Digital transformation – time to burn the boats?

paper boats

Written by Professor Alan Brown, Professor in Digital Economy, Exeter Business School

There is no doubt that the current crisis is having a major impact on organizations of all sizes, styles, and maturity. Navigating the choppy seas of today’s fight for survival will soon lead to a desperate search for calmer waters where they can repair damage, take stock, and plan for the next step forward. So it was a surprise to me when in a discussion last week with an experienced business strategist who has spent many years advising Large Established Organizations (LEOs) on delivering organizational change, he declared that nothing about the current pandemic crisis will cause a meaningful shift in their strategy. He argued that the past few weeks will perhaps accelerate a few of the initiatives already in play. But fundamentally nothing would change. I was astounded by this view. But is he right?

The global economy is struggling to cope with the unprecedented challenges of the last few weeks as we proceed from shutdown to lockdown to an inevitable slowdown. The strategies and operational plans that seemed appropriate at the start of 2020 have now been cast aside. Financial projections and promises to shareholders have been torn up. But I would argue that we have seen a deeper, more long-term change. Something that I would refer to as a recalibration of the fundamentals of business and entrepreneurship.

Large Established Organizations get comfortable operating in a certain way and surround themselves with structures that reinforce existing ways of thinking and working. As Clayton Christensen famously summarized for us in his “innovator’s dilemma”, organizations will continue doing the things that made them successful even to the point where that behaviour is harmful. The challenge with any transformation, digital or otherwise, is to re-establish some of the basic principles that define the business. Something we can describe as a recalibration in the way you view the world. Often as a result of a major shock to the status quo: a technology breakthrough, a competitive innovation, or a massive movement in operating conditions. Far from a peripheral shift in working patterns, there is a mental and emotional transition that people undergo to relinquish old arrangements and embrace new ones. This is evidenced by a deep-seated adoption of the changes supported by associated values, principles, and processes. 

But what does this recalibration mean in practice? Let’s consider a situation in which you had been asked in late 2019 to design a 3-day training course focused around the theme of digital transformation to a group of 50 mid-level executives in a large, multi-national industrial company for delivery during the summer 2020. They were looking for an opportunity to learn about and discuss ways to improve their approaches to compete in challenging markets, accelerate decision making, hear about new digital technologies and their implications for future business models, and gain new skills to innovate at speed in collaboration with teams within and outside of the company.  You had likely been working hard during the first 2 months of 2020 to consider the context for this training, and to gain an understanding of this company and its plans for 2020 and beyond.

Looking at this task from today’s perspective of an economy struck by a pandemic shockwave, would you now do anything different? The answer surely has to be “Yes!”. Basic principles of business in a digital economy may endure, but their reflection in today’s environment will require new thinking. For me there are three areas where this recalibration will have its biggest impact:

Recalibration 1: Who does what, where.

As businesses grew and diversified, organizational structures offered centralized services provision and decision making to maintain control. While experiments with local autonomy have been underway for some time, there are very few firms in which this had taken much of a foothold. The last few weeks has seen a rapid move to decentralized, asynchronous organizational structures and a much more flexible networked approach to decision making. In discussions with a large European bank, the CTO remarked that they were now fully operational with 97% of employees working from home. Operating processes and management practices had been adjusted, and with great surprise they had found that this was not just possible, but an effective and enjoyable way to work for the most-part. His organization is already planning for a future where remote working is a much greater part of their operating model, and they are revising governance processes, IT infrastructures, and incentive models to align with this. These lessons will be fundamental to on-going ways of organizing teams, designing and prioritizing work, and managing all aspects of delivery.

Recalibration 2: Who is a friend, who is a foe.

The past few years has seen much discussion on the theme of business ecosystems and their role in scaling business success. Often associated with platform technologies, these ecosystems form as loose collections of partners in a network of relationships brought together through a common business purpose. In reality, most organizations operate through more traditional supply chain partnerships with optimized linear relationships governed by strong contractual mechanisms to ensure exclusivity and quality of service. The last few weeks have highlighted the brittle, inflexible nature of this approach. For example, the food supply chain has been particularly hard hit. In the US it is reported that over half of all food in the US is grown for restaurants, hotels, and associated outlets. The inability to redefine or redirect that food will result in massive waste and financial losses. Years spent reducing costs by applying lean techniques and fine tuning just-in-time supply have been destroyed. In some cases, these have been hastily replaced by collections of local partners with a common purpose working under more flexible supplier relationships. Highly dynamic market conditions due to unpredictable supply and demand has forced organizations to shape risk profiles around a variety of possible future scenarios. A different approach is required beyond previously sacred operational mantras concerning efficiency through pared down supplier networks governed by tight cost controls.

Recalibration 3: What is replaced by why

Challenging times always result in deep questioning about meaning and purpose. In the current crisis, the focus on what a company does is being replaced by a concern for why is does it. Its actions are scrutinized as much for the reasons behind them as for their outcome. As a result, over the past few weeks there have been many pressures on organizations to support furloughed employees, protect smaller suppliers caught by a lack of cashflow, reduce executive pay to reasonable levels, and partner with charitable and emergency services to assist those in need. Former governor of the Bank of England, Mark Carney, recently described this as putting values above valuations. Organizations are being judged directly on their position on key social issues, and on their active involvement in community actions. Dyson and McLaren forming rapid partnerships to create ventilators for hospitals are great examples. But such efforts must not be seen as either one-off, or self-serving. Future loyalty from employees and customers relies on an authentic, meaningful, and on-going sense of purpose. As organizations recover from the current shock, it will matter how they dealt with these issues, and may rebalance markets in ways unthinkable a few weeks ago.

So, the question for me about the implications of the current crisis on future strategy is not about whether there is lasting impact. Rather, it is how well you recognize the recalibration taking place in your environment, what that means for the strategic direction you are taking, and how quickly you can embrace the transformation necessary to thrive in the future that awaits. The temptation will be to return to previous ways of thinking and imagine that the current disruption is no more than an incremental push along the road to digital ways of working. It is not. It is point of no return.

Instead, it may be more appropriate to look at the current crisis as a watershed for digital transformation. A chance to reset several of the parameters for success in a digital world. And above all, to not look back. Perhaps we should follow the example of the 16th Century explorer Cortes, who arrived at the shores of Mexico after a long and tortuous journey and gave the order to burn the boats. There’s no turning back.

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