4 years ago Jan Heyens wrote a long blogpost on “How to do Digital Transformation in Corporate companies.” Since then, the need to come up with a company strategy based on the new technical possibilities and the changed customer behaviour, has only increased. If anything, Covid was a real wake-up call. However in the meantime, we also know that most transformation projects deliver less benefits than expected.
After a recap of where we are with digital transformation, he shares 6 “human related” success factors as we know the human part is the hardest. I only talk about legacy & large companies as the transformation for them is so much harder than for digitally born companies.
Key Takeaways of this post
- Covid has boosted the need to embrace digital transformation as customers will not go back to the same behaviour as before Covid.
- Digital transformation is about thinking about how to create value for your customer with all new building blocks at hand. However, the biggest challenge is not technology, it is visionary leadership, culture & behavior. But how do you get there?
- Success factor 1: The leadership should give direction, not directions
- Success factor 2: A networked organisation is the best recipe to change the culture
- Success factor 3: Set high standards for your leaders
- Success factor 4: Asking questions is the best way to empower people
- Success factor 5: Change the circumstances, not the people
- Success factor 6: Leadership behavior is 100X more powerful than powerpoint
Covid has changed behavior of both employees and customers
We have seen it with our own eyes during the lockdown: an explosion of video calls, e-commerce, chats, …In my webinars I talked about the “Covid Bonus”
In their latest survey McKinsey puts a number on this Covid Bonus: It catapulted us 3 years in the future in terms of digital interactions.
Since we will have lived in these special circumstances for well over a year (March 2020 – June 2021), this way of working has permanently changed our habits. Getting into the car for a 1hr meeting with a 2hr drive? Working 5/5 in the office? I don’t think so.
A important conclusion for both HR and managers is that their staff was mature enough to be without supervision in lockdown. I count on a permanent shift from “control” and “checking nr of hours worked” to “quality and quantity of output“ and “degree of collaboration and living the company values” as criteria to judge people. Certainly for smaller companies, this is a big shift.
Let’s recap: What’s the point of digital transformation?
We can divide the type of transformation in 4 categories. I added the fourth recently due to progress made in the world of AI and the cloud capabilities. The further you go to the right on the scheme below, the bigger the impact is on the company in terms of skills, people impacted, culture and a different kind of leadership.
Level 1 means using tools to run a more efficient company. It mainly boils down to digitising analogue activities or automating. Think about automation of repetitive tasks (i.e. via user friendly tools such as UiPath), collaborating more effectively by shifting to Google Workspace or Office 365 tools, digitize paper flows, lead generation: switch from outbound & F2 to inbound and digital,…
At this stage only a few people in the company are impacted and this does not require a cultural change, nor a big switch in skills. However, going through level 1 is absolutely recommended as it will liberate funding to pay for the next levels.
Level 2 means that you recognise that the customer
- is the most important person in the room
- is willing to do self-help if it brings extra value
- enjoys an ever improving customer experiences by mainly tech/e-commerce companies and this heightens the bar for all other suppliers
- is willing to sacrifice his/her privacy in return for some value
- can leave you with a click and buy worldwide
- leaves a lot of digital tracks and expects you to do something with it like pro-activity
- dialogues with you and has a megaphone
Yes off course tools (CRM, …) will help you to be more efficient in complying with these expectations. But here already the culture of the company has a big impact to predict success at this stage. (See later)
Level 3 requires a leadership that understands the potential of technology and that by combining different new components, new business models can emerge. A good example are manufacturing companies shifting from selling a product to a subscription based service model. Light as a service (LaaS) is one of the many examples and is projected to grow exponentially. In this level employees get more empowerment, external input by partners, start-ups, innovators, customers is a must. A boost of skills of existing employees and attracting new talents is also mandatory.
Level 4 is for the happy few. In Belgium only a small % of legacy companies are preparing for this stage. This level goes for platforms whereby data is the source of new products. This data allows for hyper personalisation. This requires new marketing. At this stage you don’t do market research, make a product and launch it. Instead, you rely on data & AI to offer personalised advice&offerings. These types of companies appoint an AI visionary reporting to the CEO. I could name a lot of newly born companies who start at level 4. To pick one that really uses data as raw material I would think of Cake, a Belgian banking app that runs on top of all your bank accounts to optimize your income and spending and reward you with cashbacks. Once the platform effect kicks in, this could really fly.
