Their earlier research on digital transformation identified two dimensions through which leading companies outperform their peers: digital capability and transformative leadership capability. They found that the elements of leadership capability have endured, but new elements of digital capability have emerged.
Particularly opportune is the addition of a digital architecture as a critical platform that enables nimble innovation. In my own experience, the lack if a well-designed and implemented architecture prevents the roll-out of initiatives large and small, consuming more technical resources and frustrating business partners.
In Fast Times, a team of McKinsey consultants share the recipe they apply to help their customers be first movers and win the digital race.
“[Fast Times] is for senior executives who are frustrated by the slow pace and limited return on investment (ROI) of their digital transformations, and are unsure what’s holding them back” in the word of the authors.
While not a detailed blueprint to design a Digital Transformation initiative, they cover critical imperatives to develop a Strategy, Capabilities, Adopt and Scale, and they cleverly do it answering provocative questions like “Are you clear about the which transformation model is best for your company?” or “Have you hired digital stars?”
They provide insightful tips on Speed, Scale, Talent and Culture. A must read for leaders already embarked in a digital journey or in need of a reset.
Fast Times: How Digital Winners Set Direction, Learn, and Adapt by Arun Arora, Peter Dahlstrom, Klemens Hjartar, and Florian Wunderlich
Most business executives think – often reflected by who they bring to the room when you discuss the topic with a CEO – that Digital Transformation is about technology. It is not.
Certainly, top notch technology capabilities are a critical ingredient in all Digital Transformation success stories, but there is a lot more to it. This is the purpose and central theme of this blog: debunking the notion that technology is the most important factor in making a start-up or centuries old companies more competitive with digitally driven innovation, and expanding the field of view of executives to include the broader set ingredients that they will have to mix and match to lead their companies into the digital future.
Digital Before Transformation
Software is eating the world. In a now famous 2011 Wall Street Journal piece, technology entrepreneur and venture capitalist Marc Andreessen brilliantly made the case of why most companies were in the way of becoming software companies – across industries, from entertainment and banking to cars, retail and logistics.
“Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale” he wrote.
While banks still own branches, airlines fly planes and Amazon last year ordered 100,000 electric delivery trucks, technology is now in charge of engaging with customers, managing risk and fares, or deploying assets – and make companies winners or losers depending on how good their algorithms are.
Most of the underlying technology has been around for some time. But now its maturity, ubiquity, and affordability – and the ingenuity of the engineers, entrepreneurs and innovators deploying it – are giving it a dramatically more significant role in shaping business models and strategies. A Transformative role.
Time to Transform
Some industries and companies can be wholly reconfigured by technology – remember Blockbuster or Tower Records? – but not all. McKinsey puts is very well: “the number of companies that can operate as pure-play disrupters at global scale are few in number, and rarer still are ecosystem shapers that set de facto standards and gain command of the leverage created by hyperscaling digital platforms.”
But even in asset or activity-intense sectors that can’t be entirely switched to digital-only experiences, modern technology is driving major change, and visionary executives the world over have taken note and quietly started reshaping strategies, business models and organizations to exploit these new opportunities. They updated their leadership styles, cultures and platforms to design and deploy entirely new ways of doing things. They embarked in a Digital Transformation.
The Impact
Academics and consulting outfits have very carefully analyzed the advances in digitization and linked them with financial performance, and the relationship is undeniable.
A seminal two-year study by the MIT Sloan School of Management analyzed more than 400 large firms and found that digitally transformed businesses are 26% more profitable than their industry competitors, drive 9% more revenue through their employees and physical assets and are 12% more valuable than their peers.
The researchers developed a digital maturity model to show how different companies are reacting to technological opportunity, and cleverly analyzed how businesses invest in technology, but more importantly, how the true leaders create the leadership and change management capabilities necessary to drive innovation, which they called transformation management intensity.
They proved that the ability to modernize strategies, organizations and processes is as – or more – important than the technology itself in the quest to be a digital leader.
Another by McKinsey found that focusing on the right digital practices, B2B companies –currently trailing B2C companies in digital maturity – can create long-term value, with the most advanced in their transformation programs driving five times more revenue growth than their peers.
Digital Leadership
Digital transformation is about Strategy, People, Innovation and Execution. Photo by standret.
So, what is Digital Leadership about then?
It is about reinventing strategies, operating models, and processes. It is about putting the customer in the center of attention of the entire organization and designing their experience from the outside in. It is about fact driven decision making and agile change management.
It is about fostering a culture of nonstop innovation and fearless renewal, of mercilessly abandoning established ways of doing things and adopting digitally enabled models.
Technology allows all of this, from the advanced analytics platforms that support decision making and action to the omnichannel platforms that support seamless customer experiences. From process automation to remote collaboration. But despite the broad availability and growing affordability, technologies alone are useless without the leadership to drive change.
Transformation is more important than Digital. And Transformation is about Strategy, People, Innovation and disciplined Execution, the components of the framework proposed in this blog.
