Many business transformation leaders recognise that digital strategy execution is a critical success factor, yet it can be challenging to get it right.
At Elsewhen, we recently welcomed a panel of digital business leaders to our latest Rebase forum event, discussing the role of strategy, culture, purpose and incentives in digital transformation.
Our guests shared a diverse range of opinions, insights and experiences. They discussed how a bottom -up approach to digital transformation can be used when there is a lack of clear top-down direction. They considered how to help teams align on making the right decisions and executing the right changes.
The panel discussed how framing transformation in different ways can help it fit the agendas and priorities of different corporate cultures. They also explored how an organisation should have a very clear statement of purpose – and should understand how digital transformation supports this.
Highlights from our discussion are featured below. Speakers have been anonymised under the Chatham House rules of our event.
Question:
In digital strategy, how can you find the right balance between research and action – between planning and doing?
Pharmaceuticals executive’s insights:
One thing common to all these transformations that organisations have been doing for about 15 years is the need to develop a culture of continuous improvement. You can use your choice of tool, methodology or framework. The challenge is always about how we are going to make the transformation sustainable, and develop a culture where it becomes the primary mindset.
It doesn't last if you don't really work on the culture deliberately. And as we work on those norms, the toolbox that we use will be dependent on the context. Often it's a framework like Kanban or Scrum. The challenge is always about how you get the leadership bind from the top, and then getting the culture into the day-to-day routines of the teams.
Question:
Is digital transformation a reactive or proactive activity? Does your digital strategy and business change come more top-down or bottom-up?
Financial services executive’s insights:
Financial services is still a maturing environment for change and strategy. There's quite a lot of reactive change, rather than really proactive research into having the right strategy. There is a very great need to grow and sustain, of course, and to react to regulatory change. But product divergence and innovation can be reactive as well.
Many product changes or launches are in response to new regulations. There may be nothing to prevent the organisation coming up with a product as a proactive strategy. And yet, they often wait until a new regulation has risked the bottom line to do that.
Now digital leaders in these companies want to become far more proactive. They want to guide key stakeholders, the CEO and the executive team, around coming up with strategies that will inform and deliver the vision of the business.
But it doesn’t always come down very clearly from the top table. Digital innovators need to influence upwards and say, okay, we know broadly what this organisation is trying to deliver as a strategy. Here are all of our ideas about how to get there, and the limitations and constraints. So it's almost as if upper middle management is coming up with the mechanism to deliver the strategy to the very top.
Engineering executive’s insights:
Most companies face increasing pressure from shareholders for rapid results. it can end up with a leadership that don't have the luxury of thinking about strategy so much. Instead, they think about the next 12 months, the next two years. That ends up with a lot of people pushing a bottom up strategy, because everyone doing their day-job thinks they know what's best to improve skills, tools and productivity.
But obviously, if you choose to enable everyone with the new products and the new tools, suddenly you end up in a position where you're investing way more than your gross profit year-on-year – you're actually shrinking your business
How can you turn these hurdles or these problems into an opportunity? Digital strategists need to think about the tools we can give people to transform the business – rather than just to improve short-term operational performance. This is about how we make better decisions – right here, right now – to help get the business out of post-pandemic challenges and other pressures.
Pharmaceuticals executive’s insights:
In a large organisation, there are usually many smaller business silos. Each silo has their own kind of leadership style, effectively creating a bottom-up approach to transformation. So there's no one culture.
In the past, transformation has usually been in these smaller silos, with little senior executive buy-in. It can be just a tick-box exercise. They may try lean approaches, and they often fail. Then they move on and try the new “flavour of the month” in transformation programmes.
But as more senior leaders who join bring a transformation mindset, there is finally a push from top-down. Senior leadership is becoming more committed and aligned – right from the CEO down to the VPs. So now the strategy is becoming to achieve good OKRs – objectives and key results. That's aligning everybody from grassroot levels to top executives.
Question:
How can the positioning or framing of a digital change initiative make a difference?
