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Digital Leadership: Leading successfully in the age of digital transformation.

Part 2: Leading through the storm. Oh, hang on! What kind of storm are we talking about here?

Note: This is part 2 of my series on digital leadership. You can find part 1 here.

Update 16/04/22: We changed the wording in our definition of digital transformation. We replaced ‘a business’ with ‘an organization’, ‘as a reaction to’ with ‘as a consequence of’ and stroke off ‘strategically’ before ‘changing’.

Today we will start to take a closer look at the third dimension of digital leadership: Leadership during the process of digital transformation. (I have introduced the concept in part 1, I would recommend you to read it first if you haven’t done so already)

To identify the specific requirements that digital transformation poses to leaders, we have to build a solid understanding of what digital transformation actually is. Last week I gave you our consultancy’s definition in the small print; today, I’ll place it more prominently:

Digital transformation is the process of changing the way an organization operates as a consequence of developments in the digital sphere relevant to its business. The transformation may affect each part of the company’s value chain and any business function.

Though that definition is pretty much on-point, it’s probably still a little abstract. Thus, let’s break the sentence down in its several components and elaborate on each in a bit more detail.

“What I talk about when I talk about digital transformation”

Digital transformation is the process

It is important to understand, right from the beginning, that digital transformation is a process. It is not something you can take care of within a three-month-project and be done with it. For an obvious yet profound reason: The digitization of our world and our lives has just begun and nobody can tell you with a high degree of certainty where we are heading and how long it will take us to get there.

All we can say with confidence is that our environment is changing drastically and at a dramatic pace thanks to digital technology. The arrival of PCs changed how we worked. The early days of the internet changed how we access information. The internet’s second phase altered how we disseminate and share information and how we communicate. The mobile web, then, enabled us to do all that, only away from our desk and at any given time. Currently, we are witnessing the first stages of the wearables-era — that’s basically our bodies becoming digitized — and the internet-of-things/industry 4.0 age, that is likely going to result in every object being connected to the internet.

Of course, this dynamically changing environment influences business models and companies. In a random enterprise’s case, digitization, as of today, might have led to:

  • New customer behavior and expectations
  • New competitors with different business models entering its market
  • Altered employee behavior and expectations

And if that hasn't happened by today, it might likely happen by tomorrow. It’s any company’s job to identify which of those changes in its environment demand action. And, then, to act accordingly. So, basically when we talk about digital transformation, we talk about continuous adaption to an ever-changing, highly-dynamic environment. Therefore, digital transformation is a process.

… changing the way an organization operates…

This part of the definition is very broad. It basically says that either, stuff will be done differently, or, that different stuff will be done once the transformation has been completed successfully. Also, it states that this change doesn't happen accidentally but as the result of a deliberate approach — aka a strategy. On the general, comprehensive level a definition aims at, this is exactly the degree of precision you can achieve here. Otherwise you’ll end up with a 500 word definition of digital transformation.

The underlying issue of this broadness is simple: The term applies to many different scenarios with a myriad of diverse outcomes after the transformation process. One company might completely change its marketing and sales approach. Another one might form a subsidiary to experiment with a new, digital business model. Or, for yet another company, the transformation process might result in an extensive employee turnover because an entirely new skill-set is necessary for the business to stay competitive. What do all those examples have in common? Each company ends up operating differently than before.

…as a consequence of developments in the digital sphere relevant to its business. …

Again, this is really broad — yet again it’s necessary. As I stated before: Nobody knows where the technological and digital development is heading. Still, we can witness those developments heavily influencing markets, business models and companies over and over again. What we call the digital sphere here is the sum of all those developments. Those can, for instance, range from new hardware (e.g. wearables) to new software (e.g. collaborative software) or drastically changed customer behavior due to new technology (e.g. streaming music instead of buying it).

So, whenever one of these changes occurs and an organization deliberately chooses to change its behavior because of it, we are in the midst of a digital transformation. Of course, for the organization to do so, it has to feel that the occurring developments are relevant to its business. This relevancy can basically come in one of two categories:

  • Perceived opportunity
  • Pressure to adapt

It often appears as if most companies that are concerned with digital transformation, are so for the latter reason. They feel some form of outside pressure to adapt. When you talk to people about digital transformation, this is indeed what most have in mind. However, it’s important to state: The first category not only exists as well, but — from a leadership point-of-view — it is also the much more desirable position to be in.

Of course, though, it is also the one that is much harder to achieve. Not only do you need a proactive monitoring of the digital sphere, but also the smarts, the guts and the organizational structures that allow you to think outside the box, to put low-to-medium scale experiments into action and even to fail. More on this later.