If we map these 4 levels of transformation, we see that there is some correlation between the level of digital transformation and the size of the company vs the way the company is vulnerable for outside threats or sees a business opportunity thanks to visionary leadership
Based on the companies I visit and the cases I study, one could say that SMEs are mainly doing transformations to increase efficiency and to boost customer focus to a lesser extent. A good deal of corporate companies are already adapting their business model based on the new possibilities.
But visionary leadership or a business model that comes under pressure may change this general observation. Spector, a mid size company from Wetteren (Belgium) used to develop analogue photos people deposited in a photo shop. When the market was switching to digital cameras and later smartphones, Spector realised that it would mean the end of their business model. They invested heavily in an E-commerce front end and found a way to print our pictures on hundreds of objects (calendars, mugs, pillows,…). It took them many years to make this switch but the hard work paid off, the stock price has never been higher.
Source: De Tijd
Covid has pushed companies to rethink their business model faster
Covid has made it clear that most businesses were not ready to survive in a world where people would do 100% e-commerce. Combine this with the insight that we will not go back to the same pre-Covid situation, and you have a compelling event to accelerate the transformation. So I expect a lot more companies betting on level 3 transformations. BCG conducted a study in Q2 2020 showing that Covid has increased the urgency of digital transformation.
McKinsey also ran a study and asked CEO’s which changes they experienced during the pandemic and which of these would stick after the pandemic. The message is clear, we won’t go back to the as-was state.
The fact that shares of digital enablement companies such as Salesforce, Slack, Zoom, Alphabet, Shopify, Paypal, Ayden,… have gone through the roof, is proof that a lot of people bet on digital acceleration.
Most transformation projects don’t deliver the value people had hoped for
Depending on the sources you read and the sector you study, it is estimated that between 10% and 30% of the transformation projects deliver the value initially forecasted.
Why is this? There are many reasons so I just name the most important ones.
The 1st reason is that you can’t apply the same scenario and roadmap in every company: Because every situation is different. The assets, the culture, the financial means, the IT situation, the employees, the leadership, the customers, the legislation, the urgency, the competition.. can all differ from one company to the other.
The 2nd reason is that the complexity is huge. As noted in The digital transformation playbook by prof. Rogers, digital transformation is about upgrading your strategic thinking. Traditionally CIO’s were tasked with automating and improving the existing business. Today we ask CEO’s, CIO’s to reinvent that business in a world where technology is changing more rapidly than ever and competition has become global or comes from platforms. It is like a kid switching from Playmobil to Lego technic, the possibilities are totally different but with it comes complexity and know-how. To make the analogy complete, all players in the TV show Lego Masters have the same ingredients, yet some of them succeed to build a bridge that holds 100k, while other bridges collapse under their own weight.
The 3rd reason is the lack of organizational agility. Like professor Rogers writes, “the curse of successful enterprises is often their very size. Also the leadership that rose through the ranks to end up in the C-suite will try to reapply the same tactics and techniques that got them there.” It’s an illusion that you are going to be successful at transforming the business without changing the organisation model. Adding agile teams, design thinking, forming multi disciplined squads, merging business & IT teams are all necessary elements. But to really get impact, people should see how they contribute to the new company goals, get empowerment, coaching and the framework to work in. And that requires a different culture, a different leadership behaviour and an adapted organisation model (see further).
The 4th reason is that some companies see digital transformation as an upgrade of their enterprise architecture stack. Vendors fuel this belief by showing off their technology and presenting you with case studies. But for every successful case, a many fold of companies got disappointed about the return. An example to illustrate this. When I was helping a company on the question “what it would take to put Customer experience as a key differentiator”, the AS IS situation showed that most energy the company spent today was into fixing problems. In the process of fast growth through acquisition of external companies, the focus was on how to integrate these companies from a system’s point of view but less energy was put into ensuring the Cx culture was adopted by the new team members. Introducing a new IT stack on these foundations would not solve the problem.
