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Beyond digital transformation: What’s next?

DIDIER C. L. BONNET

How often have you heard senior executives stating that “digital transformation is not a project but a never-ending journey?” At one level, it makes sense. After all, there will always be another wave of technological innovation that will have the potential to improve an organization’s performance even further. But, strictly speaking, when you look up the definition of journey in the Oxford dictionary, it describes it as “The act of traveling from one place to another,” strongly implying that there is indeed a destination at the end of the journey.¹

So, who’s right and who’s wrong? Are you destined to endlessly move your organizations through perpetual cycles of digital transformation? Or is there indeed a destination, an end-game, to your digital transformation efforts?

Our research shows that the end game of digital transformation might be a bit more nuanced than those diverging questions would imply.²

It’s clear that the relentless pace of technology innovation will not slow anytime soon. Innovators and engineers will continue to do a great job of bringing us ever more sophisticated technologies. That’s great news. Moreover, we believe that the pace of technological innovation will probably accelerate, providing us with endless opportunities to improve the way we operate and manage every corner of our organizations. Technological heaven, then?

Yes — but for some, it can also be a rather scary thought. Many executives know how hard it is to succeed at digital transformation, and many others have already failed. We’ve seen many large firms struggle through the first two phases of digital transformation. First, digitizing their existing operations and second struggling even more to use digital technologies to transform the way they relate to customers, improve operational performance and equip employees to work more effectively. After a decade of digitally transforming our organizations, you would have thought this would have become mere table stakes. But the game has moved on. Today, we’re at the cusp of a third stage in digital transformation. A stage that requires firms to shift to new business models, fully connect and automate their operations and augment employees’ capabilities through human-machine collaborations.

Yet again, we are hitting a traditional brick wall when it comes to the relationship between technology and organizations. That is, the progress and performance of digital technology might improve exponentially, but the speed of transformation of our organizations and institutions is anything but. So, what can be done to close that gap? Do we assume this is just the way the world is? For the sake of a bright digital future for our organizations, we shouldn’t.

Changing our mindset for what’s next

There’s no question that digital technology has provided a seismic shift in the performance of our organizations, in individuals and entire societies. But is digital transformation a perpetual phenomenon in today’s corporate management? At some point, everything should become digital, right? Hence, one of the most common questions I hear from executives about digital transformation is what’s next?

Many executives, academics and consultants are looking for the holy grail of the post-digital world or for a “third shift” from the industrial age to a digital age to some other age. The common answer to the what’s next question is all too often expressed through another wave of technological prowess. Quantum computing, cognitive computing, distributed ledgers or ever more “intelligent” artificial intelligence algorithms. Problem is, most analysts, or self-proclaimed futurists, revert back to technology as the central framing mechanism for the future of digital transformation. And, as much as technology progress is critical, we believe this is wrong.

When we look at economic history, we find that every technological revolution has been followed by organizational transformation. With steam power, work shifted from home to factories, with significant scale economies. With the electric motor, energy sources could be decentralized enabling autonomous and more efficient ways to manufacture goods. Frederick Taylor then laid the principles for scientific management by optimizing and standardizing work. So, why are our organizations today still structured and continue to work and operate roughly in the same way as they did in the 1960s?

The coming years will witness digitally-driven changes in the business world that make everything we’ve experienced in the early days of digital transformation look like the opening act. And, beyond the prowess of technological development, it is organizational and work adaptation that will represent the biggest change for our businesses and our people. We’re not there yet by any stretch of the imagination. But what’s clear is that it is organizational and managerial innovation that is today the missing link to extracting the maximum productivity from the digital revolution. It won’t happen overnight, but it is the key to transitioning to what’s next.

The digital organization destination

The holy grail will indeed be the process of graduating from digital transformation to a digital business. More specifically, the ability for corporations to make the “act” of digital transformation second nature.

What we’ve learned in the last decade is that both the main accelerators and the main hurdles of digital transformation are not about technology but about leadership, people, organization structures, incentives, culture or internal politics. It’s the softer (but the harder, i.e. more difficult) side of the equation that will propel organizations to the ultimate stage of digital transformation, that of becoming a digital organization.

