We've all heard about the inevitability of digital transformation. Many of us are undergoing some type of digital transformation initiative ourselves. For others, it's become part of the prolonged media din.
With less than 75 of the Fortune 500 from 1955 still in existence today, change or die seems to be a good direction to be going. What is digital transformation? There is much talk about the process whereby an organization overhauls its business activities, processes, competencies and models to fully leverage the opportunities afforded by new technologies. Still no one has a clear definition.
Richard Foster, in his 2001 book Creative Destruction, applied Joseph Schumpeter's theory of economic progress to the modern practices of management and innovation. The core lesson from all this is "how" companies go about change is critical to their survival.
When Corporate Culture Kills
There are many well-known examples of companies that resisted change despite the opportunities presented:
Blockbuster Video. Reed Hastings founded Netflix because he had paid a $40 late fee to Blockbuster Video. While Blockbuster collected $800 million in late fees in 2000, it declined to purchase Netflix for $20 million (its anti-late fee competitor).
Kodak. Founded in 1888 and its share price falling from a high of $80 in 1999 to 78 cents by 2010, Kodak demonstrates a company culture that failed to adapt for nearly 50 years. Steve Sasson went to work for Kodak in 1973 and invented the digital camera in 1975. His bosses were unimpressed and the marketing department resisted. His camera never saw the light of day.
Borders. In 1971 Borders began as a single bookstore in Ann Arbor, Michigan. With its stock price at an all-time high of $44.88 in 1997, Borders closed its doors in 2011. Growing its well diversified stock of books, movies, music and e-reader sales, it was considered the envy of the industry with its innovative inventory management system. When it had an opportunity to significantly expand its online sales, Borders decided to outsource their website to Amazon.
Obstacles to Change
Jane McConell, renowned author, speaker and founder of NetStrategy JMC, has conducted global annual surveys on the internal digital work environments of organizations since 2006. She grouped the toughest obstacles to change into five categories (1):
- Slow or stalled decision-making caused by competing priorities, internal politics, or attempting to reach consensus
- Inability to prove business value of digital through traditional ROI calculations, resulting in lack of senior management sponsorship
- Too much focus on technology rather than willingness to address deep change and modify how employees work
- Lack of understanding operational issues at the decision-making level and difficulties in practical applications
- Fear of losing control by management or central functions
According to Jane, "The toughest challenge in digital transformation is not to define a strategy, but rather to make it tangible and actionable."
Creating the Right Cultural Mindset
For organizations that rate high on digital maturity, Doug Palmer and Anh Nguyen Phillips found remarkable similarities when it came to corporate culture. The results of their work are highlighted in a 2016 report in collaboration with MIT Sloan School of Management, "Aligning the Organization for its Digital Future."
Taken together, these four cultural characteristics provide the foundational ingredients for a super-charged recipe to go from "doing digital" to "going digital" (2):
- Value experimentation and speed. It's not just about the agility of the organizational structure, but empowering employees, incentivizing them, and giving them the authority to enact and drive change.
- Embrace risk. Risk-taking is built into the fabric of how these organizations manage. They emphasize innovation and don't get upset when something doesn't work out. 87% invest in innovation at the early stages.
- Organize for collaboration. These organizations moved from vertical departments to a project-based approach. Think distributed, not hierarchical.
- Make data-driven decisions. These companies set very clear goals and measurable objectives, and then communicated them clearly. They get very specific and tactical on what they want to achieve and how to measure success.
Changing an organization's culture is not easy. However, the ingredients to the recipe are not a secret either. Use the four proven characteristics above to foster a culture of change as your organization continues on its journey.
SIM Chicago is undergoing its own transformation. Please visit our new website as we continue to launch our stronger social media presence. An easy way to stay current in this age of acceleration is to get more involved with upcoming SIM events especially during May and June. Learn from others what challenges they are facing and how they are dealing with the current issues. The upcoming event on May 11th is focused on the State of Illinois and its own journey in these challenging times. It will be a great opportunity to network with the SIM Membership as well. Register today!
(1) "The Company Cultures That Help (or Hinder) Digital Transformation", Harvard Business Review, Jane McConell, August 28, 2015.
(2) "Aligning the Organization for Its Digital Future", MITSloan Management Review Research Report, Deloitte University Press, Summer 2016