Focus on people and culture for digital transformation at scale

Companies that undergo digital transformation successfully are more profitable but the vast majority of change problems fail.

Article by Professor Didier Bonnet and Professor Michael R. Wade
“Focus on people and culture for digital transformation at scale” was published by the Institute for Management Development (IMD). Click here for the original article.

Digital transformation has become an imperative for most companies, but the process can be intense and agonizing. Leaders need to surmount manifold challenges that have more to do with people and culture than technology.

The core drivers of digital transformation include competitive threats and new business opportunities. Yet, 87% of transformations fail to meet expectations, according to data from IMD’s Global Center for Digital Business Transformation.

In their OWP session, IMD Professors Didier Bonnet and Michael Wade focused on four important strategies for successful digital transformation:

  1. How to align the top team to drive success
  2. How to build a good transformation objective
  3. How to choose the right digital governance model
  4. How to scale digital initiatives

Top team alignment

The further down you go in the organization, the less alignment there is — because of weak leadership, no sense of ownership, short-term pressures, misaligned incentives. Team dynamics are another source of friction — including the “HIPPO effect”, where the highest paid person’s opinion influences the group’s decisions.

Leaders should create a safe space where dissent can be openly discussed without consequences. They should also go beyond opinions to uncover their underlying assumptions, and avoid the “curse of averages”, which can cover up differences and potentially significant insights.

Leaders also need to know why they are transforming (digital threats or opportunities, perhaps), what they are investing in (like reinviting the customer experience or exploring new business models) and how to execute it (governance, funding, engagement, measurement are important).

Bonnet recommended exposing the senior team to cutting-edge thinking from external experts. And, if some contentious assumptions remain, don’t ignore them; ask groups to clarify them through fact-led research. “It reduces the gap between strategy and execution,” he said.

Build a good transformation objective

Companies often want to increase their digital maturity but their mission statements tend to be “too general and fuzzy”, said Wade. “First you figure out where you’re going, and then how to get there.”

Good transformation objectives have five components: they are precise (accurate), realistic (achievable), inclusive (have alignment), succinct (memorable) and measurable (to benchmark progress). Wade highlighted Unilever’s objective as an example that meets the five criteria, which is to “double the turnover while cutting the environmental footprint by half”.

He also stressed the importance of thinking in terms of trade-offs, and testing and revising the objectives with a wide array of stakeholders. In addition, it’s important to set specific targets, even if you’re uncomfortable doing so. Wade said: “It’s important to have that guideline otherwise you end up doing change for the sake of change — and that can be counterproductive, because you want your people to be empowered.”

Choose the right digital governance model

Bonnet’s research found that governance is the key driver of profitability in companies that have successfully digitally transformed. Successful digital governance means balancing the scope of the transformation with the dominant company culture (centralized versus decentralized structure, top-down versus devolved decisions).

The organizational dilemma is to go for tight integration (alignment, which drives more harmonization and bargaining power but bogs down processes) or complete separation (adaptability, which means you’re closer to the client but it can sow anarchy).

The decision depends on the digital maturity of your firm. “If you’re starting for the first time ever I would encourage some form of centralization to kick the program off,” Bonnet said. “If you’re in the seventh incarnation of your transformation, then you can loosen the reins to give more decision power to a decentralized governance structure.”

Companies tend to take four approaches: to drive transformation through existing leadership teams, which offers a simple mandate but only incremental advances; to appoint a dedicated digital transformation leader who has accountability but requires alignment between operating units; creating an entirely new business unit, which offers economies of scale but risks isolation; building or buying digital operations with a separate P&L and brand, which speeds time-to-market but risks cannibalization.

“There are no silver bullets and the governance models are not mutually exclusive,” Bonnet said.

How to go from startup to scaleup

Wade said that 83% of companies are in the planning, design or tinkering stages of transformation — but only 17% had scaled their digital initiatives. He offered four solutions to go from startup to scaleup.

First, think about scale from the start in a way that does not inhibit innovation, a fine line to walk. The initiative will need to be integrated into existing processes and structures, be compliant with rules and norms.

Second, avoid falling into the “cut and paste trap” — just because the initiative worked somewhere doesn’t mean it will work everywhere. So isolate a successful digital initiative, then adapt it to different parts of the organization (ensure IT compatibility, branding consistency, legal and regulatory compliance). Next, you “paste” the initiative into other contexts and make small adjustments to optimize the solution to local conditions.

Third, shift from “push to pull to push”. So digital initiatives get funding to scale (they have a push) but they fail unless other parts of the organization see the benefits (they don’t have the pull). The more you can do to measure and communicate the success of the initiative, the more likely that a push becomes a pull. You may need a second push to rollout the solution across the organization.

Fourth, plan for scaling across the value chain. Wade stressed the importance of engaging customers, partners and the workforce. There’s also the go-to-market strategy (offerings and channels) along with operations (processes and IT capability) and the structure, incentives and culture in place to consider.