represents a large and growing learning curve. Yet learning the new technology is manageable by most organizations in my experience, if they have the will to do so.

Finding the right business models can be a bit more of a challenge, but the process of discovering the best ones is increasingly well understood these days. One somewhat ironic lesson is that we’ve also learned that we usually have to build an audience first, often well before we decide on new digital business models, that are centered around some activity or capability of significant shared interest with the market, before we can experiment and find the right path forward in terms of generating value, such as revenue from sales, subscriptions, advertising, etc.

Online Communities Are the Business Construct That Create the Most Value

From my Enterprise Digital Summit 2016 Paris Keynote Deck

Why Digital Needs a New Mindset

It actually turns out the most important and challenging building blocks for digital transformation is people and the processes that can change them. Thinking in digital terms requires a significant shift in mindset, such as designing for loss of control, understanding the power laws of mass connectedness, the startling revelation that the network will do most of the work, and understanding how open participation is the key to unleashing digital value in scale to our businesses.

However, shifting the mindset en masse of the large number people that exist in the average enterprise (i.e. tens or even hundreds of thousands of workers) is not something that can be done to them, but can only be done with them as Euan Semple frequently likes to point out. So, what’s the single best venue in which to engage significantly in a time efficient and sustainable fashion? I now suggest that the most likely and cost-effective vehicle for this that we know today is online community.

The building blocks of digital transformation is a topic that I recently had time to study in depth as I prepared my closing keynote for the always terrific Enterprise Digital Summit 2016 (formerly the Enterprise 2.0 SUMMIT) in Paris this month.

Step 1: Gather Stakeholders into Communities of Digital Change

The fundamental building block of digital transformation is therefore not technology, but people, a much more challenging proposition. However, if we can somehow connect the collective workforce in the organization together in an effective fashsion to begin a shared and dialogue-based process of learning, understanding, experimenting with, and then carrying out the tasks of digital transformation across the enterprise as a much more aligned and self-supporting way, then we are much more likely to succeed. As I’ve discussed, we’ve even started to witness evidence that IT is shifting in this direction steadily, with the rise of empowered change agents and even unexpected source of pre-existing tech change using forces like shadow IT as a key resource for creating decentralized technology adaptation across the organization.

But it all starts with community, for which I believe the evidence is now clear is the most powerful way of organizing human activity and creating shared value yet developed.

Step 2: Assemble a Modern, Market-Facing Technology Stack

From there, we do need to look at the technology lens at what our business does and how it does it. We can no longer realize all tech change ourselves, as our competitors have already learned that the single greatest force for value creation is capturing and wielding community contributions of customers by the millions via mass co-creation, and business partners by the thousands (see APIs + hackathons). I recently summarized the many other emerging enterprise technologies we must consider all the time as well, but the most important ones are customer facing and involved in co-creation.

We therefore must instead now becoming highly competent in building strong and effective architectures of participation, as most digital leaders harness the vast capacity of the Internet to do most of the value creation:

The Digital Business Stack: Marketplace Driven Engagement & Value Creation

Step 3: Create and Nurture Digital Experiments

From there we can combine people-led digital change at scale with a portfolio of digital engagement and experience technologies and processes — that must prominently include market-facing community — to begin creating, launching, and growing healthy and vibrant new products and services. Growing hacking in fact, has become an important new technique used by top Internet companies to ensure early lift and adoption, and has been a key subject of interest by top technology leaders like Microsoft CEO Satya Nadella. So grow the results of digital transformation this way, then generate revenue:

Digitally Transforming a Business with Growth Hacking, Business Models, and Community

Step 4: Get Serious About Revenue Models

Finally, the last building block is digital business models, which one the service has a successful audience or community, can be experimented with and validated, though certainly some services, such as sharing economy ones, can monetize from the outset, though often at break even levels. Below is a representative list of some of the most common Internet business models, though by no means all the possibilities. For example, there are at least 18 separate known business models for open APIs alone. The high level Internet business models break down like so:

Common Internet Business Models

For a more complete exploration, please view the video of my closing keynote on this subject in Paris on June 2nd, 2016:

Or download a copy of the Slideshare deck that I presented with.

Additional Reading

How IT Can Change For the Digital Era and What Leaders Can Do About It

The digital transformation conversation shifts to how

More Evidence Online Community is Central to the Future of Work

Within the last month, two new industry reports have been released that shed important new light on how we’re going to be organizing and operating our organizations in the coming years. Many of you know my point of view in this regard: Social technology has at this point largely transformed the consumer world, yet the increasingly outdated digital landscape of business frequently continues to rely on creaky and rather limited technologies such as e-mail, document repositories, intranets, file sharing, and so on. So it’s always instructive to see how far we’ve actually come in places, and how much we have left to go.

