Digital transformation: a tech perspective

Podcast transcript

Mike Mason:

Hello and welcome to the Thoughtworks podcast. I'm one of your regular hosts, Mike Mason and I am joined today by Gary O'Brien. Gary, welcome to the podcast, thanks for being on.

Gary O'Brien:

Thanks for having me.

Mike Mason:

And I'm excited to have Gary on because he and I recently finished a book together with O'Riley. It's called Digital Transformation Game Plan. Gary is the primary energy behind this book I would say, even though I'm generously listed as a coauthor. And today what we thought we'd talk about is digital transformation in general and some of the stuff in the book in particular. So Gary, why don't we start with a little bit about yourself and what you're doing at Thoughtworks and then maybe we can jump into digital transformation.

Gary O'Brien:

Yeah. What am I doing at Thoughtworks? Well, been here for nine and a half years and have largely spent all of that time with senior executive teams. So I kind of think of what I do is preparing senior execs, both business and technology for adopting technology and using technology to execute their strategies. So I think that's pretty much covers what I do.

Mike Mason:

Okay. And so that's a pretty long career with Thoughtworks. I've known you for a while. So what about digital transformation then? So we hear a lot about that term. Why are we hearing a lot about it? What's happening?

Gary O'Brien:

I think we've overheard heard about it, to be honest. I'm not a huge fan of the term. But I guess what people refer to when they talk about digital transformation is the digital age, just another era of business. The information age has gone, the industrial age, agricultural age and digital age is another one of those things. But digital transformation is based on the fact that technology is the key driver of the digital age, in fact it's probably been the key driver of every age change. But this time round there's this exponential change that's happening. And for new businesses it's great because it means they can start from scratch, take advantage of all this great technology to go to market quicker and to make changes quicker.

Gary O'Brien:

For legacy companies it is hell. And I think that's where digital transformation really sits. It's legacy organizations struggling with the changes that technology has forced upon them. And those changes are that customers have completely changed their expectation. So they're used to real time now. They just feel like they can pick up their iPhone and do whatever they want to do whenever they want to do it. And so for the legacy companies to sort of have that exchange and those transactions with them in that real time, is quite a challenge. And the fact that those expectations constantly change. So you can't just set yourself up for the new customer expectation. You've actually got to be ready for the one after that and the one after that and one after that. So that's kind of the first one.

Gary O'Brien:

The second one is we're seeing speed like we've never seen before. So the new entrants create this incredible speed to market problem so they can get to market and get out of market very, very quickly. Legacy companies are struggling with that. The speed of decision making is really important, especially for business execs. There's just the amount of time you have to make a decision is very small, the amount of information you have to make that decision is not necessarily large. And so that kind of speed of decision making through ambiguity is really challenging. And then that last part which is the window of change has shrunk considerably. So organizations having to make changes to their technology environment, to their product, to their value, to what they offer the market very, very quickly.

Gary O'Brien:

And then the third thing I think is just technology itself. So the opportunity, which is to use tech to add new value to the market or to use tech to service your clients differently, or to use tech to get information about your clients that you don't previously have or to reduce that ambiguity. Or just the challenge of, "How the hell do I adopt emerging technology?"

Gary O'Brien:

So there to me are the three things are kind of customer expectation, the speed and the kind of technology opportunity and threat. I call that digital transformation. And so I think that exists irrespective of what you call it. And even companies that have stopped using digital transformation as a term, still have the three problems and is still trying to solve that.

Mike Mason:

And the technology landscape is still moving and-

Gary O'Brien:

Constant.

Mike Mason:

... they're still trying to keep up with it. Yeah. And when you talk about sort of the legacy company versus the legacy company, obviously there's shades in between there. You've got a 10 year old company that might be less legacy than others.

Gary O'Brien:

Sure.

Mike Mason:

For some of those legacy companies you would imagine that they still have a competitive edge through something other than technology.

Gary O'Brien:

Sure.

Mike Mason:

But then that's being eroded by the technology upstarts.

Gary O'Brien:

Yeah. I mean the reality is there're always the industry outliers of success. At the moment most legacy companies aren't absolutely under threat from digital companies.

Mike Mason:

They're not under threat?

Gary O'Brien:

They're not yet at this stage. But they see it coming. So they're looking at the cliff, but they know they're not about to fall over it, for most. There are examples everywhere of where that's not true, but for most they see the digital natives and they realize that the battleground here is that legacy companies have eyeballs and digital natives have speed.

Mike Mason:

Right.