Pharmaceuticals executive’s insights:
A mindset shift can come from small things –even just the name of the change programme, In a previous project, we developed federated digital centres. we used to call them Centres of Excellence. That sounds positive – but passive. People would think – okay we are the Centre of Excellence, so we know everything already. So we shifted the name slightly to call them Centres FOR Excellence – and that made a big difference. Now we were saying – we're going to help you develop excellence – and we did. So these federated Centres for Excellence started delivering a coherent strategy that we developed to make a sustainable change.
Pharmaceuticals executive’s insights:
It’s vital to have top-down commitment to transformation. We see failures over and over again, when people try to push it from bottom-up. There is a lot of energy at the start. But it usually only lasts for a few months. Even with some management involvement, within a year you'll start losing energy. There's not enough support from the top, and there's no alignment of objectives. People just start parking it and going back to the old ways of working, and then they end up with even more inertia than before.
Question:
What role do incentives and purpose play in digital strategy success?Financial services executive’s insights:
The way many financial services organisations motivate and incentivise people can actually create additional barriers to transformation. We’ve talked about transformation projects that can only really sustain themselves for 12 months. At financial services organisations, it's because there is a large financial incentive for individuals to deliver certain things on an annual basis. The bonus scheme for an individual can be a significant part of their package. That's based on specific company performance – agreed KPIs that have to be hit in order for a bonus scheme to become payable. So people can't help but have that in the back of their mind when they are asked to work on something new and different, something that doesn't have a guaranteed Profit & Loss impact in a year.
Unfortunately, executive leadership is usually in the same situation, so they have their own financial motivations. They're not all just driven by corporate purpose, or by just wanting to make life better for the customer. There is an element of personal agenda and motivation– and in a financial services organisation, that's very clear and understood.
You’ve heard the classic analogy of business transformation being like trying to change a wheel on your car as you're driving down the motorway, and how hard that is. Well, that's the kind of challenge you will have whenever you come up with a transformation to do something different – whether it’s proactive or reactive change. There's always a background need to deliver, as a minimum, the company's financial expectations year-on-year. Otherwise, everyone in the company will suffer at the end of that year.
You may deliver something transformational. But if you've not delivered the bread and butter, which takes up 80-plus percent of your time, you're not going to be thanked for it – literally or financially. So that always becomes a tension, and that will continue until the people at the top say, okay, nobody's going to be penalised in terms of personal financial compensation.
If a business goes into this new, wonderful arena of transforming over a longer period, maybe a 24 or 36-month transformation plan, maybe five years, there has to be a commitment from the top not to penalise people for doing that. But unfortunately, because the people at the top may also be penalised, it's a very difficult thing to get right.
A few forward-thinking organisations with deep resources may say, fine, you can have whatever investment you need. We understand the long-term need for this, we will support and finance it. But most companies don't really have that luxury.
Question:
What are the key metrics for measuring successful change?
Financial services executive’s insights:
We're going to create new measures as time goes on. But historically, a financial services business will be focused on very core KPIs. The key metrics might be the number and value of outstanding loans, levels of credit risk and debt recovery, and so on.
Beyond that, they tend to focus on the risks on the horizon. Regulatory change is potentially a huge, impactful risk that's outside of a company’s control. So they always have a real nervousness around that, and how they might have to change strategy and diversify products in order to address regulatory change. When regulation changes, the company tries to fill the gap in the P&L wherever it can.
Recently, there is actually a real driver emerging around customer purpose and customer experience. It is rooted in wanting to improve customer loyalty, or the efficiency of processes that customers use, in order to improve financial metrics. We want to improve the customer journey, the customer experience, which we know positively impacts the P&L. But also reputational improvement, brand advocacy, all of those things, are likely to become indirectly a positive improvement on the bottom line. So there is currently a renewed focus on this.
New transformational programmes today span processes, IT platforms, all of the things you'd expect. They look at the end-to-end customer journey, and want to understand how to improve it. This is increasingly driven by purpose and value rather than a clear financial directive.
