​The Human Side of Transformation

Leadership and experimentation are key elements of digital initiatives.

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​More organizations are making strides with digital transformation initiatives, but the human side is proving difficult, according to new research from MIT Sloan Management Review (MIT SMR) and Deloitte Digital. Just one-fourth of survey respondents in The Coming of Age Digitally report say their organization is in the early stages of digital transformation, down 9 percentage points from the 2017 study.

Forty-four percent say they are at the developing stage, while 30 percent describe their organizations as maturing. The researchers surveyed 4,300 managers, executives, and analysts in 123 countries for the study.

Leadership is a key characteristic of digitally mature organizations. These organizations are "four times more likely to be developing needed digital leaders than the least digitally mature" organizations, the report states.

Digital transformation requires empowered and collaborative leaders, says David Kiron, executive editor of MIT SMR. Effective digital leaders provide vision, enable experimentation, encourage people to think differently, and facilitate collaboration throughout the organization, the report notes. "That typically requires a new mindset around leadership and learning for all employees," Kiron explains.

Yet, more advanced organizations aren't complacent. More than half say they need new digital leaders.

Productivity Gains Slow

Despite their progress, organizations may need a reality check about the immediate benefits of transformation projects. A new McKinsey Quarterly article points out that digitization isn't yet creating productivity growth. The article notes that many companies that are investing in innovation and adapting their businesses "are still trying to understand how to make the most of digital technologies."

The article cites a McKinsey survey of global companies in which respondents described only a few business activities, products, and services as digitized. The study attributed this to adoption barriers, lag effects, and transition costs. Moreover, organizations undergoing digital transformation report their own digital products and services have cannibalized 17 percent of the market share from existing core products and services.

Historically, though, a delay in productivity growth is to be expected. For example, U.S. productivity growth lagged during the beginning of the computing revolution in the 1970s and 1980s, until it picked up in the 1990s.

The article suggests there are unrealized digital opportunities in industries such as automotive, retail, and utilities. It estimates productivity will rise 2 percent annually over the next decade, with most of the new growth resulting from digitization.

Digital Characteristics

There's still work to be done before organizations can realize those digital opportunities. And much of that work is about people, not technology.

The MIT SMR/Deloitte Digital report identifies some characteristics of more digitally mature organizations. Most push decision-making down the organization, although not as much as CEOs believe. Although most CEO respondents say this is happening, just one-third of vice presidents and directors agree. However, the researchers say their evidence suggests "employees may be reluctant to step up and assume their roles as digital leaders."

Another characteristic of digitally mature organizations is a fast, flexible, and distributed workplace, with "a different culture and mindset than traditional businesses." The rapid pace of business is the biggest difference respondents cite about digitalization. That pace forces organizations "to act and respond faster than they ever have before."

To compete, organizations will need to change how they operate, the report suggests. Respondents say they will need to learn to experiment, take risks, and deal with ambiguity.

They will need new skills, too — which is turning into a roadblock. Ninety percent of respondents say they need to update skills each year, while half say they must do so continuously. But about one-third say their organizations don't support skill development. Part of the problem may be the organization's reliance on formal training, when employees may learn better on the job.

This skills issue applies to the organization, itself. Established organizations often assume the factors that led to past success will apply to digitalization. Yet, those success factors may not apply to the changes wrought by today's digital technologies, the report notes. Organizations that don't overcome these "competency traps" may be vulnerable to new competitors.

Learning to Try

Perhaps the greatest problem digitalization efforts face is the organization's inability or unwillingness to experiment. The report finds that digitally mature organizations are more likely to experiment and make iterative changes.

Think about technology innovators. The most successful innovators are working on improvements constantly, even before the next version comes out. They are open to disrupting their own products if they invent something better. The mentality is "Try something and see if it works."

That's not the traditional business mentality, nor one with which leaders may be comfortable. "Traditional companies often struggle with experimentation because fear of failure is part of their organization's culture," says report co-author Gerald Kane, a professor of information systems at Boston College. But they can change by embracing experimentation.

Specifically, the report says organizations that learn and innovate through experimentation "encourage new ideas to be shared and tested at all levels of the organization." They learn to work in new ways and encourage people to share feedback about failed experiments.

Compete Now and in the Future

But experiments by themselves aren't the objective. Organizations need to build on experiments to drive change throughout the organization, the report advises. Moreover, they must balance innovation with existing competencies and practices. "Established companies must find ways to experiment to compete in the future, while also maintaining the core business to remain competitive in the present," Kane says.

Tim McCollum
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About the Author



Tim McCollumTim McCollum<p>​​​​Tim McCollum is <em>Internal Auditor</em> magazine's associate managing editor.​​</p>https://iaonline.theiia.org/authors/Pages/Tim-McCollum.aspx


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