Fundamentals For Digital Transformation Success
Digitising a business is not only a momentary market imperative. It will be tomorrow’s status quo.
by Sebastian Mueller & Philipp Baumann
The term “Digital Transformation” is now commonplace across organisations and industries. Yet, achieving a clear definition of what it means is nearly as difficult as the effort itself. Billions of dollars are being mobilised to engage in initiatives, to set up dedicated units, and change the ways of organisations. What is the actual impact of all that budget at the ready?
Too often the answer is: very little. Even as new technologies are continuously being hailed as the next frontier of efficiency, day-to-day changes are slow. While mainstream hype focuses on AI, Blockchain, VR and similar technologies, many companies are still in the process of digitising their processes and touchpoints. However, they continue to do so with very little impact, and the true transformational potential behind their efforts is rarely seized.
True transformational efforts need to focus on fundamentally rethinking how things are done. This means considering desired outcomes and ways of achieving those under the current set of constraints. Common thinking relies on what is already there at the moment, which has been shaped by a previous set of constraints that are no longer valid. Through applying this very tight corsage to their reasoning, corporations have a hard time generating true impact with the initiatives they spend on.
The limiting factor here is regularly the human element. This comes in various forms. Transformation requires a fundamental rethinking of the ways things are done. Such fundamental change needs to be managed well, a critical piece of the puzzle often paid little attention to.
Change and transformation management is not a new discipline. It has been known, researched, and performed for decades. In MING Labs and ECube’s work with innovation and transformation units of big corporations, as well as in many peer conversations, it becomes apparent that often the “digital” is emphasized over the “transformation” aspect in the initiative. Yet, the priorities should be the other way around.
This guide provides a framework containing the three key elements that organisational leaders need to ensure are in place for a successful digital transformation. Together with the three human factors that will prime an organisation for success, this article also covers the importance of employing change management strategies to win over internal skeptics and create allies for any organisation’s transformation initiative.
The framework:
1. Inspire a Willingness to Change
2. Foster the ability to Change
3. Offer a Real Opportunity for Change
#1 Inspire a Willingness to Change
Employees’ and stakeholders’ willingness to accept (digital) transformation might be the most complex and difficult to handle. Organisations are complex social systems working hard to stabilise their internal forces and are constantly striving for survival. Therefore, the status quo is often powerful and keeps people stuck in their routines. When things are going well, why change? Never change a winning team, right? But even when things are not going well, people may still prefer to keep the faulty machine running. Change is seldom comfortable, at least not for the majority of employees. This is why it is not uncommon for employees to remain in what we call the “Uncomfortable Comfort Zone”.
Every transformation story begins with a performance challenge. Creating a dissatisfaction with the status quo is crucial to overcoming the inertia and discomfort that comes with change. The challenge is to cross the chasm between right now and that desirable future state.
There needs to be compelling reasons to abandon how things are currently done. To build a healthy appreciation for change-positive discomfort, all employees should regularly experience some level of dissatisfaction with their current situation. Holding up a mirror to the organisation for it to see its own real face is useful. This can be done by gathering feedback from influential stakeholders or other external players such as consultants, or benchmarking the organisation’s current performance with other organisations, or through assessment tools.
There also need to be compelling reasons for why a new way of doing things makes sense. Leaders need to present a clear and compelling vision of what success will look like to offer employees a pathway out of the status quo. Depending on the culture and mindset of the organization, the messages around the vision may be framed as either a unique opportunity to soar to new heights, or as an antidote to becoming irrelevant. After all, digitising a business is not only a momentary market imperative. It will be tomorrow’s status quo. No matter the perspective, the organisation will most likely have to face this performance challenge in the long term in order to stay relevant.
#2 Foster the Ability to Change
Once employees accept this general performance challenge, they will need support to build their competencies and capabilities to master the challenge. Without a holistic and thorough development program where training, coaching and mentoring occurs, employees will lack many of the hard and soft skills as well as the mindset to actively co-create the transformation. Without the right competencies, employees will quickly lose their willingness to transform. They will underperform, sit silently in the rear seat and merely observe what’s going on, if the company is lucky. In the worst-case scenario, they will actively sabotage the transformation or abandon ship. When people do not know how to tackle new problems, it is easy to feel overwhelmed.
Building employee competency cannot be underestimated in a digital transformation, and there are several reasons for this. The most trivial one might be that new situations tend to demand new competencies: When new ways of doing things are needed to tackle a different set of problems, new ways of doing things need to be learned. Learning seldom occurs overnight. Instead, learning is a journey, which is not always comfortable.
Sometimes employees will not measure up to the challenge. It is a question of whether the company is ready to accept that and lose a few on the way. More often than not, employees will need to stretch themselves beyond what they thought they were capable of.
