CUTTER BUSINESS TECHNOLOGY JOURNAL VOL. 30, NO. 12
Digital transformation is not for the faint of heart. It means disrupting your company before your competitors do. It means experimenting, without any guarantee of success. It means creating something new and unproven, while sabotaging what’s already working. Digital transformation means taking big risks.
Today’s digital technologies are driving continuous disruption. Survival is based on an ability to sense changes early — and adapt quickly. However, most top-down, hierarchical organizations have structures and processes that attempt to treat continuous changes as discrete, one-time events. Simply put, organizations are using change management approaches that don’t work with digital transformation. Most change managers are employing models of the past that apply to a well-defined, bounded change; that is, a project with a beginning, middle, and end. They often reference various three-phase models from key thinkers such as Kurt Lewin (unfreeze, change, refreeze); William Bridges (ending, neutral zone, new beginning); Daryl Conner (present state, transition state, desired state); and John Kotter (creating the climate for change; engaging and enabling the organization; implementing and sustaining the change). The three-phases approach, however, doesn’t work with digital transformation. There is no third phase. With digital transformation, organizations are continually living in the middle phase, where everything is ambiguous and up in the air.
Digitally-driven change is messy and unpredictable. Unpredictability unsettles everyone. Successful organizations of the future will embrace the mess — and fundamentally change their organizational culture.
Cultural Change Is Paramount
To realize the benefits of a digital transformation, organizations need to build and maintain a culture that adapts to a continually changing landscape. Unless already on the path to building a culture that embraces innovation and transformation, many companies prefer to adopt less effective strategies. Faced with unpredictability, volatility, and chaotic messiness, they choose:
Delusion. Stubbornly believe that their customers and market are not changing.
Avoidance. Consider the situation temporary and wait for everything to settle down.
Selectivity. Ignore the chaos and focus on an area where they already have skills, confidence, and/or a track record.
Silver bullet. Buy a product or process that promises to make everything easier and simpler.
Overconfidence. Believe they can influence their environment and implement a plan that makes the future more predictable.
None of these choices will deliver long-term success. Instead, digital transformation favors organizations that choose cultural transformation. They build an adaptable culture where people recognize their limited ability to predict the future and seek opportunities that arise from the chaotic environment. They frame themselves within a culture that allows leaders to maintain their confidence and focus even when initiatives fail to achieve business objectives.
When everything is in flux, people struggle. The more change they experience, the higher their stress. In this environment, effective leaders help their followers remember who they are.
Many organizations view values definition merely as a fun exercise to conduct and forget, or as a waste of time. However, when organizations are clear about their values — and continually communicate those values — they can serve as the center of all activity and decision making.
With digital transformation, some companies find that their business or industry fundamentally changes. Newspapers, for example, are no longer in the “newspaper” business. (If they are, they are going out of business.) But an organization whose purpose is “to inform the public about what matters” and holds the value of “accuracy” can change its products and services while maintaining pride of purpose.
All this puts a huge burden on the leaders of an organization. Many leaders derive their sense of purpose and value from their place on the organization chart. The org chart typically describes products, services, and geography — all of which might change in digital transformation. Thus, a leader’s very identity can be threatened by new business models. Only leaders with a strong commitment to organizational purpose and values will be willing to risk their place in the political landscape for uncertain gain. Yet quite a few large, older organizations are populated with middle managers whose focus is on avoiding risk and counting the weeks until their retirement.
Nurturing New Ideas
Innovation cannot be achieved without new ideas. Unfortunately, many managers consider themselves the source of all useful ideas. When ideas are encouraged, an organization gets more ideas. When ideas are discouraged, an organization gets fewer ideas. Most organizations subtly, yet consistently, discourage ideas. This discouragement takes many forms. When a manager likes an idea, he may give positive feedback to the person presenting it, and then enhance or tweak or change the idea. Unfortunately, the subordinate no longer has ownership of the idea, as it has become the manager’s creation. And sometimes, a manager likes an idea so much, she “co-opts” the idea as her own and fails to give credit to the author. Or a manager may observe that the “new” idea has been tried before, and didn’t work. Or simply disapprove or reject the idea.
