Thanks to the economic uncertainty and workplace turmoil created by the COVID-19 pandemic, more than a few companies have put digital transformation projects on hold, which is contributing to a decline in global spending on information technology.
According to a recent report by Gartner, worldwide IT spending is projected to decline 8 per cent to about US$3.4 trillion in 2020, despite increased spending in sub-segments such as public cloud services, cloud-based telephony and messaging, and cloud-based conferencing. As Gartner’s John-David Lovelock noted, “CIOs have moved into emergency cost optimization which means that investments will be minimized and prioritized on operations that keep the business running, which will be the top priority for most organizations through 2020.”
The unexpected pause on transformational projects has made headlines as an unfortunate delay in preparing organizations to survive the longer-term challenges they face as the so-called Age of Disruption advances.
But putting digital transformation projects on hold—even for just a short period—may very well prove to be a blessing for many companies, and not just because it allows them to focus on the current health crisis. After all, pausing projects generates an opportunity to reframe them.
Digital transformations currently have a consistently low success rate. As a McKinsey report highlighted last October, “the best-performing decile of digitized incumbents earns as much as 80 percent of the digital revenues generated in their industries.” But achieving this level of success isn’t a given. In fact, after surveying more than 1,700 C-suite executives, McKinsey concluded “the average digital transformation—an effort to enable existing business models by integrating advanced technologies—stands a 45 percent chance of delivering less profit than expected. The likelihood of surpassing profit expectations, on average, is just one in ten.”
There are many relatively well-known reasons why digital transformations fail—among them are the absence of a clear strategy and top-management commitment, failure to match resource allocation to lofty ambitions, difficulties in balancing the need for exploration and exploitation, and issues with finding the right talent. But my research points to a much deeper problem that’s almost too basic to consider: a lack of perspective and common language.
When it comes to achieving a successful digital transformation, pretty much everyone across the organization has a significant role to play. But as I explain in Digital Transformation Know How, playing these roles is hard when nobody is on the same page.
The lack of a common frame of reference (or common language) appears to be relatively widespread. Last year, for example, a survey of 500 British businesses with 50 or more employees commissioned by service management firm Cherwell Software discovered an unexpected explanation for why the United Kingdom was lagging way behind emerging countries like India, Brazil, and Thailand in the adoption of digital transformation.
According to the survey, 57 per cent of employees at participating firms couldn’t explain what digital transformation means, while 20 per cent couldn’t hazard a guess, and 12 per cent assumed it meant moving to a paperless office. “It’s obvious that not enough time is being devoted to communicating with employees to develop their understanding and involvement in the process of digital transformation,” noted Cherwell vice president Oliver Krebs, adding that British organizations will likely continue to lag in competitiveness until “business leaders bring their teams along with them on this journey.”
The COVID-19 crisis has certainly not made most things any easier for business managers. But the ability to communicate has not been impacted by social distancing measures. So, with transformation projects on hold, it just makes sense to seize this opportunity to ensure all concerned understand that digital transformation is all about making your business future-proof by investing in digital opportunities, not about going paperless.
While making this clear, the pandemic pause period should also be used to clarify or reframe digital transformation projects before accelerating them when market conditions allow. In particular, to improve the chances of success, projects should be repurposed for growth, reshaped to enable organizational agility, and repositioned as a leadership challenge.
Repurposing for growth: The BCG Henderson Institute recently studied 735 transformations conducted in the United States during previous shocks that created lasting shifts in the business environment. The conclusion of this research was that fortune favours growth-focused transformations.
“The economic stress caused by COVID-19 should not dissuade companies from pursuing growth,” noted a BCG Henderson report by Martin Reeves, Lars Faeste, Salman Bham, and Ask Heje. “During the 2008–2009 financial crisis 35% of transformations led to successful growth, 8 ppts higher than average.” Simply put, companies should use this insight and frame digital transformation as an investment in creating future-proof growth, rather than as a cost-saving, efficiency, or productivity effort.
More than ever, we need optimism and voluntarism to bounce forward. But we should not be naïve. There is a paradox involved in achieving success: the growth—the prize we are after with our digital transformations—will require serious rationalization and simplification. It is going to take leadership to create and uphold a frame for digital transformation that focuses on future-proof growth while avoiding the all-too-common perception of IT-enabled reengineering as being all about efficiencies and staff reduction.
The experience at KPN is a good example of what it takes to optimize chances of success when chasing growth via transformation projects. In 2014, after a financially and operationally hectic year, the Dutch telecommunications incumbent initiated a digital transformation. As highlighted in a case study I wrote about this transformation, the market invasion of over-the-top digital services—which bypassed platforms used by traditional telecommunications companies to control access to customers—had forced KPN to revisit its strategy, swiftly and decisively. KPN developed a three-year plan to ferret out several hundred million euros of cost reductions, inject new energy into the company, and identify new growth potential.