Gary O'Brien:

That's the trade. And so what digital companies are trying to do is scale. So their problem is scale and tech debt and just the ability to find people that visit. So there's a whole set of challenges for these new organizations. Whereas the legacy companies, they have the eyeballs already, they have them to lose, whereas the digital companies have them to gain.

Mike Mason:

I mean when you say eyeballs you mean customers and loyalty.

Gary O'Brien:

People, customers, just size, scale, revenue, all of that.

Mike Mason:

And it's something that I was interested in what you just said there was the digital upstarts are able to make decisions quicker. Why is that? Is that because they have less to lose and therefore they can make a more surface level decision and the big companies kind of thrash around? Why is that?

Gary O'Brien:

I think there's two sides to that. So from the digital native side, it's because there's less people, there's less bureaucracy so they can make faster decisions. But I also think that their architectures are built capable of constant change.

Mike Mason:

So the technology architecture of the organization.

Gary O'Brien:

All of the architecture. So the technology architecture, the financial architecture, the governance, architecture, it's all built for constant change from the beginning. So it's embedded in how they think and work.

Mike Mason:

So is that designed for constant change from the beginning? Or does it just be that because you were a startup and you were pivoting every six months?

Gary O'Brien:

I think, yes. I think there's just, yeah, certainly the test and learn environment and the kind of lean startup movement has meant that yeah, they're built that way because they understand how to work that way and then as they scale they keep working in that way, for sure. So that's one side.

Gary O'Brien:

On the legacy side, and a lot of people talk about Taylorism and all that kind of stuff. But we have baked into big companies and our university systems and everywhere else, a set of norms that just aren't true and they just don't stand up and it's lazy. So what we've done is we've gone, "Well here's a company. So what we'll do is we'll create some leaders or give every leader a line of business. We'll have a bunch of people reporting to that person. So now we've got this hierarchy and org structure. Then we'll allocate money based on that org structure. And then the people with the money make decisions on what to spend the money on based on the skills they have at their disposal." So you're actually designing the whole system based on the talent of the people that you've got and the customer's disappeared.

Gary O'Brien:

And then you think of any of the HR policies, the way legal and regulatory work to protect everything. Everything's built on a very internal myopic view. It's all about us and what we do and how we spend. And therefore what we measure is everyone gets a KPI because we think if we give people monetary bonuses that they'll somehow be more successful and work better, which isn't true. We make it all individual. So we create adversarial behaviors inside the organization. So people battle for money, they battle for people, they battle for time and they battle for recognition.

Gary O'Brien:

So all of these scenes are counterintuitive to what we now know. And largely I think the success of digital transformation relies on the ability to unlock that and to create the normative learning environment. So the environment where your experiences change your belief system, that says, "Actually there's a different way and it's a lot easier if you just go, what value do customers want from us? Why do we actually exist in society?" Because that's the starting point, right?

Mike Mason:

So we as a company?

Gary O'Brien:

As a company. So a bank largely is there to help people succeed financially, right? So if you start there and you go, "Right, what do we need to do to help people succeed financial?" And you'll come up with six or seven things because that's what leaders should do. They should come up with direction and know what they're doing. And if you just go from there to the work. So, "We need to do this thing to help people succeed financially. We'll know we're doing it when people are succeeding financially. That's clearly a lagging indicator. What's a leading indicator? Well, it will be things that look like this, this, this, this and this. Okay, now let's design work to move those."

Gary O'Brien:

"Okay, so then look at all the work we've designed. What skills do you require these people? Oh, well let's bring them together and get them to do that work." And they'll know because the work was born from the value of the customer wants. So they have complete alignment. They have a total understanding of why they're doing it, right? They know how to make decisions because they make decisions towards a very clear outcome. And then the measure is a leading indicator of this lagging thing. So again, they understand what to measure to know whether to keep going.

Gary O'Brien:

And then you give them money and you say, "Right here is the first tranche of money and show us that the needle is moving. And when it does, we'll give you another tranche of money. And if it stops moving, we'll stop giving you money and let's go and do something else." Meaning that you only ever spend money on stuff that works.

Mike Mason:

Sounds revolutionary. And so is that the approach that you're taking in the Digital Transformation Game Plan book?

Gary O'Brien:

I hope so.

Mike Mason:

Obviously it is, because I'm with you on the book, so it's a leading question here. So the approach is one of customer value focus and deeply understanding that and how to rearrange an organization to deliver maximum value to customers. And then the assumption is that business success follows from delivery of customer value.

