Overcoming Transformation Barriers

Hello and welcome to Leading Digital Transformation with Rob Llewellyn and the Digital Transformation people. In this podcast series, Rob interviews experienced practitioners, authors and thought leaders whose stories and experiences provide valuable insights for digital transformation success.

Hi, and welcome to another episode. I'm joined today by Professor Michael Waid. Mike is a Professor of Innovation and Strategy at IMD in Switzerland, and he holds the Cisco Chair in Digital Business Transformation. He's the director of the Global center for Digital Business Transformation, which is an IMD and Cisco initiative. And his areas of expertise relate to strategy, innovation, and digital transformation. Mike has published, I believe, at least nine books, more than 30 case studies, and he appears frequently in mainstream media. His latest book is Orchestrating Transformation, and he's going to talk to us today about some of the concepts covered in the book. So let's jump into the interview with Mike. Mike, welcome.

Thank you, Rob.

Mike, it's been a good number of years since I attended one of your workshops at IMD in Lausanne in Switzerland, and I know since then you've come out with a few books. Can you tell us about those books before we get into transformation a little deeper?

Sure, I'd be happy to. In 2016, we released a book called Digital Vortex, which is really about understanding the disruption that's happening around us, particularly digital disruption. And in that book we focus on a couple of things. We focus on the strategic level, how to frame a response to disruption if you're a traditional company. And we also focus on how you can become more agile as an organization in order to respond to an increasingly fast paced and unpredictable business environment. And then because times moved on and people moved from needing to understand the dynamics of disruption to needing to figure out how to respond to them, we produced a second book which we released earlier this year, 2019, called Orchestrating Transformation, which is really an execution focused book. So what do you need to do in quite practical terms to respond to the opportunities and threats that digital disruption brings?

So, Mike, a lot of people listening know that transformation is easier said than done. What are some of the common transformation barriers that you've witnessed among the organizations that you work with?

That's true. It's not easy at the best of times. There's some data around this and the best case seems to be about 70% of these transformation efforts fail. But I've seen data that suggests up to 95% of them fail. So it's certainly not easy. We've seen our fair share of failure, but we don't believe the foregone conclusion that these transformation efforts will fail. But there are certainly barriers, as you point out. Well, to start with, there's a technology barrier. Actually, figuring out how to use these digital tools and technologies is not easy to do. Often the IT foundation within organizations is not scalable, robust enough to take on these new technologies. So there's kind of a technology barrier there for many companies. But in fact, that's not the trickiest one. We see other barriers which are they may not show up immediately, but they show up relatively quickly, and then they can really throw a spanner in the works. When it comes to transforming, for example, siloed organizations, those silos in the organizations really inhibit the ability of digital tools to show benefits across organizations. So barriers, whether they're market barriers or product category barriers or functional barriers, tend to inhibit the success of digital transformations. Another one is the culture of risk tolerance. A lot of organizations have relatively low tolerance for risk, and this can again, quite significantly inhibit the ability of companies to respond to new opportunities and threats. And finally, there's a barrier around the personnel, the people themselves. You know, most companies have three types of people in them when it comes to digital. There's a digital natives, the people who grew up with it, those are digital immigrants, people like me, I suppose, who didn't grow up with it, but have sort of adapted. Never going to be natural for me, but I can work with it. And then there's a third category, which is the digital ignorance. Those people who don't really get it and have very little interest in learning about it. You might like to think that you could change, should just get rid of those people. But in fact, they're bringing other things to the table, like huge knowledge and experience in the business, great networks. So you need those people. So overcoming that barrier is one of the trickiest ones of all.

And Mike, we know that managers and leaders, they're all embarking on transformation with the very best of intentions to do the best that they can for their organizations. But, you know, they're not all getting it right. What are some of the common transformation mistakes that we're seeing?

