Digital Innovation Lead for ThoughtWorks in India
84% of digital transformation attempts have been known to fail. From GE to P&G to Burberry to Ford to Lego, these failed attempts have claimed executive scalps and destroyed shareholder value. The cost of such failures is more often than not the scarcest resource of all - i.e. time. Especially in the case of enterprises that have their back to the wall and are fending off a horde of disruptors.
Such failures reflect the fundamental truth that digital transformation (in the context of tech modifying business and/or operating models) is intrinsically hard. However, our 25 years of collaboration with multiple enterprise clients on their transformation journeys puts us in a position to predict many of the ensuing challenges. And, teams that set out on their transformation journeys with an awareness of such pre-emtable problems alongside mitigation plans tend to fare better than teams who treat digital transformation as a large and complex IT program.
Our advice to leadership teams on this digital transformation path is - factor in the following dynamics into your digital transformation plan.
1. Fragmented mental models
Successful enterprises by definition are highly competent at executing their traditional operating model. Executives share a common understanding of different levers that drive or constraint key business outcomes. This is alongside an appreciation of the relative priority of the levers as well. When new information is generated i.e. competition launches a new product or the market sees a new entrant, business stakeholders process that information on the basis of their shared understanding.
Digital transformation can rarely depend on such harmony, to the extent that, the trigger for the former is technological disruption. The understanding of said disruption and the awareness of its underlying threat drivers are unevenly distributed across the organization. Key stakeholders’ decisions that can secure collective buy-ins across the organization are less forthcoming. This leads to organizational inertia and politicking causing the digital transformation journey to stagnate.
Our recommendation is for leadership teams to recognize and solve for internal strategic alignment as a fundamental success factor.
2. Power naiveté
Disruptive threats typically manifest as revenue stagnation, market share loss or margin erosion. These drag financial performance down, leading to a search for new revenue streams. This can result in either repairing the setback and restoring the business to former market glory.
Typically a recipe for failure, this approach mistakes the symptoms for the disease. Geoffrey Moore, venture capitalist and author of ‘Crossing the Chasm,’ makes the distinction that financial performance is an outcome while power is the actual underlying driver. To paraphrase Moore, power fuels performance and financial performance is a lagging indicator of power.
Power to us, means the control of levers that regulate value flow and the capture of profit across an industry ecosystem. Disruptive competition is disruptive precisely because it 'commoditizes' or supersedes the incumbent power levers in an industry. For example, TripAdvisor commoditized the hotel brand as a reputation signal during bookings. And, Apple superseded hardware-design based differentiation in the mobile phone industry with the iPhone.
When an enterprise faces a performance loss, it is important to audit the traditional power levers' health. What should follow is a digital strategy that restores or substitutes the affected power levers.
It is also critical to focus digital transformation away from cosmetic interventions. They should be redirected towards high impact bets that have a game changing influence.
3. Altitude sickness
Boundary setting and portfolio prioritization have always been notoriously hard problems to deal with. Some of the tougher questions that need responses are, 'How wide should the transformation portfolio be?' and 'What should the order and grain of prioritized initiatives be?' Getting these answers right will have a critical impact on business outcomes.
As a rule of thumb, most transformation initiatives have a runway of about three years. If there is no alteration in the trajectory by then, the odds are that the gradual build up of internal and external (shareholder) dissent will force a leadership change and directional reset.
If leadership teams' executions get too blue sky, they run the risk of also burning through that three year runway. And, without having confronted the ground level obstacles like legacy systems that need modernization. This could impede the higher strategic vision. Conversely, if the leadership teams start with lower level changes, there is a risk of losing sight of the strategic transformation agenda. Not only would they exhaust the three year runway, but businesses would also end up running disparate IT transformation initiatives. All this, without making progress on the macro business transformation goals.
As expected, getting the right balance is tricky but achievable. Distilling from our work with clients, we have identified that successful modern digital businesses approach transformation through five different levers -
- Engineering Culture and Delivery Mindset
- Experience Design and Product Capability
- Intelligence-Driven Decision Making
- Frictionless Operating Model
- Platform Strategy
We call this the Modern Digital Business framework. The framework is based on the ground reality that not every lever is equally relevant to every business. The Digital Fluency Model offers a framework that considers and optimizes across the five levers. It helps construct a truly balanced portfolio with the right depth and breadth, in the context of very specific/customized business imperatives.
The poor success rate of digital transformation initiatives clearly calls for a thorough reappraisal of current practice. It is beyond the scope of this paper to dive into the detailed methodology or approach but in conclusion, it is helpful to reiterate two critical challenges that frequently make or break digital transformation.
First is the vital importance of shared purpose that is underpinned by a shared mental model. If your organization does not have a clear understanding of the rationale behind the transformation journey or of the priority of the levers that you are seeking to transform, your odds of success are already heavily compromised. Describing your transformation strategy in terms of power and power levers is an effective way to transcend this challenge.
Second is the importance of achieving the right balance in your transformation portfolio. We recommend approaching this through the Modern Digital Business framework to ensure that you neither under invest nor over-engineer.
Last but not least, these steps are obviously complementary. Together they help you ensure the integrity of both your chosen destination and your chosen path.