Leadership Insights: Holistic Digital Transformation

Transcript

Tomoko Yokoi: Thanks very much, Mike.

Mike Vizard: You guys wrote this book. It’s kind of a practical field guide for how to launch or get started with digital transformations. What do you think is the biggest challenge that organizations are facing as they go down this path? We’ve seen an acceleration, but I don’t know if you’ve seen anything where there’s some patterns or things that people are doing that maybe they shouldn’t be doing.

Tomoko Yokoi: So we’ve done research here at the IMD business school, where we have found that 87 percent of digital transformations do not meet expectations once they’re launched. What does that mean? It means that actually there’s a rather small success rate for satisfaction when organizations go ahead and do their digital transformations. So what does this mean? It means that due to this rather high failure of digital transformation, there’s a problem, and we’ve spoken to close to about 1,000 executives all around the world through our research, and fundamentally, of course, digital business transformation – and the word transformation is the key word here. It really is a holistic transformation.

And I think what we’ve seen, for example, during the COVID-19 pandemic, where a lot of organizations have accelerated their digital efforts – one might argue that this is more the digitalization of a particular process or a particular task, and it’s rather limited and isolated. But when we talk about a digital business transformation, it requires cross-functional initiatives. It requires stakeholder management engagement, and it really is a change in management on all levels of the organization. And so if people sort of confuse that digitalization with digital business transformation and the magnitude of the work involved there, you see why there are so many different factors at play where there’s a little bit of a weak point. And so in that respect, I believe there’s a fundamental, I would say, expectation that digital business transformation is much larger than anybody may have expected it to be, and it’s ongoing. Once you reach a certain stage, people feel that there’s no way to just rest on your laurels. It’s about now finding the next momentum to go ahead and continue changing the organization. So I think that’s where people fundamentally misinterpret, and this is where the failure rate comes in.

Mike Vizard: On a certain level, it is continuous, but do you think maybe our expectations are off kilter somehow, rather than when we get started and we’re just gonna magically boil the ocean, and maybe we need to think about this with a more longer-term viewpoint?

Tomoko Yokoi: For sure. So when we’ve spoken to a lot of executives, there are different ways how organizations get started on their digital. And about five years ago, when the word digital business transformation became a bit more de rigueur, it was really perhaps – there was in certain aspects some company executives or a top executive saying, “We see there’s digital disruption going on out there. We need to do something.” But the do something is pretty vague, but they wanted to launch something. And so, in that respect, sometimes it becomes a – it’s an ambiguous target, or it’s about going after some new and shiny tools.

And so in that respect, I think there’s a little bit of that ambiguity in place before it gets started. Now, I think when it comes to digital business transformation, there are two particular ways, right, because when you’re talking about a business transformation, you do need someone to show a vision, a transformative vision. So it has to be big. So in that respect to your question about, is there an expectation misplacement there, there could be, because you do have to start big. And so, the reality is that once you’ve got that big vision to motivate people to come along with that vision, then I think then the next step is to making sure, what’re the key drives, and where do you want to start? And I think it’s that tension between those two, which is sort of the first challenge for a lot of organizations.

Mike Vizard: Do you think as we go along that maybe some of this was a reaction to the COVID-19 pandemic and the board was saying, “We got to do something. We got to do something,” and a lotta projects were just kinda launched without necessarily thinking through all the nuances that go through that? And maybe we’re now circling back to have a more realistic conversation about what exactly is involved in a digital business transformation at the lowest levels of the company.

Tomoko Yokoi: Yeah. We’ve been doing a longitudinal study of how organizations have changed their digital initiatives during the COVID-19 pandemic. Our data that we have, we saw a lot of companies at the start of the crisis. Even those companies that had a digital business transformation ongoing, at the onset of the crisis, they looked into really trying to continue their business operations in any way, which or form. Now, I think ’cause you had mentioned specifically about the COVID-19 crisis, I think the particularities of this particular crisis was that – the social-distancing perspective, right? Now, if you’re a company whose – if you have a business-critical process, which does rely on some type of being present at a factory, or you’re being physically present to do something, and if you had not virtualized those types of processes in the past, then, of course, you see your executives, your board saying whatever the case, you need to continue with your business-critical initiatives. So you saw that digitalization, of course, as a response, just to get your business going.