The 5th reason is that some companies go “all in” too soon. I have seen it happen: town hall meeting, an external speaker is invited to create momentum, big announcements are made. The outcome is often that people leave the room with more questions than answers. The most successful projects I have seen, started small with a bunch of volunteers, that had a common purpose and a manager that gave them a wildcard and covered their backs. Once success is there, they get some attention and people want to join this new way of working. The snowball starts rolling and while it gains momentum, questions, arguments and roadblocks are answered. By the time it becomes a company wide initiative, management knows what works and what doesn’t and have far more answers ready which creates confidence.
What are the most important contributors to a successful digital transformation
I have been helping some companies and have read through a lot of case studies and we all agree, it is not technology that is the most important factor to predict success. This was confirmed by a BCG survey asking 65 executives, whose companies are in the midst of large-scale agile transformations, to rank the relative importance of eight enablers.
Conclusion is that leadership, culture and behavior are far more important than technology for a successful transformation. Oracle shows that technology on itself is a mere 4.6% contribution to business success. Combined with 7 other factors, this becomes 64% and this increased business efficiency can make the organization up to 42% more performant.
Add to that that a legacy company’s technology transition is complicated. ”Repair in the air” is not far from reality. Changing from an old IT system to a cloud and API based architecture isn’t something you do overnight as we see in this graph by Marc Beijen that I adapted.
Most CIO’s tell you that the “I” in their role no longer stands for “Information” but also for “Innovation” and “Integration with the outside world.” In fact some analysts estimate the future value of a company by measuring the degree of openness and innovation. But doing all this takes time.
If you combine the following 4 insights : culture is the hardest part to change (remember the “Culture eats strategy for breakfast” by Peter Drucker), upgrading legacy IT is a process of many years, the business case of transformation is far from certain, the transformation is never done, it is a continuum …you will understand why I believe that a gradual introduction has more potential than a big bang and CIO’s confirm this.
Now let’s focus on the 3 most important contributors : leadership, culture and behavior. What are proven success factors to take the turn?
Success factor 1: The leadership should give direction but not directions
BDO frames it as follows, “Technology doesn’t solve business problems—people do. Having the right leadership for your digital transformation efforts is critical to moving your goals forward.”
So just how far should leadership go in having the story ready?
The main job of executive leadership is to look ahead and tell their stakeholders “Why we need to change”.This analysis should be detailed and factual with a 90% completeness.
On the question “Where do we want to go” they should be accurate to about 70%. It’s like “We go North, but in fact it could become Northeast or Northwest along the way.” Basic questions from employees like “Will this secure our future?” and “Why would this work >< competition” should be clearly answered. People need this Northstar because the transformation will probably take years and if it is not clear where we are going, people get tired. People need a plan they can refer to.
On the question “How will we get there” leadership should.
- offer direction but not directions. If not why do you pay smart employees? And 2nd, the change is so impactful that you need the input from your employees on how they could help in realizing this change. HOWEVER people need to be reassured and given some railings,
- A high level roadmap, first this, then this so people have something to hold on to
- Be clear on how this will impact the organisation and staffing (will there be job cuts,..)
- How will we be helped by making this transition (training; coaching,…)
- Recognise it will be tough
- What’s in it for them (“your employability will rise”, empowerment, value add of most jobs will rise,…)
- Principles, rules to counterbalance the new empowerment people will get (see later in this post). People 5 levels down from the CEO should get some guidelines they can use to make decisions like Security >< Time to market, Agility >< Robustness, Customer centric >< this costs us revenue. A good acid test to know if a principle gives guidance : “is the negative conceivable?”. For instance “We want to be customer centric” = bad rule as the opposite doesn’t exist so it doesn’t give guidance.
The DPG case
Let us take a local example to illustrate that.The Belgian DPG media group decided on a transformation a couple of years ago. They own TV stations, a lot of newspapers and possess the most downloaded app in Belgium, HLN news app.
The WHY do we need to change was clear
- Business model under pressure : Shrinking advertisement income
- The customer: consumes more media but more on smaller screens and in a non linear way, skips ads if possible, is ready to accept ads in return for free content when and where he likes (VTM Go app), content is consumed in an individual way less as a family, is willing to pay for qualitative journalism due to the fact that social media content can’t be trusted or is biased at least, the customer journey for almost any products starts on Google, is used to pay for online subscriptions
- The advertisement market : is turning more digital each year as advertising on Google & Facebook offers advantages , you don’t have to have big budgets to start (most revenues from Facebook come from small companies), you can segment laser lik, you can track what’s happening, they interact with your website. Google & Facebook own 36% of the 550 billion USD worldwide market and they will go to 50%, according to DPG research.
