Successful through digital change – The key success factor and a corresponding approach to digital transformations.

Why many digital transformations are failing and what it takes to be successful trough digital change. Based on current studies and his experience in this field, Paul Esau offers possible answers in the following article.

The key success factor for digital Transformations

Digital Transformations with their strategic fields of actions lead to far reaching changes that affect all parts of an organization in varying intensity. Consequently, an easily communicable holistic view becomes a challenge in and of itself. Additionally, this effect is amplified by a considerable pressure to transform, which comes with the increasing relevance1 of digital transformation to the economic success of organizations.

What a successful digital transformation can mean for the economic success was discovered by the Boston Consulting Group in a 2021 Study. According to that study, the profitability growth rate of an enterprise can be 1.8-times and the market capitalization growth rate more than two times greater for leaders in digital transformations. Nevertheless, a range of studies suggests that merely between 16 and 58 percent of the study participants rate their organizations digital transformation as successful (see McKinsey, 2018; Harvard Business Review 2020,2021; BCG, 2021).

An interesting finding in this context is that of Mckinsey’s 2018 study which suggests that the success of digital transformations is dependent on the size of an organization. In that, small organizations are 2.7 times more likely to succeed than large organizations2. Since the complexity of a transformation also tends to increase with the size of the organization, a correlation of the complexity with the success of a transformation suggests itself.

To that end another finding by the Harvard Business Review (2021)4 confirms that complexity is indeed a factor for overcoming process and technology challenges3 and thus for the success of digital transformations. This in turn begs the question of how to handle complexity in the context of digital transformation appropriately. The Gabler economical lexicon offers the explanation that the right handling of complex systems requires a high degree of knowledge of the causal relations of the systems elements (kind of interconnectedness) and the ability to reduce the complexity to few characteristics and patterns (complexity reduction).

But how can this way of handling complexity be applied to the range of topics concerning digital transformation in light of the fact that knowledge is distributed across multiple departments and employees of an organization? Since there will typically not be a single employee that has knowledge of all causal relations, collaboration between stakeholders of different departments is key to reduce complexity. Therefore, it is important that unity or consensus on the means by which goals will be met is reached and that there are no open or hidden contradictions between Stakeholders. To achieve this, it is necessary to have a certain shared understanding concerning the range of topics involved.

“The group cannot achieve its goals and fulfill its mission unless there is clear consensus on the means by which goals will be met.” (Schein, 2004)

But even a clear consensus on the means by which goals will be met does not ensure the success of shared activities. Adverse circumstances in an organization can be an insurmountable challenge to even the best team. In this context with 46%, the biggest part of study participants name organizational culture as an impediment to digital Transformation. Participants identified multiple underlying factors of which two decisive factors named were corporate inertia and resistance to change5. Thus, employees are often stifled by their organization, when they do decide to act and change something for the better.

“People are much more likely to act their way into a new way of thinking than to think their way into a new way of action.” (Pascale, 2001)

This Quote provides a possible explanation for the view of many authors and managers that organizational culture is one of the hardest attributes to change about an organization. We concur with this predominant paradigm and conclude that, culture can primarily be influenced indirectly by creating the right overall conditions or by an external fundamental change of conditions – as it has happened with the current pandemic. Consecutively, leaders need to exemplify new ways to act while tracking the progression of cultural change.

“Culture does not change because we desire to change it. Culture changes when the organization is transformed – the culture reflects the realities of people working together every day.” (Hesselbein, 2017)

While the Pandemic did have a notable impact on cultural change in organizations and the perceived effectiveness of digital transformations, organizational culture remains the biggest lever for the success of digital transformations in 20216.

Yet cultural change often happens rather slowly over the course of shared activities. This makes it all the more important that the previously mentioned preconditions for reaching the goals and mission of an organization are met, so that a culture that corresponds to the achievement of goals and mission may better develop. However, without resolving associated cultural challenges, reducing complexity and thus achieving a better shared understanding in the areas of processes and technology, remains a hurdle. Likewise, without reduced complexity and an achieved consensus the likelihood of developing a culture corresponding to the achievement of goals remains low.