These seemingly conflicting goals were bundled under the umbrella of an overarching ambition to “become the best service provider in the Netherlands, with an un-telco-like high net promoter score.” Work was planned and performance managed for three distinct but connected objectives: (1) strengthening customer relationships, networks, and IT, (2) simplifying products, processes, and systems, and (3) growing customer loyalty. In the end, a bold commitment to digital transformation allowed KPN to shift from selling products to designing digital-first, omni-channel customer journeys. Data and analytics capabilities have since gained an increasingly prominent role in KPN’s transformation—supporting simplification, growth, and innovation.
Reshaping to enable organizational agility: Pointing out that digital transformations are hard is an understatement. If truth be told, they are very hard by default, because the introduction of any technology at scale can be successful only if it is complemented by deep, sticky behavioural changes—and that requires profound organizational change.
“How far back the digital world slips when the coronavirus outbreak subsides depends a lot on consumers. But where we end up also depends on whether organizations succeed in moving from today’s forced adoption of digital technologies to adopting new ways of working to create significant and lasting change.”
While the COVID-19 pandemic has resulted in many enterprise transformation projects taking a back seat to short-term IT priorities, the digital revolution in general has been accelerated. In the words of Richard Waters, a San Francisco-based editor with the Financial Times, there’s nothing like a global pandemic to force change. As Waters noted early on in the crisis—as education, shopping, medicine, and entertainment were being forced to exist only online—a return to anything approaching pre-COVID life will “bring a drop-off in digital activity. Human beings will rediscover the joys of personal contact. But the world left behind will be very different from the one that preceded the crisis.”
How far back the digital world slips when the coronavirus outbreak subsides depends a lot on consumers. But where we end up also depends on whether organizations succeed in moving from today’s forced adoption of digital technologies to adopting new ways of working to create significant and lasting change.
Doing this, especially in turbulent times, is a matter of organizational agility, meaning the creation of a capacity, as an organization, to routinely explore and exploit opportunities faster than your rivals. One way to do this is by reorganizing into agile teams. However, as highlighted in “Agile at Scale,” a 2018 Harvard Business Review article by Darrell K. Rigby, Jeff Sutherland, and Andy Noble, some activities may not be well suited to agile teamwork, so it would be a mistake to try to force-fit every function into a single agile method mould. But that doesn’t mean some parts of a business should be left alone. To prevent sparks flying from a lack of collaboration, changes across the enterprise are “necessary to ensure that the functions that don’t operate as agile teams support the ones that do.”
A big difference between the leading and the lagging digital transformers is that the leaders have geared up to systematically unlock the creative potential of digital technologies to enable new agile ways of working. This typically requires visionary leadership. A good example of this can be found in another of my case studies on digital transformation, this one involving UCB.
This global pharmaceutical company has long had a great deal of data available internally across the entire value chain—from R&D to commercial processes and operations. But it took a CIO’s visionary introduction of a comprehensive framework called “analytics as a service” to really get the company started on its true journey of innovating with analytics.
At the heart of this framework were the following three enablers of treating data as a corporate asset and promoting a culture of innovating with data: (1) an agile data experimentation process coupled with a robust exploitation approach, (2) a sandbox environment for analytics teams to experiment with data, and (3) a portal, designed to be the central point of reference for all analytics initiatives. The supporting team’s mission was simple and powerful: to build a productive analytics community that involved the whole of UCB.
Repositioning as a leadership challenge: There is no readily available cookbook for digital transformation. As noted above, success largely depends on the ability of the organization and its leadership to learn how to become organizationally agile. And that doesn’t just involve leading with technology—it also involves being willing to be led by technology.
Digital transformation leadership is a matter of action. Instead of taking a back seat by delegating responsibility, leaders must be actively involved in the transformation themselves, creating a context for others to join the effort in inventing new ways of working, and collaboratively learning new work patterns and shaping them into routines.
True leaders will own their organization’s digital transformation in a dual capacity: as actor and designer. As noted in “Design Thinking Comes of Age,” a 2015 HBR article by Jon Kolko, there’s “a shift under way in large organizations, one that puts design much closer to the center of the enterprise. But the shift isn’t about aesthetics. It’s about applying the principles of design to the way people work.”
When it comes to transformation projects, of course, design thinking should be a team sport. Indeed, the best way to reposition your digital transformation for success is to make it inclusive rather than exclusive. Present an open invitation for everyone to contribute. This enables the organization to collectively learn how to do things differently and better, with a collective view to winning. But it requires true leaders with the humility required to drive collaborative learning, rather than egotistical leaders who aspire to have business magazines label them superstar control freaks. If you don’t understand this point, take some time while social distancing is keeping you home to read Robert K. Greenleaf’s Servant Leadership.
A final piece of advice: Start treating digital transformation as the complex and dynamic socio-technological challenge that it is.
Stop saying “technology is not the issue, people are.” This statement, currently in vogue, emphasizes, and rightfully so, the enormous reskilling, talent, and cultural challenges ahead. But it also misrepresents the real puzzle involved in digital transformation: discovering a fundamentally new relationship between people—as in employees, customers, and citizens—and technology.
The post-pandemic world will be a mix of our old and current realities, which will make digital transformations even more challenging while increasing the potential for returns. While their work is on pause, digital leaders should take the time to better communicate and plan their transformative vision.