We’ve been asking executives for the past two years: Where does your firm stand in terms of digital transformation, and where do you want to go?
A poll of over 1,500 senior executives from over 90 countries, as well as roundtable conversations with 175 senior executives from across the world, helped to shape a picture of today’s digitally mature firm. However, knowing where you want to go is one thing; knowing how to get there is quite another. The second in a three-part series, this essay delves into the problems these leaders faced and how they overcame them.
Even for digital-first firms, gaining digital maturity can be a difficult process. While the COVID-19 epidemic has heightened the urgency of digital transformation, businesses must also evolve in stages to keep up with the rapid pace of evolving technology. It’s a never-ending cycle of learning and turning in order to stay ahead of the competition.
Despite the recognition by participants that speed is critical, they reported that digital transformation takes significant financial investment and time. Of those who reported making significant progress on their journey, 60 percent had been at it for at least five years. In calculating the resources, financial and otherwise, necessary for change, participants emphasized the need to plan for continual upgrading of technology, organizational capabilities, and talent.
We reduced our research findings into seven guiding principles for digital transitions at every stage—nascent, advancing, or stalled—with these conflicting factors in mind:
1. Recognize the emotional side of digital transformation
For both executives and staff, digital transformation may be confusing and draining. As firms compete to provide differentiated end-to-end consumer experiences in an unforgiving dynamic market, emerging digital technologies are altering everything from supply chains and manufacturing to selling and distribution. Competitors can ‘spring up from anytime and everywhere’ in the hyperconnected world, as one executive put it.
No organization can afford to remain static in the face of escalating customer and stakeholder demands. They must pay attention to both the top and bottom lines more than ever before by offering new products, services, and experiences on a regular basis. Software-as-a-service (SaaS) business leaders, for example, detailed how they had to reinvent their processes and talent systems in order to deliver at the price points and speed demanded today.
For leaders and their teams, embracing experimentation and the inevitable stumbles and failures that come with the innovation process is nerve-wracking. Participants note that step-change innovation requires bravery, and that even digital-first incumbents struggle to make the necessary longer-term investments when their investors are focused on shorter-term KPIs.
Simultaneously, businesses must deliver value quickly. They’re cutting expenses through automation, and the majority of the people we spoke with said they’re running lean—conditions that make it difficult for executives and staff to take the risks that innovation requires. Unfortunately, only 5% of executives consider the employee experience to be one of their top two objectives, according to our survey. Those who did, on the other hand, reported making more rapid and significant success in their digital transformation efforts.
2. Align around a customer-centric narrative
Employees aren’t willing to put in the effort required to develop a digitally mature firm if there isn’t a feeling of shared purpose. Employees want to know not only where they’re heading but also why. Too frequently, we’ve heard, leaders fail to connect the dots between who they are, who they serve, and how digital technology might help them deliver.
Employees are more aligned and dedicated to working in new ways in the digital age because they have a feeling of collective identity. Employees, particularly Millennials and Gen Z talent, find their work less fulfilling without it. They don’t have the sense of belonging they need to collaborate and provide clients with new solutions. As authority is distributed and decision-making is delegated, the organization is anchored by a common sense of purpose.
Too frequently, CEOs just talk about how digital transformation will help the organization succeed. Instead, companies must create a narrative—a human-centered story—about how digital transformation will benefit their consumers and other stakeholders. ‘We must explain how digital assets can help us become a sustainable organization, both profitable and a force for good in the larger society,’ one CEO stated. Keeping purpose in mind throughout a digital transformation helps to combat short-termism and fosters the psychological safety needed to foster a development mentality among employees.
Participants described sending cross-functional or cross-level teams to observe consumers using their products and services to foster that sense of common purpose, as well as customer-centric thinking. Others discussed the advantages of doing design thinking labs with customers in order to develop new products. These methods aided in the development of a common understanding of the customer journey across employees across the firm. Customer-centric firms, rather than merely selling their existing products and solutions, build solutions to satisfy their customers’ increasing wants and wishes, according to CEOs.
