Is your digital transformation stuck in the slow lane?
Explore why a digital revolution demands a radical rethink of your strategy to help you thrive in the new landscape.
With dramatic advances in digital technology arriving every day, many organizations are now focused on how to accelerate their digital strategies to incorporate the latest wave of AI capabilities. From updates to back-office functions to new ways of serving their clients, bringing the power and capability of digital technologies into everyday use is top of the executive agenda.
The ambition may be strong, yet all too often the rhetoric is not supported with sufficiently bold actions. While the specific situations vary, a recurring challenge emerges: executives and leaders at all levels of an organization too often underestimate the scale of the transformation required. They fail to grasp the extent of the digital world’s rapid evolution and its disruptive impact on their business. Success requires strong leadership, and the growing sense of urgency must be accompanied by a willingness to redefine core elements of the organization’s ways of working.
To achieve this, an important starting point is to accept a new reality: we are in the midst of a digital revolution. From mobile devices and high-speed internet through to AI and quantum computing, we are experiencing rapid, fundamental shifts in digital capabilities across every aspect of business and society.
While this declaration of a digital revolution may at first seem unnecessary after several decades of digital-technology adoption, it is important because it serves two crucial purposes.
First, it forces us to question the status quo: if we are living through a digital revolution, what would be the impact of such a profound shift on my organization? How should I rethink our strategy in response to this? Do I have the right skills to be successful in this new era?
Second, by taking this revolutionary stand, the intention is not to sensationalize or exaggerate but to encourage a deeper reflection on the transformative forces shaping the world. Will advances such as AI change relationships between clients and the suppliers of their products and services? Will they reshape organizational structures and decision-making processes? Which organizations will lead this revolution and which ones will fall by the wayside? Recognizing the magnitude of these changes is crucial if organizations are to survive and thrive in the evolving digital landscape.
Talking about a revolution
Accepting the implications of living through a digital revolution offers three key lessons for leading digital transformation.
First, if we admit that we are undergoing a revolution, we are effectively acknowledging that the previous ways in which we looked at the world may no longer be relevant. That is, the applicable models and frames of reference we created to help us understand traditional aspects of our operating environment and predict its future state may no longer be appropriate. In fact, our observations would indicate not only that they are ineffective ways to describe what is happening, but that they may also be dangerously misleading.
For example, think about how your organization describes daily progress across your key projects, or how it defines the learning and development needs of teams to ensure the right skills are available, or how it measures each individual’s personal contribution. Are the processes that are in place fit for purpose in a world transformed by digital technologies such as AI? The challenge in a revolution is to try to determine where existing approaches break down, to define more useful perspectives for learning about the elements that matter, and to understand which new ways of looking at the world are going to be more helpful.
Second, the rising tide of digital maturity within organizations increases the tension between those swept along by digital advances and those left behind. This is caused by a widening gap between the cutting-edge digital practices of pioneering teams within an organization and the lagging ‘business-as-usual’ state of the majority. Where teams experiment with digital-first models, adopting AI tools, they find that traditional structures and management styles must significantly adapt. New organizational forms and operating practices are required to ensure an appropriate mix of innovation with managed accountability.
The simplest approach might seem to be to accept a stark polarization between ‘digital-first’ and ‘digitally supported’ factions. However, this simplistic solution creates a harmful side effect. The culture, skills base and physical environment surrounding ‘digital-first’ teams transforms them into isolated islands of advanced digital experience. Instead of triggering a widespread and rapid adoption of digital practices, this approach backfires, leading to a ‘two-speed’ organization in which employees experience confusion and complexity. Tensions inevitably arise, and the demand for alternative operational models intensifies.
Third, rather than being able to point to a single cause–effect axis, we are witnessing what commentators such as Eric Brynjolfsson, Andrew MacAfee and Thomas Friedman describe as a confluence of new digital technologies that are pushing us beyond any single advance that we have seen over the last few years. The combination is delivering new insights that would be impossible in isolation, powering innovation across a wide variety of domains, and enabling a recalibration of societal values in determining the balance across the triple bottom line of profit, people and planet.