When the challenge is just big enough to help an employee feel activated, alongside requiring the individual to make reasonable amounts of adjustments and improvements competency-wise, it is likely to make her feel alive. Employees might even achieve the coveted state of flow in their learning. When the performance challenge is too big and employees either feel like they do not have — or actually lack — the competencies to master it, anxiety is a typical response. Learning almost necessarily leads to mistakes, and mistakes often even precede lasting learning effects. For employees, it is the mistakes and the solutions they find along the way that are part of building a successful solution.
In a typical setting, mistakes might reduce an employee’s chances of getting promoted, qualifying for a much-needed raise, or be seen as embarrassing — even if only in her mind. Those fears will make it more likely that we take the well-trodden path instead of embracing change.
When left unsupported by their leadership, it is easy for employees to be unaware of the fact that they currently do not have the competencies to fulfil the task. When left in fear of making mistakes — most often in direct response to the visible behaviour of leaders or the norms of the leadership-influenced corporate culture — employees might actively hide their lack of competencies or that they are feeling overwhelmed. Temporary incompetence is nothing to be ashamed of! In fact, it is the most natural thing in the world for people to move through this stage when doing something new.
Now, it is possible and productive for companies to hand over the responsibility for learning and transitioning to their employees. If there is a culture of self-determination and self-management, this might work. However, if the company is like most others, employees will need support. Additionally, the leaders of the company will need to ensure that their employees can transition from anxiety to activation.
At first, it is common for employees to not even be aware of their “incompetence” (“unknown unknowns”). Once they become aware of their situation, they are consciously incompetent (“known unknowns”). This opens up a space for learning to occur: Once employees grow by mastering learning opportunities, they become more conscious of what they know (“known knowns”). At some point, learners do not even realise what they are learning anymore because their new skills become part of the new normal of habitualised and comfortably executed activities. They become, in other words, unconsciously competent.
On the road to true ability, unconscious competence and flow, employees will need feedback. Immediate feedback allows for deeper and more sustainable learning. On one hand, this requires strong leadership involvement. On the other hand, a holistic and thorough formal skill development program provides a frame for employees to experiment and grow. The best programs combine elements of on-the-job training with experiential learning, reflective practice, coaching, mentoring, and traditional training methods with a healthy amount of self-determination. Adapted to the company’s situation, employees can learn the hard and soft skills needed to actively handle the performance challenge and co-create the transformation.
The final part of the puzzle is the organisational reality itself. Having all necessary factors in place to enable the organisation to change is only one side of the coin. Only together with a generated Willingness to Change can fostering the Ability to Change set everything in motion.
#3 Offer a Real Opportunity for Change
Finally, a major factor that contributes to resistance to change is the absence of a real opportunity to perform. When organisations fail to provide their employees with the opportunity, and do not create the conditions for the willingness and capability to change to grow, employees quickly feel disoriented.
Instead, organisations need to ensure the quality and involvement of the leadership. Another big part of ensuring a “real opportunity” exists to transform is ensuring the organisational set-up empowers employees to succeed. This can be managed in three ways:
- Picking the right leader for the transformation
- Creating an organisational set-up that empowers digital transformation
- Employ a change management strategy to win over skeptics and win allies
Picking the Right Leader for the Transformation
Once the organisation has bought into reality of the need for change, there needs to be a capable and suitable leader for the transformation exercise. Does the individual in charge of the transformation really have the knowledge and skills to deal with the complete innovation process? It is about so much more than creativity. Design thinking and innovation workshops can easily lead to mountains of ideas, but ideas are cheap. So is talk.
The leader will need to have a complex set of skills and the right experience in change management. First and foremost, they should be capable in managing projects (stakeholders, delivery plans, communication) and in managing change and transformation. Furthermore, they need to be able to pick the right people for their teams to create real solutions that can be rolled out and create impact. Those people bring the right kind of energy combined with the right kind of experience and cognitive frameworks needed to navigate the complex waters of transformation.
Besides the essential hard and soft skills, a growth mindset is crucial. Some of our clients hire for mindset rather than skill. And it’s true; as long as a learning or growth mindset is there, leadership and change management training, coaching, and team moderation can compensate for any lack in trainable skill. We believe that mindset is a fundamental part of capability.
Apart from presenting a compelling vision to match the dissatisfaction with the status quo that has been created, it’s up to the leader to ensure that clarity for the transformational effort exists regarding the following questions:
- Where are we going, and how?
- What is the timeline?
- Who is responsible and accountable for each task and results?
- How are we continuously, effectively communicating and managing the performance of all involved in the effort?