3. Build a data-informed culture by upskilling talent
Fewer than half of survey respondents reported that their organizations had the right talent to compete in the digital era. Participants described the proliferation of “digital positions” in their companies, from Digital Project Manager or Digital Director to Chief Transformation Officer or Chief Innovation Officer. In one roundtable discussion, participants predicted that, over time, more senior leaders would have technical backgrounds. One media executive predicted that in five years, engineers would comprise a third of his company’s workforce.
Today, digital transformation necessitates the upskilling of all employees in order for them to be able to use digital tools and data. Participants, on the other hand, stressed the need of CEOs first understanding the various generations in the workforce:
digital natives, who grew up with digital tools;
digital immigrants, who are open to learning and changing; and
digital refugees, who avoid digital tools they view as unsettling and scary.
While not everyone needs to be able to code or understand the underlying dynamics of artificial intelligence (AI), participants say that almost all employees need a ‘basic understanding and comfort’ of working with data—its potential and limitations. Digital specialists in an organization should implement user-friendly digital tools to help level the playing field for those who are less familiar with them. For some companies, visualization tools have been key to getting everyone (even those who fear numbers and math) to use data to inform their decisions and actions. Unfortunately, the consensus among participants was that too often digital transformations don’t devote enough time and resources to developing the mindsets and capabilities all employees need.
DATA, LIKE ALL INFORMATION, IS POWER, AND NOT EVERYONE WILL EMBRACE THIS TRANSITION READILY.
At most established organizations, senior leaders, according to Roundtable executives, are digital immigrants at best. While they agreed that leaders needed to broaden their expertise, they disagreed on what digital literacy entailed. Some said that leaders should gain a thorough understanding of data analytics and AI, as well as learn to code. However, most participants agreed that what matters most is a leader’s ability to work with and learn from digital specialists on their teams.
Some businesses are employing reverse mentorship programs to enhance digital literacy, with Millennials and Gen Z’ers teaching people who are more senior (by age or position) about the value that digital tools can bring. ‘Twenty-somethings’ attended C-suite meetings in China, according to one participant, to provide their opinions on the prospects and problems of various digital projects under consideration.
4. Manage the power dynamics that come with data
Companies should aim to build a data-informed culture rather than a data-driven culture, as we have stated. Expertise or experience should not be substituted for data. Rather of relying on hindsight or prior experience, it should empower people to question the status quo of the firm.
It’s crucial to realize that data, like all knowledge, is powerful, and that not everyone will readily accept this change. When data contradicts firmly held beliefs based on experience or expertise, or discloses unpleasant realities about customer or employee experiences, functional experts and executives can become change resisters. Some may see the employment of artificial intelligence in ‘people decisions’ as degrading. Leaders should once again be prepared to deal with the emotions that come with learning to use data to make better and faster decisions. Employees will reject data instead of implementing it into daily routines in their firms, according to participants, if there is no shared sense of purpose and associated psychological safety.
It’s also critical to have team members who represent a range of perspectives, and some participants stated that demographic diversity is also important. We’ve all seen how inadvertent bias in algorithms can affect particular employees and consumers, as well as the company’s reputation (a bias story can go viral on social media within minutes).
5. Design for inclusive and agile problem-solving
Executives often lose touch with those on the front lines of their organizations, and as a result, with their consumers, as they advance in rank. Leaders must be aware of these blind spots and encourage their staff, particularly those closest to the customer experience, to own their customers’ concerns and innovate on their behalf.
Leaders must surround themselves with people who have their finger on the pulse of the organization as they build and iterate their strategy for where they want to go and how they want to get there. Changes in the competitive environment must be regularly monitored by their advisors. Employees, customers, vendors, and regulators must all be actively ‘crowdsourced’ for comments and suggestions. They must be able to detect even the tiniest signs of change in order to influence their companies’ futures in a proactive manner.
Participants realize that no organization is flawless. They do, however, urge that companies be designed to reflect the customer’s end-to-end experience as much as possible, so that employees may solve problems ‘through the eyes of the customer.’ This structure favors an enterprise perspective, collaboration across functions, levels, or locations, and decentralized decision-making closer to the consumer.