When digital transformation becomes business-as-usual for your organization, for your people and your customers, you’ll be there. In other words, it will become transparent in the way you run your organization, manage your people or leverage new waves of technological innovation. It does not mean that you will cease to work with physical assets or people, it means that your business and operating models will be built on a foundation layer of digital processes and data. A digital bank may still have branches, but behind the scenes you will find a set of digitally-enabled operating procedures that ensure the customer experience will be consistent across all channels.

It’s about a new organizational DNA anchored around digital mindsets, practices, capabilities and behaviours. We have not yet found the exact organizational and work structures that will allow companies to fully leverage and profit from the digital revolution. There are, unfortunately, no silver bullets to becoming a digital organization. It’s hard work, and will be a long-cycle transformation. But luckily, we have a few pointers toward the destination.

On becoming a digital organization³

Powerful digital technologies, ubiquitous data and advanced algorithms offer new strategic choices for products, services and business models. But at the same time, these technologies also present new organizational choices for designing, coordinating and managing people and work. The narrative on digital transformation, to date, has placed relatively little attention on the organizational challenge of executing our chosen digital strategies.

Business leaders get bombarded with advice such as “act like a start-up,” “be agile and adaptive” or “Uberize yourself.” But how useful is this advice when you run a large complex organization? Although we have a better understanding of the characteristics of a truly digital business, leadership is about developing the version that works for your organization. Your culture, leadership style, organizational structure, complexity and globality matter in how you craft your path to a digital organization. Most large firms are not known for being nimble and agile. So how can these organizations develop the corporate agility required to become a digital organization and compete effectively and sustainably?

Previous research shows that becoming a digital organization is about reaching a sustained organizational ability to rapidly adapt and self-organize to deliver value through emerging technologies.⁴ It requires rethinking how you organize as well as how you operate in new and productive ways. It also requires an adaptive workforce. This isn’t easy. Becoming a digital organization remains an aspiration for most firms. Our research shows that most organizations are in a state of transition. Even among traditional firms that are mature in the execution of their digital transformation, only seven percent are close to becoming a true digital business.⁵ There’s no off-the-shelf answer, but there is a blueprint.

The cadre of companies that have reached the status of digital organization exhibit a number of common characteristics — a new digital DNA: A “digital mindset”; a digitally-savvy and technologically augmented workforce; data-driven decision making; and an ability to self-organize and orchestrate work at scale. A tall order indeed. (Figure 1).

Figure 1: Becoming a Digital Business

This destination is more a marathon than a sprint and, at times, can be uncomfortable. It requires tenacity and resilience. Foremost, it requires strong leadership to steer the course and keep the organization focused on the end goal. But it’s worth the effort. Digital organizations are able to adapt to narrow windows of opportunity or respond to significant external events quickly. In other words, digital transformation, as an orchestrated process, will no longer be required.

A Developed Digital Mindset: Digital transformation has made business transformation and technology intrinsically linked. A positive and proactive attitude toward digital possibilities is particularly important. In digital organizations, an instinctive “Digital Mindset” is evident in how people throughout the firm explore digital solutions before traditional process-based ones, systematically using digital tools and data analytics. It’s about challenging the status-quo and constantly looking at technology as a way to remove traditional operational and competitive constraints. It favors using technology and a zero-based approach to problem solving, automating tasks to the extent possible, and encouraging digital experimentation and innovation. Challenging existing industry norms, excelling at open innovation, being hyperaware of the external environment, and becoming more agile as an organization are some of the ways to get to a digital mindset.

Richard Fairbank, Capital One CEO, noted: “Digital is who we are and how we do business. We need to make digital how we do business not only with our customers, but also how we operate the company.”⁶ As employees experience and publicize successes with a “Digital Mindset” approach, positive attitudes cascade and spread through the larger organization.

