Tuesday, December 6, 2022

How Digital Transformation (DT) Differs from Traditional Transformation (TT)

Up until 2020, organizations had been, for 20 years, steadily improving in their ability to implement strategy. Digital transformation (DT) abruptly overturned this successful trend.

Leaders globally have recognized the need to espouse digital. The challenge many are facing in 2023 is how to move in digital transformation from the adoption stage to the embedding stage. Consider that71% of individuals are in the lowest stage of the digital maturity journey, and only 5% are in the most mature stage (Bridges research 2022). This means they have the knowledge but have not yet unlocked the skills to adopt digital.

As organizations start to embed digital transformation (DT), they encounter new and different challenges to previous traditional transformations (TT). Initially, the DT adoption stage follows a similar pattern to TT. Leaders defined a new vision and strategy. They conducted town hall meetings. They send employees for training and communicate why the business needs to change.

The embedding stage in digital transformation (DT) creates new challenges that are so severe that for the first time since our research started in 2000, strategy implementation is becoming worse. In 2020, we (Bridges) published[1] that 48% of strategy implementations were succeeding; today it’s 67%. A key contributor to this has been that DT is considerably more difficult and different than previous TT.


An integral part of DT is recognizing that it’s not about having a digital strategy but a strategy in a digital world.


This is not just semantics but a differentiator between failure and success. Why? When you craft your strategy to compete in the digital world, you widen your strategic lens at a time when the winds of change blow harder and faster externally than they do internally. For example, leaders today have to be aware of geopolitical issues, sustainability, interest rates, diversity, inflation changes in labor, and other external factors that impact their business. The strategic cadence (speed of transformation)  leaders need for adopting and executing their strategy in a digital world depends on the sense of urgency for their business, which is driven by their market and strategy.

When leaders recognize that it’s about having a strategy in the digital world, it broadens their perspective and takes into consideration all their stakeholders, as well as numerous external factors that impact their business. Consider also that yesterday’s success no longer guarantees tomorrow’s results.

Leaders are required to identify and change their modus operandi in a digital world.

Organizations need to respond faster than ever to customer-changing requirements and expectations and become even more customer-centric. The term “zero distance” is becoming popular to capture the importance of integrating customer feedback into platforms rather than designing platforms where you assume you know what the customer wants and needs. Maybe most importantly, DT has the customer at the heart of all thoughts and decisions.

Recognizing and acting on how DT differs from TT is an important mindset shift for leaders. There are five key dissimilarities in the approach needed.

  1. Customer Obsession, Not Lip Service

For years, organizations have stated their intentions to provide better and better customer service. They trained their employees, stated the customer among their core value, and found ways to integrate the “voice of the customer” into the business. But many of the organizations failed to make the substantial changes required to sustain a permanent customer-centric culture and many only applied lip service to their customer service manifesto.

A manufacturing organization, for example, focused on creating an omnipresence customer experience. The leaders enabled their sales team with digital tools to connect with their customers and respond faster to them. But they did not address how operations would deliver on the salespeople’s promises to customers. As a result, promises were made that the operations team could not fulfil, leading to customer dissatisfaction rather than greater satisfaction.

In DT, customer centricity is not just an essential component; it is the fundamental step of which DT is built on. Initially, there was a mistaken belief that DT with a technology-driven transformation. Today leaders recognize and accept that DT is a customer-centric driven initiative. For example, you identify the opportunity to redefine the customer value and then work backwards to identify which digital technologies and methodologies support your new business model.

DBS Bank in Singapore has now won the world’s best bank five years in a row. At the heart of its DT is the purpose to make banking joyful. In 2014 the leadership team recognized that banking was “painful” and that no one woke up on a Monday morning wanting to do their banking. From this realization and the identification of how to adopt digital technologies and methodologies was born a strategy – make banking the opposite of painful – joyful. Technology could make banking invisible.

The bank, under the stewardship of Piyush Gupta, has transformed and simultaneously revolutionized banking. By leveraging data and customer journey mapping, the bank has more than tripled its market cap and gone from last to best place in customer satisfaction in its market.

Key Mistake: Applying only customer lip service.

Critical Digital Success Factor: Becoming truly customer-centric by continuously identifying customers’ needs and expectations and examining process end-to-end, leveraging data, and adopting customer journey mapping to transform the customer experience and the whole organization.

  1. Culture –Back with a Bang

Organization culture has always been important in strategy implementation as it drives the way it transforms. Two organizations, for example, can have the same strategy but how they transform is driven by their culture. In DT, culture is even more important

In DT, many organizations require a culture change. This is because DT impacts the whole business model, and this translates into changing the fundamental way the organization operates. This means changing the culture.

Also, one of the top three reasons why DT fails (Bridges 2019) is because the culture of the organization does not change to enable employees and support them and participating in digital technologies and methodologies, such as hackathons and design thinking. For many organizations, DT means changing the culture to create the environment that encourages and drives the right actions.

