The Delusion of Digital Transformation

Back some years ago, Phil Rosenweig explained in his book the Halo Effect that there are nine delusions commonly found in the corporate world. Here we are in 2021, and while those nine delusions still hold true, I've added a tenth delusion to the list because only in recent years has it emerged. This is the delusion of digital transformation, which is the tendency to label any project or program involving digital technology as digital transformation. My name is Rob Llewellyn and as you know, companies need people with the right capabilities to manage and lead transformation. As you know, orchestrating successful transformation isn't that easy. And I mean innovative transformation, which creates a new future without the constraints of the past. Which is why I hope that what I share in this episode will help you get better equipped to perform. Perform at your best as a manager, leader or consultant. If you want to learn more, go to studythrive.com a good deal of our business thinking is shaped by delusions, which are shaped by flawed judgments and errors of logic, and that in turn distorts our understanding of the real reasons for a company's performance. If you're up to speed on business books, you'll know that back in 2007, Phil Rosenweig revealed nine delusions that are commonly found in the corporate world. Now, it's been over a decade since Phil wrote the Halo Effect, which was republished again with the addition of two new chapters in 2014. The most well known of the nine delusions that Phil taught us about is the halo effect. This is when a company's sales and profits are up. People often conclude that it had a brilliant strategy, a visionary leader, capable employees, and a superb corporate culture during that period. And then when performance falters, they conclude that the strategy was wrong, the leader became arrogant, the people were complacent, and the culture was stagnant. In fact, little may have changed. Company performance creates a halo effect that shapes the way we perceive strategy, leadership, people, culture, and more. To illustrate how the halo effect is so widespread, Phil explored examples from the likes of IBM's Cisco and Nokia, and undermines a few well known business books too. Some time ago, I took the liberty of appending a 10th delusion to the list in one of my blog posts. But before I talk about number 10, let's have a quick reminder of the original nine delusions that Phil wrote about. So number one, the halo effect. This is the tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on previous performance. Number two, the delusion of correlation and causality. Two things may be correlated, but we may not know which one causes which. Does employee satisfaction lead to high performance? The evidence suggests it's mainly the other way around. Company success has a stronger impact on employee satisfaction. Number three the delusion of single explanations. Many studies show that a particular factor, strong company culture or customer focus or great leadership leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested. 4. The delusion of connecting the winning dots. If we pick a number of successful companies and search for what they have in common, we'll never isolate the reasons for their success because we have no way of comparing them with less successful companies. 5. The delusion of rigorous research. If the data isn't a good enough quality, it doesn't matter how much we've gathered or how sophisticated our research methods appear to be. 6. The delusion of lasting success. Almost all high performing companies regress over time. The promise of a blueprint for lasting success is attractive, but it's not really realistic. Number seven the delusion of absolute performance. Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. The delusion of the wrong end of the stick. It may be true that successful companies often pursued a highly focused strategy, but that doesn't mean highly focused strategies often lead to success. Number nine the delusion of organizational physics. Company performance doesn't obey immutable laws of nature and can't be predicted with the accuracy of science, despite our desire for certainty and order. So they were Phil Rosenweig's nine business delusions. New at number 10 is what I've come up with, and that's the delusion of of digital transformation. And I describe this as the tendency to label any project or program involving digital technology as digital transformation. Those initiatives that will neither disrupt markets nor protect against disruption often lull firms into a false sense of security. When executives are led to believe they're transforming their business, the reality for many is that they're using new technologies to create a slightly better version of the past and a less misunderstanding. Leading label for these type of initiatives would be digital change projects or programs because transformation creates a new future, while change creates a better version of the past. The delusion of digital transformation relates closely to another term that I coined in recent years, which is the great digital illusion, which is when managers and leaders lull themselves into a false sense of Transformation security by dabbling in with digital technologies but doing nothing transformational with digital. You can find another term along the same lines in the book digital at Scale. In that book, the authors Jurgen Murphy and Anand Swaminathan. I think that I've pronounced that correctly from McKinsey explained how digital sugar coated is what companies are doing if they introduce, for example, social media