Gary O'Brien:

That's the leap of faith, yeah. The leap of faith here. And when I say the leap of faith, I mean the companies that have already done it are showing amazing results. So it's not so much a leap of faith, but it's, it's the mind shift that needs to happen that says if all you have to do is focus on profitability, then your company will more than likely be stuck in cost reduction mode forever. And you'll always sit there scratching your head about why aren't we being profitable? Well, it's because you actually not focusing on the things that would make you profitable. So the mind shift change is, if you deliver more value to customers more often you'll be more profitable.

Mike Mason:

It seems reasonable.

Gary O'Brien:

Doesn't it? So yeah, so that's what it's about. But the book, there's a slight angle on the book, which is for legacy organizations in order to do digital transformation for real as opposed to the facade of transformation that goes on in most organizations, you need to have the courage to face into what it actually takes to make that true.

Gary O'Brien:

And as an example, I like giving you to say, right? So think of what we just said. And you're right, it does sound quite logical and if you just simplify your business, start with value and build work to actually move the needle of that, that should be easy. Where that falls apart for organizations is what it means to get there from where you are today. So if I create that backlog of work based on the value to customers and I assess the skills required and then I look at the skills that we have, I guarantee you're like 40 to 60% off. Are you prepared to make the change required to align to the value that customers want? Even if that means your line of business goes away? Even if it means the targets that you've got for your bonus can't be met because they're wrong?

Mike Mason:

Well, I mean I even jump to, and this is a technology discussion as well, and there's a war for talent out there. Nobody's got enough technical people, programmers and everybody else. And in my experience, the suggestion this person isn't the right person to be able to create value for your team is not a very well received suggestion.

Gary O'Brien:

No.

Mike Mason:

Certainly the last thing anyone wants to do is get rid of someone. One of these hard-

Gary O'Brien:

And that's not what we're suggesting. So there are ways and means to make that real, right? But are the leaders of the organization prepared to face into that is what book's about, "Here's what you would have to do to make this real." So it's kind of the reality check. I hope it's the reality check that says, "Well, all you're got to is simplify your business model." Now section two, "Here's the stuff's going to stop that from happening, that you're going to have to deal with." If you've got a team of fifty dot net developers and the work you need to do does not require dot net, what are you going to do?

Mike Mason:

Right.

Gary O'Brien:

What are you going to face into? And it's not about mass redundancy and anything like that. It's about redesign, re-skill, rethink. The simple one that I talk about, because it was real if you've got a project manager in North Carolina who leaves and your data tells you that there's a scarcity of BAs in San Francisco, hire a BA in San Francisco.

Mike Mason:

Don't replace the project manager.

Gary O'Brien:

Don't replace the project manager in North Carolina. That makes perfect sense, doesn't it? Why don't we do that today? Because the BA reports, the one person with one budget.

Mike Mason:

And both of those people are managers-

Gary O'Brien:

And adversarial and they're all trying their numbers.

Mike Mason:

... generally empire building.

Gary O'Brien:

And they're all building an empire and they're all trying to progress. And that's the stuff I'm talking about, you've got to face into.

Mike Mason:

And not to put anyone down who's in an environment where to get ahead, you have to be shown to be managing a large budget and a large team because that's what your organization says success looks like.

Gary O'Brien:

Correct. Yeah. It's interesting.

Mike Mason:

So I mean, can we talk a little bit about other transformation approaches and why they don't work so much? I mean, would you say there's a common failing of a digital transformation approach that you've seen?

Gary O'Brien:

Yeah. There's several, I mean, two, I'll just focus on two. So one is that people get caught up or label a digital transformation when it's really just a tech transformation.

Mike Mason:

Okay.

Gary O'Brien:

Or the opposite. They label it a transformation when they're just restructuring the business. So my point being, you cannot isolate transformation from one part of the business to another. So you're either doing it or you're not.

Mike Mason:

So, if someone had a label on their initiative that was digital transformation, but they were just touching IT-

Gary O'Brien:

It's more likely to fail.

Mike Mason:

It's more likely to fail. And you would just say, "That's not transformation-"

Gary O'Brien:

Correct.

Mike Mason:

"... that's just doing IT well"?

Gary O'Brien:

That's just doing IT better. Yep. And it's a great initiative and you should totally go after that, that's really cool. But don't expect groundbreaking change because until you've understand that technology belongs in the boardroom and so it has to start from there, then you do not have alignment. And the key part of digital transformation is aligning everything inside the organization to the delivery of value to customers. And it's got to flow through that organization. So as soon as you have, for example, business backlogs of work and a completely separate IT backlog of work, that kind of work. Well when you have IT prioritizing the businesses work, that kind of work. So the number one priority in the company, has to be the number one priority in the company all the way through the business.

