How To Overcome The Obstacles To Digital Transformation

While some companies – the digital giants – benefit greatly from digital technology, many large companies invest heavily in digital technology by hiring IT professionals and spending on digital technology – including artificial intelligence, cloud computing, machine learning, and algorithmic decision-making. still disappointing returns.

As mentioned in a previous article How To Understand Your Digital Transformation, organizations need to recognize that digital transformation is only partly about technology. The main obstacle is the fundamental shift in the way the company is run – from industrial age management to digital age management.

From the industrial age to the digital = age management

In the last two decades, it has become increasingly clear that the most successful companies in the digital transformation are managed very differently than in the industrial age. You have a different set of principlesincluding the goal of creating value together for customers, a business model that generates profits as a result; team based and network structures. These principles are supported by processes which differ significantly from those of management in the industrial age. guide now occurs on all levels, not just above; strategy is dynamic, interactive, value-adding; innovation enriches existing businesses and creates new companies; sale it is now about making a difference for customers and users; MR is about attracting and nurturing talent; operations it’s about exceeding expectations Results at a lower cost; budget is strategy driven; compensation increasingly based on value creation. The convergence among the digital winners around this pattern is striking.

These are different management principles than those that drove businesses in the Industrial Age and that still drive most great companies today. Here the principles are usually internally aligned and include an aim to prioritize stock value; hierarchical work structures with individuals reporting to supervisors; and key indicators are short-term earnings and the current share price. These principles lead to industrial time processesalso from top to bottom guide; strategy that is backward-looking and defensive; innovation which primarily protects existing business; sale encourage customers to buy; MR controls workers as company resources; operations delivers the exit targets at a lower cost; a budget process this is a battle for resources between the silos; and compensation where profits mostly go up.

The challenge for most companies seeking digital transformation is that while these management principles and processes have been well suited to the industry’s ear, they stand in the way of digital transformation.

The Novartis case

The case of Novartis is typical. Technically, the company has done the right things. It relied on cloud technology and invested in data platforms and data integration. It invested in human resources, as Marco Iansiti and Satya Nadella in their article “Democratization of Transformation” in HBR (May-June 2022). Novartis “recruited AI specialists and data scientists to build machine learning models and deploy them across the company.” But there were “no larger and more diverse groups of employees — executives, managers, and frontline workers — coming together to… rethink how every aspect of the business should work.”

As a result of the article reports“Even as technical teams grew, managers from across the organization—sales, supply chain, human resources, finance, and marketing—did not embrace the new information that was available, nor did they think much about how data could improve the work their teams do.”

At the same time, the data scientists could not see into the business areas and could not integrate data into day-to-day business. As a result, the investments led to few successes.

It wasn’t a money problem. Novartis spent a lot of money on digital. A study by the HBR authors of 150 companies showed that the results “do not depend on the relative size of the IT budgets”. It’s a management mindset problem.

Management’s hope was that digital technology would take hold throughout the company, as shown in Figure 2.

The result was the opposite. The hierarchical bureaucracy remained as before, preventing digital technology from having an impact, as shown in Figure 3.

Things started to change at Novartis during the Covid pandemic as some groups started breaking the silos’ restrictions.

· Experiments have been launched to bridge disconnected entities and develop shareable data and technology to enable innovation.

· Initial focus was on quick wins such as “optimizing promotional, manufacturing or supply chain capabilities”.

Indeed, the experiments were designed to “test not just technology, but a fundamentally different innovation model, where business executives, managers and frontline workers collaborate with IT and data scientists.”

Managers began to see the possibilities: “They became increasingly excited about the possibilities of using AI in different parts of the company and began to seriously advocate for the effort.”

Novartis began to bring data scientists and business people together: “Some managers began to realize that technologists and data scientists alone could not produce the kind of large-scale innovations that the company needed, and began to bring data scientists together with business people who… Insight into possible improvements in efficiency and performance was required.” Although there is still a lot to be done at Novartis, at least the first steps have been taken.

Agility in IT is not enough

A similar mistake is often made when introducing agile management practices and expertise to the IT department. The problem with this is that business leaders often don’t want to change, don’t know how to change, and even get paid not to change.

Industrial age management will attack anything new like agile in the same way that the human body’s autoimmune system attacks anything “foreign” that enters the body. As a result, even very successful agile teams have often found it difficult to be successful over the long term.

The case of Microsoft

Microsoft is another example. Digital age management in the form of agile methods appeared at Microsoft as early as 2008, first in individual teams and then in groups of teams.

By 2011, agile management practices were dominant in several large groupings, including the Developer Division and Cloud Services. The financial impact on Microsoft was negligible, however, as top management was still pursuing industrial-age management and there were few, if any, gains from the new approach across the company.

It’s hard to remember that Microsoft was on the ropes in 2014. PC sales fell. Microsoft’s software products were in decline. His static, old products lacked panache and embodied “boring”. Windows couldn’t compete with Google’s free operating system. Microsoft’s investment in the Nokia phone was disastrous. Microsoft’s share price stagnated. Few saw a viable way forward. Additionally, Microsoft’s corporate culture was notoriously combative, both inside and outside the company. It was personified in former CEO, Steve Ballmer. Employees were demoralized and even viewed the appointment of Saty’s Nadella as CEO in 2014 as disappointing: Surely an outsider would be needed to revitalize the weary old giant.

Microsoft appeared to be a remnant of an industrial-age company that, like so many other great companies, had failed to understand the importance of the burgeoning digital economy. While every company is unique, many CEOs could learn from Nadella’s successful seven-step playbook.

The result was that Microsoft was able to transform the entire organization with a trillion dollar gain in market capitalization.

It’s easy to forget that this was a 14 year journey.

Using the diagnostic tool to navigate the trip

As other companies think about digital transformation and the need to transform almost every aspect of their management, the diagnostic worksheet can be a useful tool. It can help companies diagnose their current status in terms of managing the industrial age and the digital age. It can be applied either to the entire organization or to any part of that organization, such as the leadership team, or any department, or any individual team, at any point in time. The tool is summarized in Figure 9 and discussed here.

And also read:

A powerful diagnostic tool for digital transformation

How Novartis finds its way to the digital winner