IT modernization and digital transformation focus on changing a business and creating new value. But investing in new technologies and changing processes do not change a business; they just give a company the ability to change the business. Unfortunately, traditional change-management techniques are not adequate to address the level of change in IT modernization and digital transformation.
Traditional change-management techniques may help a company implement digital technologies, but they won’t enable driving the necessary change to realize the full benefits of the technologies. How can your company determine if its change management plan is effective?
The first step in determining change management effectiveness is understanding that your company is changing its business model. The traditional mindset that change-management tactics will drive success in transformation initiatives understates the immense amount of change and the nature of the change that is required. Managing business model change is far more comprehensive than typical transformation initiatives.
How important is this mindset change? Consider this: The most common reason for the high number of failures in digital transformation is that the required changes to the business model overwhelm the initiative.
Here’s how the failures begin to manifest themselves: lack of funding to move forward, project delays, organizational exhaustion, and change-resistance behaviors from employees and managers trying to protect the status quo model and their beliefs about value. Initiatives collapse from the weight of these disabling challenges.
[ Struggling with change resistance and other culture challenges? Read our related article, 4 factors to rethink when leading innovation. ]
As a result, some companies don’t complete their transformation program and others finish but fail to change the company’s competitive position. That’s an unacceptable outcome, considering the enormous investments in time and effort and disruption to customers and end users.
Two mindset changes that work
Let’s look at two top factors for effective change management for digital transformation and IT modernization.
1. Skip the PMO
A traditional management practice is to use a Project Management Office (PMO), which takes responsibility for the transformation project plan and holds employees and leaders accountable for staying within the budget and completing projects on time. These are important goals for achieving return on investment when trying to do something better, but these are not relevant goals when aiming to create new value and do something different.
PMOs are known for effectiveness in tracking outcomes, directing resources and investments for a project, documenting decisions, and reporting. But PMOs’ track record for orchestrating and achieving change in a complex digital transformation or IT modernization initiative is very low. Here’s how digital transformation changes are different:
- Stretch across functions, departments, silos, and business units
- Require end-to-end process changes
- Apply to more than one area of the business
- Require several elements changing simultaneously
- Require changing talent models and policies and philosophies
- Require significant capital reallocation across business and functional units
Thus, having a traditional PMO manage a new business model initiative carries a high risk of failure.
2. Take an agile route: Think MVP
In today’s world, brands need to connect with customers and end users in a different way than in their existing business models. To create and deliver new value that can lead to new competitive positioning, companies must fundamentally change all elements of their existing model that don’t align with and support the new direction. So, the nature of a business model change is always disruptive.
A complicating factor is that it’s a multi-year journey. Many required changes are unknown at the outset. Some changed elements will lead to unintended consequences. No company (or PMO) can anticipate all the challenges that will arise from the interrelatedness of the changes. Therefore, detailed building plans and roadmaps up front that stretch beyond the visibility of the oncoming challenges are a recipe for failure.
The only effective change-management plan in this complex, disruptive environment is a combination of traditional project, program, and portfolio management skills – but applied in an agile, iterative structure. It looks like the Minimum Viable Project (MVP) approach that software startups use. It ensures agility while providing structure and discipline to deliver measurable results aligned with the strategic intent. Key elements of this agile approach include:
- Sprints. Break the transformation or modernization initiative into a series of small sprints with “gates.” If the design or path to the desired outcome is not working during a sprint, change course and make necessary changes for going forward.
- Two-pronged management. The best strategy for managing the initiative is establishing a journey team and capability teams.
The journey team is responsible for ensuring the company achieves its desired business objectives as rapidly as possible. It should be a small, persistent team of leaders that stays intact for the duration of the transformation or modernization initiative. This team ensures commitment for change, determines ongoing funding requirements and a recommended funding model that accommodates the sprint's structure and captures learnings from completed sprints. This team needs strong project management skills to ensure the company addresses highest-priority items first and ensures the company runs its existing business and satisfies customers during the transformation effort.
The capabilities teams, which may include third-party service providers, are responsible for implementing the changes and executing against the strategic intent and objectives for each sprint.
Creating an effective change-management structure that enables and drives comprehensive change in a digital transformation or IT modernization is not easy. But the effort is worth it. Change management that enables changing the business model is the key to changing the value a company delivers. A business model change enables a company to change its competitive positioning instead of just changing the company to operate better.
[ What are CIOs rethinking about leading digital transformation? Read our report from HBR Analytic Services: Transformation Masters: The New Rules of CIO Leadership. ]