With businesses moving faster than at any time in history(and yet at the slowest pace we will now ever work), the new pace has dramatically reshaped the relationship between strategy, culture, and transformation. A few years ago, an organization’s strategy could span for 10 years, and during that period, leaders strived for stability. They discovered what worked for their customers and then put in standard operating procedures to replicate the success model overtime.

Today, most organizations are working at a faster strategy cadence (speed of transformation) than ever before. Strategy changes on average every three years to five years. This faster strategy cadence translates to the organizational culture often being in a constant state of flux to keep pace with the rapidly changing strategies. Thus, the culture needs to shift from a focus on stability to one of being agile. The organization, for example, needs to be faster in making decisions, be able to scale to demand, respond quicker to customer requirements and changes and be supportive of employees adopting digital technologies and methodologies.

If for example, the winning team from a hackathon has to go to their bosses with a multimedia presentation to request permission to adopt a new approach, as well as request funding and technology support, then the winning hackathon idea is already doomed. Instead, the organization needs to have a culture that encourages that psychology of safety to experiment and provide an incubator to develop a minimum viable product (MVP) for a minimum viable market (MVM).

A critical component of the culture change is the elimination of silos. DT fails in siloed organizations. This is because it requires cross department collaboration, e.g., conducting design thinking and end-to-end perspective of individual customer journeys.

Satya Nadella initiated the culture change when he became CEO of Microsoft in 2014. In his first public announcement, he stated the shift to mobile and cloud computing. Internally he set about creating a culture of learning, trying, and even failing – a “growth mindset”. Nadella suggested that every employee ask themselves regularly 1) When during the day did I have a fixed mindset? 2) Where did I experience a growth mindset? When people approach implementation with a growth mindset, they are better equipped to anticipate and react to uncertainties.

Key Mistake: Assuming the culture that got you here will make you successful tomorrow.

Critical Digital Success Factor: Ensuring the culture supports employees for rapid transformation and development of customer-driven solutions.

  1. Horizontal Management

This is one of the key breakthroughs in DT. Leading through meetings, committees, and more meetings is finally being changed. We can finally wave goodbye to vertical management, where employees continuously go upwards to ask permission, seek funding, make changes and acquire approval. This is because DT requires a faster strategy cadence than TT. DT ignites employees’ spirit to radically change and improve the customer experience and the way the organization operates.

In horizontal management, the organization adopts agile to scale and empowers employees. This, however, is easier said than done as it involves leaders changing their mindset and the way they lead. We know from our research (Bridges 2019) that one of the top three reasons why DT fails is leaders not changing their mindset and holding on to their legacy leadership style – vertical management (the other two reasons DT fails are not changing the culture and not recognizing that it requires whole business model transformation).

DT needs to happen in both the leaders’ and the employees’ minds as well as the culture.

Haier, from China, is the world’s number one home appliance maker and, for the last 10 years, has been running the business with over 4,000 microenterprises. In creating this, in 2012, they also eliminated the organization’s middle management of about 12,000 employees. Haier created a decentralized, distributed network where each microenterprise runs its own P&L, with control of its own decision-making. It’s like an ecosystem of startups. The platform model ensures consistency towards the higher goal as the enterprises leaped to collaborate to succeed. Haier calls it the RenDanHeYi model, which challenges the bureaucratic industrial revolution model that’s been in place for over 100 years and exemplifies DT. Its “Zero Distance to the Customer” mantra accentuates the direct connection between each enterprise and its end-user customer.

Key Mistake: Leaders hold on to their legacy leadership.

Critical Digital Success Factor: Leaders embrace a new style of leadership that encompasses and encourages agile and empowerment – horizontal leadership.

  1. Experiment, Experiment, Experiment

In TT, an organization would often make a big strategic bet and double down by providing the resources, finance, and training. In DT, many organizations are leveraging experimentation and making small bets.

Customer perception has shifted in the move from TT to DT. In TT, it was expected for an organization to have the right product for the right audience at the right time. In DT, customers are much more tolerant (especially as many of them are experiencing DT for themselves)and open to testing new products and services on different platforms.

In DT, you innovate to find new improved customer solutions. To innovate, the organization must experiment, and to experiment, employees must fail (otherwise, they are not pushing the envelope). Therefore, the leadership needs to create a culture of phycological safety where employees feel safe to fail. This is part of horizontal management.

Dr. Amy Edmondson has led and developed much of the thinking in this field and emphasizes how “people must be allowed to voice half-finished thoughts, ask questions out of left field, and brainstorm out loud in order to create a culture that truly innovates.”

Also, when leaders say they want to create a “start-up” culture, which includes responding faster with less bureaucracy and quicker decision making as well as having a structure that allows employees to try, fail, and learn. The defined parameters ensure that the organization learns from the failures and does not repeat them.