But you should still make a business case that sets out how you prioritise this against all the other changes in the portfolio. , You might need to reassign resources to it, and take resources off something that's definitely got a hard-and-fast benefit in a year. That's when your executive team may have to make difficult choices about what you stop doing. You need to have upfront expectation-setting conversations, Then you will see how much your execs are really committed to things like a purpose-driven customer journey programme – when they might have to stop doing a hard-and-fast revenue and growth programme in order to deliver it.
Engineering executive’s insights:
Talking about incentives, consider what changed when Disney moved to their streaming platform, Previously, the film studios had their bonus metrics linked to box office revenues. Then suddenly when you move to a subscription model, the previous incentives are out of date. So they had to try and incentivise creativity and quality of content, rather than sales.
Changes are also happening to incentives in other industries. The executives who set the P&L targets may also have their bonuses paid when they exceed those targets – so they might not set too much stretch on that. Digital leaders trying to create an opportunity need to work on the strengths, weaknesses, opportunities, and threats of the business. Seeing these opportunities swept under the carpet for being too ambitious can be discouraging. We need to find ways for incentives to be pulling in the same direction as the transformation narrative.
Question:
What are some other obstacles to business change, and how might they be overcome?
Pharmaceuticals executive’s insights:
Large corporations often deal with culture change like a business process. But it's like the left-brain / right-brain approach. When corporates look at anything, they usually look at it from a left-brain view only, which is analytical in nature. They treat everything as a process. They assume that once the process is fixed, things will go smoothly and new improvements will come. Whereas culture comes with emotions, which is the right-brain. That's where most transformations fail – they miss the human element.
You need to motivate people to bring about change – to make it sustainable and to really unlock the potential. This is the core concept of a purpose. Many of these large organisations are struggling with the meaning of “purpose. And that's not motivating to the next generation. So this focus on purpose needs to be aligned with the business from its core value – not just for face value. And the core value is in the products and the services that these organisations are offering. They need to add value to the people and the planet. If they're not, whatever you do, it's not going to motivate people.
Question:
What makes a good digital change leader? What is the role of technology and digital in business change?
Engineering executive’s insights:
It’s about believing in doing things better with the potential of information technology. The thing that all good digital leaders have in common is an understanding of the art of the possible in technology – a relentless pursuit of simplification and improvement – and just believing things can be done better.
Financial services executive’s insights:
Some organisations just essentially rename part of IT as “digital”, and it often doesn’t really make a positive impact. Sometimes the digital function has little alignment with the rest of the business, driving a wedge between it and the wider organisation. Business change as a function may sit entirely separate from the digital team. These situations create unhappy stakeholders, because digital doesn't really deliver what they hoped for.
Many people see digital as an exciting buzzword. And it really is just a word – until you put some strategy and investment behind it and have a clear vision about what it's going to achieve. You can call it anything – the word’s not going to make a huge amount of difference.
Question:
Finally, what are the most exciting digital trends or technology opportunities on the horizon that businesses should be looking at today?
Engineering executive’s insights:
In our industry, the ability to design and verify engineering products in the virtual world without having to build physical prototypes – that's probably going to be the biggest transformation from a cost and time-to-market perspective.
Pharmaceuticals executive’s insights:
The most exciting trend is the push to digitise business processes. We can see the need for automating things – and moving from all those spreadsheets to cloud products. But it won't happen with a one-dimensional technology approach. We have to consider all dimensions including people for the transformation to happen.
Financial services executive’s insights:
Further down the line, our industry will embrace very smooth, efficient, flexible digital platforms. They will be easy to configure, giving much better self-service from a customer perspective. At the moment, when organisations need to make changes to products, infrastructure or architecture, it can be a really unwieldy process. It takes a long time to make what appear to be simple changes. And that, of course, is a problem for the wider business because they don't understand why it takes so long. They've got lots of things they want to do quickly – and delays can make a digital leader seem like a Fun Prevention Officer. So longer-term, we need to be much more flexible, with far less reliance on traditional on-premises IT. We need a more holistic digital model in that sense.
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