“It is like changing the engine of a car running at 100 mph on the highway” the business leader said. His face was filled with frustration and worry as he reflected on how his organization needed to change. “It is not possible – and I will tell you why”.
This quote from a business leader located in Sweden is not an uncommon way to express the challenges businesses face moving forward to address digital transformation. The challenge centres around transforming the core business capabilities of the business to meet future demand whilst at the same time, uninterrupted, delivering value to customers in a cost efficient way. An impossible mission that most business leaders are facing today – and that keeps many business leaders awake at night. But how is this even possible? The answer comes from somewhere unexpected.
The basis for the quote was actually a discussion about how digitalization affects business and predicates the need for change. During the last 10 years, the purpose and mission of business has changed drastically to address unpredicted disruptions and evolving customer expectations, rather than providing cost efficient operations. Cost efficient operations (operational excellence) were the purpose of many business change programs before digitalization when customer demand, expectations and evolution was predictable and stable. We could then build operating models and processes to maximise efficiency with a long-term perspective where demand was stable and constant. In this pre-digitalization environment, people where recruited and organised to optimise efficiency – in a stable environment with complex processes and a clear operating model. Every penny counted! Today, it is different! We no longer have a stable business environment and efficiency no longer leads – today it is about flexibility and agility! Businesses need to react fast to changes in the industry and leader guide business towards relevant products and business models that create customer value in the digital market. That is the reality of digitalization!
“No, it is impossible! You see, I have a set of resources (mainly service managers) and a way of working, and we cannot just replace it over-night with a customer-centric and innovative oriented way of working. It is what we need to do – but it is not possible! We have to live with the staff and capabilities we have.”
So, what do we do? The answer is easy – nothing! Studies show that most businesses fail to react to digitalization in the right way (digital transformation) but rather focus more on what they are good at – more processes and cost control. Doing the same thing and expecting different result is not a good strategy going forward. We also see that many business executives are waiting for a moment of peace and calm to run the transformation – after the next re-organization, significant IT deployment, cost cutting initiative or business strategy workshop. Sorry, but peace and calm will no longer exist! The fact is that organizational and market pre-requisites will never again be stable and predictable but rather changing with various levels of speed and magnitude. That is the current characteristics of digitalization.
A couple of years ago, I spent some time in Japan to finish my master’s thesis. Next to my apartment, there was a convenience store, called Lawson, and their strategy was to constantly change their products and services to optimise the customer experience and revenues. Underperforming products were immediately phased out and new products replaced the old ones. New products and services where constantly tested and evaluated. Speed, change, and learning were the core capability of the convenience store. Frankly, going into the store, you never knew what you would find – only that it was the best and most interesting stuff. Lawson was expert at determining what delivered value and how to deliver the best experience for their customers (fast changing requirements) and focused on re-allocating resources to optimize value-creation. Agility was part of their corporate DNA. Great stuff!
My point of view is that the digital challenges that businesses face today are mostly in our minds. We have been taught over the years how to run and change an organization and when we face challenges stretching the boundaries of our experience and imagination, we fail to respond in the best way (sometimes at all). But there are examples of organizations that succeed to manage continuous change – going 100 mph on a highway – mainly because they have an uncompromised view of the new role of organizations. They have challenged their comfort zones and traditional ways of working and acknowledged that change is here to stay. They are also great at marketing the transformational needs in the company and educating key stakeholders about how digitalization is affecting business and competitiveness – all building momentum for change. It is all about leadership in terms of attitude and challenging everything you know and believe in. Yes, it is possible! By stating that change is impossible – you have already failed.
I fully understand the reaction of the business leader that I interviewed. Reality can seem hopeless with endless (contradictory) expectations from customers and internal units – but who said it would be easy? A good starting point is actually to understand what activities deliver value – and what does not. Focus on re-allocating resources to where value is created and find alternative methods to deal with non-value adding activities (outsourcing or terminate). This is not a method but a mindset that must influence everything the business does – and the learning/adjustments must be done at a rapid pace. When a business leader tells me that they are not able to change – it tells me that they do not fully understand how they create value. They are then locked up in their own comfort zone far from where value is created.
During the last 10 years, digitalization has been all about new technology, social media, mobility and new exciting tech-companies revolutionizing the business landscape. Does new technology strengthen our competitiveness? Yes, but only momentarily. Digitalization 2.0 is about leadership, mindset and innovative management methods. It is a way to react fast to disruptive trends and opportunities/threats in the market. It takes an organization approximately 18-24 months to react to a change utilising a traditional governance style. How much damage/change has Google (or other digital giants) been able to achieve during that time in the market? It is all about mindset and change management! Transformation is possible – but only if you believe in it and are willing to accept the new rules of digitalization. Success is in your hands!