Yeah, that's true. They are embarking on these journeys with the best of intentions, but they do, as you point out, make a lot of mistakes. So some common mistakes that we've encountered include. Well, I guess one of the first ones that we see is focusing on digital for the sake of digital, because the tools and the technologies are super cool. A lot of companies, they want a blockchain in there somewhere. They want deep learning or digital twin. They want these things. So they focus on the technology rather than what it really brings to them. As far as performance improvements, I think that the key switch that a lot of executives need to make is that digital is really a means to an end. It's not an end in and of itself. The objective is not to become more digital. The objective is to improve performance. And digital is a means to get there. So that's one common mistake we see. Another common mistake we see is setting up the digital team to fail. Unfortunately, we see this a lot. So companies, they see digital disruption, they go to conferences, they network with peers, and everybody's talking about digital. And so they hire somebody to manage the digital transformation, Digital officer or chief transformation officer or someone else. And unfortunately, that person is often set up to fail. They're given a good title, they're given a big responsibility, but within the organization, very little legitimacy to actually drive change. So maybe they're a group function and the lines of business, they're doing it anyway, Rob. They're not waiting around for somebody from head office to tell them what to do. So these transformation gurus tend to look good on panels and in conferences, but internally they tend to be ignored. So I think in order to get that transformation team or digital team to be successful, they need to have more than a nice title. They need to have real resources in order to go and leverage and scale the digital activities that really have benefit across the organization. So there's just two. There are many more, Rob, but I'll just leave it at those two for now.

I want to go back to the first one you mentioned, Mike. This focus on technology. And obviously a lot of that comes from the technology element of an organization. But as transformation executives have become more aware of transformation and some of the pitfalls. Do you think executives are stopping this from happening? Are they doing that? I'm talking about the likes of the CEO. Are they stopping that excessive focus on technology or are they being led by that technology element of an organization into these technology led initiatives for the sake of technology?

I think there's a natural progression that companies go through and it often starts with really focusing on the technology and then overplaying that hand and then coming back a little bit to prune the digital initiatives through the organizations and regard them as a port. Like you might find a portfolio of other types of projects focus clearly on business objectives. And I think the more mature organizations have already gone down that path and they focus more clearly their digital initiatives around certain key clear objectives out there. But you know, there's sometimes the vendor Ecosystem is complicit in this problem. You know, technology vendors, consulting companies are very, very happy to help you become more digital and they will succeed. All you need to do is give them money and they will make you more digital. But the question of whether that necessarily improves your performance or not is much less clear.

So moving away from this focus on technology, Mike, agility has become quite a focus for a lot of organizations in recent years. What does it take to make an organization more agile?

Right, and as you mentioned, Agile and agility have been a big focus and continue to be a big focus in organizations. They're actually problematic words. I think, Rob, that they mean different things to different people. So for some people, Agile is basically just an IT way of working methodology. For others, it's a more general way to frame strategic flexibility in an organization. So a bit like the word digital, I think organizations at the very beginning should take time to clearly define what these words mean for them, what agile means for them, what transformation means for them, what digital means for them. And at least there's a common language around it that will help move forward. Because otherwise you have different people in the organization managing Agile or digital, and they're all doing it to their best efforts, but they're all doing different things because there's no common definition. But let me get back to your question about Agile. We did look at this in a fair amount of detail to try and figure out from an organizational point of view what Agile really is. We came to the conclusion that Agile is not a single thing at all. If you want to make the organization more agile, it's not a single thing, it's three things. And you need to do these three things. Well, the first thing that we identify as being a contributor to agility is something we call hyper awareness, which is a sensing capability. It's really understanding what's going on in your environment, but not necessarily your immediate environment, but the extended environment. So new, for example, new competitors, new technologies, new regulations that might impact the performance of your business, that you're aware of, those also internally within the organization, you're hyper aware about what your people are doing and saying new ideas coming up within the organization. So it's a much higher sensing capability, but that's not enough. I mean, you can know a lot about what's going on in your environment, but you have to do something with that information. So the second step is something we call informed decision making. It's building decisions on that information you've collected from being hyper aware. And this sounds logical and Sounds easy, but in fact, most companies are not very good at this. You know, they may collect a lot of information, but it sits in a database and is not used to support decision making. So it's really about evidence based decision making. It's about using the information that you collect, sharing, collaborating, empowering, all that stuff. But that's not enough either. You have to do something once you've made a decision. So the third step of being agile from an organizational point of view is something we call fast execution. It's putting those decisions into action at speed, which requires often new ways of making decisions. And it often links to fast fail. Going with an action even if you're not 100% sure. It's balancing speed with perfection. Because when you execute something quickly, you gain insights and those insights feed back into the hyper awareness. So it's those three things, Rob. Hyper awareness, knowing what's going on, informed decision making, translating those insights into decisions, and then fast execution, translating those decisions into action. And that's what we see as being the three components of agility from an organizational perspective.