And so when we did our survey, where we tracked the investments into digital over time during the COVID-19 pandemic, we did see – at the onset of the crisis, we saw a lot of companies saying that they invested business – digital efforts that would allow them to continue their business. Now, at around six months after the onset of the crisis, we actually started seeing some other types of digital investments come around, and around, I would say, six months to eight months afterwards, investments into digital innovation-type initiatives, sort of growth types of initiatives, sort of came back up again to the same level as business-continuity initiatives. So just as you mentioned, we’re not quite sure what that means. It could be that they would – companies were ready after they’d stabilized their operations to start going back into innovation, digital innovation, digital-transformation efforts, or whether their attention – they were able to just revert their attention back into their digital-transformation efforts again. But we do have data that shows that the digital investments changed over time during the pandemic.

What we also found was that during the crisis, a lot of senior executives, I would say, leveraged – took that opportunity, because they could see formally physically based processes could actually be done differently through digital. And that actually provided a little bit momentum to their digital-transformation initiatives, because the whole company was able to rally around and get something done. And once an organization has experienced success with digital, then I think it’s easier to carry on that momentum and really put some force into the digital business-transformation efforts going forward.

Mike Vizard: One of the things that I think I’m observing is that you saw a lotta line of businesses become empowered with their IT spending over the last decade or so, and they were less dependent upon a centralized IT function. But when you look at these digital processes, seems like to really make headway you need to all move together, so marketing, sales – the supply chain all has to kinda make adjustments in lockstep with each other. Is that an organizational challenge, ’cause it seems like it’s more difficult to get these different departments to collaborate than it is to say – get the marketing organization by itself to do one particular thing.

Tomoko Yokoi: For sure, and in this book that we just wrote called Hacking Digital, we have identified 30 of the most common problems of obstacles facing digital-transformation success. And one of the problems that is mentioned commonly by executives that we speak to is the siloed nature of the organization and how those silos are actually preventing these cross-functional teams from coming together. So for sure that is definitely one organizational problem. The other challenge that we’ve identified is actually the relationship between the CIO and then this new – positions that we’re seeing in the C-suite called the chief digital officer. And so, normally you’ve had the chief information officer or the IT officer, who is more in charge of the IT and the backend and the infrastructure. Now, how do you get the chief digital officer and the CIO, the IT officer, to now work together in tandem so that the backend and the frontend can be in synergy, especially at the top level? So that is another challenge that we’ve seen in terms of trying to overcome those synergies as well.

What we’ve heard at least on that CIO/CDO partnership level is that some of the solutions that companies have told us about, of course, is that they would have some individual team members sitting on some committee so that there are two of the bodies represented, and even at the senior level that even the CIO and the CDO are working together and they’re sharing information together as well. And then I think at the organizational level, a lot of the organizations that we’re speaking to are all rolling out Agile-type processes and methods to get that sort of more cross-functional teams operating at the organizational level.

Mike Vizard: Do you think one of the outcomes of all of this is that the historic divide between IT and the rest of the business may become narrower? It’s been a problem for three or four decades now, but do you think we’re gonna get to a point where maybe the business side understands IT a little bit better and IT gets the business a little bit better?

Tomoko Yokoi: For sure. I see that trend already happening, and I think what we’re finding, especially in a lot of academic literature, that that IT and the business fusion is becoming narrower, as you had mentioned, so the fusion is getting stronger. And right now I think we’re at that stage before IT and business were always considered rather separate. But now this day and age, digital is basically underlying everything that an organization is. It’s at the backbone. So I think we’re coming to that stage in organizational and business life where we can’t really call it digital work or digital business, because everything is digitized anyway, and it will continue to do so. So I think you’ll see this merger, and I think in another couple of years we won’t be even talking about this divide as much.

Mike Vizard: What do you think is the role of artificial intelligence in all this? We hear a lot about AI. There’s some skepticism here and there, and then there’s other folks who swear by it and think that tomorrow the world will be transformed. What’s realistic about AI from a digital business perspective?

Tomoko Yokoi: So at least in our book when we talk about AI, we also – we consider that into the realm of an emerging technology. So if you are a person who is trying to lead your digital business transformation, one of the things in order to continually evolve in your digital business transformation is to always be on the lookout for what type of emerging new technologies will help the business create more value. Now, what’s happening now, as you just mentioned, AI is one of the technologies that a lot of organizations are focusing on. And in that respect, I think it’s very important just to understand – so which types of processes and in what areas will AI help you in creating new value or new services or new innovations within – for your business, ’cause that’s what digital business transformation is to be about.

Currently, while there are many perspectives on this, AI – what’s being used practically is that it’s being used – as long as the problem is already defined, your business problem is defined, AI is being used to be able to then execute or implement a rather defined solution for a rather defined problem. And so in that respect, if the problem definition has been identified and the solution has been identified, AI in some processes is very good for being able to do that at scale and to be able to do that efficiently.

