Digital Business Transformation doesn’t work. Why aren’t we pivoting?

Further along this lifecycle, digitisation is less and less about digital products and more about digital capabilities. Transformation projects, generally speaking, have this development of capability in mind.

A decent portion of the buzz around business transformation rightly points out that it doesn’t really work. The most oft-quoted statistic comes from a 2015 McKinsey research finding that just 26% of transformations are considered very or completely successful by the executives involved. This discussion around failure is helpful in its impetus for understanding what are the success factors (and there is no shortage of exponents). Although, case studies are not readily available for the 70-odd-percent of failures, which is why I launched https://digitaltransformationfail.posetti.com. If you have a transformation fail story to share, please do!

Analysis within this paradigm, however, does not help us rethink the validity of the transformation approach as a concept. We can work out success factors and common failures within the paradigm, and improve how we undertake transformation initiatives, but we cannot innovate our way out of the paradigm.

Businesses are seeking transformative outcomes such as agile ways of working, data-driven decision making, automation and digital ecosystems and platforms. But the wide-reaching nature of a “digital transformation initiative”, as they are often represented, may not be the way to get there.

As digital strategists and technologists we preach lean principles, agile, design thinking and data-driven experimentation. Start small, think big. Build, measure, learn. So why don’t we practice these ideas in the transformation process itself?

I will explore here some learnings from some of the frameworks commonly applied in digital transformation as well as research into success factors, but with the goal of repurposing this knowledge in a new paradigm. Eric Ries outlines the need for a paradigm of entrepreneurial management that runs in parallel with traditional management in the environment of high uncertainty brought about by technology disruption today. The new paradigm is driven by iterative experimentation in the creation of the digital capabilities organisations are seeking as they move to phase 3 of digitisation, which I have termed Digital Cultivation.

THE RESEARCH

Industry research is a useful starting point to understand the success factors in digital transformation that can help us question the paradigm.

One of the most useful models developed by Doblin validated 10 types of innovation. The more different types of innovation a company takes on, the more innovative they are (well, obviously), but also the better their financial performance over time. This alone says little about how to take on the challenge of innovating across the 10 types. However it indicates that a diversity of experimentation across the organisation gives a company greater opportunity to reach transformative outcomes.

McKinsey research similarly looked at actions predicting higher than average transformation success. Three key actions are found to be most predictive of success:

1. Communication on progress
2. Leadership involvement that empowers employees
3. Planning for continuous improvement

This could be read as the antithesis of many transformation initiatives. Transformation projects by nature are often considered as a one-off realignment defined by top-down management or a mandated transformation team, characterised by relatively long and obscure processes that don’t lend themselves to clear communication on progress. In many cases, the act of undertaking a “transformation initiative” makes ensuring those actions difficult.

Finally, BCG has tracked factors in change management success in over 1,000 projects through the 90s and 00s identifying 4 factors predicting outcomes of change programs.

1. Duration – specifically, the frequency of review of the project.
2. Integrity – the extent to which the transformation team and be relied upon to lead change.
3. Commitment – of top management and the employees for whom change will impact.
4. Effort – understanding the adjustment in effort and reallocation of existing responsibilities required to undertake a change initiative.

These findings help to imagine a continuous and iterative approach to transformation where there is no duration of project, only duration between reviews. Where the mechanism for change is a dedicated function in itself, built into the structure of the organisation’s DNA, ensuring dedicated resource, alignment and allocation of effort.

Reviewing this research brings me to 3 conclusions on where the business transformation paradigm suffers.

1. Scope-creep – Business transformation dogma approaches the challenge as an ever-complexified issues that need to be tackled simultaneously. This is reinforced by the business transformation consultants who profit by taking on these large, mostly unsuccessful initiatives.
2. Non-review – The complexity being tackled means tracking progress systematically becomes difficult. There is little opportunity to learn what systems and methods work and don’t work in the transformation strategy.
3. Non-enabling – A transformation project is usually identified and tasked to a transformation team, rather than transformation capability being fostered within the teams that can self-define the potential impact of innovations in their work.

CONTINUOUS TRANSFORMATION

Eric Ries, author of The Lean Startup, has outlined a continuous transformation approach suited to today’s world of high-uncertainty in the creation of new innovative value streams. The Startup Way discusses this system of entrepreneurial management running in parallel with traditional management methods, which has been applied in companies small and large, in developed startups and traditional incumbents such as GE and Toyota. Similar structures have previously been proposed as ambidextrous organisations or dual innovation. Ries, however, specifically uses Lean Startup principles in describing the role for this entrepreneurship function – principles which have been successfully applied in navigating the current state of technology disruption.

Key outtakes from the The Startup Way:

• Transformation should be treated as a method to enable continuous innovation, rather than a one-off adjustment.
• Internal startups can be fostered with a distinct organisational structure to enable innovation.
• Entrepreneurship is the missing function in organisations, as important as marketing or finance. This function is not the startup itself. It is tasked with managing the system for startups to be discovered, nurtured and scaled when ready.

DIGITAL CULTIVATION

Modpod is building a new paradigm of change management focused on cultivating digital capabilities. Our services span various digital disciplines, with a heavy focus on aligning our clients’ digital strategy with a data and growth infrastructure that allows rapid learning cycles. Increasingly, this work needs to encompass more holistic innovation capabilities across the organisation. Modpod’s principles of Digital Cultivation are simple. They map to the 3 research findings from above. You’ve likely heard them repeated over and over in innovation contexts. But they have been forgotten in the world of digital transformation.