Gary O'Brien:

It can't be, this line of business has decided this is their number one priority. And then an actually for the company that was probably number five and then when it gets to it, because of their backlog of work, they make it number 12. But then they break it up and they send it off and so it becomes number 12, 24, 32 and 81.

Mike Mason:

So are you then advocating for... dissolving that business IT boundary that a lot of organizations have?

Gary O'Brien:

Absolutely.

Mike Mason:

Right.

Gary O'Brien:

Yeah, absolutely.

Mike Mason:

So it's smaller teams, cross functional teams, including business and technology.

Gary O'Brien:

It doesn't have to be smaller. But if I had a magic wand, I would walk into an organization, I would have the leaders create the kind of 25 outcomes for the business to be successful that they need to achieve for customers. So it wouldn't have anything to do with profit or cost or product margin or market share, I wouldn't say anything like that. It would be help the customer to retire comfortably, help this happen, make this real, do this. That's what I would do. And then I would reorganize the entire company around each one. And so for each outcome, the business people, the marketing people, the legal people, the HR people, the finance people, the IT people would all be together delivering that outcome.

Mike Mason:

And from an IT perspective, it would be programmers, analysts-

Gary O'Brien:

Everything.

Mike Mason:

... ops people, support staff, the call center all around value.

Gary O'Brien:

Here's the gold of that, every outcome has one budget. So right now the business has a budget and IT have a budget. The business budget is huge, it typically goes up every year. It's spent on cool stuff like finding new markets, finding new customers, innovate, build new product, transformation. The technology budget, it goes down every year.

Mike Mason:

Yeah. And 77% is spent keeping the lights on.

Gary O'Brien:

It's about capacity, capability, platforms, architectures. So what the business doesn't see is all the ilities required to keep this stuff going, all of that falls on IT. And so we end up under cost pressure under IT because we are trying to manage the ilities that the business don't see and reduce the tech debt that will force to do because of false time pressures that the business doesn't see. And the business gets angry and they keep pointing fingers and IT scrambles and we keep pointing fingers. So when there's one budget and that budget has to pay for all of the tech required to build and maintain that outcome and all the things that it's creating in that outcome, the products and the features and the value and the service that's required, that's good, it changes behavior quite credibly.

Mike Mason:

And are there new roles required there? Because like I was going to ask a question about how to business people and IT people need to behave differently in this new world? Which I think is a reasonable question. But I also sense is there a new thing that you need to be able to do if you're doing this one budget style of managing?

Gary O'Brien:

I think of our needs to lay down their arms. We all work for the one company, so let's all fight for the same thing. That's what I like about that model, right? We're all fighting for the same outcome. We're all measured by that outcome being achieved, everybody. And therefore we kind of work together differently because we're all heading for the same direction. We're all responsible for the same things, we're all accountable for the same things. And then what it means is that business people need to become way more tech aware, have way more empathy, have way more understanding. And technology people need to become way more business aware and actually be using tech to solve business outcomes and have clear line of sight to all of that.

Mike Mason:

Because you used the phrase tech in the boardroom earlier on. What does that look like to you? What does that mean? Because in some ways you've got people who are now running companies who have grown up with a cell phone, right? And so are therefore more digitally savvy.

Gary O'Brien:

Yeah, definitely.

Mike Mason:

Is it just an awareness of tech or is there something more specific you're talking about when you're [crosstalk 00:23:03].

Gary O'Brien:

I don't have an actual answer for that. But I don't know how far, I think it depends on the company. What I can say is if you look at digital natives, a lot of the executive, the business executive were technologists.

Mike Mason:

And in particular they're not saying technology is the CTOs problem, right?

Gary O'Brien:

Good.

Mike Mason:

Like the CEO says, "I have an opinion on this and maybe I've got someone I talk to for more detail and more specifics. But it's not like I'm going to sit there and say, 'I don't know. It's the tech side.'"

Gary O'Brien:

But a lot of that is because their business is a technology. So like Uber's business is a piece of software, Facebook's business is Facebook the app.

Mike Mason:

Right. Right.

Gary O'Brien:

So a lot of that's for that reason, I get that. And that's why I'm saying it depends on the company. I don't expect it a manufacturing organization to have that same level. But in a way the head of the manufacturing organization probably has a really intimate knowledge of the factory, right. I use that word broadly, but so it's a similar analogy I think in that way. But I just think much like the original problems that I talked about, that third problem of emerging tech, "How do I take advantage of it? How does technology help my business strategy execute?" That's the level. So I think business leaders need to be acutely aware of the impact technology will have on the success of their business strategy and how to leverage and take advantage of it. Because if they don't, then they don't invest in cloud because I don't understand why they need to. They just see this as a cost reduction.

