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David Lee, Contributing Author, May 2020
Change leaders must be developed from within their organization because there is no doubt that digital transformation (DX) has become and will continue to be a primary driver of change in organizations for the foreseeable future. DX is not about introducing a single change. Rather, it is about catalyzing continuous, potentially disruptive change that cascades throughout the organization. True DX effects business processes and mission critical operations changing the way a company functions and thinks. It stretches across business units, departments, and functions. It comes with large capital outlays, and it represents high risk for the organization and the leadership.
To say that most DX efforts fail to meet their objectives is almost cliché, but unfortunately, it is cliché for a reason. The most recent research shows that only 12 to 25 percent of DX efforts approach the expected level of return on investment, and these statistics do not even take into account the delayed realization from poorly executed strategies. From a return on investment perspective, DX continues to be a high-risk proposition.
Despite this continued level of failure, the expectations for DX are high. According to International Data Corp, by the end of 2019, company spending on DX will reach $1.7 trillion worldwide, a 42% increase from 2017. At the same time, 59% of companies are stuck at stage two or three of DX maturity, “Digital Impasse.” This illustrates a material gap between investment and realization of benefits which puts IT leaders into a truly precarious situation.
The answer is not surprising to anyone who has been involved in digital transformation. According to almost any survey of executives, the top roadblock to successful DX is organizational culture. Companies are just incapable of responding to the changes DX catalyzes. In fact, according to a Gartner survey, CIOs view culture as the largest barrier to scaling digital business over resources and talent. In this age, technology is more than just a tool to improve performance, it is an amplifier of the organizational culture. Technology determines the flow of information, it enhances and changes the ways people interact, and it drives operational behavior. But, investing in new technology does not transform a business alone, it provides a catalyst to transformation. If people behaved one way before the new technology, they will not simply adapt to a new approach. For DX to succeed, making a cultural change is at least as important as implementing new technology.
As a result, the IT function has increasingly become the driver of organizational change. The application of change management methods is on the increase (Prosci reports that they have certified 45,000 change management practitioners in a 2017 study, up from 30,000 in 2015), and Change Management has become an expectation on major technology projects. DX requires IT leaders to move beyond the role of a service provider to adopting the role of change leader. Again, according to a Gartner survey, 95% of CIOs expect their role to change as a result of DX strategies, 78% believe it is about making their organization better prepared for change, and 29% see their most significant future role as a becoming a change leader. While the IT leaders cannot drive change on their own, by its very nature, DX requires integration with lines of business and other business functions that impact people and operations.
At MSS, we believe a core issue is that traditional change management is not sufficient for digital transformation. There is no doubt that when traditional change management methods are applied to projects, it has shown it can vastly improve adoption and utilization. One company we know that provides technology solutions for thousands of organizations saw 5X the uptake when implementing with change management in tandem with the technology. For all of its worth, though, traditional change management is not adequate to address the level of change that DX requires because it tends to focus on step-by-step processes designed for single projects, similar to project management but with different tools and language. These methods are designed for business models operating within the constraints of traditional organizational structures. But as we have discussed, DX is almost biblical in the way it breaks through these barriers and creates change which begets more change and so on, tearing down traditional structures and changing the business model.
Failure manifests under these conditions because leaders do not understand the full costs of the DX journey, nor are they able to foresee all the potential consequences. With so much uncertainty, they cannot predict the extent of change, so they do not adequately prepare the organization for it. Delays are incurred, resources are stretched, focus is lost, and resistance behaviors not only go unmitigated, but often expand. In the end, companies either cut the DX program short or limp to the end failing to improve the company’s competitive position.
The first step to managing change on a scale that DX creates is to understand that your company is changing its business model and operations, not just its technology and that it is a process that will continue far into the future. The assumption is that change management will drive adoption and utilization of technology, but this mindset understates the immense effect that it has on your business model and operations. At a minimum it requires a multifaceted approach on four levels:
While most change methods are designed to drive A to B change in a single project, Enterprise Change Management goes beyond the project level and focuses on building the capacity to carry out multiple, simultaneous changes on an ongoing basis. This means having multiple A to B projects running concurrently and continuously. At the same time, change management is lifted from a primarily administrative function to a strategic function. Structuring the organization for enterprise-level change means looking at your talent from leadership to front line managers with an eye on their capacity for driving change. How the organization views change moves from an arduous process to a strategic competitive advantage.
Change management is a discipline that has grown up over the last few decades. As a result, there are a number of approaches and methodologies that can be applied to your business situation. As stated above, most are inadequate for DX, but they can provide a basic framework to build on. At MSS, we recommend building a framework that fits your business best, tailoring it to meet your strategy, testing it on a few early efforts then optimizing and expanding it as you prepare to execute your DX strategy. The framework should be holistic and flexible to account for cultural diversity and local requirements in its application, and should include the methods, templates and tools in a central repository that is continuously updated by both change managers and users. Finally, the role of change management is to educate the organization on the framework, coach them through it, and gather feedback on its application.
Building change leader capabilities means ensuring your business and IT leaders have the skills to manage ongoing change at the Enterprise level. Leadership is, for all intents and purposes, driving change, but that does not mean that all executives are good at it. Many executives rose through the ranks because they were good at running and optimizing the status quo, but they may be lacking even the most basic change skills required for a sponsorship role. Moreover, DX requires a particular set of skills. Change leaders need to see beyond business requirements to driving desired business outcomes. This requires a combination of strategic, technological, and change management knowledge and experience that is hard to find in most individuals. Change leaders need to build competency for self-awareness, active listening and communication, making the business case for change, mitigating resistance, and driving adoption, while remaining adaptive and flexible to unforeseen consequences. And they need to do all of this at scale.
Growing a capacity for change throughout the organization is a long-term proposition, but if done right, leaps forward can be made by taking some simple steps. DX presents a unique opportunity to build the capacity for organizational change and make these leaps. To fully realize and sustain the benefits of DX, a company needs to be able to drive incremental continuous change over time and build an ability to respond to disruptive change that can arise unexpectedly. This means integrating change management mindset and skills into the organizational DNA through training, talent and structure deep into the organization, beginning with your change leader. This also means assessing talent, structure, and information flow to allow for transparency, collaboration and emergent behavior. The more agile and responsive the organization, the more likely it can turn change capacity into a competitive advantage.
Digital transformation is a massive undertaking but one that sets up an organization to tackle an uncertain but exciting future. To realize the full benefits of the opportunities that can result, organizations rely on their people to not only adopt and utilize new technology, but to see the potential of transforming the business processes, operations, and business model. Leaders and employees need to be enabled to adapt and respond to incremental as well as disruptive change, and to build the competency for managing it continuously. Simply implementing change management as a project level tool will not accomplish this. Only by thinking of change management as a strategic advantage on an enterprise level and building an organizational competency for change will the full opportunity be realized.