campaigns for the sake of it, or perhaps the collection of data that doesn't get used and believe that these activities mean that they're transforming their business when actually they're not. When Phil Rosenweig originally wrote his book over a decade ago, most leaders weren't concerned about how technology can give rise to new business models. But now a new currency, namely digital, has entered the world of business, which can be likened to a two sided coin. On the one side of the coin is tremendous opportunity, while on the other side of the coin is unprecedented threat. When used wisely, the new digital business currency has the ability to give rise to new business models that can render established business models antiquated and eventually obsolete. And questions for all leaders to consider Are we doing what it takes to drive the creation of such new business models? Are we allowing our firm to become the victims of new business models? And are we victims of our own delusion of digital transformation? In many firms, the nature of initiatives that either create or protect against such business models is described by some as digital transformation, by others as business transformation, and also as digital business transformation. The fact is that the word digital will eventually go out of fashion as it becomes an integral part of every business, leaving us with the term business transformation. But for now, let's just accept the fact that the word digital and digital transformation is a trendy concept right now, so we'll continue using it for a little while yet. But the single word to keep in mind here is transformation. Along with the questions, are we really doing it? Or are we simply deluding ourselves by only creating a better version of the past? Digital transformation delusions occur when companies believe that they're undergoing transformation simply because they're using digital technology to change something in their business. There's a huge tendency now for people to call all these initiatives digital transformation. The reality is that many initiatives are only making small changes to something that already exists. For many, their initiatives are neither creating new business models nor protecting against new disruptive business models. The confusion between transformation and change has been around for many years now, and MIT Professor George Westerman articulated this perfectly quite some years ago when he explained, when digital transformation is done right, it's Like a caterpillar turning into a butterfly. But when done wrong, all you have is a really fast caterpillar. Now, while several years have passed by since George said those words, they remain as relevant as ever. And even more companies are busy making fast caterpillars than ever before. So now there are hundreds and thousands of managers and leaders informing their workforces and stakeholders that they're undergoing innovative digital transformation. This builds morale and excitement about how the firm is so innovative, digital and transformational, when the reality is many of them are simply making faster caterpillars. I've even come across companies that categorized their staff using Twitter as digital transformation. When digital initiatives are only capable of creating fast caterpillars, the best a leadership team can look forward to is change, such as some reduced costs, increased efficiencies, and other small improvements. Now, while this is good, some teams are convinced that this is transformational. But if digital initiatives are not going to protect against disruption or disrupt, then at best those initiatives are simply the digital change initiatives, nothing transformational. So responsible managers and leaders really should consider whether they want to mislead others into believing otherwise. When managers and leaders are deceived by the delusion of digital transformation, their lines of business often become so immensely preoccupied with creating fast caterpillars, so preoccupied and consumed by it, that no one is leading any legitimate transformation. As a result, firms like this become increasingly vulnerable. They're so busy tinkering with digital that they're not addressing digital economy threats and opportunities with transformation. So now there are thousands of so called digital transformation initiatives that are deluding companies into believing that they're transforming, when in fact they're not. To amplify this issue, when firms allocate their limited time, effort and resources to creating fast caterpillars, they have little if anything left to invest in legitimate transformation. Now don't get me wrong, digital change initiatives are vital components for how companies fix their shortcomings, save some money, introduce efficiencies, and make some other improvements. But when they're not designed to truly transform the business, responsible managers and leaders should avoid fooling their workforces and stakeholders into believing otherwise, because no one wants to be deceived or by the 10th delusion of business. I appreciate you listening, and here's a quote to finish off the day from John There's a natural human instinct to stick to what you know. Don't go out of your comfort zone because things are really scary out there. And so there's a tendency to just hold on and just squeeze harder on what you're currently doing, how can you help the company you work with get out of their comfort zone to create a new future for themselves instead of squeezing wheezing harder on what they're already doing? If you want to take your transformation capabilities and credentials to the next level, go to studythrive. Com.