The Elephant in the Room: Startups, Enterprises, and the Current State of Digital Transformation
I spent the early part of last week speaking with enterprise thought leaders and executives from some of the world’s largest organizations at the Enterprise Transformation Exchange Summit in Denver, Colorado. The experience was revealing, and on my Tuesday morning panel discussion moderated by IDC’s Tim Scannell, I discussed some of the themes I’ve noticed recurring across industries. Primarily, that even though the challenges written about so prevalently in the startup world manifest differently in large enterprises — and at a different rate of pain — the same root issues still come to the surface. Over time, it is the inability to gain traction and scale that leads to the failure of the majority of digital transformations.
Yes, the majority. While startups are more likely to fail immediately, current trends suggest most category leading enterprises in existence today will be dethroned and disappear within a matter of years, albeit through a slower, more drawn-out death — outpaced and phased out by competitors with time.
In our “every company is a tech company” era, businesses of all sizes are struggling to gain traction as they transition from one stage of development to the next.
The Science of Company (Re)Building
It’s something Bruce Cleveland,founding partner of Wildcat Ventures, writes about in his recent book, Traversing the Traction Gap: in this era, “mistakes will be more commonly fatal for companies of any size, not just startups.”[i] And it makes sense. Digital transformation in an enterprise company requires reimagining and challenging every notion of the business model and operations, while simultaneously maintaining and growing the existing business.
Performing a digital transformation, in effect, requires building a new company within the framework of an operating business — if the new company collapses, there is potential for it to pull the entire structure down around it, just like scaffolding collapsing around an unstable structure.
It’s why I found myself coming back to the same point in multiple conversations last week: while thought leaders like Tom Mohr are writing heavily about “the science of company building,” it is much rarer that we see anyone talk about “the science of company rebuilding.” And yet, there is one — and the methodologies are often not that different from those we preach to startups.
It is one of the fundamental ideas that I intend to apply in my new role at Accelerate Innovation: large enterprises, like startups, must leverage all the research at their disposal to balance the need for constant learning and adaptation with the need to maintain alignment through key transitions.
Wildcat Venture Partner’s “Traction Gap Framework” – which Bruce Cleveland does a deep dive into in Traversing the Traction Gap — does one of the best jobs I’ve seen of highlighting where these transitions occur.
The Traction Gap framework — relevant for both startups and enterprises alike — identifies three key phases of company building: Go-to-Product, Go-to-Market, and Go-to-Scale. Within each phase exists a series of value inflection points, which serve as markers of progress or traction, like the achievement of Minimum Viable Concept (MVC), Minimum Viable Product (MVP), or Minimum Viable Repeatability (MVR).
Most companies fail not because of an inability to achieve any one Value Inflection Point (like an MVP), but because of an inability to maintain and generate new traction while bridging the gap between completing one phase of development and the next.
While getting stuck moving between phases of development plays out differently in startups vs. enterprises in terms of the specific type of challenges experienced, the impact they have, and the rate at which that impact manifests into something fatal, on both fronts, the road ahead appears bleak and odds of success slim.
The Odds
In this year’s IMD Digital Vortex report on the current state of digital transformation, only 25% of enterprises reported confidence that their digital transformation strategy is coordinated across the enterprise.[ii]
The impact this uncertainty will have on industry leaders today is already evident. A 2017 McKinsey article by Thomas M. Siebel — soon to be releasing his new book, Digital Transformation: Survive and Thrive in an Era of Mass Extinction– outlined the drastically increasing rate of turnover amongst Fortune 500 companies since the turn of the millennium.
A full 50% of the Fortune 500s from 2000 are no more, having either been acquired, merged, or run into bankruptcy.[iii] Those that have replaced them, as Bruce Cleveland so aptly states in Traversing the Traction Gap, “are companies that [successfully] used digital transformation as a competitive weapon and won market leadership and category positions.”[iv]
While we are quick to preach the failure rates of startups to startup founders, reminding them regularly that 80% of them won’t last four years, we are far less quick to acknowledge that the failure rates of innovation projects and digital transformations amongst enterprise companies are equally high, if not higher. Some recent reports indicate that as many as 84% of digital transformations fail in some way.[v]
In order to survive, it’s essential for enterprise leadership teams to acknowledge this upfront — it’s the gauge they must use to evaluate their appetite for risk.
Like Parent, Like Child — Every Enterprise is just a Startup That’s Forgotten How to Play
Large organizations often chant the mantra of fail fast, but in the enterprise world we rarely hear, learn fast, adapt quickly, pivot now.
This, perhaps, is the key to effective digital transformation — the recognition that adaptation must be an ongoing, and constant process. Even as a business model becomes massively profitable, new avenues must be explored. In today’s world, a business cannot afford to bask in the comfort of its success. Complacency will kill a company faster than anything else.
We coach startup founders to apply lean methodology (along with a series of other buzzword practices) and to constantly adjust to fit market need, but in the enterprise world, we often lose touch with the basic principle upon which these practices rest — the idea that rapid growth requires existing in a state of constant transformation.
Enterprises must be resourceful in order to sustain their position as category leaders, continuously striking a balance between stability and evolution.
At a base level, this is the same challenge startup founders face when bringing a new company to market. In both cases, an idea must be turned into repeatable, generative traction in an environment where a single misstep, or any series of missteps could be fatal.
Age of Uncertainty
So much of the success or failure of a digital transformation will depend on the leadership effectiveness of senior executives, and the ability to align hundreds, if not thousands of individuals across numerous offices around the world.
Discussing this alongside my fellow-panelists, Ken Piddington, CIO, SGR Energy, Satya Jayadev VP & CIO, Skyworks Solutions Inc., and Doug Saunders, CIO & VP, Advanced Disposal Services, we reflected on what can be done to mitigate the odds and increase the potential for success during transformations.
The most important capability for an enterprise to develop is to be open to learning and adapting quickly. Market research reduces risk, but once you’ve entered the market, leadership must be able to recognize, evaluate, and respond effectively to feedback, in real-time. It all comes down to traction — the need to generate it, the need to maintain it, and the need to scale it up.
The reality is, enterprise leaders are faced with a similar set of challenges to startup founders: the need to respond to uncertainty, maintain alignment through transitions, and be disciplined at every stage of digital transformation.
To learn more about Accelerate Innovation, contact Jacob Sandler at jacob@accelerateinnovation.com to set up an appointment.
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Notes:
[i] Cleveland, Bruce. Traversing The Traction Gap. Radius Book Group, 2019.
[ii] Yokoi, Tomoko, Jialu Shan, Michael Wade, and James Macaulay. “Digital Vortex 2019 Continuous And Connected Change.” International Institute for Management Development, 2019. Retrieved from: https://www.imd.org/research-knowledge/reports/digitalvortex2019/, 13.
[iii] Siebel, Thomas M. “Why Digital Transformation Is Now On The CEO’s Shoulders”. McKinsey Digital, December 2017. Retrieved from: https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/why-digital-transformation-is-now-on-the-ceos-shoulders
[iv] Cleveland, Bruce. Traversing The Traction Gap. Radius Book Group, 2019.
[v] Sayegh, Emil. “On The Edge Of The Cloud: How Hybrid Cloud Can Save Som Digital Transformations From Being Duds.” InforWorld from IDG, May 1, 2018. Retrieved from: https://www.infoworld.com/article/3269300/how-hybrid-cloud-can-save-same-digital-transformations-from-being-duds.html
Originally published at https://www.accelerateinnovation.com on June 26, 2020.
