HBR.org
Article Collection
As a thank you from Harvard Business Review.
New Digital Business Models Included in this collection:
The Company Cultures That Help (or Hinder) Digital Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2 by Jane McConnell
The 5 Paradoxes of Digital Business Leadership. . . . . . . . . . . . . . Page 7 by Tomas Nielsen and Patrick Meehan
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The Company Cultures That Help (or Hinder) Digital Transformation by Jane McConnell
Many companies struggle with digital transformation. It goes against the grain of established ways of working and is a threat to management practices that have existed for decades. Digital tools free people throughout the organization to share information easily. Communication managers no longer have total control over message, target, and timing of news and
Adapted from content posted on HBR.org on August 28, 2015
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COPYRIGHT Š 2016 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
announcements. Horizontal and bottom-up information flows become stronger at the expense of the traditional top-down. Digital lets expertise emerge naturally as people ask and answer questions peer-to-peer. People build up reputations across the organization as the “go to” person for topics even if they are not the official experts. This bypasses HR’s system and procedures for validating experts. IT management risks losing control over enterprise technologies because in a fast-paced business world, teams—unwilling to wait for IT to rollout official solutions—solve their own needs quickly by resorting to cloud-based, consumer tools to manage projects and share information. Personal branding worries management, as people who are active on the internal social network become “stars,” with greater name recognition inside the company than certain top managers. These de facto thought-leaders become a force to reckon with that is completely outside the hierarchy. And yet despite all of these “threats,” some companies embrace the changes digital offers. What sets them apart? To figure out what makes the transition easier for some companies than others, I have conducted several surveys with organizations around the world over the past nine years. I have grouped the toughest obstacles to change—those considered to be serious and holding us back—into five categories: • Slow or stalled decision-making caused by internal politics, competing priorities, or attempting to reach consensus. • Inability to prove business value of digital through traditional ROI calculations, resulting in lack of senior
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management sponsorship.
The Company Cultures That Help…
• Too much focus on technology rather than willingness to address deep change and rethink how people work. • Lack of understanding operational issues at the decision-making level and difficulties when going from theory to practice. • Fear of losing control by management or central functions, and fears that employees will waste time on social platforms. Work cultures can either accentuate or alleviate these obstacles. The 2014 survey participants rated their internal work cultures on a five-point scale for the following opposing characteristics: • Strong, shared sense of purpose vs. weak, inconsistent sense of purpose • Freedom to experiment vs. absolute compliance to rules and processes • Distributed decision-making vs. centralized, hierarchical decision-making • Open to the influence of the external world vs. internally focused and closed to the external world These characteristics are not mutually exclusive, obviously, but data show that organizations tend to be stronger in one area rather than the other three. Out of 280 organizations, 66 indicated the highest level for one of the four characteristics, 19 for two characteristics, eight for three, and none for all four. This minimal overlap lets us refine our understanding about which characteristic alleviates or accentuates which obstacles: 4
A strong, shared sense of purpose alleviates many obstacles, especially those of internal politics. A strong sense of purpose alleviates political resistance: people are moving in the same direction driven by shared values. A low sense of purpose makes it difficult for people to come to agreements and decisions. They are five times more likely to face obstacles from internal politics, five times more likely to be concerned about employees wasting time, and three times more likely to suffer from lack of senior management sponsorship than organizations where there is a strong, shared sense of purpose.
Freedom to experiment helps people prioritize, make decisions, and rethink how they work. Freedom to experiment helps organizations prioritize. When people are not free to experiment or take initiative, it is difficult to consider different ways of working. Without experimentation, there is little basis for prioritizing and making decisions. These organizations are twice as likely to suffer from hesitation to rethink how we work and twice as likely to be held back by fears by management of losing control.
Distributed decision-making gives people at the edges of organizations a voice in digital transformation. Organizations with distributed decision-making rarely face resistance to rethinking how they work. In contrast, centralized decisionmaking puts control in the hands of people the least likely to be in touch with the reality of the edges—the front lines where people interact with customers. Removed from operational issues, they worry about losing control and fear that if given too much autonomy, employees will waste time. They’re also more comfortable talking about technology as opposed to the actual work processes technology enables. They are three times as likely to resist rethinking how they work. Organizations with 5
The Company Cultures That Help…
highly centralized decision-making have the highest proportion of obstacles considered to be “serious and holding us back” and is the work culture with the most negative impact on digital transformation out of those studied in the survey.
Organizations that are responsive to the influence of the external world are more likely to understand the value digital can bring. Organizations that are open are more exposed to what is happening in the external world. They have a broader perspective helping them focus on their own priorities and be clear on ROI. Organizations that are closed to their external environment are twice as likely to report obstacles of competing priorities, slow decision making, hesitation to rethink how work is done, and an inability to make a compelling business case for digital. If one of the obstacles described above is getting in the way of your company’s digital evolution, consider how the obstacle correlates with work cultures. Then find ways to transform your work culture using digital as a lever. Digital transformation is coming to us all, and understanding the relation with work cultures will help you optimize your change initiatives and actions. This post is one in a series of perspectives by presenters and participants in the 7th Global Drucker Forum, taking place November 5-6, 2015, in Vienna. The theme: Claiming Our Humanity—Managing in the Digital Age.
