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Digital Transformation, Part 4: The Role of Leadership

Mastering digital transformation under the pressure of possible disruption is challenging, especially with so many lacking the management and experience necessary. Clear direction and initiative from the right leader can make a substantial push forward.

Mastering the digital transformation under the pressure of possible disruption is challenging, especially with so many lacking the management and experience necessary.  Leadership is critical in order to kick-start the transformation.  Clear direction and initiative from the right leader can make a substantial push forward toward achieving digital transformation. I would even argue that no leadership means no change and no transformation.

A 2013 survey by MIT Sloan and Capgemini Consulting reports that 40% of executives and managers interviewed cite a lack of urgency in the company as the biggest barrier to digital transformation.

A 2013 survey by MIT Sloan and Capgemini Consulting reports that 40% of executives and managers interviewed cite a lack of urgency in the company as the biggest barrier to digital transformation. Even worse, 93% of employees state that they would say yes to a focus on digital transformation.  So while the exact entry point into digital transformation (customers?  business? processes?) is less widely agreed upon, one thing is clear: businesses need to adopt a digital transformation vision. 

Digital transformation is often pigeonholed as an IT topic, but it is not. If done right, digital transformation affects the entire enterprise. It might start with a well-prepared CIO, fueling the company with new tools and the simplification of processes. But because of the potentially huge impact on the entire company, the strategy needs to be directed from the top down.

Should a digital transformation involve transitioning to an “as a service” business, all C-level executives will need to direct change.  The CFO, CHRO, COO, and CMOs must adapt, since their key areas – financials, people, production, and sales and marketing – will all be affected.

We’ve seen this top-down approach work successfully with the German Football Association (DFB – Deutscher Fussball-Bund).  Oliver Bierhoff, the national team general manager, wanted to improve communication between players.  Realizing that players preferred communicating digitally, Bierhoff connected the dots and commissioned an app for team communication and data analysis.  Within weeks, the team was using the app to communicate and debrief, to perform split-second analysis and to gain deeper insights from player data.  Now with a World Cup victory under their belt, Bierhoff and the team are already thinking of new functions for the app to advance their performance even further.

Series on #DigitalTransformation (4) – The role of Leadership

Challenges

By all means, leaders undertaking digital transformation will have to face a number of challenges.  To start, they must recognize the varying levels of digital proficiency (more details in our previous blog, “The building blocks” ). 

Not everyone will adapt easily to digital transformation – some may even resist it.  Other problems that leaders may run into include inertia, defensive attitudes, and internal politics. To combat these and to ensure that everyone is on board, organizations need to invest in training and change management workshops, for example, to teach usage and convey the benefits of digital initiatives. 

Legacy systems that lack integration and are less efficient could pose another problem, especially in large corporations.  Nevertheless, the best way to digitally transform is to implement cloud solutions that extend existing systems, as the transformation will be achieved faster.   

Adopting cloud solutions, which often are still tied to existing systems, may be the best approach, rather than overhauling everything by ripping and replacing.  Leaders must also consider security, as there could be a trade-off between functionality and data protection. 

Take the popular Waze or Blitzer.de apps: While their features can prove tremendously useful when driving, they also require that your location be constantly tracked.  The impact of such a trade-off is magnified in the corporate environment.  It's up to leaders to decide what balance is right for their business and to realize that preferences vary and change. 

Finally, leaders should recognize the implications of the digital initiatives they pursue. 

Carl Benedikt Frey and Michael Osbourne from the University of Oxford put forth the provocative prediction that "47% of job categories may be taken over by machines in the next two decades." 

Digital transformation is by nature disruptive, so leaders need to prepare for the possibility that machines may render many jobs obsolete.  While this will cause waves in any business, you want to make sure that employees are adding real value to your enterprise.  Just because an employee is no longer needed to perform a certain function does not mean that they are of no value.  On the contrary, a restructuring of responsibilities is likely in order.  Everyone can remain relevant with the right education and training opportunities.

Why top-down?

