How do corporations succeed in digital transformation? Many managers mistakenly believe that it involves implementing a few technical digitization projects to upgrade their business. The truth is you need far more than new technology to achieve success.
The key to real digital transformation lies in formulating the right strategies, displaying strong leadership, and adopting new modes of thinking within organizations, notes David Rogers, Faculty of Executive Education at Columbia Business School and a globally recognized leader on digital business strategy and leadership.
Rogers is best known for his international best-seller The Digital Transformation Playbook (2016), which put the topic on the map. It aims to help companies rethink strategy for legacy businesses and has been translated into over a dozen languages, providing invaluable guidance to companies spanning diverse industries and geographical locations.
In his new book The Digital Transformation Roadmap, published Sept. 5, Rogers tackles the other side of digital transformation: organizational change. The book provides a practical blueprint for leading change, using case studies of leading brands that have cracked the code on digital transformation, and includes step-by-step planning tools.
Working alongside business leaders in the years following The Digital Transformation Playbook’s release in 2016, Rogers says he has noticed a shift in mindset among companies.
Early on, only a few industries were focused on transforming themselves for the digital era, and they believed that the hardest parts would be technology and resources. Today, the mindset is very different. There is a universal understanding that digital transformation is imperative for every company. But many companies are struggling to achieve success after embarking on digital transformation and dedicating resources towards it. The biggest challenges they face is changing the organization itself.
We recently met with Rogers to discuss the state of digital transformation and to gather insights about how companies can succeed in the ever-changing digital business environment.
CBS: Tell us about the state of digital transformation today.
David Rogers: What I’m seeing is companies are really struggling with their digital transformation efforts. In fact, all the major studies have found that roughly 70 percent of companies regard their own digital transformation efforts as a failure. That’s because this truly requires a holistic approach. It’s not enough to simply rethink your strategy based on digital principles. You have to also transform your organization. And that turns out to be incredibly hard, especially for larger, complex organizations.
The more complex the enterprise, the harder it is to drive rapid change. Complexity comes from headcount. It comes when you have multiple lines of business serving different types of customers. And complexity comes from geography, when a company operates in multiple locations with different regulations.
This kind of inertia is just not sustainable today. Every company sees the accelerating pace of change, from new technologies, new customer behaviors, even new demands from employees.
This tension is why I decided to write The Digital Transformation Roadmap. The book looks at why organizational change is so difficult, what are the underlying barriers, and what can we learn from the exceptional companies that drive real, transformative change and use digital to create real value for the market and for their shareholders.
CBS: What are the biggest barriers to digital transformation success?
Rogers: My research shows there are really five barriers to digital transformation that hold companies back: lack of a shared vision, lack of defined priorities, absence of experimentation, lack of governance flexibility, and trying to transform without changing an organization’s capabilities.
The lack of a unique, shared vision is very common. I see many, many companies try to embark on a digital transformation with only the most generic explanation of what it means and why they need to do it. They may say they want to be “a digital-first company,” or they want to “future-proof” their organization. These generic terms could apply to any business, and they give no direction whatsoever to the company.
Many companies also attempt digital transformation without establishing clear strategic goals. This results in scattered digital projects across the organization with no coherent focus or direction. In other cases, companies are focused solely on cost-cutting and efficiency, and they miss the potential for digital growth opportunities.
Experimentation is another stumbling block. In the digital era, organizations must learn to rapidly test and validate new ideas in the market, seeking cheap and quick methods to obtain direct feedback from the market. Many organizations, however, still engage in lengthy planning processes, writing business cases based on fictional projections and relying on outside vendors and third-party data. This approach is terribly ineffective in periods of rapid change.
Lack of flexibility in governance holds many companies back. Companies like to stick to their business-as-usual approach to resource allocation, to people, to metrics, and to compliance. These management methods have been developed over many years to suit their core business, which they know so well. But now they’re trying to apply that same governance to very different kinds of digital opportunities. When that happens, governance holds back any change, and it disempowers people in the organization.
Finally, companies that try to transform without changing their capabilities are bound to fail. You can’t transform an organization while leaving in place the same technology stack, the same skill set in its people, and the same culture that accrued over time in a very different context and era.
If you don’t tackle these five barriers, you will not be able to make lasting change and digital transformation in your business.
CBS: Are there any examples of companies getting this right?
Rogers: Yes. Walmart is a great example of a company that has been able to move beyond the way they've run their business in the past. They're not simply trying to use new technology to keep doing what they've always done. Companies like Walmart are thriving in the digital age because they try to re-imagine what markets they serve, recognize that they have new competitors, and focus on meeting new customer needs.
Not long ago, Walmart was being written off as a relic of the past, certain to lose its market dominance to Amazon. There was a misjudgment of where consumer behavior was going to evolve. Retail did not shift from physical stores to entirely online, but instead to a more omnichannel behavior where consumers move back and forth between in-person and online shopping.
Walmart has done a really good job of focusing on that opportunity, understanding the change in customer needs and being willing to experiment. For example, they’ve done a really good job of getting into general e-commerce and clinching the number-two position in some major markets. But they knew they were not going to overtake Amazon in its bread-and-butter general e-commerce, in which it was already too well established.