Jane McConnell (NetJMC), based in Provence, France, is an independent, digital strategy advisor and analyst who works primarily with large organizations headquartered in Europe. 6
The 5 Paradoxes of Digital Business Leadership by Tomas Nielsen and Patrick Meehan
“Leadership” has historically referred to “industrial leadership”—the managerial styles and structures that served industrial firms well for a century. But the leadership of digital businesses in the post-industrial age is fundamentally different and is defined by five paradoxes. Understanding them can help digital leaders identify and develop the capabilities they will need to transform the firm from a traditional to fully digital enterprise.
Adapted from content posted on HBR.org on July 2, 2015
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COPYRIGHT © 2016 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
To lead this transformation, they must:
1. Radically innovate while optimizing operations. Operational excellence is a competitive requirement for any organization, and digital leaders have a key role in applying new technologies to achieve it. However, at the same time they must redesign their business models in order to compete in a digital world. This requires two broad sets of skills: the ability to focus on what the firm does today and optimize its current execution, and the ability—and courage—to challenge the firm’s current model by answering fundamental questions such as “How will digital technologies change how we create value for our customers?,” “What is the ‘job’ our customers are trying to do?,” and, more broadly and disruptively, “What business are we really in?”
2. Compete in sprints while delivering long-term value. In a digital world, transient opportunities arise abruptly and frequently and must be exploited as they appear. At the same time, the ability to deliver agile, instantaneous responses must be coupled with an ability to build lasting relationships with customers based, for example, on purchase history and how the product is used. As conventional products become increasingly smart and connected, relationships with customers are becoming ever more service-based and open ended. Thus, digital leaders must effectively change the interaction model with customers from the infrequent and random encounters in the analog world (a store customer meets a sales rep with no knowledge of prior purchases or the information collection process) to targeted digital business “moment exploitations” (an online
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customer receives personalized and updated offers or service
The 5 Paradoxes of Digital Business Leadership
that take online interactions, previous purchases, and digital product usage data into consideration).
3. Integrate external partners while operating as a single entity. The nature of digital offerings means that the cost of incorporating external digital innovations, for example off-premises (cloud-based) digital services, will often be less than creating and developing these solutions internally. However, customers seek seamless, integrated offerings that appear to come from a single provider. Digital leaders must therefore be able to adeptly integrate (and disintegrate) both internal and external digital offerings in a way that presents a single, unified offering to customers. This has important implications for business design as it relies on the ability to build and run agile digital-partner networks—a leadership capability that didn’t exist in the industrial era.
4. Recognize that providing immediate digital value plays a large role in sales but that more value is delivered over time. Traditionally, the sale—the exchange of goods for payment—has been the defining transaction between company and customer. Though additional products may have been offered later, the purchase decision was based on the existing product at the time of sale. Product development typically occurred before the sale, with a clear line between it and sales. In digital business, the initial sale is more akin to establishing a platform for long-term value delivery as digital product characteristics are typically enhanced and customized over an extended period. Cars, for example, will increasingly be modified by software upgrades after sale. For digital products, there increasingly is no single defining moment at which the product is exchanged for a price. 9
By nature, a digital product establishes a long-term relationship with the customer, during which product characteristics are enhanced and individually customized, and payment is accordingly modified. In order to create this open-ended customer relationship, digital business leaders must be able to articulate the value that drives the initial transaction—while at the same time supporting the continuous development model that provides indefinite new value.
5. Provide technologically enabled offerings while focusing on value, not technology. Depending on the digital density of an industry, the amount of technology integrated into its products may vary. Nevertheless, the blurring of the digital and physical worlds that defines digitalization will always add a significant technology component to products. However, if a product is to succeed with a wider audience, the integration of technology must be seamless and virtually invisible, as customers generally do not see technology as a goal in itself, but seek improvements in what the product can do for them. Consequently, digital leaders must develop a deep technology understanding. However, they must use this understanding to create offerings that, while increasing products’ technological complexity, simplify the user experience and generate increased value. As the paradoxes illustrate, digital business leadership is a complex and contradictory undertaking. Senior executives can address the challenges with partial measures, such as creating the position of chief digital officer or forming crossfunctional and multidisciplinary digital business teams that include IT professionals and business peers. However, executives must resist the temptation to act precipitously. Instead, they should take a structured approach 10
The 5 Paradoxes of Digital Business Leadership
and use the paradoxes to define the competencies necessary over the long term for building digital businesses, and leadership.
Tomas Nielsen is a research director on Gartner’s digital business research team.
Patrick Meehan is a research director on Gartner’s digital business research team.
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