Embracing Transformation

Pushing the limits of digital business

The heart and soul of disrupting digital business comes from a passion for transformation. This is more than just a drive for incremental improvement or even a special ops team of ninjas or tiger teams. Organizations must build a culture with a transformational mindset. Transformation-minded organizations do more than just challenge the status quo: they try to understand the root cause of the problem. They want to understand the possibilities. They want to push the limits. They want to see how they can take things to the very top. With this mind-set, leaders can borrow new business models from other industries, adjacencies that they wouldn’t have seen before. They might also create new business models as they see new types of technologies enter the market.

This transformation will require a pioneering spirit and an organizational culture that’s not afraid to innovate. How do we infuse a digital mind-set into the DNA of the entire corporate organism? This transformation is not just needed for sustaining change and fostering a sustainable cycle of innovation, it’s critical to the success of an organization. You can try to force this thinking from the top down, but it will only go so far. Your employees must be empowered to move from the bottom up. Research shows that organizations that can deliver transformational innovation not only effectively compete, but they also win disproportionately in the marketplace.

Incremental versus transformational innovation

Incremental innovation, once viewed as the key to sustained success, is now the norm. It’s expected. And it’s just not enough. On the other hand, transformational innovation doesn’t necessarily improve on the existing model. It creates breakthroughs. You launch new product categories. You disrupt existing business models. You cannibalize existing businesses. Transformational innovation is hard. It’s scary. It’s hairy. And most people don’t get there, because the culture’s not there.

So how do you do it? First you have to understand your organizational DNA. You also have to understand the difference between incremental innovation and transformational innovation. And, more important, you’ve got to focus in on the business model shifts. This is not about technology. Simply adding a digital moniker in front of a tired concept is not enough. This movement is about breakthrough innovations in business models, and it is a completely different way of looking at things.

Organizational DNA

So let’s start by talking about understanding your organizational DNA. The fi rst question to ask is, How ready are you for transformation? If you feel your company is truly ready for change, a systematic approach is to build this culture from three organizational building blocks. First, you have to understand your organizational DNA. Second, you have to set up the right reporting structure. And third, you have to design a budget that supports digital transformation.

Many digital leaders already know this. Our research and our digital CXO panels tell us there’s a high correlation between organizational alignment and successful digital transformation. Whether you’re a general manager or a top executive, the point is to move successfully from basic infrastructure tasks toward innovation.

How ready are you for transformation?

Think about innovation along a spectrum, starting with an incremental process, which is sustaining innovation, to a transformational culture, which leads to breakthrough innovation.

When it comes to the transformational mind-set, there are four different categories of companies: market leaders, fast followers, cautious adopters, and laggards. Market leaders actively seek change, while fast followers react to market leaders. In a culture of cautious adopters, the politics are trickier than they are in market leader and fast follower organizations. Cautious adopters need to justify things. People are afraid to pull the trigger. Disruption is not impossible, but it is difficult. Market leaders and fast followers are folks who seek transformational change. If you’re a cautious adopter, you’re just dipping your toe in. You’re probably not going to get there. Laggards, on the other hand, take a reactive approach. They don’t see the benefits of change nor do they seek to proactively initiate projects. If you work for a laggard — well, good luck.

Market leaders

Market leaders represent just 5 percent of organizations. These folks want to proactively transform their business models. Their mind-set is, How do we transform? How do we change the world? They want to go to market first. They want to be the best. Their thinking is customer centric. They design things differently. They are relentlessly paranoid that the competition will catch up. They do not care what others think. These market leaders truly want to differentiate their offerings. They want to be special. They are different. These are folks who want to co-innovate and co-create and build something new. Their companies are often run by founders — leaders who are unafraid. Think Microsoft, Oracle, Apple, Amazon, Facebook, and Uber. Is that you? Does that describe your leadership team and larger organization? Is that where you want to go? Does that represent the spirit of your company? Market leaders are truly exceptional.

Fast followers

The next group is the fast followers. These organizations make up 15 percent of the marketplace. Fast followers sit at the intersection between reactive and transformational.

Fast followers are afraid to go first. But when they move, they move fast. They’re ready to get the breakthrough innovations. That’s what’s important to them.

Fast followers ask questions such as, “What happens if our competitor goes first?” They’re watching the competitors. They’re watching the leaders. They’re going to let them take the lead — but they are ready to move. They won’t wait too long. What they want is to do things faster, better, cheaper, to learn from these first movers. Fast followers want to know what the first movers do and then ask, “How can we get there better? What mistakes were made?” Fast followers know they need to move. They’re not going to spend a lot of time trying to develop those brand-new ideas. They just want to improve on those ideas, and they’re not going to let anyone beat them there. These are important things within their digital DNA. It makes these fast followers very important.

Market leaders and fast followers are the early adopters. If you are a cautious adopter or laggard, you’d better move fast or else plan to be digitally disrupted. In fact, Digital Darwinism is unkind to those who wait!

R “Ray” Wang is the Principal Analyst and CEO at Silicon Valley based Constellation Research. He has held executive roles in product, marketing, strategy, and consulting at companies such as Forrester Research, Oracle, PeopleSoft, Deloitte, Ernst & Young, and Johns Hopkins Hospital. His research firm and his popular Software Insider blog advise Global 2000 companies on the future, business strategy, and disruptive technology adoption. Wang is a three-time winner of the Institute of Industry Analyst Relations (IIAR) Analyst of the Year Award.

Reprinted by permission of Harvard Business Review Press. Excerpted from Disrupting Digital Business: Create an Authentic Experience in the Peer-to-Peer-Economy. Copyright 2015 Harvard Business School Publishing Corporation. All rights reserved.

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Top image credit: Brett Jordan via creative commons.