Ryan McManus explains how to reshape your business strategy for the digital era.
A 2018 poll by McKinsey revealed that only 16% of business leaders believe their digital transformation efforts have shown significant performance improvements. And yet, digital transformation is perhaps the most important and urgent topic in business today. Given the ubiquity of articles, books and consultants on the matter, and the unprecedented simplicity of acquiring data and technology, how it is that firms are seeing such lackluster results?
At the root of the problem is the disconnect between how leaders understand strategy and the new rules of the digital revolution. Most leaders haven’t been taught how to think about a world that is very different from the one which gave birth to popular strategic concepts. They are left applying outdated strategy models and thinking to the new world, trying to squeeze the competitive realities of the digital revolution into analogue and linear strategic planning concepts.
Perhaps the most fundamental change is that digital has brought technology out of the back office, where it was focused on executing strategy, and into the boardroom as arguably the most important driver of strategy. This is a huge shift. It means leaders have to be clear on one point: transformation strategy and technology strategy are related, but not the same. ‘Technology’ belongs to the IT department and is largely executional in nature, while ‘digital’ concerns strategy and business models. Leaders need to fundamentally change how they think about both strategy and digital.
Why technology-first fails
Most training and content on digital transformation today follows a technology-first approach. But by diving into technical details and applications, the new business models and corporate strategy concepts – which are crucial for creating a cohesive strategy and roadmap for change – are largely ignored.
For the many executives who are not digital natives, a technology-first approach can feel like being spoken to in an impenetrable, jargon-laden foreign language. At best, that can create excitement about the future, based on impressive examples of emerging technology. At worst, it results in fear or intimidation, as people try to avoid being seen not to understand such an important topic. This translates into sub-par strategies and ineffective delivery.
Learning and organizational development leaders are in a uniquely powerful position to help their leaders understand and successfully address the digital revolution. They have to deploy the right executive development programmes. We first need to demystify everything happening around digital and remove the ‘noise’ from the system. It is imperative to engage leaders by using strategy-first, not technology-first, terms. Digital transformation is primarily about business models: new product and service portfolios, economics, customers and competitors. These can be understood through performance differences in market capitalization, market share, return-on-assets, return-on-talent, profit margins, operating-model performance, distribution, portfolio and options management. Such concepts are very familiar to executives, and positioning digital transformation in these terms makes it immediately accessible.
In practical terms, helping leaders to engage with and understand the digital challenge means providing them with models, frameworks and tools that they can apply to their organizations. Simplistic ‘digital is a big deal’ thinking is not helpful. To have the biggest impact, learning about these concepts should ideally include the whole executive team, and perhaps even the board, to ensure that the full leadership team shares a common foundation. That matters because digital is evolving incredibly quickly, and this inherently creates uncertainty, requiring new approaches to strategy that consider portfolios of growth options. This is very different from jumping into big bets or thinking that months of traditional analysis will reveal a clear answer about the way forward.
Organizations often approach digital transformation solely by deploying new tools and capabilities to deliver exactly what they have always done. This strategy is limited to operational efficiency: doing what we do now, just faster and cheaper. That’s fine as far it goes, but it’s only half of the story: digital business model shifts are much more far-reaching. There are a number of critical questions which leaders should be grappling with to support a digital business model:
- How do we use new digital capabilities to bring new value to our customers?
- What is our data strategy?
- What is our ecosystem strategy?
- How has our competitive set changed?
- How do we secure a seat at the table for understanding emerging technologies?
- How does our operating model need to change?
- What implications does digital have for our talent strategy?
- How do we ensure the entire organization is aligned and collaborating on reaching the same goals?
A roadmap for executive development
There are typically seven key steps for helping leaders understand the impact of digital on strategy.
1. Understand the scale of digital’s macro impact
There are five ‘primal forces’ which combine to create macrotrends: geopolitics, economics, the environment, social issues, and technology – including digital. Technology/digital is not only a standalone primal force; in today’s world, it also drives the four others. For example, in geopolitics, AI is fast becoming a crucial battleground for superiority between nation states, while the role played by the Chinese tech giant, Huawei, in providing communications infrastructure in Western countries sparked a major international row in 2019. In terms of economics, 25% of global GDP is digital in some form, making it a critical area for government policy. And digital feeds into our environmental and social challenges, as we face the need to use fewer resources, and grapple with the combination of ageing populations in the West and technology-driven job displacement.
Looking at this context is a great starting point: it often helps leaders to realize the urgency of change and opens their eyes to how these primal forces are affecting their business.