…The transformation may affect each part of the company’s value chain or any business functions.

This aspect of the definition might be obvious to some readers, but must be stressed nevertheless. Why? I deal with a lot of different people from different companies. And many still think of digitization as a topic that mainly concerns marketing and communications and — maybe — the product department. When, in fact, the whole company might be affected.

You can come to this conclusion from different angles. You can look at your company’s value chain and find that along its lines there are many areas that could or should be improved based on new developments in the digital sphere. Alternatively, you might want to look at every department, or, as a customer-centric organization, at your customers’ life cycles. Regardless of the approach you choose, you will always find that digitization is an issue that concerns several (and maybe all) parts of your organization.

This, by the way, is the reason why digital transformation is an issue which needs to be tackled by top-level management. It cannot be delegated to a single department. At least not, if you want to achieve real and substantial results.

This drawing is the result of an IBM round table on digital transformation. Source: Bryan Mathers.

Now that we are on the same page regarding what I talk about when I talk about digital transformation, let’s take a closer look at how companies initiate the undertaking. In last week’s article I outlined the basic process of digital transformation:

  • Monitor the environment for digital developments relevant to your business (i.e. new distribution channels, new competitors, altered customer behavior etc.)
  • Based on this, identify digital capabilities you need to build — along the entire value chain and across all functions
  • Build those capabilities. To that end, hire the right people while also taking current employees along the journey
  • Make sure you create the organizational framework in which your initiatives can actually work in day-to-day operations.
  • Make sure you do all this in an agile, dynamic fashion. Basically, digital transformation is constant organizational adaption to an environment ever-changing at a high pace with an unknown destination — so you ain't done after round one.

(Mind you: This is a theoretic model. Alas, the reality is much more complex.)

The adapt-or-die mindset

The underlying idea of this process (and basically of the whole concept of digital transformation) is that organizations need to adapt to changes in their environment, or they will be rendered expendable sooner or later. This isn't news. Once their business model or product became obsolete thanks to new and better alternatives, companies have always gone out of business.

What is new, however, is the speed at which our environment changes and therefore the speed of adaption required from companies. The numbers back this up: Whereas a Fortune 500 company had an average life expectancy of 75 years about half a century ago, it had less than 15 years by 2011 (source). Hence, organizations need to establish what I call an adapt-or-die mindset.

It’ a simple yet profound idea: Either we manage to constantly adapt to the changing environment or there is a sufficient chance that we won’t exist in a few years. Once you recognize this, the actual work begins: Translating this thought into an actual mindset within the entire organization and then turning it into according actions.

The T-Rex: Once a force in ‘nature’s market’, now extinct. Tough luck! Source: Shutterstock

For most companies — especially those larger, established organizations that already had their fair share of success in the pre-digital, pre-constant-change world — this is a radical shift away from their regular modus operandi. They learned what worked for them and perfected it. They achieved growth by optimizing processes and efficiency. They prayed the mantra of economy of scales. And this was a perfectly fine recipe for success in a world that moved comparably slow. Companies managed according to that model did only then get into fundamental trouble, when — for whatever reason — their markets experienced some ground-breaking change.

But guess what? Digitization is exactly that: A ground-breaking change that affects (almost) every single market. Therefore, the old approach of running a business is currently obsolete and might be for quite some time. That’s why you have to either adapt or die.

But not only does this concept go against the DNA of most companies, it also somewhat contradicts human nature. We all have certain mental biases. We don’t understand randomness and probability, we don’t like losses and, most importantly, we fear the unknown and enjoy the perceived security of the status-quo. Because of all that, establishing the adapt-or-die mindset — which results in continuous change and experimentation as well as guaranteed failures on the way to an unknown future — is a tough challenge.

But it can be done. It all depends on getting your vision across clearly, shaping your organizational structures accordingly and implementing a couple of smart instruments that help you and your employees to keep on track (i.e. not getting comfortable with the status-quo).

Next week we will take a closer look at what all this means in practice. For now, I will finish with giving you a little sneak-peek into what’s to come.

Next week on Written Stuff

What leaders need to do in order to establish an adapt-or-die mindset:

  • Constantly challenge your own and your company’s actions
  • Break down organizational barriers
  • Give your employees the necessary freedom to rethink things and do them in new ways or even to do entirely new things
  • Create a culture of experimenting and testing
  • Internalize the start-up principal “fail fast, fail often” and ask yourself what it means for your company and where and how to implement it