The first report is The Community Roundtable’s excellent annual State of Community Management for 2016. While I’ll provide a fuller write-up on ZDNet soon, it’s clear from this report that the model of online community continues to rise in prominence and attention as a superior operating model for activities that involve a large number of people that have common interests and need to work together on shared objectives.

As my industry colleague Alan Lepofsky likes to say, without aiming our new digital technologies and cultures purposefully, there is little point.

Key Aspect of the Future of Work: Online Communities Aimed at Shared Purpose

Particularly significant in the report was this year’s exploration on the oft-discussed and little resolved issues of calculating hard return-on-investment (ROI) for community. While in my experience online community is a far superior — albeit still emerging — new way of working for a wide variety of use cases than traditional methods, both internal and externally facing, The Community Roundtable tackled the issue head on in this year’s report to determine ROI from this year’s participants in the survey:

While there is a wide range and many communities do have negative ROI rates that are likely due to their young age, small size or immaturity, many more demonstrate compelling returns that should satisfy stakeholders.

Successful internal communities are more valuable, on average, than their external facing peers and those community programs that addressed both audiences had an ROI in the middle. Overall, communities average an annual ROI of 942% – suggesting that most community managers have nothing to fear from calculating their community’s ROI – remembering that it is the start of an ongoing dialog about value and how to grow it.

The numbers overall are impressive, and shows what I’ve seen consistently: The return on community is not only enough to justify the initial investment and is superior to most competing methods, but is also more than enough to properly fund the ongoing effort with a properly sized team. This especially means dedicated, professional community managers, which are perhaps the top success factor for communities, yet too often neglected in my experience. In short, we can now quantify how online communities and enterprise social networks offer significant value to the typical business. In any case, the numbers make the case on their own:

The ROI of Online Community by Use Case

From here we can see from the data, which Rachael Happe indicated to me recently in a discussion was from their largest sample size yet, is there is serious, immediate, and significant value in both internal and external communities. This continues to validate why online community should be a central plank of your digital strategy, and a core component of your digital transformation efforts.

Also, it’s worth noting that online community is also a key platform for enabling digital transformation, a key topic that came up last week in Paris by many practitioners at the Enterprise Digital SUMMIT, where I was speaking. I’ll explore that issue in more depth as well soon.

The value of social in the back office

The second report is “How social tools can reshape the organization” from the McKinsey Global Institute. Authored by well-known McKinsey partner Michael Chui — whom I finally got to meet recently in New Orleans at the Enterprise150 event — and several co-authors, the report delves into some recent findings on business impact with community and social tools that is worth exploring.

Social Tools and Community Enable Digitization and Performance

Particularly notable was the report’s finding that for any business activity which has been digitized, on average half report that incorporating social improves the digitized process even more, whatever the process. What’s more, specific business activities show a much higher level of improvement if they are digitized and made social, both (see chart above.) These activities include order-to-cash, demand planning, research & development (R&D), supply chain management, and procurement. These aren’t necessary glamorous aspects of our business, like marketing or sales, which are more often associated with social business performance but they are vital and important:

To digitize all processes, both internal and external, the results suggest that social tools can help. For every process where their companies are digitizing and using social tools, respondents agree that social technologies have enabled their use of digital overall. This is true even for the back-office processes where few respondents now say their companies are using social tools. In fact, social’s effect on digitization is greatest for the internal processes where social tools and digital activities are least common.

This data clearly shows that many efforts could be seeking higher levels of easily accessed value in places other than where we’ve traditionally focused. This also means that if you’re already digitizing something, it makes sense to make it social too.

Additional Reading: Enterprises need a (social) platform to drive change

In short, the case of online community is now stronger than ever: More data is available than ever before which shows substantial, sustained, and transformative value can be created by working in more open and highly participative models, as long as we’re sure to connect our activities to purpose. One of the things that struck me most in Paris last week is how many use cases that the latest case studies cite, far beyond simple knowledge sharing and management that used to be the central business case. It’s very encouraging to see our industry reach a new level of maturity and data-based value, though to be sure, there is still much more to do in most organizations.

