Digital Transformation - The Big Picture
Find out why digital transformation is important for all organizations and how to do it effectively.
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Happy the [person] who still can hope
To swim safely in this sea of error
What we need we don’t really know
And what we know fulfills no need at all
(Johann Wolfgang von Goethe, Faust Part 1)
Digital enterprise, the Fourth Industrial Revolution, lean enterprise—today’s literature teems with exhortations to transform from the old to something new. How are you responding? Do you have your digital strategy in place? How do you plan to “realize” that strategy? Is your enterprise getting incremental outcomes in a world of exponential opportunities? Whether your goals are for your organization to become a digital enterprise, foster widespread innovation, or implement a digital strategy, is your transformation vision thwarted by poor execution?
Klaus Schwab, executive chairman of the World Economic Forum, spared little hyperbole when he said, “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.”1 You could think of a digital enterprise (or business) as having made the transformation from the Industrial Age to the Digital Age. An Internet search for “digital enterprise” yields phrases such as “leveraging technology for competitive gain” and “creating new business models.” But these definitions are lacking. Leveraging technology and creating new business models are important, but the most critical component is transforming your culture so that it can evolve and adapt quickly. This culture change spans the entire organization, not just your technology divisions. And, this book concentrates on transforming (a verb) rather than transformation (a noun). Most organizations aren’t “there”; instead, they are becoming.
Enterprises face an ever-growing gap between opportunities and the capability to exploit them. Technological advances generates opportunities, yet enterprises’ capabilities—from developing a digital strategy, to portfolio management, to software delivery—often struggle to keep pace. Change, brought about by technology—or indeed other major forces such as globalization or climate change—challenge our ability to adapt rapidly enough. Many organizations suffer from outdated management models, which block their desired strategy from becoming reality. For example, when enterprises have agile teams that deliver features every two weeks but operate within an annual funding cycle, something doesn’t jive.
In complexity theory, there is a concept called the edge of chaos.3 This “edge,” lodged between randomness and structure, is where innovation and maximum learning happen. Balancing on this edge requires everyone to work in a messy, exciting realm, where uncertainty is embraced and solutions may be ephemeral. It’s not a safe or comfortable place, but it’s the place where organizations will invent the future. The big question isn’t how to adapt to the rapidly changing environment, but rather how to adapt fast enough. Furthermore, the missing link between digital strategy and execution entails much more than traditional portfolio management. We call this missing link EDGE, because transforming (or becoming) requires continuous innovation and innovation requires an edgy culture that challenges the status quo.
Building the capability to evolve and continuously adapt is critical to transforming your organization. Today, the accelerating rate of change is overwhelming most organizations’ ability to absorb and respond to changes. You may be fast, but are you fast enough? Can you sustain your ability to adapt over time? Effective digital transformations are not for the timid, but rather for the bold and gritty, hanging out on the edge of chaos. Organizations that think a mobile app or a data lake is enough don’t understand that transforming is more about culture, mindset, and embodied principles. This is the hard part. Agile software development has been around for nearly 20 years, yet some organizations still think that implementing a practice or two—iterations, pair programming, daily stand-up meetings—is enough. By clinging to this narrow definition, they fail to embrace the cultural values that are the core of real agility.
In our work with enterprises in retail, financial, transportation, and other industries, the authors have seen organizations striving to become more responsive, especially to their customers. Organizations are finding that having agile software delivery capabilities is not enough. We worked with a large multinational financial firm recently that was interested in DevOps as a way to increase speed and agility. Our assessment pointed out that the firm was spending an inordinate amount of time planning (not surprising in a big enterprise) and DevOps was not its solution. Rather than focusing on DevOps as a means to an end, the organization needed to rethink its entire value stream to become more agile.
Similarly, organizations transforming themselves into more innovative digital enterprises may find they suffer from strategic misalignment between their business and technology functions. In either case—business agility or strategic alignment—the existing operating model for moving from strategy to execution is flawed. These approaches may be purported to be agile or adaptive, when they are actually merely dressed-up traditional processes that are both heavyweight and bureaucratic. They delude traditional managers into thinking they are making progress—but they don’t encourage innovation or risk taking. Figure 1-1 depicts the context of EDGE, an operating model that sits between vision and delivery—the critical link that is often missing.
FIGURE 1-1 EDGE: an operating model.
According to a McKinsey study, “IT organizations are asked to innovate at breakneck speed in support of their companies’ ambitious digital aspirations (85 percent of respondents want their operating models to be mostly or fully digital, which only 18 percent currently have).”4 So the vast percentage of organizations have digital aspirations, yet only 18 percent consider themselves successful. Why the disparity? Because there is a big difference between the ambition and knowing how to achieve it. EDGE focuses on building an enterprise that can respond quickly to customers’ needs and emerging technology by defining an operating model that bridges this strategy–delivery gap.
EDGE’s operating model consists of a set of principles and practices that enables your organization to achieve organizational responsiveness.5 EDGE answers three fundamental questions about your transformation: (1) How should we work together?; (2) How should we invest?; and (3) How can we adapt fast enough? EDGE is designed to sparkle when faced with an enterprise strategy of innovation and transformation. From an operating model perspective, the enterprise needs to embrace EDGE concepts, principles, and practices. From a portfolio management perspective, as discussed in Chapters 5, Measuring and Prioritizing Value, and 7, Integrating Strategic and Business as Usual Portfolios, you can manage an entire IT portfolio while focusing on 10 to 20 percent of the portfolio that is strategic and transformative and, at the same time, integrate Business as Usual (BAU) investments. EDGE is fast, iterative, adaptive, lightweight, and value-driven.
When you ask the question “How should we work together?”, you learn how teams evolve to respond to an environment characterized by an accelerated pace of change. When you ask the question “How should we invest?”, you learn to allocate investments and monitor decisions to move faster into our future. When you ask “How can we adapt fast enough?”, you learn how to build organizational grit to outpace the competition through continuous learning and adapting fast enough to thrive.
Transforming isn’t just about where you invest money and time; equally, or even more, important is how you work together. Agile software delivery teams have learned to plan and deliver in short cycles, measure successful outcomes, experiment with spikes, gather feedback every cycle, and collaborate in autonomous teams. Agile teams “work” differently than traditional software teams do.
EDGE is designed to work in the face of market uncertainty by stressing the importance of adaptability. It helps create the links from your vision to the detailed initiatives you need to undertake. And it’s based on making incremental investments, rather than big, upfront funding. EDGE provides support for managing change and transforming your organization to a digital enterprise by changing the mix of investment funds to reflect your new strategy—and by reducing your risk when doing so.
In large enterprises, an annual planning cycle has become customary. Typically, some form of strategic planning process will identify a list of key programs and projects. An estimate of each program and project is then fed into a lengthy budgeting process. In a value-centered world, you replace upfront program funding with incremental funding of the business outcomes to be achieved. You can articulate your business outcomes using Measures of Success (MoS), which describe the value you’re willing to pay for. As you demonstrate value to your enterprise and outline the cost to achieve it, you can budget accordingly.
EDGE focuses on the decisions made in an organization. Information—data, spreadsheets, analysis, documentation, surveys and the like—is vital in helping you plot a path to success. But ultimately, information is not enough. To succeed, your decision making has to be informed by experience, judgment, courage, and instinct.
Note that this formula isn’t “either/or” but “both/and.” It’s not analytics or instinct, but a blend of both. Thousands of new opportunities are available to companies every day, and hundreds of possible responses can be made to those opportunities. The great entrepreneurial leaders have the instinct to look at the available, incomplete data and make the correct judgment calls more often than not.