The mantra within many organizations today is “fail early, fail fast, and fail forward.” For example, Google’s X – The Moonshot Factory[i]was created in 2010 as a new division to work on: “Moonshots: sci-fi sounding technologies that aim to make the world a radically better place.” Inside the division, people are rewarded for stopping experiments that aren’t working. This frees up essential resources with time to focus on projects that might work. In Google’s office, employees are reminded by a sign on the wall that reads “Fail Well.”

Key Mistake: Leaders trying to control every aspect of DT.

Critical Digital Success Factor: After the initial launch of DT and training employees in the new skills required, employees are empowered to translate it into their work. As an organization achieves this, decision-making moves down the hierarchy.

  1. Tweaking the Business Model to Whole Business Model Transformation

Some organizations adopt digital from the edges, but many transform their whole business in order to become a digitally driven organization.

TT does not always demand the business model to transform. It’s possible to adopt some strategies, such as cost optimization or overseas growth, which don’t require whole organization transformation.

In DT, the critical difference is that it requires a whole business model shift that transforms every part of the business, from sales to finance, from HR to marketing, and from legal to operations. As digital is woven through, it alters the DNA of the organization as it encapsulates various initiatives that have an effect across the organization’s value chain. These initiatives include artificial intelligence, big data, customer journey mapping, design thinking, and others.

Some leadership teams consider creating a separate business to support their digital needs. This decision is driven by their strategy, market, and (hopefully) their customers. This allows the organization to experiment with digital in a similar way we did 40 years ago when “skunkworks” was popular. (For our younger readers, skunkworks were projects developed in a different location to the main office by a small group of people with a high level of autonomy. The term originated with Lockheed’s World War II Skunk Works project).

Organizations that will win in the next few years are those that leverage data to make better decisions, adopt AI and ML to operate more efficiently and effectively, and leverage various digital technologies and methodologies to become even more customer-centric.

Raffles Quay Asset Management (RQAM) in Singapore manages and markets the commercial properties developed by Asia’s leading developers, including two of the most prominent assets with premium office towers and retail spaces – Marina Bay Financial Centre and One Raffles Quay.

The leadership team recognized that the commercial real estate market has been slowly disrupting itself despite emerging trends such as new technologies to manage properties, including sensors, hybrid working, and green buildings. The industry’s traditional business model was centered on multi-year leasing of every possible inch within the portfolio as its main revenue driver. This utilitarian focus on space lacked empathy for the holistic needs of the tenants, leaving an opportunity for customer-centered innovations. The leadership was also aware of the trend that hybrid work was becoming more popular and had accelerated during the COVID-19 pandemic.

The leadership team crafted an aggressive vision in 2019 to successfully implement necessary driving clarification across all the departments to align every employee in the new direction to take bold actions. Recognizing that every department had to be aligned and engaged in the new version, the leaders crafted a new strategy map and a balanced scorecard to support the implementation. To communicate the new way of working to employees, they designed a “Strategy on a Page” – a one-page image that summarized the vision and objectives.

To communicate the change externally, they developed and new branding called “By the Bay”. One important opportunity that was quickly identified by the leadership team was community engagement. While thousands of people worked in the office towers of the two commercial properties and visited the basement mall daily, until then, there had been hardly any community engagement between RQAM and the tenants, retailers, or visitors. The team focused on creating and driving community engagement. To enhance the customer experience, make it easier to interact with RQAM, and to build the community, a new app was launched.

Internally, they began to increasingly rely on digital mobile solutions, IoT, machine learning, data centralization, and analytics to enhance its business operations and offer new solutions to clients. RQAM also increased its focus on sustainability in line with its tenants’ commitment toward sustainability reporting and net-zero carbon emissions by 2050. This led the organization to roll out initiatives, including a dashboard that showed energy consumption across its property portfolio.

Externally the group committed to creating a coworking space available to all tenants. The rationale was to save tenants renting additional space for meeting rooms that were not fully utilized.

Key Mistake: Expecting DT to succeed while leveraging the organization’s current business model.

Critical Digital Success Factor: Recognizing that DT affects every part of the business and requires a complete business model transformation.

Conclusion

Leaders are repeating the same mistakes from TT all over again in DT. To further complicate the situation, because DT is typically a larger and more inclusive initiative than TT, mistakes made by the organization are magnified.

The goal is to understand what’s required in your transformation and drive the right actions that will lead the organization to success in this digital world. To do this, leaders need to shift they’re thinking and actions.

Robin Speculand is a recognized pioneer and expert in strategy and digital implementation. He is driven to transform strategy implementation by inspiring global leaders to adopt a different mindset and approach. The founder of three companies, Robin is CEO of Bridges Business Consultancy Int and co-founder of the Strategy Implementation Institute and Digital Leadership Specialists. A TEDx presenter and Thinkers50 nominee, he is a facilitator for IMD, Duke CE, and SMU, and part of Top 30 Global Guru. As a  best-selling author, he has written six books including his most recent, World’s Best Bank: A Strategic Guide to Digital Transformation, and Strategy Implementation Playbook: A Step-By-Step Guide

[1]www.bridgesconsultancy.com/research-case-study/research/
[i]https://x.company/

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