But Walmart saw that groceries as a very important category in retail because of the frequency of purchase and how it influences other purchases. And they also recognized that this is a category that traditional e-commerce would struggle with because of the need for the freshness of the goods, and the speed of delivery.
Walmart didn't come up with one big plan for digital groceries and say, “This is how we go to market.” Instead, they focused on understanding the customer’s needs and the business problems involved in meeting those needs. And then they tried different models to meet those needs, asking of each one how they could price it so that customers can afford it, but also so that it’s sustainable for Walmart. Because they understood that they’re not some venture capital funded startup that can lose money for 10 years, hoping there’s a slim chance of turning a profit at some point. And given their size, any digital approach to groceries would have to scale quickly, for it to matter to Walmart as a whole.
They've done a great job of learning and iterating as they've moved ahead. They found that there was a real market for a model where customers pay an annual membership fee to receive free grocery delivery for the whole year, sort of like Amazon Prime, and receive additional benefits in physical stores. Other models have worked too, like a free service where you order online and drive by Walmart, where they bring out your groceries to your car. They even have a premium delivery service, where Walmart puts the groceries away in your cabinets, which customer love!
CBS: How can companies successfully change their culture to support digital transformation?
Rogers: Every organization I know has found that they need to make one or more big culture shifts in order for digital transformation to take hold. For many companies this is about becoming more data-driven in your decision-making. For others it’s about becoming more collaborative across silos and divisions that have grown isolated over time. Often, it’s becoming less risk-averse and more comfortable with experimentation, and not relying so much on laborious planning. Very often, it is about becoming more bottom up, a company where employees are empowered to make decisions at every level of their work. These are some of the classic shifts in culture that are critical to bringing organizations into the modern era so they can really thrive in this much more dynamic environment.
If you’re wondering how to do this, start by looking at the digital native businesses that we admire because they have been so adaptive. At Google, Netflix or Amazon, the leaders of these companies are laser focused on defining what their culture is, and then rooting that culture in behavior. It's not just a bunch of lofty words and principles, it's actual behaviors that people follow and that guide them in their day-to-day work in the company.
Amazon, for example, as it has grown from a fast-growing startup to the second-biggest employer in North America, has focused not just on defining its leadership principles, but also on how you create day-to-day processes that help support those same principles.
For example, years ago Amazon changed the way it runs internal meetings. Because Amazon is focused on pushing its people to be data-driven, to make decisions based on experimentation, testing and learning, they banished PowerPoints from their internal meetings. What you're required to do instead is to write what's called a six-page narrative. And there's a very rough template to guide you in writing this. But it has to be written in narrative language where you lay out an explanation of what you're proposing and why you think it'll make a difference. You have to present data in favor of your argument, and you also have to present data arguing against your argument. So the process is really designed to change the way decisions are made.
And then when you actually get to the meeting, the start of the meeting is spent in silence. Everybody at the table reads the six-page memo at the same time. Because Amazon learned that if you send the memo out in advance, people are busy and a lot of people will not read it, and they'll come to the meeting and sort of bluff their way through. So, after everyone's had a chance to read the memo, the discussion begins.
The whole point of setting up this process is to change how decisions are made, and that's really been a critical priority for Amazon as they've thought about defining the culture that they want to have at scale.
CBS: What new factors are at play in digital transformation?
Rogers: The growth of generative AI, and the shift toward work from home that we've seen since the pandemic, are both playing into digital transformation in somewhat different ways.
Generative AI is still in its early days. There's a lot of excitement about it, but I would argue that the real applications that are going to deliver significant value to businesses, customers, and society are not yet clear. We are still in the early days of understanding what kinds of problems this will be most helpful with.
Work from home is a trend that, among other things, is accelerating the need for organizations to reinvent themselves, to rethink what the job of a leader is, and how they effectively empower their employees.
It is no longer tenable to manage large organizations in the way we did in the 20th century, which was a top-down, command-and-control model that was originally developed in the military. That simply doesn't work in an environment where things are changing as fast as they do in the modern world.
Work from home makes the need for change more apparent. If your employees are not in the same place, the real challenge of work from home has nothing to do with Zoom or technology or scheduling meetings. The real problem is that leaders have to actually know what they want people to achieve. You cannot manage someone remotely unless you can define what they're working on and what success looks like, and how you and they will know if they're succeeding in what they're supposed to be doing. So it’s not about measuring activity, it's about measuring outcomes.
Recently, we’ve seen a sort of panic and rush to get everyone to return to work in person. But there should be good reasons to be in a physical space together. What are we working on? What parts of that do we do better in person—significantly, measurably better than we do collaborating remotely? That is how you should make decisions about when you are in physical spaces together and when you are not.
To my mind, work from home is great in that it's been a wake-up call to organizations for something that they already needed to do, and that I've been preaching: that you have to shift the organization model from top-down management, from command and control, to a bottom-up process where everyone understands what they're actually trying to achieve and is given more autonomy as well as accountability for whether or not they're achieving it. That’s when we start to see real change happen.