Participants, on the other hand, claim they’re using ad hoc problem-solving teams as a supplement to their more permanent organizational structures. Individuals with varying levels of experience and viewpoints are nearly always included in these groups, which is an important component of creative thinking. The disadvantage of this haphazard approach is that it might increase complexity and hinder decision-making at a time when speed is crucial. When forming these groups, it’s vital to have a clear understanding of decision-making authority and rationale: who should be consulted before making judgments, what decisions they can make, and what should be escalated.
6. Encourage an outside-in and collaborative ecosystem perspective
Digital transformation necessitates ongoing individual and group learning. Continuous learning is viewed as critical to success in the digital world by 44% of our poll respondents. Participants organized tours to innovation areas (such as Silicon Valley) and opportunities to engage with professionals from various businesses to help employees see the potential of a digital future (at innovation labs or corporate accelerators, for example). Participants argue that an outside-in approach can help foster the creativity and curiosity needed for digital transformation.
LEADERS MUST BE EMPATHIC ABOUT THE STRESS EMPLOYEES FEEL AS THEY GRAPPLE WITH THE COMPLEXITY AND CHANGE THAT COMES WITH DIGITAL TRANSFORMATION.
Due of the speed and capability required to compete, businesses can no longer go it alone. Leaders must form new alliances with key stakeholders in their ecosystems, such as private enterprises, government agencies, and non-profit organizations. Competitors are also becoming collaborators; in order to stay ahead of the curve, firms are outsourcing non-core tasks such as cloud storage to companies with which they compete in other areas. The pandemic has served as a stark reminder of our interconnectedness across industries. Businesses cannot run without fundamental infrastructure, such as public health systems, sufficient internet speed, and childcare. Competitors have banded together to ensure that shared suppliers survive the current turbulence.
7. Safeguard ethics and take a proactive approach to governance and compliance
Three-quarters of survey respondents said their companies practice ethical data governance ‘often’ or ‘often,’ a figure that contradicts what we heard in our roundtable discussions. Participants agreed that there is still a lot of work to be done in terms of embedding ethical judgment throughout a business and preparing for future issues. While many businesses have policies in place for how they use customer data, what about employee data? These are issuing those businesses will have to deal with.
Only 18% of survey respondents thought that ethical governance was essential to success. Those 18 percent, on the other hand, were substantially further along in the digital transformation process than those that didn’t. Some roundtable participants have introduced a ‘office of ethics’ or ombudsman to provide oversight over ethics rules and practices, as well as to adjudicate complicated ethical dilemmas, if necessary with the help of outside consultants.
Participants are attempting to stay abreast of new regulations and, where necessary, assisting in their development (with the help of not-for-profit organizations more than traditional lobbying). As they make investment decisions in the digital era, CEOs must keep up with emerging and rapidly changing compliance rules, both worldwide and locally.
Finally, leaders must communicate the ideals and concepts that should govern how employees deal with unavoidable ethical issues and develop processes and routines that reinforce preferred behaviors. Beyond ‘do no harm,’ these practices should serve as a compass and guidance for making ethical decisions. Leaders must be ready to raise and answer the question, ‘Should we do something just because we can?’ as technological advancements open up new, previously unimagined use-cases. Leaders must be strict in encouraging staff to ask, ‘What expectations were set with employees or consumers when we obtained their data?’ when it comes to data use. ‘How would I feel if my information was utilized in this manner?’
Digital transformation is more about people than technology
While these seven principles may seem self-evident to some, we’ve found that just a small percentage of businesses have truly assimilated them. True adoption necessitates leadership conviction at the top of the organizational chart, as well as a spirit of resolve at every level below. The details—how the organization incorporates these notions into its corporate DNA and day-to-day operations—will determine true success.
After all, firms attempting to digitally transform must change their employees’ hearts (why they do their work), heads (how they see their work), and hands (how they perform their work) (how they do their work). It’s no surprise that leaders and employees are often overwhelmed by the digital age’s demands on them individually and collectively. Leaders must understand the anxiety that employees are experiencing as they deal with the complexity and change that digital transformation brings. The ability to deliver on a shared purpose over time helps to align and drive people.
Navigating the arduous journey of digital transformation requires certain mindsets and behaviors from leaders that are different from those required in the past. The final installment of this series will look at how leaders need to change if their companies are to reach digital maturity and be a positive force for customers, employees, and society.
Source: Harvard Business Review