2. Ground executives with the foundations of digital transformation
Leaders need to understand the ‘evolution of the revolution.’ Over the past 25 years, there has been a sequence of digital waves, creating clear winners and losers. What insights can be drawn from this history? Nearly all senior leaders will be familiar with the rise of Google, Amazon, Dell, Uber and others, but not necessarily with the patterns and common themes that link their stories. By exploring what has come before, executives can learn valuable lessons.
3. Highlight current industry examples and case studies
Once executives have a clear grasp of the foundations, examples can help illustrate what is really happening across industries and leading companies. In traditional strategy, most analysis is focused on traditional sector competitors. Digital, however, does not respect industry boundaries and, as different sectors have been progressing at different speeds, it is helpful to explore examples from across a broad spectrum. Start-up razor companies hold lessons for large banks; large industrial manufacturers help to illustrate the power of new data-driven service offerings. Case studies show what’s possible, and help break down resistance to change. Finding those based on real growth numbers is vital, although tough: volumes have been written about the exciting new activities being pursued in digital, but only a fraction of companies are actually communicating their results.
4. Analyse internal surveys
It is staggering how often internal surveys are an eye-opener for leaders. Recently, one large financial services client sent out a survey to select managers throughout the organization, asking questions like, ‘how important is digital to attracting and retaining the best talent?’ and ‘how important are advanced digital capabilities to customers?’.
The responses were illuminating: over 90% of respondents grasped the high level of urgency around digital, yet had a low understanding of the organization’s strategy. Do your people understand your strategy?
5. Conduct executive deep dives into emerging tech domains
Having established the strategic context, it is time to look more closely at technologies such as AI, the Internet of Things, social media, quantum computing, 5G and others. Focus on understanding the current capabilities and use cases of these emerging technologies, and how they reinforce each other, operating as a portfolio. This is also an opportune time to dive into specific functional considerations including the future of work, or the use of social media platforms for marketing.
6. Apply the new strategy playbook
Next, consider the strategy frameworks, models and tools needed to operationalize new thinking. At this stage, new tools might be introduced and applied to third-party case studies or, ideally, to topics and projects specific to your own organization. The pace of this stage can be quite unexpected. One global apparel company was able to define detailed business models and roadmaps around several existing digital opportunities within two days. In other instances, executives from large retailers, pharmaceutical companies and banks have successfully modeled dozens of new business opportunities in just a few hours. This can foster confidence and collaboration across leadership teams: they know they can deliver, because they have already done it.
It is also important to address potential ‘blockers’ at this stage: how might culture, strategy, organizational structure or technology hold back your digital transformation?
7. Evaluate impact over time
Like any leadership development program or learning experience, evaluating an attempt to change leaders’ thinking on digital rests on its impact over time. Questions to consider at different time intervals include:
- Has the organization evolved its digital transformation and business model strategy?
- Is there more engagement and cohesion across the leadership team on digital business model transformation
- Is there enhanced engagement with customers and the broader external ecosystem?
- Are leaders bringing a digital-first mindset to their areas of responsibility?
- Are leaders actively looking for opportunities to apply new digital concepts?
- Is there increased collaboration across the leadership team around digital?
- Is there a culture shift as executives cascade their digital mindset throughout the organization?
- What is the performance on new targets and KPIs?
Time well spent
A program to change leaders’ thinking on digital can be delivered in just one or two days – yet its impact can be transformative. This approach has been followed by organizations including large financial institutions, manufacturing companies, national governments and agencies, and even leading technology companies. They ranged in their digital transformation efforts between complete beginners and those who had spent years and millions of dollars on initial efforts, including one multi-billion dollar manufacturing company: this firm had spent several million dollars with various consultancies over a period of two years, producing multiple technology roadmaps and market studies, but only minor technology experiments and no commercial activity. With the right approach, it was able to reframe its strategy within several weeks, and it deployed new capabilities shortly thereafter.
The impact of digital on business strategy should not be underestimated. Executives and leadership teams need to think thoroughly about its strategic implications for their businesses. A well-structured program can help leaders in that task, providing the foundations upon which they can build a shared vision for the future, enabling them to move forward with the confidence needed to deliver on the promise of digital transformation.
— Ryan McManus is the co-founder and CEO of Techtonic and an educator for Duke Corporate Education and Columbia University Business School. You can view his on-demand webinar on digital strategy here. This article first appeared on dialoguereview.com.