Reach for the Future
Nearly every business is impacted by digital transformation.
The key question for leaders is how to overcome the pull of the past to reach for the digital future. The authors of Digital@Scale: The Playbook You Need to Transform Your Company have developed a playbook based on years of McKinsey experience and research.
I recently spoke to author Anand Swaminathan, Senior Partner in McKinsey’s San Francisco office, about the book and his work in the area of digital transformation.
3 Barriers to Change
What do leaders need to know about identifying the barriers to change?
In our experience, executives face a fundamental conflict: Change requires a sense of urgency while highly-efficient organizations tend to have high levels of inertia. When business is going well, managers and employees generally only pay lip service to change requirements. Knowing that, there are three barriers we’ve identified:
- The good is the enemy of the better: Efficient, currently successful organizations often slow down the necessary change: Why cannibalize what is successful today? Why destroy efficiency gains of a ‘well-oiled machine’?
- Watch out for your top team: Ironically, today’s most successful managers might be the ones slowing down your transformation efforts since they have the most to lose. Transformation needs to start with the person at the top, and it’s often those who have grown accustomed to success that find it most difficult to change course.
- Your DNA takes time to change: Don’t underestimate the time and effort required to change deep-rooted mindsets and ways of working. Your legacy business exerts a natural gravitational pull that will stop all meaningful change unless you’re persistent and change at enough scale to break through
What is the role of the CEO when it comes to digital transformation?
The successful digital transformations we see out there have one common denominator: the CEO spearheading and promoting the digital transformation. They are making it front and center of their personal agenda. Only if change is demonstrated and exemplified by the top management will the necessary changes to structures, processes, management instruments, as well as the establishment of new skills and new IT systems, be successful. That can mean using new technologies, challenging existing ways of doing business, and making the bold decisions necessary to change the trajectory of the business.
Assess Your Readiness
That’s two questions. The first is understanding your strategy, and that requires looking at sources of value – where they’re created in your business and in your sector. Most important, you need to look at where sources of value are being created outside of your sector – that’s where some of the biggest changes (and challenges) might be happening.
Then you need to look at where you are today and what needs to change. There are lots of assessments and diagnostics out there, but you need to take a cold-eyed view of where you are as a digital business and what needs to be in place to drive value at scale. As an example, we have developed a comprehensive benchmark to derive a company’s Digital Quotient (DQTM), road-tested with several hundred organizations across the globe. It helps leadership to take stock compared to best practices across sectors and within its own industry.
In addition to the benchmark, some questions that management should start with to determine the urgency and their organization’s readiness for change include:
- Are we assessing whether we can use our strengths to penetrate completely new industries within the current rules?
- Are we actively creating an ecosystem of partners, customers and suppliers that will last into the digital world?
- Have we defined a feasible timescale and meaningful KPIs to reliably measure success or failure?
Break the Silos
How do functional silos get in the way of change? What should a leader do about it?
A highly compartmentalized and hierarchical organization ensures that processes are steadily executed the same way over and over again. What is highly welcome in a stable environment becomes a hindrance in today’s times of accelerating disruptions. Here, agility is key and putting the customers’ needs and preferences front and center.
One way to practically break through the silos is to think in terms of customer journeys. That’s the set of interactions a customer must take to accomplish a task, such as opening an account or ordering a new product. Those interactions touch many different parts of the business. Pulling together teams from across the organization to focus on a specific journey is a great way to remove people from their functional silos and get them to work with different people in a much faster and iterative way. That is critical in the digital world. Start with a pilot to learn how to do it, then scale it across all the journeys that matter.
How should companies go about identifying their strengths?
First and foremost, it’s about the core of the business, the benefit to the customer. What are the relevant assets, the company strengths that must be transferred over to the digital world? Which can be left behind? A self-developed technology or technological expertise? Customer relationships or a strong brand? Products? Services? Or detailed customer or product data? What really counts?
Once this is clear, the threat becomes an opportunity. After all, established companies do not necessarily have poorer prospects than start-ups or industry outsiders—quite the opposite in fact. On no account does everything suddenly need to be jettisoned. Companies that transfer their strengths to the digital world will retain their lead. It’s about recognizing where the new technology can help the company the most, and how it will help to renew the company.
A job title is the ultimate reflection of a traditional, highly compartmentalized organization, radiating structured stability. However, today’s environment is highly disruptive, and it’s critical to be agile. That means being ready to react, learning by doing, adapting based on what you learn, and doing that repeatedly at pace. So, it’s not just what you know, but how you work that makes the difference. Traditional companies often lack the ability to keep up with the scope and pace of change. Established players are starting to dramatically change their way of working, establishing cross-functional teams. What matters here are tangible contributions, expertise and collaboration, not job titles.
Embrace the Positive
How can leaders promote change as positive instead of a scary proposition?
Let’s face it – change is scary for many people. That’s because it’s an unknown. Getting people to start doing little things differently, doing things like hackathons so they can touch and feel change, and sharing information broadly is a great way to give people a taste of change and get them energized. We have a choice: If we actively embrace and shape the disruption, change is an incredible opportunity for our company, for our team, and for me as an employee or manager.
For more information, see Digital @ Scale: The Playbook You Need to Transform Your Company.