What may appear paradox at first glance, is an interdependent relation between the respective challenges. This makes it necessary that the activities of the different areas are progressed in parallel or in other words that there is an effective multitasking. This conclusion is affirmed by the fact that with 89%, the largest part of study participants see a combination of the right culture, processes and technology as essential to the success of digital transformations.
Finally, a holistic view of all the key challenges, especially in the areas of culture, processes and technology, is the key success factor for digital transformations.

“Digital transformation is not just ‘doing digital.’ Digital transformation is a deliberate, strategic repositioning of one’s business in today’s digital economy.” (April Walker)

From a holistic view to a holistic approach

In order to be able to reach consensus on the means by which goals will be met, there should be a shared understanding on what the goals around digital transformations are and what advantages result. Therefore, the approach through which digital transformations should be successful needs to be perspicuous throughout the company to make it easier to find consensus. Success in reaching consensus may then also be the foundation for a culture that corresponds with the achievement of goals. Through this and the right general conditions for cultural change in place, culture can transform naturally over the course of a digital transformation.

How the use of frameworks can help to ensure a holistic view and overcome the challenges of digital transformation

Complex issues have to be as tangibly and aptly conveyed as possible so that they find broad acceptance within an organization. Achieving this is a matter of effective communication.

„Keep it simple and good things will happen.“ (Trout and Rivkin, 1999)

However, in order to apply this to digital strategies, an initial examination of the interwoven topics of digital transformation should be carried out beforehand so that the core of the matter can be identified and findings can be applied to a specific organization. This core should include what needs to be communicated to achieve goals, save for excess information: in essence answers to the questions of why (motives and advantages), what (meaning and content) and how (way and manner). The core is therefore concentrated, comprehensible, universally valid and should be the basis of any strategy and corresponding communication plans.

„A good strategy recognizes the nature of the challenge and offers a way of surmounting it. Simply being ambitious is not a strategy” (Rumelt, 2011).

An initial examination to reach the core of a particular digital transformation is of high use to the organization, as it helps to focus on the essentials and to avoid tortuous paths. It is important that the resulting view is sufficiently holistic as otherwise complications over the course of a digital transformation are likely and thus effectivity of the same is hampered.

“Our failure to take time in the moment to get down to what really matters sets us on the path to complication.” (Bodell, 2016)

In conclusion, the challenge is to communicate a holistic view of a complex range of topics that at the same time is crucial to the success of an organization and to accomplish this in a way and manner that ensures wide acceptance for necessary changes inside the organization.

One possible approach that is likely to help overcome this challenge, is to invest in the development of frameworks or to take advantage of existing ones. Frameworks generally present a holistic approach that manages to illustrate relations between different topics and integrate them in an overall picture. They may be as exhaustive as necessary to clarify on an individual- and team-level how specific activities fit into this overall picture. Frameworks therefore function as a common thread and consistently available reference. Ideally this makes it easier for an individual employee to recognize what he or she is contributing to the collective and what personal benefits result.

Lastly, this is to be achieved without investing more time than necessary. Hence it may be helpful to make use of an existing framework and – if necessary – modify it to fit the organization’s needs, instead of potentially making large investments in the discovery of certain findings.

“The simplest way to solve a problem is to borrow an existing idea.” (Trout & Rivkin, 1999)

Our Approach

The Tiba Group is developing a framework for digital transformation that ties in current study results featured in this article, as well as the experience and knowledge we accumulated over more than three decades. In this approach, we define digital transformation in the context of corporations as the demand-based exploitation of possibilities that have emerged trough digital technologies – with the goal to raise effectivity and productivity with the help of contemporary methods of collaboration, digital products and digital business models.

We structure our approach around the three questions of why, what and how and cover motives, general conditions and areas of action including key components as well as success criteria.
We begin by elaborating on key motives for digital transformation from the perspective of organizations, employees and clients. We then go into key components of individual fields of action by defining both superordinate and subordinate terms and presenting the respective motives as well as concrete use cases from our consulting practice. Hereby, we build on our previous findings on the corresponding areas of action and expand this view, in addition to the key components, to include necessary general conditions within the organization.

