AN INTERVIEW WITH GEORGE WESTERMAN: AN ON-GOINGSERIES OF THOUGHT-PROVOKING INTERVIEWS, WITH BIG THINKERS, AUTHORS, SCHOLARS AND VISIONARIES ON ALL THINGS DIGITAL TRANSFORMATION.
George Westerman is a Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy.
Westerman has contributed to publications such as Sloan Management Review, Harvard Business Review, The Wall Street Journal, and Forbes. His trailblazing research and teaching focus on digital technology leadership and innovation.
He has co-authored three award-winning books. His latest book "Leading Digital: Turning Technology into Business Transformation" is widely considered THE must-read guide to digital transformation.
In this Trailblazer interview, Westerman talks about key findings from his latest research into digital transformation, what it takes to be a digital master, and how traditional, non-tech, companies can lead in the digital economy.
Yes, mobile, automation and cloud computing have already fundamentally changed the business landscape in organizations like yours. The problem is, most of the stories about digital leaders tend to focus on the usual suspects tech giants and digital unicorns. But what about the other 90-plus percent of the economy?
Read the full Q&A below:
Appian: Your latest research focuses on how traditional large companies are embracing digital transformation. Do senior executives at these companies want to get involved in the digital transformation journey? Or do they tend to take a hands off approach?
Westerman: I would say it a different way. If you are the CXO, and you hire a Chief Digital Officer (CDO), the last thing you want to do is leave them off to themselves. Because digital transformation is not so much about the digital, it's about transformation. And it's really hard for anyone to do that on their own if they're not at the top of the organization.
Appian: So, digital transformation goes beyond going digital?
Westerman: What we've found, over and over again, is that digital transformation is not a digital challenge. The real value comes from changing your processes. The technology enables change. And, by the way, changing processes is more than writing code and drawing charts.
"It means getting people to work differently than they did before. And working across silos the way they didn't do before. And that's where the real value, and the hard part of digital transformation comes into the picture. The technology is the easy part. The hard part is getting your organization to change."
Appian: Which leads to my next question. You've said that CXOs should lead the technology, and not the other way around. What did you mean by that?
Westerman: When people make mistakes with digital, they're often talking about technology issues, their mobile initiative, their analytics stuff. And that's not what you want to do. You want to reimagine your company because the technology is there. So it's not analytics, it's being smarter about how you manage personalization. It's not about mobile, it's about the customer experience initiative. So it all really starts from a vision of: "How is our company going to be a different kind of company"?
And then you fill in the details on how you're going to get there. If you're taking a Business Process Management approach. And, if you're optimizing processes instead of rethinking them, you can be too incremental about it.
Rethink Traditional Business Models
Appian: Can you give some examples of how large traditional companies are rethinking their business models?
Westerman: GE is rethinking the way they're going to sell products. Instead of selling products and service contracts, they're thinking about selling you the availability of that product. That's a whole new way of thinking about how things work. I know of another company that makes chainsaws and power tools. But rather than allowing the tool rental companies to make all the money from these products, this company is renting the products out themselves which is like Uberizing a chain saw.
That's what I mean by rethinking what's possible. There's definitely value to be gained by optimizing your processes. But I wouldn't stop there.
Appian: So focus on rethinking business models, not just optimizing processes?
Westerman: Yes...There's nothing wrong with making incremental changes. But don't let it get in the way of doing something bigger. Digital transformation is about changing from a caterpillar into a butterfly. It should make you faster, more agile, and closer to your customers. It should give you wings so you can fly.
"Unfortunately, too many companies are talking about digital, and investing in digital. But they're just thinking about being a fast caterpillar, not a butterfly.So, if you have competitors that can fly, you'll never keep up if you stay on your feet. You need to think differently than that."
Appian: Talking about different, the stock market has hit record highs. And many of the companies driving this growth are digital giants like Apple, Alphabet, Facebook, Amazon, and Microsoft. But how can traditional non-tech companies compete and win in the digital economy?