I recommend undergoing digital transformation with a top-down approach because executing change needs to be comprehensive.  This may include appointing a C-level executive to spearhead this transformation – maybe a Chief Digital Officer or Chief Innovation Officer.  Whatever the name, this executive will play a vital role in securing the business's future.

How and what should the CxO set out to accomplish?  First, recognize that technology changes fast and that everyone needs to adapt and be committed.  Acknowledge the urgency and don't wait for others to embrace digital transformation before making a move. Look for new ways to engage customers, employees, and partners.  Build up a digital culture while playing to the strengths of the enterprise.  Expect the unexpected. 

But the job doesn't end upon appointing a digital leader; all C-level executives need to be aligned.  Remember, digital transformation has to be enterprise-wide to be successful, not just restricted to one segment. 

Whole new departments may also be created to support this endeavor, but this will vary from business to business.  It all comes down to the core business model and industry.  In a research report for Constellation Research, Peter Kim (@peterkim) highlights that businesses have their work cut out for them just keeping up with the higher digital expectations from employees and customers. 

All too often, businesses fall flat when it comes to keeping the digitally savvy customer happy.  

 A consumer survey from Edelman finds that 90% of customers want brands to share, but only 10% believe that brands do this well.  Why? Kim explains that this is partially due to the understaffing of digital marketing departments.  Allocating employees to the right departments or creating new, needed departments (like a social media department) can bring real change to any business and help solve digital transformation conundrums.

Now you may be asking, "How could I possibly do all this with my limited budget?" but there is no need to flip your business upside-down.  Instead, you should manage the transformation by developing a road map, weighing the costs and benefits, and investing where it works.  I recommend Professor John Kotter's 8 steps of change management for a more systematic method to tackle digital transformation:

  1. Establish urgency
  2. Assemble a group to lead the change
  3. Develop the vision and strategies
  4. Communicate the vision
  5. Empower action and remove obstacles
  6. Generate short-term wins
  7. Never let up – continue the change, develop employees, and take on new projects
  8. Develop the culture

There are some things to keep in mind during this process, namely, industry drivers, organization and business processes, the business model, and technology.  IT should also be integrated with the entire organization and can play the role of key enabler.  The role of IT has changed; IT has less control since the cloud and social media typically mean engagement with third parties.  Today, it’s up to IT to ensure that a connected network experience, strong communication, and the right technologies are in place for digital transformation.

Goals

Despite the wide spectrum of business sizes and types, all businesses can share some broader goals for digital transformation.  Businesses should aim to cultivate a digital culture in which they co-innovate with partners and customers as well as with their employees and suppliers. 

Co-innovation provides a channel through which each of these players can best get value from your business. And co-innovation leads to co-validation.

Co-innovation provides a channel through which each of these players can best get value from your business.  Co-innovate with your customers to better understand their needs and to adopt service white spaces.  Co-innovate with your suppliers to understand their pain points and see if cooperation using networks would be beneficial.  Get your partners on board with your digital transformation to ensure their support of your business’ future. Ultimately, co-innovation leads to co-validation across the involved stakeholders.

Talent acquisition and development is important for the well being of any business.  Gone are the days where employees sit and wait for tasks; now, businesses should promote and support a talented workforce that will be willing to seek answers unprompted.  After all, managers can only "manage" so much – all employees should have the chance to innovate. 

As evidenced by the "digital" in "digital transformation," businesses should also adopt the right new technologies to allow for new business models and ideas.  From the get-go, tools like predictive analytics should be leveraged so that businesses can make data-informed decisions.

Although the path to digital transformation will differ for every business, it is a path that they will all need to walk.  But with the right building blocks ( see Part 3 of the series here ) and the right leadership, this is well within reach for all enterprises.

Up next: digital transformation by industry

Follow us via @SAPCloud and @SDenecken.

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Digital Transformation, Part 3: The Building Blocks

Digital Transformation, Part 2: What makes it disruptive?

Digital Transformation, Part 1: Rapid State of Change

 

 

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