Originally written late 2017, updated December 2020.
The authors define enterprise architecture as the holistic design of people, processes, and technology to execute digitally inspired strategic goals. They argue that every unpleasant customer interaction via a company app, website or telephone call exposes architectural inadequacies. Left unsolved, these issues will destroy formerly great organizations.
They suggest adopting three principles to tap the benefits of enterprise architecture: break processes and products into components, empower cross-functional teams, and allow business design to influence strategy.
Jeanne Ross and Cynthia Beath are coauthors of Designed for Digital: How to Architect Your Business for Sustained Success (MIT Press, 2019). Ross was principal research scientist for MIT’s Center for Information Systems Research for almost 27 years. Beath is professor emerita of information systems at the McCombs School of Business at the University of Texas at Austin.
Digital technologies are disrupting organizations of every size and shape, leaving managers scrambling to find a technology fix that will help their organizations compete. This book offers managers and business leaders a guide for surviving digital disruptions―but it is not a book about technology. It is about the organizational changes required to harness the power of technology. The authors argue that digital disruption is primarily about people and that effective digital transformation involves changes to organizational dynamics and how work gets done. A focus only on selecting and implementing the right digital technologies is not likely to lead to success. The best way to respond to digital disruption is by changing the company culture to be more agile, risk tolerant, and experimental.
The Technology Fallacy: How People Are the Real Key to Digital Transformation By Gerald C. Kane, Anh Nguyen Phillips, Jonathan R. Copulsky and Garth R. Andrus
Digital Maturity indicates the relative development of a company and organization’s competency in key areas to establish present-day standing and help identify opportunities for improvement and priorities for investment.
This is usually accomplished running a Digital Maturity Diagnostic to determine whether an organization is lagging, competitive or leading based on a set of factors: e.g. Digital Strategy, Leadership and Culture, Digital Skills, Customer Centricity, Technical Competencies, Data & Data Analytics, Project Delivery, etc.
Academic researchers and consulting outfits have developed the models, and then applied them to large pools of organizations to determine relative maturity by company, sector, geography, etc. Many provide a set of results by category and a combined score.
Digital Maturity Reports are enormously useful tools to help business executives map where they stand in the innovation race relative to their peers, identify gaps and opportunities, throttle investment, and track progress along the digital journeys.
Generative AI arrived quickly, with bold promises dominating headlines. But anyone who has lived through past technology shifts knows the real story: the hard job of driving value is not proving it can work –…
Digital intensity and transformation management intensity influence revenue growth and profitability in different ways. This toolbox equips leaders to integrate superb transformational execution with their digital strategy, enabling them to achieve up to 26% greater…
The team behind The Digital Advantage: How Digital Leaders Outperform their Peers in Every Industry and The Nine Elements of Digital Transformation reflected on their influential research after surveying 1300 executives in more than 750…
Most business executives think – often reflected by who they bring to the room when you discuss the topic with a CEO – that Digital Transformation is about technology. It is not. Certainly, top notch…
Digital Maturity indicates the relative development of a company and organization’s competency in key areas to establish present-day standing and help identify opportunities for improvement and priorities for investment. This is usually accomplished running a…
Written six years ago, the robust analytical groundwork makes this paper a good read today. Furthermore, many of the recommendations are mainstream strategic plays in present-day toolboxes.
After outlining realities and challenges and how that game has changed, the authors argue that CPG companies should quicky move beyond establishing a digital presence—a website, some digital advertising, a presence in social media—and fully integrate digital into their operating model, build a big-data analytical capability, pursue a multichannel (or omnichannel) strategy, or tailor their product offerings to the digital or e-commerce marketplace
Their recipe to Playing the New Game to Win:
Develop an integrated strategy
Build brand equity online
Revisit category management across channels
Partner with retailers
Rethink supply chain configuration
Test, learn, scale
Build an adaptive organization
Manage internal tensions
Retrospectively, a missing item in this top-level list is advanced Data Analytics.
Abstract: For most mature companies, operational complexity, rather than lack of strategic thinking, will limit their ability to compete digitally. They result from years of new operational and commercial processes built next to (and on top of) legacy systems and ways of working.
This kind of organic evolution has made many companies too complex to adopt digital solutions. To compete digitally, business leaders must attack that complexity.
Conducting research for a customer project I came across this paper.
The premise is that the reconfiguration of the US market has undermined traditional growth models for consumer-packaged-goods companies, particularly large ones.
The authors argue that there is no single solution to the growth challenge; rather, changes along multiple dimensions are necessary.
While not directly focused on digital innovation, the correlation between what growing consumer packaged goods companies are doing and the traits of digital leaders is astonishing:
Build an agile, streamlined organization
Develop triple-A capabilities: Advanced analytics and automation
Fuel growth through agile resource reallocation
Ditch the stage gate for ‘test and learn’ innovation
Reset customer collaboration: E-commerce and small format
Digital Transformation: A Framework 