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April 3 - May 6, 2020
Executives cannot simply impose change on organizations, yet grassroots change is unlikely to be sustainable without strong executive support.
As we searched for a way to frame our research insights and guidance, we found ourselves returning repeatedly to a familiar story from our childhoods, the story of the Wizard of Oz. Most of us know the 1939 MGM movie that made a star out of sixteen-year-old Judy Garland. The film’s famous lines, including “There’s no place like home” and “Toto, I’ve a feeling we’re not in Kansas anymore,” are well-known staples of popular culture. The Wizard of Oz story is the story of Dorothy, a young Kansas farm girl, who, after being knocked unconscious in a cyclone that carries her house to the land of Oz,
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Why aren’t companies responding with greater
urgency to the threat of digital disruption? Executives may not understand enough about technology to make the changes or to understand the urgency necessary. Board members and investors may care more about short-term profits than the long-term viability of the company. Many leaders may be just counting down the years to retirement, and thus they don’t have the energy or the interest to engage in the types of changes necessary to adapt the company for a future in which they will not participate.
the most common reason we encounter is that companies are simply trying to balance too many competing priorities. It’s difficult to keep the current business running...
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“Why do so much education and training, management consulting, and business research and so many books and articles produce so little change in what managers and organizations actually do?” They assert that the first step in resolving the gap is focusing on “why before how.” They argue that “too many managers want to learn ‘how’ in terms of detailed practices and behaviors and techniques, rather than ‘why’ in terms of philosophy and general guidance for action.”1
Why respond to digital disruption? Put simply, the emergence of new classes of technologies, such as social media, mobile technologies, big data analytics, artificial intelligence, blockchain, additive
manufacturing, autonomous vehicles, and augmented and virtual reality, change what is possible for business. Leaders who want to maintain advantage, discover new opportunities, and better serve their customers will leverage the opportunities provided by these technologies to do business differently. Yet, leveraging these technologies amid a rapidly evolving digital infrastructure requires some fundamental shifts in how companies are organized.
Competency traps are beliefs that the factors of past success will also lead to future success. Technology is changing the competitive landscape—providing new ways of delivering value to customers and new service opportunities—and past success factors may not be associated with future success.
In the 1990s GE became known for its adherence to a process known as Six Sigma, a set of techniques for reducing the error rate in manufacturing processes to 0.00033 percent.
Six Sigma was a key factor associated with GE’s success during the 1990s and early 2000s.
The process is not conducive to the types of agile responses to environmental shifts that characterize the world of digital business.
To address the need for faster change and agility, GE has developed a complementary approach known as FastWorks, which combines Lean Startup principles (created by Eric Ries) with GE’s size and resources.
First, GE leaders introduced new company values, which are “customers determine our success; stay lean to go fast; learn and adapt to win; empower and inspire each other; and deliver results in an uncertain world.”
Second, they redesigned the performance-management system. “We moved away from our annual, traditional performance-management process to a more continuous and fluid system that is in sync with the FastWorks way of working and with the GE Beliefs mindset.”
Another key reason for the disparity between awareness of and action on digital disruption is that many executives simply don’t understand how quickly this threat may emerge.
By the time that evidence appears, however, it may be too late.
The biggest threat that respondents reported falls under internal organizational issues, such as complacency, inflexible culture, and lack of agility. In other words, the biggest threat of digital disruption is in the organization itself—that the company would be either unable or unwilling to change fast enough to respond to the threats posed by digital disruption.
The second most common difference is mindset and culture. These responses centered on the need for changes to organizational culture, but descriptions of these changes were not entirely positive. Respondents said that these cultural shifts create tensions with employees who have a more traditional mindset.
