Digital Transformation is a 1.7 trillion dollar industry as of 2019, which has obvious demand implications for project managers. At the same time an estimated 70% of all digital transformations fail based on a Mckinsey report on retail. What can project managers do to stand out from the crowd on successful digital transformation?
Based on my own experience of having led multi-billion dollar organization transformations over a three decade career at Procter & Gamble, combined with industry research, project managers need to tailor project management approaches to complement mainstream methodologies with “transformation” related disciplines when managing true digital transformation efforts.
What’s Missing in Current Digital Transformation Approaches?
To understand why current project management approaches need to be complemented, we need to dig into why 70% of all digital transformations fail. The answer comes down to two issues – a lack of clarity on the definition of digital transformation and the use of incomplete methodologies to execute it.
- The first issue is easy to understand. The term “digital” as applied to business operations has been around for over five decades. Unsurprisingly there’s a spectrum of definitions for digital transformation ranging from executing small IT automation projects to changing the DNA of established enterprises to become more “Amazon-like” in their business models, products and operations. To cut through this confusion and to avoid the trap of the IT software and consulting industry hype, I suggest using the attached five-stage definition of digital transformation in Figure 1. The five stages are as follows:
- Foundation: Projects to automate processes in the organization (e.g. selling, manufacturing, finance.) These are the usual IT projects which are often misquoted as being digital transformation.
- Siloed: Siloed or departmental programs for transformation (i.e. the creation of new dramatic but siloed, digital products, customer propositions, or agile operations)
- Partially Synchronized: Coordinated programs for strategic transformation across the enterprise
- Fully Synchronized: Completed digital platforms, products or processes for digital transformation
- Living DNA: Perpetual living culture of constant digital reinvention as the backbone of the business model
Figure 1: Five-Stage Digital Transformation Model
- The second issue is related to the execution methodology. If we define true digital transformation as changing the DNA of the enterprise in order to succeed in the fourth industrial revolution, then the execution methodology needs to be based on scaling organization change, not just technology implementation. That’s what you need to tailor when leading true digital transformation.
How to tailor your approach for leading digital transformation programs
In 2015 Procter & Gamble’s Global Business Services (GBS) unit set out to digitally disrupt itself. The 5,000-strong GBS organization provided more than 160 business services worth multi-billion dollars of operations including IT, finance, facilities, purchasing, employee services, and more. Despite GBS’s already best-in-class capabilities, we wanted to transform it into what we called Next Gen Services (NGS), capable of delivering long-term operational superiority. To avoid the trap of the 70% failure rate of digital transformations, we started by examining what had driven successful transformation in the past.
- Create the conditions for “pull” based change: An analysis of the company’s history found that successful transformations had one big thing in common. They had all begun by focusing on “change demand”—the degree of enthusiasm within the core operations for disruptive change on top of continuous improvement. We therefore determined that the percentage of projects rooted in internally-sponsored, big but tough problems (as opposed to externally identified cool possibilities) had to be greater than 95%. What’s more, if a big, new possibility had been identified externally but operational leaders were not sufficiently moved to sponsor it, then the idea was quickly dropped.
To increase change demand, we brought in leaders from disruptive companies to talk to our operational leaders about looming digital disruption. In addition, operational leaders made consideration of disruptive innovation goals part of routine annual strategy reviews.
- Design for immune system responses. Traditional approaches to change management recognize the natural tendency of individuals and organizations to resist change. But they often treat immune responses as a problem to be circumvented rather than as an opportunity to be seized. The pejorative term “frozen middle” is sometimes heard, referring to the resistance to change often found among middle managers, who are then kept at arm’s length during the transformation.
But such attitudes to middle managers unfairly penalize them for doing what their reward systems dictate—running stable operations and being wary of destabilizing effects. So we identified the middle management leaders affected by each project, involved them in the initial “fun” of designing the disruption, and jointly designed the risky roll-out of disruptive projects that could destabilize ongoing operations.
- Choose a situational change management model. Digital transformation demands a dispassionate assessment of its urgency, and how receptive the prevailing culture is to change. Depending on the intersection of urgency and change acceptance, an organic, inorganic, or edge organization change management model will be called for.
If sufficient time, internal capability, and a relatively straightforward path forward are available, then transformation can usually be handled via organic change. After the 2008 economic crisis for instance, Fidelity Investments increased its investments in digital capabilities while competitors were slashing budgets, giving the company room to move forward with a deliberate organic transformation. That consistent focus on digital transformation strategy has pushed them ahead of competition in areas like blockchain, artificial intelligence, and crypto currency.
If existing capabilities, time, and internal resistance to change are all a challenge, then your best bet may be inorganic change—look for an acquisition or partnership with an external entity, as Walmart did in acquiring Jet.com. Inorganic change comes with its own risk, since a majority of acquisition-related changes fail. However, by giving the acquired entity a strong mandate and change-management support, this approach can jump-start new capabilities quickly.
If there is little time and the prevailing organization culture is partly resistant to change, then organic change won’t work. In such cases, edge organizations, given full freedom to operate differently from the rest of the business, are the preferred approach. At GBS, we felt that time was at a premium. We knew that our real standard of comparison wasn’t just other large companies any more, but digitally native startups with far more cost-efficient and agile internal business operations. Resting on our laurels—our superiority to peer companies—would be risky. So to drive disruptive change faster than an organic approach could, we set up NGS as an edge organization. To facilitate agility, NGS would be allowed “amnesty” on purchasing standards, IT architectures, and even some HR practices in the early stages of idea development.
As a successful project manager of complex digital transformations, your methodology needs to complement best in class thinking on project and portfolio management with the latest approaches on scaled organization change leadership. Most executions of digital transformations fail due to organizational reasons, not work-process or technology design. That issue becomes much more material when leading transformations to overcome existential threats caused by digital disruption.