Digital transformation will not occur if all decisions must be made by top managers. First, decisions cannot be made in a timely manner. Second, people who are not involved in the decisions will often subtly resist the projects and programs, causing them to fail. And, of utmost importance, if top management is involved in operation decisions, they have no time or energy left to focus on strategic tasks.
Many leaders avoid delegation out of concern that the wrong decisions will be made. If the management of an organization is not capable of making operational decisions, it needs to be trained, coached, or replaced. (And grooming management talent is one of those strategic tasks that has often received low priority from executives.)
Letting Go of Control
Digital transformation means imagining and applying new business models. Consider, for example, new companies like Airbnb, Spotify, or Uber. They have an advantage when it comes to digital transformation; they don’t have to contend with an entrenched bureaucracy and a strong set of rules, policies, and procedures. They have limited controls and operate in a flexible manner. In these business environments, innovation can thrive.
In the book Corporate Lifecyles, Ichak Adizes says that organizations that have achieved high growth and high profitability have learned to strike a balance between flexibility and control. Organizations start as highly flexible and implement controls as they mature. When control becomes more important than flexibility, an organization begins to die. Digital transformation requires flexibility to nurture innovation. For mature organizations, this means letting go of control. They must learn to delegate decision making to lower levels and empower teams.
To realize the benefits of a digital transformation, organizations need to build and maintain a culture that adapts to a continually changing landscape. New organizations need to treasure their flexibility. Older organizations need to change to create an environment where innovation can flourish. Implementing new management practices takes a year or more. Shifting an organizational culture takes several years. The time to start is now.
In This Issue
We are pleased to have nine authors share their change leadership insights in this issue. We begin with an article by Bill Fox that focuses on the importance of forward thinking. Fox observes that “in today’s world that’s full of turbulence and unknowns, the need for better answers and questions, insights, and wisdom is becoming ever more pressing.” He believes that this kind of thinking — forward thinking — creates an environment where digital transformation occurs organically. Fox describes 13 foundational forward-thinking abilities, along with three approaches that help create a forward-thinking workplace.
Next, Roger Sweetman and Kieran Conboy examine the interdisciplinary theory of complex adaptive systems (CAS) and how this theory can be useful in digital transformation. They define nine properties of CAS theory, such as a constant state of flux. For each property, Sweetman and Conboy describe the challenges and opportunities for digital transformation. Finally, they present CAS-based practices that enable change management.
In our third article, Hermann Ladner and Michael Kunz highlight the challenge of resistance to change. They believe that leaders charged with digital transformation often ignore or underestimate employee resistance. And sometimes when they recognize resistance, they write it off as irrational behavior. Ladner and Kunz explore this and other misconceptions that stand in the way of effective digital transformation. They propose an approach for involving and engaging employees in the change.
Next, David Coleman discusses three areas affected by digital transformation: customer experience, operational processes, and business models. Successfully transforming each area depends on a collaborative mindset. Coleman defines this mindset and shows how alignment of purpose and commitment to the task go hand in hand with collaboration. He illustrates the importance of a collaborative mindset in transforming processes that touch customers, internal processes, and the overall business model.
Many classic change management models are not up to the challenge of guiding continuous change. Jagdish Bhandarkar and Namratha Rao observe that these models fail to consider the significant dimensions of technology and innovation. They recommend developing key performance indicators to track all dimensions of change, which will enable an organization to constantly improve its capability to implement change. Rao and Bhandarkar present a case study where a community bank “transformed the initial negative perceptions of change to a positive practice.”
In our final article, Jon Ward emphasizes the significance of enabling change. He believes that a culture of experimentation is required for digital transformation to succeed. Ward identifies important elements of an experimental culture, such as encouraging innovation and self-directed teams. He also specifies senior leadership behaviors as well as corporate governance approaches needed to build and reinforce an experimental culture.
As Charles S. Lauer famously said, “Leaders don’t force people to follow, they invite them on a journey.” We hope that you find these articles helpful in your journey of leading the organizational changes associated with digital transformations.
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