Companies are slowly beginning to realise the existential nature of the challenge that digital hypercompetition poses to them.
When they see the destruction wrought by disruptors on incumbents in music (Spotify), media (Google) or retail (Amazon), it’s difficult to deny that the writing on the wall is for them.
Executives are beginning to take notice: a Sloan Management Review survey found that 90% of executives anticipate their industry will be digitally disrupted to either a great or moderate extent.
But taking action is much harder. In the same study, only 44% of executives thought their company was adequately prepared for hypercompetition. Boards are bombarded with offers of advice from large vendors and consultants, but settling for panaceas like innovation studios or lipstick solutions won’t be enough to secure a company’s digital future.
Transformation needs to go deep into the business, if it’s going to be effective.
That requires three steps.
1/ Re-design internal structures
Companies need to be product-focused: product management should be the core function in a company and everything else should support delivery of brilliant products in real-time. Product management is the ongoing improvement of a product based on changing understanding of user needs in real-time.
IT’s response must be to shift from the start-and-stop project model to continuous iteration under the direction of a product manager. Internet companies release updates to their products hundreds or even thousands of times a day, not once every 6 months.
A great digital product isn’t just a user interface; it is an ensemble of great people, processes, policies and systems. It doesn’t make sense for companies to split product responsibilities between a Chief Digital Officer for the front-end and a Chief Information Officer providing the back-end. Organisations need a single Chief Digital and Information Officer with oversight for consolidated digital service delivery, which is orchestrated by the product management function.
Abolishing the digital/IT split is also useful from a product lifecycle perspective. It allows the CDIO to match people’s aptitudes to the methodologies suited to different stages of product development. Simon Wardley breaks digital workforces down into three categories of talent:
- Pioneers are comfortable working on novel, user-facing problems where experimentation and rapid learning is essential to understanding user needs and reducing risk, in small teams bearing full responsibility for product delivery. They are innovators who are at ease with Lean Startup and Agile methodologies. They’ll grow frustrated working on only solving well-defined problems. They have the creativity and tenacity to build the first ever digital computer from scratch.
- Settlers take ownership of the products as they begin to scale. They fine-tune them into broader-based, commercialised products that are ready to be manufactured at scale. They turned the first ever digital computer into the household microcomputers of the 1980s that first introduced a generation of people to computer science.
- Town planners take settlers’ products and industrialise them into highly profitable and commoditised products that take advantage of economies of scale. Their talents lie in perfecting and creating platforms from existing products. They are comfortable engineering solutions to well-defined problems. Agile’s not the right way to build a nuclear power plant, and companies shouldn’t expect it to work on processing platforms. Town Planners are more comfortable using highly structured methods. Amazon has a lot of town planners who build stable platforms.
We shouldn’t expect digital workers to be all things to all people. Their skills and mindsets correspond to specific points in a product’s lifecycle. Allocating them to the roles that fit their aptitudes and attitudes makes the best use of employees’ skills, and enables a conveyor belt to move products from ideation through to commercialisation and then platformization.
2/ Tackle the Square of Despair
Too many companies suffer from what I call ‘The Square of Despair’: four structural forces that collude to resist change, especially within large organisations:
- Inappropriate procurement that stems from years of outsourcing and deskilling and outsourcing encourages organisations to turn their IT teams into vendor relationship managers instead of makers. These organisations split delivery and design of their services between the multiple vendors. They are forced to fix a project’s scope at precisely when they have the least information to do so: when they first put out a request for tender, before building a prototype and seeing what users really expect from a product.
- Inappropriate governance that slows down delivery. Heavy, waterfall-style governance is used on products for which it’s ill-suited and increases risk. Too many steering committees or program boards are expected to understand the status and intent of a product from a hundred-page risk document sent immediately before a governance meeting. Agile has its own risk mitigation elements built into the method. It does not need the governance of another method designed for a different type of problem added to it. You should use the right method of governance for the right problem.
- Broken IT that leaves employees to use their state-of-the-art smartphones for recreation, while they wait up to half an hour for their Windows PC to boot up at work. Broken IT can also mean IT that’s wrapped in layers upon layers of contracts and systems integrators. As I’ve said before: if you need to negotiate with vendors to access your own resources, then your IT management is broken.
- Inappropriate funding, which is based on the old model (outsourced product and IT, heavily reliant on capex) is another significant problem. For the early stages of products led by pioneers, it is wrong to have funding that’s conditional on claiming certainty from the the start. A drip feed funding model would be more appropriate - after a couple of sprints, leaders can decide whether to continue to fund - based on outcomes delivered. For platforms, where by definition there will be have a well specified requirement, it is essential for a business case and set funding to be developed - to remove ambiguity.
Tackling the Square of Despair means making procurement fast, nimble and chunking it down into smaller purchases. This allows access to innovative solutions from start-ups and SMEs; that’s why government agencies have developed Australia’s Digital Marketplace and the UK’s G-Cloud.
Most importantly, tackling the Square of Despair means reversing the deskilling and learnt helplessness of the organisation on which it feeds. The reason why so many firms rely on contractors and heavy governance is ultimately because they don’t trust their employees to deliver anymore. In too many companies, that’s for good reason: a BCG report found digital capability and training is lacking, across industries like retail, financial services and consumer goods.
There needs to be digital training at every level of the organisation, including in the boardroom and executive suite.
You are now becoming a software company , and the people running a software company need to know how to do that.
3/ Demonstrate political will
Transformation can be painful. There will be challenges and resistance, especially from people in the legacy parts of the business. That cannot be used as an excuse to pull back from deep-seated transformation and turn to surface-level solutions.
Transformation by consensus, or by occasional hackathon, will not work, because transformation is not iteration from a low baseline: it requires making fundamental changes to an organisation’s structure and processes.
‘Waiting any longer to embrace digital change means exposing your organisation - and its employees - to the risk of being driven out of the market.’
Transformation is difficult and it’s essential, if businesses want to remain off a Receiver’s watch list in a digital world.
Organisations that want to thrive in the digital age need to redesign their internal structure, tackle the Square of Despair, upskill their staff and have the political will to radically transform themselves, rather than adopting tokenistic solutions.
Business as usual is no longer an option.
To hear more, book here for the upcoming Directors' Briefing: Transforming organisations for the digital economy on 4 August, 2017.
Paul Shetler is Expert in Residence at Stone & Chalk and an adviser to governments and organisations around the world who are transforming their business. He is a speaker on digital transformation and organisational change.
Paul was the CEO of the Digital Transformation Office and the Chief Digital Officer of the Australian Government’s Digital Transformation Agency.