Creating An Organisational Set-Up That Empowers Digital Transformation
One of the critical steps in any digital transformation project is the organisational set-up. Many mistakes can be made, depending on the target setting of the unit and the way it is positioned.
The first critical decision is whether the team will be a standalone subsidiary with its own legal entity or whether they will be part of the mothership. The former has advantages in being able to operate outside of corporate processes (such as procurement), which means being able to move faster and operate with more freedom. At the same time, this might mean that actually operationalising results becomes difficult, as many corporate hoops will need to be jumped through when trying to re-integrate the results.
Location is another important choice. Is the transformation team set up in the same, mundane office space as the business teams, or do they get their own space? Often the latter means nicer locations, better facilities, and hence being able to attract the talent that large corporates might otherwise not have access to. Sought-after talent — especially in the digital realm — rarely want to work out of large corporate campuses in remote areas. At the same time, being in the same office as the business units means they get to interact more, see problems up close, and build empathy. Being remote makes them more of a ghost.
Reporting is another key factor that can affect the amount of impact made. Having a transformation team report directly to the CEO with full access means they will have resources, attention, and sway. They will be innovating top-down. Reporting to a department means being focused on the topics that are top-of-mind for the department head, and staying within that framework, but more often creating real solutions that get adopted. They will be innovating bottom-up.
Besides the location and reporting structure of the transformation teams, it is also important to set up the team correctly within the framework of the business when it comes to implementation. Assuming the transformation effort is framed and set up well, the next challenge is bringing successful Proofs of Concept back into the organisation and scaling them. In most cases, problems are framed, tackled, and solved within the transformation team, with more or less input and involvement from the business unit they are trying to help. Running through a successful process will leave the team with a successful Proof of Concept or Minimum Viable Product, which they will want to integrate into the business unit to be adopted and create the envisioned impact.
This is also where things can go completely wrong when transformation is not managed well. Considering structural impact, incentive structures, and the overall organisational framework can make or break the endeavour in its infancy.
Employ a Change Management Strategy to Win Over Skeptics and Create Allies
Having quick wins and Proofs of Concept to show is important to garner support and keep the team motivated. Often, there will be employees who are internally resigned, are skeptical of change or might even be opposed to change, and spend their time rooting for the new unit to fail. Showing quick wins will get people thinking differently about the opportunity at hand, and can turn skeptics into allies who may experience a 180-degree shift into wanting to collaborate, innovate and share in the excitement.
Regardless of the potential of any organisation to digitally transform, or the capability or willingness of employees to drive or carry such a transformational effort, the one core thing that is needed in any case is communication. Communication is the glue that holds organisations together, it is essential because we cannot be one another. If we let these statements sink in, it becomes quite clear that we can almost never communicate enough, and even then complete interpersonal understanding is almost impossible to achieve.
Someone once said: “Communicate to the point of almost being annoying.” Basing communication on the needs of stakeholders and using the language that they understand will immensely increase the chances of any message resonating with them getting them to buy into the ideas being proposed.
Transparent and effective need-based stakeholder communication will help all those involved in the transformation to clearly see the opportunity to transform. It will make clear where the team is in terms of capabilities and where it still needs to improve. Finally, it will help reduce resistance when stakeholders are truly listened to, feel respected and taken seriously.
Communication is a topic that can never be underestimated as it can make or break the success of the undertaking. Keeping the right people in the loop with the right information at the right time is vital to ensuring buy-in, a sense of mission, and excitement for the change.
And finally, being able to show and communicate real impact is the most important way to ensure that the team will stay motivated, the unit will continue to get their budgets. In this way, the organisation can actually begin to shift. While quick wins are nice and might move the needle a little, innovation and transformation are projects that seek to create fundamental changes, and so need to result in fundamental impact. A >10x improvement, new revenue sources, or improved competitiveness are what people are looking for. Being able to claim such victories mid- and long-term will ensure longevity and impact of the effort.
Internal PR and marketing is one of the most important tasks of transformation units as it is vital to take the organisation with them on the journey, create buy-in, open minds, and finally have impact. Having a good communication strategy is the key to lasting success. The whole digital transformation hype is, at its core, really a people and organisational culture-based topic. Employees in a company need regular, constant communication, they need to be taken by the hand, and they need to be respectfully treated and communicated with. It is then that they will buy into the process and support the shift that needs to happen.
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Sebastian Mueller is Chief Operating Officer at MING Labs and Philipp Baumann is Partner and Head of Solutions Development at Ecube.
MING Labs is a leading digital business builder located in Berlin, Munich, New York City, Shanghai and Singapore. We guide clients in designing their businesses for the future, ensuring they are leaders in the field of innovation.