Digitally Savvy and Augmented Workforces: Raising the digital IQ and developing key skills in an organization have been key challenges in digital transformation. They become a must-have when operating as a digital organization. And it’s not a one-off. The need for continuous learning becomes greater, not smaller. Reinventing how we enable continuous learning, at scale, for our employees is paramount — and a major transformation for our existing HR and learning functions. Digital organizations also demonstrate an elevated organizational capability to use tools and data to dynamically deploy and reconfigure both human work and capital resources at speed.

Then there is automation. As a rule, digital organizations default to automating core processes, especially repetitive and unproductive tasks. But the bulk of existing jobs are not displaced, they are augmented. Automation takes away much of the tasks that used to bog down workflows, leaving humans to focus on more fulfilling and relevant tasks. Human-machine collaboration becomes greater than the sum of the parts. Robin Bordoli, CEO of machine learning company, Figure Eight, described the potential as follows: “It’s not about machines replacing humans, but machines augmenting humans. Humans and machines have different relative strengths and weaknesses, and it’s about the combination of these that will allow human intents and business process to scale 10X, 100X, and beyond that in the coming years.”⁷ For instance, in radiology, computer-based algorithms have increased the productivity of diagnosing simple cases but, more importantly, are assisting medical professionals to concentrate on the most complex diagnoses. A better outcome.

Data-Driven Decision Making: Oftentimes in digital transformations, people are enthusiastic about big data and the power of analytics to support strategic decisions. Truth is, most of us believe strongly in our own powers of intuition. And this is not a bad thing — human judgment still matters in digital organizations. Jeff Bezos, founder and CEO of Amazon, commented that there are two types of decisions: “There are decisions that can be made by analysis. These are the best kind of decisions. They are fact-based decisions that overrule the hierarchy. Unfortunately, there’s this whole other set of decisions you can’t boil down to a math problem.”⁸ So, business judgment will not completely disappear in the digital organization (probably a good thing), but the primary default mindset is clearly fact-based — from customer to operational to people decisions. It even extends to the way you innovate and conduct experiments. Of course, to become data-driven in your decision making, you need access to quality data timely, accurate and complete.

Good data aids employees in improving internal business operations and responding effectively to customer demands. To truly leverage the investment in digitization, organizations must use their accumulated data in systematic analyses that drive important strategic decisions, as well as to monitor and refine internal processes. Data enables digital organizations to be more tightly orchestrated and controlled than ever before. And, paradoxically, this is a prerequisite to more employee autonomy. As employees and management realize the benefits of data-driven outcomes, they use fact-based approaches more consistently, creating a virtuous cycle.

Self-organizing and Orchestrating Work at Scale: Organizational design is not a perfect science. Over time, whichever way you organize, silos will reappear. Of course, the first trick is to organize so as not to entrench silos along reporting lines or functional domains. But whichever way, digital initiatives, to be successful, will cut through your organizational construct. Digital organizations display an ability for team and work fluidity. It is based on collaborative learning. Teamwork and partnering to solve problems without regard to discipline, geography, ownership or other traditional parameters, and ensuring insights and solutions move rapidly and readily across boundaries. Organizational leaders help by setting clear goals, encouraging boundary-spanning collaboration, providing liberal access to relevant information, and then trusting their employees to bring their best expertise to bear for each challenge. Is this just about agile programs? No. It goes way beyond agile processes and tools. In digital organizations, agility and nimbleness are embedded in the DNA and the mindset of how work is carried out and how people come together, interact and collaborate. With tighter synchronization and control through data and analytics, digital organizations can confidently give more autonomy to their people. It’s the shift to higher levels of self-organization.