The third most common difference respondents describe relates to organizational structure: the need for a flexible, distributed workplace. Part of this is about collaboration, how decisions are made, and how teams are organized.
this topic in greater depth in chapter 12. Finally, the fourth most cited difference was productivity, which can be a double-edged sword. According to John Hagel, co-chair of Deloitte’s Center for the Edge, “If you’re truly going to accelerate performance improvement, you have to stop focusing on efficiency. If it’s just efficiency, that’s a diminishing-returns game. The more cost effective and faster you are, the harder it’s going to be to get to that next level of efficiency. But if you focus on effectiveness, on impact, on value delivered to whatever the arena is—the sky’s the limit. That’s
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digital maturity—defined as an organization where digital has transformed processes, talent engagement, and business models—
The key for older, legacy organizations is to identify and work around the organizational inhibitors that keep them from learning and to foster a culture of learning and a
growth mindset in the organization
Technology changes faster than individuals can adopt it (the adoption gap); individuals adapt more quickly to that change than organizations can (the adaptation gap); and organizations adjust more quickly than legal and societal institutions can (the assimilation gap). Each of these gaps poses a different challenge for companies.
Adoption Adoption describes the gap between the rate at which technology changes and the rate at which individuals make those changes a part of their daily lives.
In the seminal work of Everett Rogers,2 he labeled innovation adopters based on various rates and phases: innovators, early adopters, early majority, late majority, and laggards.
Adoption will continue to be an issue for companies using expensive technologies that only organizations can afford, but for most technologies, the problem lies elsewhere. Most organizations don’t need to drive further adoption; they need to adapt to the facility individuals have already built with these tools.
At the other end of the spectrum, assimilation refers to the gap between how many organizations use technology and the laws and regulations that societies agree on to govern that use. Laws and regulation usually lag actual use, and this poses a different set of challenges for most companies.
Between these two gaps of adoption and assimilation lies the most critical gap facing nearly every organization today—adaptation. Adaptation is the gap between how the majority of individuals want (and expect) to use technology to engage with companies and how companies have adapted to support those interactions.
employees have become increasingly frustrated by the gap between what they are capable of accomplishing with technology in their personal lives and what they can get done at work when they are limited to email and nonmobile computing.
absorptive capacity. They define absorptive capacity as an organization’s ability to identify, assimilate, transform, and use external knowledge, research, and practice. In other words, absorptive capacity is the measure of the rate at which a company can learn and use scientific, technological, or other knowledge that exists outside the firm.
Absorptive capacity also depends on how an organization learns about the external environment and how different parts of a company transfer information to one another.
Expand talent diversity with a goal of increasing prior related knowledge. The challenge here, which we take up in chapter 9, is how to attract the right kind of individuals. Augment the prior knowledge base of individual employees by providing them opportunities to develop skills for working in a digital environment. Enhance the organization’s mechanisms (e.g., sensing systems) for more effectively acquiring knowledge from the external environment, thereby increasing the firm’s knowledge base. Increase the velocity of internal information flows through initiatives that range from employee
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encourage serendipitous exchanges among employees. Focus on helping employees understand the “why” that Pfeffer and Sutton believe is so important to closing the knowing-doing gap.
the organization needs to learn how to learn.
“Transformation” is a powerful term, conveying a sense of dramatic (as opposed to incremental) change.
Yet,
we have come to believe that the term “digital maturity” may be much more helpful for organizations seeking to understand how to engage effectively with a fast-moving and continuously changing environment.
We define digital maturity as aligning an organization’s people, culture, structure, and tasks to compete effectively by taking advantage of opportunities enabled by technological
infrastructure, both inside and outside the organization.
Although adopting digital platforms is necessary for the alignment needed in the emerging competitive digital environment, the use of such platforms alone is not sufficient for digital maturity.
To navigate the complexity of contemporary business, companies should align their culture, people, structure, and tasks with one another and with the digital environment so that executives can effectively address the challenges of a constantly changing landscape
Maturity has five elements relevant to digital environments:
Maturity is a gradual and continuous process that unfolds over time.
companies may experience different challenges at different stages of their development, and they can always continue to grow and adapt to become even more digitally mature.
Gradual maturation should not be confused with less significant changes.
As your company becomes more digitally mature, you may find that you need to do business in very different ways.
Organizations may not fully know what they will eventually look like when they begin to mature.
Even though many organizations cannot describe what a digitally mature version of themselves will ultimately look like, it shouldn’t stop the process from beginning.