Restructuring the C-Suite for Digital Business: The Future of the CMO, CCO, CIO, and CDO

I’ve noticed lately what appears to be an emerging trend in marketing and communications leadership in some large companies. Specifically, the positions of chief marketing officer (CMO) and chief communications officer (CCO) are sometimes being consolidated into a single role, even in very large enterprises. Such consolidation has already happened at PG&E, Walgreens, and Citi, and I’ve recently encountered other notable instances as well. This might seem odd at first glance, as specialization of roles is usually emphasized in large entities as expansive purviews tend to be harder to manage.

It actually turns out, for several key reasons, that examining this closer is an interesting — and both useful and practical — thought exercise in how the single vast continuum of digital is putting growing pressure on the traditionally separated functional silos that have comprised most of our organizations for over a century.

This trend, and another like it I’ll propose we’ll see soon, is actually an apparent reversal of what organizations have been doing lately to better organize for technology, which is moving to the very center of how our organization operate and create value. In fact, the proliferation of C-level stakeholders for the rapidly expanding world of digital business has continued unabated in recent years, as chief data officers, digital officers, community officers, experience officers, analytics officers, and other similar C-level tech roles emerge and grow rapidly.

The Consolidation of the CMO and CCO for Digital Transformation

Too many cooks in the kitchen, some might say, but I pointed out last week on ZDNet that digital disruption — a wildly overused yet still quite apt phrase of our times — is now anticipated by most executives within the current planning cycle. The counter argument that is made for proliferation is that we need a lot more leadership on deck to more rapidly adapt our organizations to digital and head off disruption. The imperative is that we now have to a) think more like venture firms and startups, in other words our digital efforts have to move out of the quarter earnings cycle and become long term, while shifting to experimenting and failing fast until finding what works and b) our organizations require digital change capacity that is matched to today’s exponential cycle of technology evolution. Without both, we can’t maintain a sustainable pace matched to the market or reach a successful future state quickly enough.

In fact, what’s often hampering us in fact functional silos, both in our org structures and in our technology. We saw this very painfully with social media and social business a few years ago, and now we are witnessing it writ large as our customer experiences, the vital journey of which is the very lifeblood of our organizations, becomes ever more fragmented and divided across digital channels and our organizations’ operational silos. Customers get thrown over the wall to disorganized and inconsistent experiences as their journey takes them through our marketing departments, sales teams, customer service staff, and product development groups. Increasingly, our attempts to engage with companies as a customer is just ignored as we use new digital touchpoints that is obviously so much better — to us, but still unfamiliar to companies. In short, as organizations, we don’t have the capacity to be everywhere we are expected to be in the customer journey, and as organized today, don’t have a way to get there.

So how does the convergence of top-level roles in communications and engagement solve this problem? By removing a key silo while also adding the responsibility for both internal and external comms. Internal comms in particular is a critical addition, and is a key part of what a corporate communication officers oversee, as they are often the sponsor for the corporate ESN and intranet, essential platforms for organizing change at scale. As gaining holistic and integrated oversight and control of experience management — across customers, business partners, and employees — has become paramount, this merging of roles gives us a way to prevent it from fragmenting across projects, initiatives, technologies, tools, and digital channels. No more dividing internal and external engagement, giving us less inconsistent messaging and responses. In return, we can achieve better internal scale, more unified platforms, policies, and governance. We have one role for primary engagement.

One Likely Outcome of Digital Transformation: A Refactoring of the C-Suite

In other words, with CMO and CCO consolidation, we will have a single top-level org structure that is substantially better suited to oversee engagement across the single continuum of digital. We used to think that digital/social centers of excellence were required to bring together a consistent response to technology. This may be a better answer.

We will see how this trend plays out — and there are still open questions about where secondary engagement such as customer care and product development fit in — so I have begun tracking the industry data in LinkedIn to see if we can confirm a real trend based on my and others anecdotal experience. But from an critical thinking standpoint it makes sense why organizations are doing this.

The Fall of the Chief Digital Officer Too?

Which brings to my second trend, which is that we’ll likely see the same consolidation of function happen with the chief information officer (CIO) and the chief digital officer (CDO). I was initially bullish on the CDO a few years back — and still think they have an important combined innovation and P&L role to play, but as some like Theo Priestley have observed, the role is already under pressure and it’s time is likely to come to an end, at least as a top-level role. It will still exist of course but in this consolidation, would appear under the CIO purview. It now seems likely that many CIOs will merge CDO functions back in for all the same arguments that the CMO and CCO purviews should be combined.