Furthermore, this digital acceleration shows no sign of slowing down. The pace of change and its significance will only increase as we learn more about how to tie together technology advances in AI, how to use the compute power that is available on-demand, how to broaden deployment of augmented reality (AR) and virtual reality (VR) to provide new world views, and so on.
The recent Covid-driven adoption of digital technologies has highlighted the essential nature of these solutions to our way of life. The ‘great acceleration’ in digital technology use has been recognized as fundamental to ensure resilience, continuity and adaptability in coping with today’s volatility and disruption. The resulting operational practices are both driven by the digital technology and supported by them. Consequently, continuing investment in digital transformation remains a top priority for all organizations.
Why this matters
Highlighting the nature of this digital revolution is not just a point of principle – it has important practical implications. We will never challenge our thinking if we believe that organizational fundamentals remain undisturbed by digital disruption. We will not change the way we work if we see our actions evaluated and rewarded according to outdated values. Whether you are a local authority dealing with adult social care, recycling and potholes or a financial services organization offering payment services, transaction management and insights into people’s financial health, the consequences of digital disruption must be addressed. This requires not just digitization of existing operations but significant changes to how we deliver the outcomes now demanded by stakeholders. They are confronted with new ways to interact in rapidly evolving circumstances to meet demands for ever-increasing levels of service quality from their customers.
One of the most challenging aspects of this digital shift is the need to rebalance several levers of business. Assumptions and priorities that have long been in place must now be re-examined. Workers are caught between the need to hold on to their traditions and heritage, while also trying to adjust to new ways of thinking and working.
Consequently, revising ways of working to take advantage of digital technologies such as AI requires organizations to face a series of fundamental paradoxes. Below we highlight five such paradoxes that summarize the profound nature of the challenge to succeed in digital transformation in large established organizations (LEOs) as they seek to survive and thrive in the age of AI.
Paradox 1: be comfortable with being uncomfortable
A primary feature of the digital economy is a lack of clarity about the nature and depth of the disruption faced by individuals, companies and society. All we can assert with any confidence is that the volatility, uncertainty, ambiguity and complexity (VUCA) nature of digital transformation requires organizations to accept this uncertainty and recognize the signals that indicate the onset of substantial changes in their business environment. As a consequence, the traditional values of stability and consistency must be replaced with less certainty in day-to-day operations and new approaches aimed at exploiting future opportunities. The emphasis, therefore, is on adopting leadership and management approaches optimized for situations of massive uncertainty. Processes and techniques that have been successful in the past may no longer be sufficient. Where they are essential in situations that call for stability and certainty, they may be inadequate when there is a lack of relevant experience, inconclusive data and highly unreliable trends. A move towards greater flexibility based on experimentation is necessary to encourage a culture of continual learning.
Predicting the future is difficult – sufficiently so that some believe the best approach is not to wait but ‘to invent the future for yourself’. More than simply being an offhand remark, this statement is in fact an appeal to organizations not to lose hope when thinking about future possibilities. It suggests that all organizations require a bold vision and must engage in actions that will support it. The goal must be to identify meaningful short-term activities that can help the organization test the validity of its vision and how that vision can be delivered.
Paradox 2: keep control by owning less
Many questions are being asked about the appropriate shape and form of organizations fit for a digital economy. At its most simplistic, it has been argued that the advantages of a larger organization’s scale and reach are outweighed in a digital economy by the flexibility and speed of change of smaller, more agile organizations. And yet operational agility is not just a function of size. Questions can also be raised about an organization’s assets. Many organizations in the digital economy operate successfully without owning physical assets such as warehouses, trucks, stores or computing infrastructure. Acquiring these capabilities ‘as services’ to be consumed as and when required can bring operational and fiscal elasticity without a sacrifice of control. If these capabilities are not considered essential to differentiating a company from its competition, then the investment and resources allocated to owning them may be better directed elsewhere.