Taking the field of action of digitization of internal value creation as an example, our approach is structured as follows. We begin by providing a definition for the area of action. Then we introduce three components that we have identified to be crucial to the success for that area of action. The key components of digitization of internal value creation focus on the topics of agility, DevOps and automation/optimization of business processes. Lastly, we elaborate on each key component by going over the respective motives, meaning and use cases.
In addition to the areas of action, we examine further success factors that are part of a holistic view. Corresponding to these, we outline a possible course of action that aims to facilitate and accelerate digital transformation.

The generic structure of the framework allows for adaptations of the framework to the individual situation in any organization. Furthermore, the know-how we have gathered and elaborated on in separate publications and presentations allows for further exploration of many individual topics. This results in a comprehensive overall picture of the topic complex that can be tailored to the needs of different organizations.

Conclusion

Digital transformation is a complex of topics that makes a holistic view indispensable. At the same time, regardless of the pressure to transform, it is crucial to live up to the increased relevance of digital transformation to economic success by acting in a structured and decisive manner. To achieve the holistic view a holistic approach is needed. This approach can be substantiated and conveyed in an apt and tangible way with the help of a framework.

Author

Paul Esau

As a consultant for Tiba Technology Paul Esau helps mainly large companies from various industries such as insurance, legal and automotive navigating through digital change and has also been responsible for internal as well as mixed development teams in this context. Building on his experience in this area, he is leading the digital transformation competence center and is one of the driving forces behind the framework for this topic.

 

Sources

Almberger , B. (2019). Kommunikation und Führungskultur. Tiba Magazin, S. 02-06.

BCG. (2021). Which sectors perform best in digital transformation? Learning from Successful Digital Leaders.

Bodell, L. (2016). Why Simple Wins: Escape the Complexity Trap and Get to Work That Matters. New York: Bibliomotion Inc.

Conway, C., & Codway, M. (2021). Where Digital Transformations Go Wrong in Small and Midsize Companies. Von https://hbr.org/2021/08/where-digital-transformations-go-wrong-in-small-and-midsize-companies abgerufen

Gabler Wirtschaftslexikon. (kein Datum). Was ist „Komplexität“? Von https://wirtschaftslexikon.gabler.de/definition/komplexitaet-39259 abgerufen

Harvard Business Review. (2020). Rethinking digital Transformation. New data examines the culture and process change imperative in 2020. Harvard Business School Publishing.

Harvard Business Review. (2021). Accelerating Transformation for a Post-Covid-19 World.

Hesselbein, F. (2013). More Hesselbein on Leadership. New York: Jossey-Bass.

McKinsey & Company. (2018). Unlocking success in digital transformations.

Pascale, R., Milleman, M., & Gioja, L. (2001). Surfing the Edge of Chaos: The Laws of Nature and the New Laws of Business. Crown Business.

Rumelt, R. P. (2011). Good Strategy/Bad Strategy: The Difference and Why It Matters. New York: Crown Business.

Schein, E. (2004). Organizational Culture and Leadership. San Francisco: Jossey-Bass Publishers.

Trout, J., & Rivkin, S. (2001). The Power Of Simplicity: A Management Guide to Cutting Through the Nonsense and Doing Things Right. McGraw-Hill Professional.

 

Footnotes

1Harvard Business Review (2021): “Global executives responding to the survey are nearly unanimous (95%) in their view that digital transformation has grown in importance in their industry over the past 12 months. What’s more, 76% of the executives say transformation has become significantly more important to business success[…]”

2Categorization according to study: small organizations: under 100, large organizations over 50000 Employees

3Harvard Business Review (2021): “Thirty-eight percent of respondents say that process problems hamper modernization efforts.“; „Twenty-nine percent of executivesvsurveyed identified technology roadblocks as an impediment to transformation”

4Harvard Business Review (2021):“Nearly half (48%) of the executives surveyed name the complexity and resource demands associated with updating existing business policies and processes as the biggest process challenge to driving digital transformation in their organization.“;“ The highest number of respondents—31%— name the complexity of the current IT environment as the biggest technology challenge to transformation.„

5Harvard Business Review (2021): “[…](25%) cite corporate inertia, while 23% rank resistance to change by business staff as their organization’s top cultural challenge.”

6Comparison of study results between Harvard Business Review 2020 and 2021.

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