Following this argument, removing silos in our organizations so that we can remove them from our digital products and experiences makes sense on its face. It can eliminate friction, make it possible to scale better, reduce poor execution, and create more shared value. I should point out however, it’s only part of the story for organizing better for digital. While other related topics like the bi-modal/multi-modal conversation seems to have hit a fever pitch, with McKinsey even joining the bandwagon, I think it’s vital that we also carefully consider simpler “digital hacks” to our organization that should be far easy to implement, but would in practice have significant impact.

Consequently, the consolidation of top digital roles into a chief marketing and communications officer (CMCO) and chief information and digital officer is — I now believe — a practical response to the proliferation of C-level digital roles to create the consistency, coherency, and effectiveness we need to change. However, this centralization will be an improvement as long as — and only as — such consolidation is properly balanced by bottom up and grassroots digital change programs, like a network of excellence powered by decentralized change agents, or a formally supported Shadow IT and marketing technology program. Without realizing both C-level role consolidation and networks of change together, sufficient digital scale and capacity will simply not exist for converged leadership to cultivate and guide.

Additional Reading

How Should Organizations Actually Go About Digital Transformation?

The digital transformation conversation shifts to how | ZDNet

How Chatbots and Artificial Intelligence Are Evolving the Digital/Social Experience

Digital engagement is once again shifting, as we can see from the main discussions at Facebook’s F8 conference this week about the new release of Messenger and its smart chatbots, or when we look at what’s happening with popular team messaging services like Slack, which is being “overrun by friendly, wonderful bots.” While bots seem like a minor improvement to digital user experience, some believe — including myself — that a combination of today’s latest technologies will transform this what’s-old-is-new-again technology into a major new force in contemporary digital experience and social engagement.

Over the last couple of years, conversing in everyday language with our digital devices has become relatively commonplace with the advent of widely used digital concierge services like Siri, Google Now, and Amazon Echo. Known more formally as ‘conversational user experiences (UXs)’, this dialogue-based interaction model actually has quite a long history going way back to command-line programs like Eliza and Zork (both of which yours truly spent far too much time with when younger), the first commercial expert systems in the 1980s, IRC bots, and other early examples.

Anatomy of a Chat: How Conversational UXs Add Value

While there’s always been an assumption that bots had a bit code behind them with a little situated intelligence — from performing simple services like scheduling reminders via IM all the way up to the first textual AI-based systems such as MYCIN for helping doctors diagnose infections — most conversational interfaces tend to be relatively simple affairs with a little bit of basic natural language processing connected to a decision tree.

That’s clearly about to change in a major way as the introduction of more powerful forms of artificial intelligence and machine learning are combined with new UX channels like voice, video, virtual reality (and soon enough brain/machine) into solutions designed to assist people in their daily activities. These bots will ultimately be unleashed on a) all of the visible digital data in existence, b) apply vast computing power and cutting-edge algorithms to make sense of it all, and c) provide the ability to use this knowledge to converse with us about the world in a deeply meaningful way.

Siri on Apple devices, the conversational UX I use most, has been able to handle increasingly complex and useful queries over the years, often aided by deep smarts from 3rd party services like Wolfram Alpha. Siri is a good example of the overall progress of general purpose chatbots, but it — and the others like it — are really just the tip of the iceberg. I predict you’ll see chatbots appear in almost every user interface in the near future as a way to almost completely remove the friction between our computing systems and us.

How Chatbots Will Impact Online Community

How will the rise of chatbots with AI affect the most important new digital environments for our organizations, online communities and enterprise social networks? I wondered this recently, in particular how it might affect the highly strategic and valuable role of community management. To explore this more, I posed this question yesterday on Twitter to a couple of top colleagues in the space, Rachel Happe and Carrie Basham-Young, with Constellation’s Alan Lepofsky joining in:

Chatbots for Community Management: A Twitter Conversation with Rachel Happe, Alan Lepovsky, and Carrie Basham Young

Why would chatbots help with digital leadership roles like community management? By being connected to the global activity stream and then assisting in the most fundamental — and therefore most common — community management scenarios. This would offload a very overworked role to handle routine digital enablement like helping users through common issues, basic community skill building, ensuring a basic SLA for questions and answers, and providing coaching to community/ESN users on the fly. Other likely scenarios include capturing community data and reporting on it and providing a queryable interface on community needs, hotspots, and quiet zones to improve social business adoption and drive business performance. Chatbots in this space have great potential in my opinion and we’ll soon see them more and more in the social business world.

