Digital transformation is a trillion-dollar industry and the number-one priority for most IT and business leaders. So why do 70 percent of all transformations fail?
In my work during three decades, I’ve learned that successful digital transformation requires a series of specific steps: Committed ownership, strategy sufficiency, and effective change management. Skipping even one of these can cause problems.
[ Some leaders cringe at the phrase "digital transformation." So how can you talk about it? Read also: Why people love to hate digital transformation. ]
Why do leaders skip these digital transformation steps?
When businesses start to sputter on sales and profitability, the top priority for leaders is to right the ship. It’s not that leaders don’t understand the importance of digital transformation; it just gets prioritized after urgent business issues such as cybersecurity and protecting operations.
Given this, it’s easy to comprehend how the three steps listed above can be missed. Let’s take a closer look at each one.
1. Committed ownership
Several studies have proved that digital is a non-negotiable responsibility of the CEO and the board. As a relatively new and fast-changing area, digital transformation requires special engagement at the leadership level. Companies with successful digital strategies (for example, the Washington Post turnaround) and countries such as Singapore (which is a leader in digital) are a testament to this.
Translating business goals into digital strategy is a key task that leaders cannot delegate. Another important task is barrier-busting during the execution of digital transformations. This level of ownership at the top requires digital literacy of all leaders, starting with executive leadership and the board of directors. Unfortunately, this remains a challenge in most cases.
2. Strategy sufficiency
Listen in on a few earnings calls with Wall Street analysts and you could be forgiven for believing that digital transformation is all but inevitably successful in most companies. Problem is, there’s a difference between anecdotal success stories and systemic transformation.
A sustainable digital transformation draws on a large number of innovative ideas and then processes them efficiently to kill most of them. Strategy sufficiency therefore includes the ability to generate sufficiency in terms of numbers of ideas as well as the portfolio sufficiency to turn some of them into major successes.
Systemically successful transformers use the Google-inspired 70-20-10 portfolio model of allocating resources: 70 percent of the organization’s effort goes into daily operations, 20 percent on continuous improvement, and 10 percent on disruption. The actual numbers may vary by industry and situation, but these three buckets are integral.
The 70-20-10 model, and others like it, take the issue of strategy sufficiency and cascade it down the organization as a routine work system. Having a sufficient strategy and a sustainable execution plan supporting it makes all the difference in a successful implementation.
3. Effective change management
There’s a critical stage between successful innovation and scaling, which is called the “innovation valley of death.” This is where most great innovations die, especially in larger organizations.
Why does this happen? My data shows that it results from skipped steps. Consider this example: Every time an airplane takes off, the flight plan allows for headwinds and other potential issues. In contrast, most digital transformation plans treat such variables as afterthoughts. An effective change management plan will address the variables that comprise the change conditions.
Selecting the best change model involves a set of disciplined steps, starting with having a clear understanding of the organization’s change conditions. In most cases, three types of change management strategies are available for digital transformation: Organic change, edge organization structures, and inorganic change. The first two work best when time is available and organizational acceptance of change is relatively high; the third, inorganic change, is necessary when either of the first two strategies is an issue.
In addition to choosing the correct organizational change model, it is also critical to implement reward systems for the corporate “frozen middle.” This step proactively builds capabilities and culture at the middle management layer to accept and thrive in digital transformation.
[ How can your systems communicate if they can’t speak the same language? Read also: Why master data management is key to digital transformation. ]
Define your digital transformation model
How can you avoid skipping steps? Several factors are already in our sphere of influence or control. The first is language. The term “digital transformation” is used indiscriminately to refer to everything from a new email system to true business model change. I recommend a five-stage model that distinguishes between Stage 1 (simple automation of work) to Stage 5 (sustained new digital ways of operation). Push for clarity.
Also, create different strategies for continuous improvement and disruptive innovation. As described in the 70-20-10 model, these are different buckets of work, and they are executed with widely varying methodologies and practices.
Finally, champion the need to fine-tune the disciplines of digital transformation. During WWI, flying was more an art form than disciplined execution. Early pilots quite literally flew on a wing and a prayer. By WWII, the evolution of disciplines in the aviation industry had evolved sufficiently to make flying mostly a safe and scientific venture.
It’s time for us to evolve the science of digital transformation execution beyond the 70 percent failure rate.
[ Read also: Teaching an elephant to dance - a free eBook on the six stages of digital transformation. ]
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