Mike most of the people listening to this podcast right now, they read and they hear about the typical disruption stories that have been taking place in recent years. How do disruptors disrupt traditional organizations?

Well, I don't think it's actually that tricky to understand how they do it. The way we see it, after a lot of work that we've done to try and understand disruptors better is what we see is they're doing, they're creating value for their customers in three fundamental ways. They're creating cost value, which is doing the same thing, but cheaper. Creating experience value, which is doing it better in some way that's meaningful to customers. The third category, value, is platform value. They're building powerful platforms with network effects. That's just an example of Uber. Uber's original concept was really a cost value benefit. It's cheaper than a traditional taxi, and it is today in many places. It's cheaper than a traditional taxi. That's cost value. But most people don't continue to use Uber because of that. They're using it because of other benefits that are experience value benefits like it's convenient, it's safer, there's ratings for the drivers, so you can have a good idea of the quality of the experience in advance. The payment process is easy and so forth. But that's not the only type of value that Uber's created. They've also created platform value, so you don't need to download a new app when you go to a different country. One app works many places around the world. You don't have to input your payment information anymore. This is because the power and scale of the platform and of course Uber's cleverly now leveraging that platform for additional value for customers, like in their Uber Eats operation where you can get food delivered or logistics packages and so forth. These are all, they can do all these things because of the strength and power of their platform. So I think disruptors are doing these three things. They're creating value in lower cost, cost value, better experiences and stronger platforms. And the most powerful disruptors are doing all three.

Mike, most of our listeners are involved in transformation in their organizations or are encouraging their organizations to get on that journey of transformation. And of course some are doing it better than others. Or what should companies focus on to increase the chances of their transformation success?

Well, I think there's a couple of things that they could do. Clearly getting the technology right is important, but I think there's two key elements that they need to consider in addition to that. The first thing is really focusing on the cultural transformation. The organization itself needs to come along for the ride with the journey. So really focusing on do you have the right mindset to make the transformation and if not, how can you adjust, change your culture, move it, nudge it in the right direction in order to accept the changes and the transformations that are happening. So companies that tend to be successful in these digital transformations focus quite a lot on the cultural side. Another suggestion would be to invest in digital capability building, getting those digital ignorance and digital immigrants over the line as far as the competencies, knowledge, skills they need to understand. Maybe they'll never be experts on digital, but at least to understand the key trends and the key technologies so they're qualified to make decisions and have discussions even if they're not experts. And then, you know, finally on the capability building side, helping the digital natives to interact with the others in the organization to understand their point of view and give them the business skills and knowledge that they maybe don't have. So I think the focus on culture and the focus on capability building should go along with the more technology focused side of a digital transformation in order to increase the chances of success.

Mike, one term which you've mentioned a couple of times now, the digital ignorance, and you mentioned at the start of the podcast that often these people are very experienced within an organization. They're experienced at the the business, they've been there a long time, so they have a lot to offer. However, are these people a danger to Transformation unfolding in the way that it should in these organizations.

They can be, you know, they can be blockers, certainly. But, you know, I think our experience is that most people, even the digital ignorance, are okay with change and transformation as long as they believe in the direction, as long as they understand and appreciate the need for change and where the company is going. The problem is if companies are not very clear on those things, and it just becomes change or transformation for the sake of change and transformation without a lot of clear direction or purpose, and that's what a lot of people react against, change is okay, but they better know and they better agree on where the organization is going. If not, they will certainly resist. So that's incumbent upon top teams to make the journey very, very clear in the destination and then give people the tools to go there. And I think if that's the case, those resistors will be less likely to and less able to derail the journey.

So what I mean, writing saying that really before transformation comes purpose and purpose defines what that transformation might look like or what it might be intended to achieve. Is that right, Mike?