How Chatbots and Artificial Intelligence could Help Community Managers

But are chatbots for community management — and other domains of digital engagement — really going to happen? I’d argue that since they already are in many other similar functions, such as Web site sales and support, that it’s almost certain, as a greater share of conversation shifts from human-to-human (H2H) to human-to-machine(H2M.) In fact, an employee from Cognizant even chimed into the above Twitter conversation that they are actually working on this. A smart chatbot to aid in community management will likely do volumes to improve the effectiveness of online communities, which are still getting short shrift in terms of investment in the professional skills needed to manage and facilitate them well.

In short, I believe smart chatbots will revolutionize digital/social engagement by adding a much needed automation and support of communication, knowledge management, and collaboration. There are also high value scenarios for chatbots connected to the e-commerce especially, an area that Facebook was careful to emphasize at F8. Chatbots will likely contribute to some digital noise as well, but filtering has proven effective in general for social environments in recent years. Overall, the emerging ensemble of conversational technologies is going to offer a compelling new access point to digital value for the average people in a very substantial way. At this point, I’d strongly recommend that most organizations add them to the new enterprise technologies to watch.) I will be adding smart chatbots to my upcoming 2016 enterprise tech watchlist on ZDNet as well.

The Long Game is Winning in Digital Ecosystems, and Other Global Tech Trends

I’ve traveled nearly 70,000 miles all over the world since the beginning of the year, talking with digital practitioners in the trenches. Most often these are passionate but often frustrated change agents, IT managers grappling with tech evolution, and corporate leaders on both the technology and business side looking towards their futures and feeling uncertain.

Where to best focus digital enablement efforts in their organization, while coming from behind, with scarce time and resources is question that is top of mind right now. Worse, leaders at the very top often don’t seem motivated to make the necessary moves.

From these conversations and many observations at conferences and events so far in 2016, it’s obvious to me at this point that we appear to be entering a new inflection point with digital: Those who began early, made the right decisions, and stuck to their Internet identity in terms of rethinking the future — as opposed to chasing traditional firms back into their own industries — are seeing outsized rewards in an increasingly winner-takes-all online marketplace. The rest of us are watching them pull away.

In short, the early entrants to the global digital business competition that were either a) lucky enough to discover the digital rules of success from the outset, or b) followed a positive market feedback loop to the same place are quite clearly sucking the air out of the room. Perhaps most importantly, they also had the ability to execute without the many constraints of our legacy organizations.

The Impact of Leading Digital Ecosystem Methods for Digital Transformation

Of course, I’m talking about Amazon, Google, Facebook, and Apple — sometimes referred to as the Four Horsemen of the Digital Apocalypse, for good reason — on the consumer side as well as Salesforce, and now surprisingly Microsoft, on the enterprise side, the latter two which are making major new inroads to enterprises I speak to. Microsoft in particular seems to be suddenly winning a lot of enterprise-wide “Microsoft company” deals as their digital/cloud vision matures. As a whole, these technology companies are increasingly seizing broad swaths of digital territory as they move at near light speed compared to their non-digital native brethren, breaking into new category after category with with relatively high levels of repeatable success. Certainly, their track record is head and shoulders better and much more rapid than most Internet startups, or most traditional enterprises that is.

Using the Inherent Power of Networks and Sustained Tech Investment

Why this is has been the subject of endless analysis, scrutiny, and speculation about this very small cohort of tech companies eating the world, but I propose that the core reasons are actually fairly basic. To restate the above: There are certain fundamental rules to digital ecosystems and the businesses built on top of them. While it helped enormously to be early, organizations that understand these rules and can also execute and invest for a sustained period of time can still dominate if they understand a few crucial pivot points.

Networks effects, one of the most basic measures of a successful digital ecosystem, quickly become exponential yet look relatively minor at the beginning, fostering complacency in competitors at the worst time, when a new digital market seems small and uninteresting. It’s not until critical mass has been reached a little later on, that a digital platform grows very swiftly into a market dominating and self-sustaining force. Then it’s relatively easy to crush lessor players that aren’t utterly focused on k-factor and other measures of these effects.

Simultaneously, and harder to prevent, is the tendency of make basic subsequent design changes to online products that then impede the carefully built channels that have created the initial growth and scale. I’d argue that many digital contenders frequently make this last mistake, making simple but disastrous changes — often when turning over the product from the 1.0 team to the maintenance team — by not staying true to the inherent power laws of digital systems that got them there (patterns such as “enabling networks effects by default” or “anyone can participate.”)