- Competition: Like in most tech scenarios, the winner takes it all meaning that Google and Facebook have a virtuous circle. More advertisers leads to more data, more data leads to better segmentation and this leads to more advertisement money. So it was clear that scale was important
- Legislation: Cookies disappearing by 2022 and GDPR
- Tech possibilities are growing: DPG leadership interviewed tech gurus on the upcoming possibilities of AI, data crunching, hyper personalisation,…,
- Assets: HLN.be 2.5 mio users/day, powerful local media group, 300 mio revenue in ads
The WHERE do we go
- “We are going to challenge Google & Facebook based on a combination of reach + data + technology”. All 3 factors were described aboutn what this means in practice. Business case was made, people were mobilized to help create the “HOW will we get there”
- Result : “DPG ads” will be launched in 2021 with 4 modules as they recently unveiled
The HOW was partly defined
- First party data was key, hence the acquisition of popular sales lead platforms (Livios.be, Zimmo.be, Independer.be, mijnenergie.be,..) and the launch of HLNdrive.be. Invest in platforms. Invest in skills by hiring the best tech specialists and transform some existing employees. Identify what capabilities they will make or buy
- Find funding through rationalising the classic business by merging the journalists of TV and newspapers studios, sell non strategic assets (mobilevikings.be), creating a joint venture with a competitor/distributor (telenet.be) to split the cost of building a local Netflix (streamz.be)
Why does this case thick a lot of boxes? “Why we need to change” is very specific. The “Where we need to go” is also concrete enough and it took in the customer needs and also a way to differentiate vs competition. So all in all a credible and viable ambition. The “How” was filled in along the road, but the high level business case, the platform, the acquisition of external data and talent was clear from the outset
This in contrast to some other transformation initiatives I have seen. Vague announcements like “By using the possibilities of digital and more empowerment for our employees, we will become more customer centric and be ready for the challenges of the 21st century.” is not a message that can enthuse your employees.
Success factor 2: The networked organization
If you want to hear a clear explanation on why a networked organisation is key, then please listen to Rudi Peeters; CIO of KBC, who back in 2014 tells his audience in 20 min, the secret behind the successful transformation of his whole IT department. Since 2014, his concept has evolved but the core principles remained. He built an organisation based on auto-regulation, empowerment, fusion of IT & Business, budgets that are allocated on added value and are decided by business & IT on a monthly basis, strategic partnerships instead of suppliers, shared info, failures and experiments are ok if good intentions can be shown, a servant leadership, outside inspiration is needed (Start it @kbc), take your career into your own hands based on where you would like to develop and what gives you energy
The world has become so complex and the speed with which you need to react is such that only a top down organisation just doesn’t cut it anymore. Old organisations were designed to push info upwards so leadership could take decisions, networked organisations push info downwards so the people at the lowest level can take the right decisions. Before you do that, each multi-department team should be united around a common purpose and know the rules and principles they should respect. In the book “Team of Teams: New Rules of Engagement for a Complex World” general McChrystal explains how this works. The business world can learn a lot from the military.
Success factor 3: “Change the circumstances, not the people”
Again, a quote from Rudi Peeters. Enormous budgets get spent on change management, despite the fact that people don’t want to be changed. The good news is that when you change the circumstances, people will change voluntarily. Praise good behaviour, reward teamwork, foster initiative, admit mistakes, be authentic.. and people will want to join.
Do you know an organisation that is able to convince employees to sacrifice their lives for their co-worker and this only 2 years after they started working at the company? The military. Listen to this inspiring video by Simon Sinek on what’s the big secret on how they do it.
Success factor 4: Hire the right leaders and set high standards
Since a lot of people want to work in leadership positions at Amazon, they can be very picky on who they hire. They have set very high standards for their leaders. Everybody knows that Amazon banned powerpoint and applied the 6 page memo principles to discuss/decide on a proposal. In this testimonial you can read through the process. It is pretty impressive, it feels like passing an exam. I would not advise to copy/paste but still there is value in there (written, based on data and many sources, living the company values,…)
Success factor 5: Asking questions is the best way to empower people
Everybody agrees that empowerment is a key to success in transformation. But some people are afraid/not ready to take up this new responsibility. In my experience the best way to do this is to ask questions. The answers on your questions will give you an idea on
- how some people will surprise you with the quality and speed of their answers
- how ready or not people are to deal with this new empowerment
- how people think & see the reality
Underneath I listed some questions that have worked to get the ball rolling.