Yeah, but I think it's even more than purpose. Purpose is good for giving inspiration, but I think for these transformations to be successful, you need to take the purpose down one level to something quite concrete. So what is the concrete objective of this transformation in terms that people understand, you know, in terms that are relatively precise, realistic, succinct, and measurable. And if people have that, they know pretty much where they're going, and then you can give them the empowerment and the tools to get there in the way that they see the best way. And that also helps to remove the blockers of this traditional planning approach, which is very rigid and not very agile.

Mike, in your most recent book, the title of the book is Orchestrating Transformation. Why is orchestration such a central focus of. Of that book?

Yeah, that's a good question. Another mistake that we see companies make is that they transform in silos, and they do that for a very simple reason. That's how they're organized. So that's the most natural, easiest way to do it. But in order to succeed in these transformations, in order to drive real benefits, they have to work across silos. Now, the digital tools that we're talking about, the technologies, the business models, the benefit is the fact that they're connected. So the connectivity happens across these silos, and the benefits are achieved when you can manage across silos. And so you have to break through those functions and silos and organizations, and that's the approach that we talk about in that book is an orchestration approach where you're orchestrating digital and you're orchestrating transformation across the full extent of the organization. And we break down that orchestration challenge into distinct steps and distinct components, which we describe in the book. And just like a conductor of an orchestra, you have to make sure all the pieces, all the instruments are playing the right tune at the right time. It's not just one instrument playing, which is sometimes how it works in digital transformation. It's just really one group going for it, but it's also not all the instruments playing their own tunes, which sounds horrible. So it's a matter of orchestrating all the different pieces in the service of this clear objective of transformation. And if organizations can do that effectively, I think there's a much better chance of getting the benefits on the other end.

Now, Mike, you and your colleagues, you came out with the Digital Vortex book back in 2016, I believe, and most recent book, Orchestrating Transformation. Any more in the pipeline?

Mike yeah, there are two more books that we're working on at the moment. One is Handbook, actually sort of a very practical guide for people who are in the middle of these transformations. So, you know, tools and examples and frameworks and decision trees and things that you would need when you're in the fog of war of one of these transformation journeys. To help you in that book, we're developing a list of key questions that people ask, such as who should be in my team? Very, very practical stuff like that. What type of project should we start with? Should you separate digital or integrated, really practical questions? Who are creating a field book? And then the other project, which is kind of an interesting one perhaps for your listeners, is where we look at the transformation challenge from an individual point of view, not just from an organizational point of view. So as a leader, as a manager, as an executive, what are the skills and behaviors and competencies that you need to develop in order to be successful in a world which is very dynamic, fast changing and unpredictable? Is everything we know about leadership from the last hundred years of research? Or more precisely, what things are still valid, but at the same time, what things are different, what things are new, and how can you develop those competencies? So that will also be coming out. So there's a few things still in the pipeline. Rob we're not done yet.

Excellent. Looking forward to those. Mike we're going to have to wrap it up there before we go. Of course, people can pick up a copy of the Digital Vortex if they haven't already done so. And also your most recent book, Orchestrating Transformation, we'll put links to those in the show notes. I know you share a lot of information on transformation. Where else can people go to learn more about what you share on this topic of transformation?

Well, sure. You know, at imd, which is the institute that I work with for executive education, we have a research center there that I direct called the Global center for Digital Business Transformation. And we have a website which is if you go to imd.org and then you click on the website for our research center, we post pretty much everything that we produce we post there for anybody to collect. And there's also on that site there's any kind of media that we do, we provide links there. So latest examples and so forth. So just that's the best. That's the go to location. The website is the go to location for the latest stuff that we're producing. So I'd suggest going there.

Excellent. We'll put links to those in the show notes. Mike, thank you so much for your time today.

My pleasure, Rob. Best of luck to all your listeners who are in the middle of these transformation journeys. Yes, there's a big legacy of failure out there, but we also see successes. So best of luck.

We hope you enjoy enjoyed this episode of Leading Digital Transformation with Rob Llewellyn and the Digital transformation people. Visit thedigitaltransformationpeople.com to secure the knowledge, talent and services you need for digital transformation success. To continue your journey as a certified transformation professional, visit rob llewellyn.com be sure to subscribe to the podcast and follow us on Twitter at the end, at the Digital TP and at Robert Llewellyn.