Such thinking extends to a company’s workforce. Organizations can adopt a similarly flexible approach to building skills and capabilities. Many companies, for example, source their critical digital talent from third-party service providers, or use temporary flexible contracts to fulfil needs on an ad hoc basis. The so-called gig economy is one consequence of this thinking. All of these actions clash with much existing practice, where bigger is often believed to be better. For example, it is difficult to sit around boardroom tables in many organizations and not be confronted with the realization that conventional thinking ensures organizational units are ranked according to size (number of people), spending power (budget allocation) and a leader’s seniority based on experience (years of service). Such thinking is now being questioned. Operating successfully in a digital economy requires an organization to continually acquire new skills to assemble a viable ecosystem, to curate third-party services that meet its needs, and to manage individual performance based on current contribution. The future of organizations may well be smaller core teams but with the support of much wider networks of associates and partners working together through a variety of means, coordinated dynamically around opportunities as they arise, and encouraged with novel, mutually beneficial incentive mechanisms.
Paradox 3: strengthen the organization through exposing weaknesses
Governing a complex organization requires that it is broken up into manageable pieces, each with substantial autonomy and purpose. Typically, the siloed nature of many organizations is a response to a natural, explicit decision to cluster tasks with common aims, and to ensure that teams have local control over all aspects of their remit. Locally made decisions are optimized for the constrained environment in which the team operates. A successful leader defines a clear set of objectives and carves out the resources needed to deliver on time and on budget. Relying on others with different objectives is seen as introducing risk.
Successful digital transformation requires bringing together previously siloed groups through improved communication and transparency. To move quickly and with purpose, coordinating cross-disciplinary activity trumps isolated group actions. There are many positive consequences of individuals and teams working together more closely, cooperating more effectively, and synchronizing tasks to avoid duplication and confusion. However, organizations recognize that the transparency provided by this open approach also exposes several shortcomings in their processes, management and operations.
The breaking up of these silos as digital technologies disrupt normal working practices will often shine a light on existing differences in structure, processes and performance. While there is an opportunity here to promote best practices, greater attention is also directed at problematic areas. An organization must have a certain level of resilience to govern wider knowledge sharing and to provide measures to contextualize the information so that it does not distract from the progress being made.
These internal challenges are also seen externally. Digital transformation often involves moves to connect more closely with customers, to engage in co-creative tasks, and to share much more information with partners and other stakeholders. Greater access for stakeholders to the day-to-day activities of the organization with which they interact establishes a relationship of trust. This creates a stronger bond across the organizational ecosystem and increases the organization’s core capabilities. However, many of those in leadership may find this move to greater openness challenging. It can be seen as a threat to an organization’s competitive position and an unnecessary step that exposes internal organizational detail best kept under lock and key. Additionally, commercial and regulatory constraints must be factored into any plans. Concerns such as these must be openly discussed, and any resulting issues must be addressed.
Paradox 4: ensure a future by ignoring the plan
A central element of every organization’s strategy is the planning process. A great deal of effort and attention is directed towards deciding on future priority actions: prioritizing requests, determining how each of them will be addressed, decomposing them into tasks that must be carried out across the organization, allocating resources, monitoring each task’s progress, and performing the interventions necessary to adjust those tasks to ensure successful completion. The focus of many people is therefore to create and manage the plans that act as blueprints for the organization’s operation.
Varied in form and detail, these plans are an essential artifact for many organizations. They are often complex, high-profile documents, produced as the centrepiece of elaborate multiyear strategy cycles. They are shared across everyone in the organization, posted on websites and displayed on the boardroom wall. In many situations, questions about the relevance of a given action receive a simple response: it’s in the plan.
However, these plans can also become straightjackets restricting an organization’s ability to adjust to changing circumstances. Deviation from the plan is considered a failure. Following the plan becomes the objective to be delivered at all costs. In contrast, digitally disrupted domains must optimize for adapting to unpredictable operating environments. The resulting agile methods have a reputation for increasing flexibility, but often at the cost of adding significant risk into the planning process. Much of the debate around the adoption and scaling of these methods centres on how this flexibility can be maintained while meeting the needs for governance.
Digital transformation initiatives, however, recognize that the unpredictability of the environment in which plans are created deeply influences their value and utility. So much so that in highly volatile situations, some organizations believe that committing to any form of plan is likely to be misleading.