“What do you need to make this miracle happen?”
I have seen it many times. If you give people a direction, tell them why it is important to go there, give them a seemingly unrealistic objective and ask the question “Could you make this miracle happen, tell me what you need and I will cover for mistakes”, people get wings. People are glad you recognise that the goal is very very ambitious but by asking the question “what do you need” it becomes their personal project, their child instead of yet another enterprise project.
It is much like what we see when there is a crisis like the billing is down or people must go into lockdown. In most cases the problem gets solved in hours while in normal circumstances it would TAKE weeks. What is different
- There is a big compelling event
- All the people in the crisis room are focussed on finding a solution, not on blaming others or finding excuses
- The chiefs dive in to liberate resources and decisions are made on the spot
- Due to time pressure, only the essence is told and no time is wasted in fancy powerpoints
- The chiefs listen to the expert even if this guy is 10 levels down and has probably never spoken to a chief
- People feel reassured that risks are accepted
- Action and feeling of team spirit give energy
- Informal networks between otherwise siloed departments show their value
- Innovative solutions and out-of-the-box thinking are applauded
“Typically 20% of customers/processes cause 80% of complexity. Who are they and what does it take to get them on more standardized solutions?”
This question is important as in my experience, it can help starting the virtuous wheel.
“How can we spend company money more wisely?”
- “If it was your money, what would you spend it on and why are you sure?”
- “You ask for money and you made a business case, are you ready to do a post mortem on the business case 6 months after deployment?”
“Is your demand for customization/coding so important that you’re willing to defend it before the CIO/CEO?”
When switching from a bespoke application to a SAAS version, people tend to copy the existing into the new solution >< vanilla approach. This question helps to quell this.
“How many decisions do we take based on our own data and how much of these are predictive?”
In most companies data is omnipresent but most is ROT (Redundant, Obsolete, Trivial). With the motto, “what you focus on grows”, ask a team to get predictive analysis out of it and what they need to secure this goal.
“What are the leading indicators that predict NPS?”
Most companies have a NPS measurement and sometimes there is a link with the company bonus. So each quarterly meeting the NPS is shown. But as long as people, in their role, don’t know how they can contribute, showing the figures doesn’t inspire action. So ask a team to find out what leading indicators predict NPS and then people can start helping.
Success factor 6: Leadership behavior is 100X more powerful than powerpoint
We are human beings meaning we like to tell stories that touch us and we are social animals that copy the behavior of alpha male and females. That’s why the leadership has such an important role in showing a behaviour that is coherent with what they put on a slide. The wonderful thing is that it is something you can start doing tomorrow and it will have an immediate impact. Some examples out of a long list:
Example 1: The CIO asks the project leader in a project review meeting: “I see you have some “red” statuses on your project status, how can I help? thus showing servant leadership. Through the grapevines this news spread in 1 week to 80% of the IT community. It was probably the most effective way for the CIO to show his managers what type of behavior he expected from them.
Example 2: We all know that breaking the silo’s is key. But it wasn’t until the CEO aligned the objectives of his chiefs and said “Your bonus will be defined by your colleagues and the question they will get is, “How did Mr X or Mrs. Y help you in achieving your objectives.” that things started to change.
Example 3: I once advised a company where the sales director asked his people for a focus on internal and external customer experience. Results were disappointing. Until he fired one of the best sales people because his results were based on a toxic behaviour bullying internal people to get his deals signed.
Example 4: My former boss was very high on respect for other team members. The fact that she greeted the cleaning ladies was her way to teach us that.
Example 5: Again from my former boss. In 121’s she would ask us to comment on her actions, her decisions, her behaviour and she wasn’t allowed to reply, she would just listen: the one-way-feedback. Discover here what her secrets were to form the best team ever.
Example 6: In many companies individual employees get awards for outstanding achievements. In order to move one step closer to “the networked organisation”, a client of mine stopped doing this and started giving awards to X-departmental teams to foster this collaboration.