Needless to say, the aforementioned tech leaders managed to navigate past all these obstacles, including shooting themselves in the foot later on as they had to bring on fresh talent to grow the company. The critical design parameters that enabled growth stayed in place, and long enough to provide returns. This also highlights the big difference between most of these organizations and traditional companies: They had venture backing that isolated them from the quarterly financial cycle of immediate and continuous returns. Some would argue that Amazon has been doing this anyway, despite being a public company, and reaping enormous rewards in the long game of digital, where increasingly it’s apparent the winners reside. As BCG has noted, “even sharp minds can fail to grasp the power of sustained exponential forces.”

The primary lesson here: Deeply understand the rules of digital ecosystems and build one that solves a real pain point for a lot of people. Optimize the results relentlessly and pour the returns back into growth. Don’t stumble along the way.
This is a playbook that is simple enough to understand, but that most industrial era organizations fully embrace in a meaningful way, despite all the marketing talk — and I’m guilty as many of us in this regard — about digital transformation.

What does this have to do with the conversations I’ve been having? To person, almost everyone thinks their organization is moving too slowly, tentatively, and uncertainly towards becoming effective digital organizations that can compete, what I’ve called a next-generation enterprise. As SAP’s excellent Sameer Patel — and fellow Enterprise Irregular — once famously said, businesses have digitized quite a bit, but they haven’t really transformed.

Getting Past the Digital Innovator’s Dilemma

The real obstacle is one which I’ve been exploring in various forms over the last several years: Most organizations have accumulated and/or designed in enormous amounts of legacy culture, process, mindset, and infrastructure that got them where they are, but now has to be undone to a large extent to be fully realized and effective digital organizations. The world of agile, lean startup, OKRs, open APIs, devops, relentless A/B testing, and growth hacking are all words or phrases sometimes heard in the halls of the average classical business, but they just don’t lie at the heart of them, and won’t any time soon.

Worse, we’ve greatly over-centralized technology enablement so that it’s become a profound chokepoint in many organizations. CIOs and CMOs feel this acutely when this is the case, and yet a few are now reaping the benefits of going in the opposite direction. There are indeed solutions, but they require more ideas that traditional organizations aren’t good at: Open innovation, Kickstarter-style ideation programs, app stores, customer co-creation, change agent programs, hackathons, employee incubators, BYOT, enterprise architecture that’s designed for loss of control, and more.

The second big observation from my travels this year is that the technology world is maturing in some interesting ways. These trends too tend to favor those that invested early or invested big, or both. One is the realization that digital success stories aren’t coming from very many places. The United States and Asia dominate the top of the list, arguably having an unfair advantage through better investment policies for startups and very large markets that make it easy to take advantage of power laws. Larger markets, even ones relatively undeveloped, seem better to attract both talent and the numbers required to build market presence that can’t be ignored.

So what are organizations to do? I’ve suggested some digital transformation blueprints for both boards of directors as well as for the C-Suite that can help develop and grow true digital native lines of business in a sustainable way. But I also think that there is now a very steep curve to climb to respond to the network effects that Internet startups have created in many new and existing industries.

Become a Network Orchestrator and Harness the Market

The reality is that there is really only two ways for companies behind the digital maturity curve — which is still almost all of them right now — to catch up: a) Invent new industries that are irresistible in terms of the value and utility they offer b) employ the latest lessons learned on how to play to the strengths of the digital marketplace and turn the knob all the way to the right, beating the existing players at their own game by more purely and deeply plumbing the inherent factors that make digital ecosystems such an uneven playing board. Most digital contenders fail to understand even the most basic concepts of digital, such as the network itself is the single biggest resource you can and must use to digitally fuel your ecosystem to transform. It will do almost all the work, as long as you have a vision, a value proposition, and a platform which truly embodies and orchestrates both. Network orchestrators, in fact, are at the top of the Internet food chain. Organizations must live there, or become fodder for those that are. As Forrester’s Dan Bieler noted recently:

Digital ecosystems empower the CIO [Dion: and other internal tech leaders, official and unofficial] to become a critical business enabler by providing a technology platform to redefine approaches toward innovation, knowledge management, supply chain optimization, product development, and sales and marketing. In particular, traditional firms put survival at risk due to slow innovation cycles. CIOs who define a clear strategy to exploit the possibilities that digital ecosystems offer for their organizations position themselves as powerful change agents.

I’d only add that it’s not just about defining a strategy, but leading and executing on it sustainably. I’ll be exploring more about my travels and lessons learned on the emerging edge of digital shortly. In the meantime, your insights on this challenge are very welcome in comments below.

Additional Reading

Going Beyond ‘Bolt-On’ Digital Transformation

Is it IT’s last chance to lead digital transformation?