Mike Mason:

Or it's purely cost reduction. That's what I was going to say.

Gary O'Brien:

And cost reduction.

Mike Mason:

And I feel we've run into that a lot. I mean something came across my desk for the last couple of weeks. That was transformation was the big banner headline. But then there's this sub point that says, "And the effort should pay for itself." You know?

Gary O'Brien:

Well and that's partly baked in that historical view of what a company is, right? So that it's all about cost reduction. I remember working in an organization that had X amount of capacity available in storage in the data center. It was a telco. And towards the end of the financial year went and spent another $32 million on storage because they knew at some point they'd need it.

Mike Mason:

I've been at a company, a client where someone literally said, "We need to buy-" and it was North of $30 million, "...worth of hardware from a particular vendor by next week."

Gary O'Brien:

Because it gives us a discount.

Mike Mason:

I think, because the budget was going to go away if they didn't spend it.

Gary O'Brien:

Oh, absolutely. So there's all that. So that's the bit that's got to go as opposed to create the storage as needed when there's an app to sit on it.

Mike Mason:

Yeah. So, back to the book.

Gary O'Brien:

Yeah.

Mike Mason:

Different types of audiences hopefully are going to read the book, both business and technology people. What do you think each audience is going to get from reading it?

Gary O'Brien:

Yeah, I guess a bit of what I talked about before. I hope for tech audiences, it gives them an understanding of the sort of things that the business has to go through to make this actually real. And for the business audience, it's both the reality check of, "You must be prepared to face into these things, otherwise this doesn't work. And here is the minimum set of technology knowledge you need to have." The famous chapter 10 as we call it. And so that's what I hope they'll get out of it.

Gary O'Brien:

What I hope I will stop is... We talked before about that kind of first type of failure transformation, which is the business versus tech. The second type is the cookie cutter. And what I hope it will stop is you cannot lift and shift somebody else's transformation onto yours and think that it'll work. It's almost guaranteed to fail.

Mike Mason:

I mean in IT we see this whole Spotify model problem.

Gary O'Brien:

Oh, [crosstalk 00:27:18].

Mike Mason:

You're talking about that-

Gary O'Brien:

It's plus.

Mike Mason:

Plus, plus.

Gary O'Brien:

Yep, we've done this before, this client and they saved $9 million. We'll come and we'll save $9 million. And don't pay us until we've saved $9 million. So now you've got a big consultancy firm incentivized to take money out of your business before they even get paid. So the first thing they'll do is they will do an-

Mike Mason:

Cut a bunch of stuff.

Gary O'Brien:

... org structure change.

Mike Mason:

Okay, right.

Gary O'Brien:

All right. And I'll do it under the guise of, "Oh because you won't need as many people because we're doing this digital transformation." The worst thing you can do in transformation is reorg at the beginning, the worst thing you can do. Because there's no way you'll know in the first year and a half the actual skills you need and in what quantity and what the teams need to look like, you won't know.

Mike Mason:

I mean that's a really long time horizon you're talking about there.

Gary O'Brien:

Yeah, you won't know. Because you got to learn. You've got to learn from scratch, you've got to start from scratch and learn the truth.

Mike Mason:

And you're learning the truth for your organization.

Gary O'Brien:

For your organization, that'll tell you what your team should look like, the skills required, how many of you, you need. And then at some point within that 18 month period, people will naturally form and then you'll go, "Oh, that actually looks like a business unit. We should just give that to somebody." Right. And you start to see what the change should look like and away you go. And the change management will be so simple because it'll be natural for everybody. So people will feel comfortable with what it's leading towards and it'll perfectly match the value you're trying to deliver to customers and the world will be good and there'll be unicorns and butterflies. As opposed to, "Let's completely change it up front, hope that we got it right. And codify the change before knowing what we need." Because you can't change it again.

Mike Mason:

I mean that's something we see a ton of is change fatigue at organizations because they've been getting this constant change advice.

Gary O'Brien:

Yep, correct.

Mike Mason:

Anyway, so we're out of time today. So Gary O'Brien, thanks very much for being on the podcast. It's been a blast talking to you. The new book, Digital Transformation Game Plan's out now.

Gary O'Brien:

Out now on Amazon.

Mike Mason:

Out now everywhere that you get your books and actually you can get a sample chapter from thoughtworks.com and find us there. Thanks so much, Gary.

Gary O'Brien:

Thank you.