Now, the question, of course, is, will that lead to new value and new service and new innovation? I think that’s how we need to evaluate AI in terms of digital business transformation. The second one, of course, is, then if you go beyond defined problem, can AI help you in identifying what the problem is, and then can they think of out-of-the-box solutions? I think that’s where we’re still trying to see where AI capabilities – can they keep up with human cognition to be able to do some of this a little bit more out-of-the-box, ambiguous-thinking type of skills. And I think right now where we are, we’re not quite – AI doesn’t yet have the capabilities to equal humans on that one.

Mike Vizard: Whether we use AI or not, things are moving faster, and a lot of these decisions are happening at speeds that humans can’t keep up with. But how do we know that those are the right decisions? One of the benefits of being slow is you get a minute to think about something before it gets executed. Now things are more prescriptive and they’re more automated, but how do we know that that’s the right thing to occur, and how do we undo it if it’s not?

Tomoko Yokoi: Yeah. Regardless of whether it’s technology, I think we as business executives are already facing that problem, regardless of the technology. So to sort of answer your question in a different way, what’s happening, I think, in this increasingly digital world is that there’s a lot of information coming in, and the way that we as executives have been approaching problems is – we all have rather set ways of how we identify problems. We have set routines on how we solve them, and – but what’s happening now as the world is changing so quickly is that in some of our leadership research that we’ve been doing here at IMD and at our institute is that we’re finding that actually leaders need to – when they need to be able to make decisions in a more flexible manner.

So we talk about flexibility and versatility in leadership decision-making, and what does that mean? It means that first we need to assess what the situation is, but then even though you may be – maybe you might have a little bit more of a tendency in your decision-making style and your decision-making evaluation to think in a particular way. Perhaps you’d like to go into the details, or perhaps you are a bit more of an out-of-the-box type of thinker. But now with some different – with these different situations, you’re going to – you yourself are going to have to be more versatile in how you make those decisions. And now you as a person may not have the competencies to do it yourself, but if you can also surround yourself with a larger team who has different perspectives or different competencies. As a team, you may be able to face a particular problem, a decision, in a way that is suitable for that particular decision now. So I think you’ve got a little bit of that human – understanding your human limits of what – how you can make those decisions.

Now, the question of AI and emerging technologies, how can they help you make the decisions that is adapted for that particular situation, I think there is a lot of possibility. I think there’s technology that could help you in sort of evaluating – doing the calculations for some firsthand type of risk. But then that only really just supplements perhaps then how you need to evaluate the information that comes along. But at least they can sparse the information for you. So I think in these ways, technology can help leaders in making the right decision. They will not replace leaders in making the decision for them still is my belief.

Mike Vizard: So what’s your best advice to folks? As they go down this path, do I just take everybody involved and lock ’em in a room ’til I get some agreement, or is there some intelligent way of going about this?

Tomoko Yokoi: Yeah. Well, I think the first thing is when we talk about – we’re talking about digital transformation, we’re talking about how you make decisions. I think in terms of digital transformation, we talk about that there are six phases of digital transformation. The first is getting people on board, and of course you could say that sticking everybody into the room until there is alignment is one particular way. It may not be the best way. But the first, of course, is to get that alignment internally.

The second one is also in this day and age – now organizations not about what you just do within your organization. It’s about how you also manage your external ecosystem. So increasingly it’s also about how you can bring in your customers and your suppliers into the mix to make sure that you’re developing not only digital transformation for yourself but digital transformation amongst your ecosystem, ’cause it’s going to become an ecosystem play. So in that respect, it’s getting alignment, not only that, but with your direct customers and suppliers.

And then third of all is the biggest thing that a lot of companies have trouble with is just keeping the momentum. So with keeping the momentum is every time a little win has been made, you need to make sure that you’re constantly looking towards the next stage of where you can develop that value. And I think only once that you have that well-oiled machine between moving from one stage to another so that that process of evolution becomes a little bit more internalized, then I think you’ve got at least an operating routine of constant transformation. So I think that’s the way to go about it.

Mike Vizard: All right, folks, you heard it here first. It’s important to celebrate all those small victories along the way. Just remember that each one is fleeting, and you need to get to the end goal ultimately. Hey, Tomoko, thanks for being on the show.

Tomoko Yokoi: Thanks very much.

Mike Vizard: All right, guys. You can check out this video and others on DigitalCXO.com, and thanks for spending time with us.