Chinese company Haier, the world’s largest appliance maker, took digital transformation a step further by innovating its organizational model to mimic the architecture of the internet. The company is organized around 200 customer-facing micro-enterprises and over 3,500 service and support micro-enterprises. It took Haier the best part of 10 years to redesign its core workflows and change workforce mindsets to make it work. But it has paid off. Chairman and CEO, Zhang Ruimin, explains what drives the success of micro-enterprises: “Successful micro-enterprises have three characteristics. First, they are very entrepreneurial and very good at identifying, developing and seizing new market opportunities, so that they can develop those markets and seize the opportunities. Secondly, they are very well self-organized. They are also very open to inviting people from outside their organization to join them in their research and development. The third characteristic is that these successful micro-enterprises are self-driven and very motivated. They are always looking for the next opportunity to grow.”⁹

Reaching the level of a digital organization has two important corollaries. First, digital organizations have porous boundaries, with an ability to access and source talent externally quickly and efficiently be they machine learning experts from a top university, software solution innovators from start-ups, or coders from the gig economy. Second, internally, digital organizations are able to deploy resources and expertise flexibly where customer or operational opportunities exist, beyond organizational boundaries, P/Ls or budget cycles. When such a level is reached, workforce engagement and intrapreneurship become outcomes.

How far is your business from becoming a digital organization? Ask yourself the following questions:

• How far do you think your organization is from having a digital mindset?
• How digitally savvy is your workforce? Are you thinking about how automation can augment the value-added of work within your organization?
• Do you have the data and the mindset needed to be data-driven in your decision making?
• What is the ability of your workforce to self-organize across traditional boundaries?

If by now you’re feeling depressed by the size of the challenge you’re facing, don’t be. You’re not alone. Most organizations are transitioning towards a digital organization, but few are there yet. What’s important is the ability to gauge progress. There are clear signals that can help you know whether your organization is moving closer. For instance, when digital solutions come first in problem-solving, or when collaboration and sharing takes over from managerial coordination, there is no more need for separate digital governance.

What’s important is the aspiration and the drive to steer your organization ever closer to the edge of the digital organization. It’s about leadership. However, leaders cannot mandate the development of values and norms such as collaboration, self-organization, and fact-based decision making. But they can cultivate the conditions that encourage new mindsets and practices through, for instance, role modeling and encouraging cross-silo collaboration or practicing and requiring data-driven decision making. And sometimes, it needs a level of organizational surgery to make it work.

So, is there an end to the perpetual need to transform organizations? Most likely not. Business transformation is a leadership and managerial endeavor that will remain important in a constantly changing competitive world. But is there a destination for your digital transformation efforts? Most definitely yes. Working at becoming a digital business will allow you to close the gap between the relentless progress of digital technology and the ability of your organization to profit from these new technology-enabled ways of working. It’s about organizational and managerial innovations and it has become as important, and probably even more, for digital transformation success than a sole focus on technology innovation.

About the author

Didier Bonnet is Affiliate Professor of Strategy and Digital Transformation at IMD. Professor Bonnet’s research, teaching and consulting interests focus on digital economics, digital strategy, disruptive innovation and the process of large-scale digital transformation for global corporations. He is the co-author of Leading Digital: Turning Technology into business Transformation (HBR Press, 2014) and Hacking Digital: Best Practices to Implement and Accelerate your Business Transformation (McGraw Hill, 2021).

Footnotes

1     https://www.lexico.com/definition/journey

2     M. Wade, D. Bonnet, T. Yokoi & A. Obwegeser, Hacking Digital: Best Practices to Implement and Accelerate Your Business Transformation (McGraw Hill, 2021).

3     Adapted from M. Wade, D. Bonnet, T. Yokoi & A. Obwegeser, Hacking Digital: Best Practices to Implement and Accelerate Your Business Transformation (McGraw Hill, 2021).

4     D. Soule, G. Westerman, D. Bonnet & A. Puram, “Becoming a Digital Organization: The Journey to Digital Dexterity”, SSRN 2697688, 2016.

5     D. Bonnet et al, “Organizing for Digital: Why Digital Dexterity Matters”, Capgemini Consulting research paper, 2015.

6     Capital One Q4 2013 earnings call.

7     https://www.salesforce.com/video/1718054/

8     B. Girard, The Google Way: How One Company is Revolutionizing Management as We Know it (No Starch Press, 2009).

9     “For Haier’s Zhang Ruimin, Success Means Creating the Future”, Knowledge@Wharton Podcast, 2018.