Although enterprises acknowledge the importance of digital transformation in the current environment of flux, few succeed in their digital initiatives. A major reason so many digital transformation programs fail is that enterprises view them as technology problems rather than the organizational challenges they truly are.
Columbia University professor David Rogers, author of Digital Transformation Playbook and The Digital Transformation Roadmap, published in September, says it doesn’t have to be that way. He believes he can demystify digital transformation and put corporate leaders on the right path as they rethink their business strategy for the digital era.
In a conversation with CIO.com, Rogers explains common reasons digital transformation strategy efforts fail and throws light on how to create and implement a successful digital transformation roadmap to ensure speed and resilience in the face of continual disruption.
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Managing innovation and growth in a fluid environment is one of the biggest challenges for companies. How can enterprises attain these in the face of uncertainty? Where does the CIO role fit in the scheme of things?
Rogers: This is one of two fundamental challenges of corporate innovation — managing innovation under high uncertainty and managing innovation far from the core — that I have studied in my work advising companies and try to tackle in my new book The Digital Transformation Roadmap. To keep growing in the digital era, enterprises must solve both these because there is such a rapid pace of change of business.
The challenge of uncertainty is because companies rely a lot on a planning-oriented process to manage innovation, growth, and new digital initiatives. They are comfortable with processes that they have developed and are running for several years. When they look at a new problem, they start by gathering loads of third-party data and benchmarking through consulting firms. They then do a lot of analysis on their own and plot a business case for one or more options they might pursue. Eventually, the person at the top in the company decides what will be the final solution and approach. This is a very long laborious process.
Also, companies mistakenly think that the best way to achieve success is by committing a lot of resources and focusing on implementation at all costs with the solution they have planned. Many organizations get burned by this approach because they don’t realize that markets are shifting fast, new technologies are coming in rapidly, and competitive dynamics are changing swiftly in the digital era. For example, CNN decided to get into digital news after looking at many benchmarks and reading several reports, thinking subscribers will pay monthly for a standalone news app. It was a disaster and they shut down the initiative within a month.
To overcome this challenge, companies must first unlearn the habit of assuming things they know that they don’t know and are trying to manage through planning. They should rather manage through experimentation. CIOs can help their enterprises in this area. They must bring what they have learned in their evolution towards agile software development over the years and help apply these rules of small teams, customer centricity, and continuous delivery to every part of the business.
A given approach may or may not work but as the data comes back, an organization learns, adjusts, and pivots, based on what it finds. This will get it closer to what will work or what approach or venture needs to be shut down.
To move beyond their comfort zones and drive growth, organizations need flexibility in governance. How can a CIO help develop this?
Rogers: Going beyond their core to seek growth is very hard for organizations to manage because of several reasons — it is tough to allocate resources as the new initiative is generating zero revenue; it doesn’t have an organizational home (where does it sit within the company, who does it report to; who should be the people assigned to this); and it is about pursuing an opportunity the company’s current customers don’t care about.
These are all the reasons why organizations must have a flexible approach to governance and need to design separate parallel processes within the company to go after new opportunities — which could be serving different customers or developing a different revenue model or coming up with a very different cost structure or all these things — that lie beyond the core and need a different approach.
Such initiatives may be funded by the central headquarters rather than individual business units. There should be a dedicated innovation board or a group of people looking at a portfolio of opportunities to pursue and invest in.
The teams taking up such initiatives should themselves be multifunctional with a great degree of flexibility. Ideally, they should be single-threaded and working only on that one project at that time. They also need to be autonomous, which means they must be given a lot of freedom. The team should be accountable by having a clear matrix of success at each stage of their work so that it knows what it will be judged on at the end of every 30 or 60 days.
It is also important to have formal processes of greenlighting, iterative funding, and shutdown. The process of greenlighting would involve how to allocate the initial small investment and human resources to test the idea. Iterative funding is needed as the team learns from its work and comes back for more funds at different stages. As part of the shutdown process, the board would meet and look at the different ventures and different teams in the portfolio deciding which ideas being pursued should be shut down during the first few rounds of testing, validation, and review.
How important is it for an enterprise to have a differentiated and shared vision? Who in the company is best positioned to frame this vision, and how?
Rogers: For effective digital transformation that drives change, results, and growth, it is critical to define a vision that is shared by everyone in the organization. The vision must be unique and specific to that organization. Generally, the person who is most well positioned to frame this vision is the CEO. However, CEOs don’t develop this in isolation, especially if they are trying to understand how technology is rapidly shifting the landscape for businesses and how are they going to leverage the new capabilities. In most organizations, CEOs need partners to help them in developing the vision. The CIO is typically one of the most important people to work with the CEO to define the vision. The strategic business unit heads may also be involved.
