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The First Law of Digital Innovation, Part 2 of 2

Roland Alston, Appian
August 8, 2019

George Westerman, Research Scientist, MIT Sloan Initiative on the Digital Economy

(This post is the final episode of a two-part series on digital innovation by@George Westerman best-selling author and Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy. This article is republished with permission and is copyright of MIT Sloan Management Review. Read part 1 here.)

Our ability to cram more and more transistors onto a microchip what's called Moore's Law has allowed us to make technology exponentially more powerful year after year.

Meanwhile, the astonishing evolution of chip technology has put enormous pressure on companies to innovate faster because they can't wait for the next generation of chips anymore.

But MIT Sloan researcher George Westerman argues that Moore's Law is only part of the equation for digital innovation. In the post below, Westerman coauthor of "Leading Digital: Turning Technology Into Business Transformation" breaks down why digital transformation is more of a leadership challenge than a technical one and reveals how to prepare for a whole new generation of digital innovation.

Read and enjoy:

You want to convert digital transformation from a project into a capability from a time-limited investment into an enduring digital innovation factory. To do so, focus on three major areas:

First: Change the vision

Most people don't like to change. If you're driving change, you need to help others see the benefits. That's where a transformative vision comes in. Help people see a reason to change, and how they can play a role in making it happen. Without a clear and compelling vision, people will provide, at best, only lukewarm support. Most will choose to ignore the change, hoping it will go away. Some may even choose to fight it, either overtly or, more often, covertly.

Great visions paint a clear picture of a better company one that is better for customers and employees.

You need to help people understand why the new vision is better than the old way of working. And you need to help employees understand how they fit in the transition process and the future state.

If you've set the stage properly, they may even start suggesting ways to make the vision a reality.For example, when DBS Bank had the lowest customer satisfaction ratings among Singapore's top five banks, the CEO and CIO set out to radically change the situation. They created a vision to "make banking joyful," and promoted the vision widely.

They set a goal to save customers 100 million hours of wait time by fixing processes and introducing features that would help at points where customers traditionally had to wait.And they opened channels so that employees felt empowered to suggest any innovation that would reduce wait time.

A few years later, DBS had saved more than 200 million hours of customer wait time and was on its way to becoming the highest-rated bank by customer satisfaction.

Second: Change the Legacy Platform

While technology doesn't create value on its own, it can certainly inhibit value when done poorly. In many organizations, the legacy platforms messy business processes and tangled webs of outdated and intertwined IT systems are the chief source of inertia and cost for digital transformation.

It's tough to create a unified customer experience, for instance, if your systems don't provide a unified view of the customer. It's tough to launch new analytics-based business models if your data is messy or your processes are not integrated.

Thus, to make new digital innovations successful, companies must often invest in fixing their older technologies. This can be very tough. It often requires launching a new platform that can handle the requirements of digital while linking to the old systems. And it usually requires cleaning up chaotic systems spaghetti that can slow changes and increase risk.

Building a data warehouse or data lake can be a decent short-term solution, but at some point you'll need to address issues in the legacy platform itself.

Nearly every digital master we studied from Indian manufacturer Asian Paints to Australian-British mining company Rio Tinto to DBS invested in a legacy systems cleanup either before or during other waves of transformation.

Fixing the legacy platform creates business processes that are leaner and faster than before, and generates options to power wave after wave of new digital innovation.

Finally: Change the way the Organization Collaborates

The difficulties GE faced in transforming to a digitally powered internet of things dynamo weren't due to technology. GE developed deep expertise in IoT and machine learning, and launched some fascinating new ideas such as digital twins.

However, GE was not able to solve the problem of working across the silos between its digital and traditional units.

This, among other organizational challenges, impeded product development. It also deeply challenged the selling process. In 2017, with digital sales growing too slowly, sales in traditional units lagging, and digital investment continuing at a high rate, CEO Jeffrey Immelt resigned.

The company has struggled to regain its former levels of profitability and growth. (Immelt recently reflected on the trials of transformation in MIT Sloan Management Review.)

Organizational challenges with digital transformation are not unique to GE, or even to this year. They happen in every industry and have happened for years, even back to the early days of e-commerce. In many companies, traditional and digital staffs do not work well together. Incentive issues can cause people in traditional units to focus more on themselves than on digital innovations or valuable digital/traditional hybrids.

While a powerful vision can start to build momentum, organization and incentive issues can stop transformation in its tracks. Fixing these organizational issues takes repeated communication, clear incentives, and sometimes, visible action to discipline people who are working in the wrong direction.

An important internal collaboration to address is between IT and the rest of the business.

Early in our digital transformation research, many leaders argued that technology was moving too quickly for their IT units to keep up, and they chose to pursue digital without including their IT leaders. That was a mistake.

The best companies have found ways for business and IT leaders to work closely together in driving transformation. IT units became faster and more business savvy, digital units found ways to work with IT and not around it, and business leaders started including both in strategic decision-making. Even when companies built a separate digital division, the IT and digital leaders in the best companies collaborated smoothly to drive transformation.

In my early days as an engineer, I used to joke that organizations would work so much better if we could just remove the people. After decades of research and practice in organizations, I'm much happier with having people in the organizations.

People Make Organizations Go

But they can also make organizations go too slowly. Or in the wrong direction.

This doesn't have to be the case. People don't have to be a source of inertia. In fast-moving born-digital companies that we all know, people are a source of continual innovation and energy. They know where the company is going, have a healthy dissatisfaction with the way things work, and constantly suggest ways to make things better. This can be the case in every company, whether born digital or not. But it takes more than just words and more than just cool new technology to create the kind of digital transformation your company needs.

Here are your jobs, leaders: Create a compelling vision of the digitally powered future...

Foster conversations so that people can understand the vision and what it means for them. Clean up legacy situations information systems, work rules, incentives, management practices, or dysfunctional functions that slow or prevent change. Start some pilots to build momentum...

Create conversations to spur different parts of the company to use, and build on, the innovative work of others. You'll be creating a capability to transform, not just a set of transformation projects. When that happens, digital transformation never stops. Instead, it becomes an ongoing process in which employees and their leaders continually identify new ways to change the company for the better.