Generally, those who have the insights into the organization’s particular market and its characteristics as well as the understanding of the strategic importance, not really the technical understanding, of all the digital changes that are happening are involved in developing the vision. Very often, such a person is the CIO. The CEO must take charge and take the vision thus finalized to the employees.
What capabilities does an organization need if it is trying something new? What should a CIO do to get these capabilities?
Rogers: I look at in terms of the key capabilities an enterprise will have to invest in the long term for a successful transformation. To me there are three areas that are equally critical. The first is the technology infrastructure — invest in building a modular, flexible, and more adaptable IT infrastructure for change. Along with the core infrastructure, a CIO would need data, which is an important strategic asset, and technology governance to balance access with integrity of data, security, and compliance. This all is one critical pillar.
The second capability is talent. CIOs think a lot about technical skills, but they also need to think about having non-technical skills. Enterprises need individuals or teams that are T-shaped that bring together intersection of technical and business knowledge or knowledge about things like design for user experience. For instance, Amazon has lots of PhD economists, which it sprinkles across the company to build new products and experiment new business models. Talent is not only about hiring but retaining also.
The third pillar is culture. This aspect is something that I see lots of CIOs and leaders in general often underweighting. They are spending more time on the technical skills instead of building the right culture within the organization. They should be thinking of hiring change makers. For instance, someone who would be great in collaborating with different parts of the organization and different types of people. They must bring onboard people who are going to have a real sense of ownership and entrepreneurship around their work and push new ideas. It’s good to hire people who are comfortable with ambiguity, who are comfortable with learn-as-you-go approach and with iterative plans. So, culture is just as important as talent and technology.
Then comes the most important part of asking for money for these capabilities. I call this business theory — an explanation of how you expect to earn back the investments you are making in your digital transformation. This is not a business case with detailed numbers and projections about a particular investment. It is about looking at the transformation broadly and saying what are our paths to capture back value. Is this going to pay back through operation efficiencies in our core business, is it going to reduce risk, will it expand our markets and customers, is it going to increase our customer loyalty and share of the wallet, or is it going to finding new revenue models?
It is important to discuss these aspects and align with them because that will shape, on a broad level, many of the investments to come. CIOs need to be thinking about the financial drivers of the technology they are investing in and have a clear vision of how it is going to pay off.
While most organizations undertake the digital transformation journey, only a few succeed. How can more organizations succeed in their digital efforts?
Rogers: There are as many paths to digital transformation as there are organizations. While every company is solving for the same organizational barriers that will otherwise prevent it from getting success, a sizeable minority of 20% to 30% is really succeeding. I found that every company that is succeeding is doing the same five things correctly.
First, they all have a shared vision. Second, they pick the problems that matter most to their business. There could be a hundred directions a company could go in looking at digital investments. It should rather have a strong focus on a few strategic problems. Third, they validate new ventures. Whenever they are doing anything different, which may or may not be within their core, they rapidly test and experiment. They skip the planning process, sketch out the vision in one week and build the first tests. Fourth, they learn to manage growth at scale. They take the ideas that work and scale them up by funnelling resources to them rapidly. Fifth, and last thing they do is they invest in their technology, talent, and culture. This is the foundation on which everything builds. I call these five iterative steps as ‘the DX roadmap.’
Key stakeholders in a company look at digital as an instant cure-all for all organizational objectives. How can a CIO get the company’s leadership to be more realistic for digital transformation?
Rogers: It is better to get less resources and more alignment than more resources and less alignment on what it’s supposed to deliver. As a CIO, your goal should not be to get as much money as possible and think you are going to invest in a multi-year transformation of the foundation of the company while those who gave you the money are expecting profits in Q1. For CIOs who don’t want to fall into this trap, it is important to understand that digital transformation is about business and not about technology. There are some problems that can be solved in 6 or 12 months, but others could take time. So, it’s important to bring the time horizon while defining the vision and picking the problem. If a CIO does this, he can set the right expectations.
What advice would you give to CIOs looking to accelerate their digital transformation initiatives?
Rogers: I don’t need to tell CIOs to pay attention to all the technological change as they are already aware of that. They must focus on the business and pay real attention to the organizational barrier. It’s all about how technology impacts and grows the business. The organization is the biggest problem. I realized that even the companies that took the business-first approach, the bigger and more complex the organization was, the harder it was for them to change. Even when they knew what they needed to do, just to get the organization to turn in a different direction was incredibly hard. So, focus on the organization itself so that you can unlock the power within it and drive growth.
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