Westerman: We've studied traditional companies exclusively. And we've seen a lot of activity, a lot of investment happening in the digital space. But very few companies are doing it well. The ones that are doing digital well, we call these companies digital masters. And these companies do two things better than their competitors.
First, it's not just investing in technology, it's transforming the customer experience and operations. So while other companies are thinking about the mobile project or the AI project, these digital masters are building up the ability to fundamentally rethink how their companies might work. And then they plug in the right technology to make the right changes happen.
In our latest book "Leading Digital: Turning Technology into Business Transformation" we talk about all of this.
What we're seeing is that in the last three years, digital transformation has just shot off the charts. Everybody's talking about it now.
Start Transformation in Back Office
Appian: And you're shaping the conversation...Transforming operations is a critical success factor. But many companies tend to talk about digital transformation as a way to validate their focus on the customer experience.
Westerman: Yes, most of the conversations are about the customer experience. Why is that? Because that's what people can see. But a better place to start is operations. Because if you've got a messy back office, it's really hard to get a unified view of your customer.
"We've seen it many times the best digital transformation efforts start with the back office first. And if you get that right, amazing things can start to happen, that just weren't possible before."
Appian: Can you give a few examples?
Westerman: There's a paint company in India that had operations in 13 separate regions of the country until they put an ERP system in place. The system gave them a unified way to look at processes across their organization. Which opened up more and more possibilities. Now, they've expanded operations to 17 countries around the world.
The company used digital technology to change the way they sell to retailers...their approach to product delivery. They were able to optimize their processes across the entire company. They changed their sales process, so sales can take orders over the phone. Which turned their sales people into relationship management people.
Now this traditional company has become the Uber of wall painting. They won't just sell you paint. They'll come and paint your wall for you.
Appian: And all of this happened because they cleaned up their operations first?
Westerman: Yes, all of this happened because they cleaned up their operations first, put an ERP system in place, then moved on from there.
Another favorite example is a construction firm that embraced virtual reality. If you're building a water treatment plant, it can be hard to visualize what's happening in the blueprints. So this company gave virtual reality (VR) goggles to their engineers, so they could walk through a virtual version of a water plant they were building.
In the past, it could take months to go through the design cycle with a government client. It takes time to develop the plans, send them to the client, wait for the the plans to be reviewed and sent back with comments.Then, rerun the models and send them back for more review and comments.
Transform the Customer Experience
Appian: So what did this company do differently?
Westerman: They brought in cloud-based, computing to run their most complicated models. So now they can sit down with a client in a day, and do what would have taken a year before. This all came out of an operational change that didn't stop with changing processes, but also transformed the customer experience.
Similarly an Australian-based mining company called Rio Tinto operates one of the world's largest fleets of autonomous trucks. Company leaders knew that if they could optimize their truck routes, they could use autonomous trucks rather than trucks driven by people.
Both the miners and the mine owners are happy about that, because it freed up people to do work in safer locations. And the trucks and diggers? They could do work in the dangerous places. Once again, what started out as an operational change, turned into something much bigger.
Automation
Appian: Which brings us to the topic of automation and, specifically, Robotic Process Automation. How do you see RPA fitting into the digital transformation narrative?
Westerman: It all begins with rethinking what your business can be. We've got a lot of assumptions built into our minds about what works, and what doesn't work. And one of these assumptions is that customers want people to provide them service. No, customers want personal service. They don't care whether it comes from a robot or a person.
"If we think that we've reached the peak of what we can do with automation, we're just wrong based on the advancements we've seen in the last 10 years."
You've got RPA. You've got robots writing text for journalism. You can give a software robot a baseball box score, and it'll write 300 words of text about what happened in that baseball game. And it'll be pretty darn good. Or, I can give you the numbers on my quarterly financials, and a software robot can write up a pretty good financial report.
So we're nowhere near the limits of automation.
Appian: So what's the takeaway for senior executives?
Westerman: It means rethinking what we can be, not plugging in automation incrementally. It means rethinking our processes to be fundamentally different.
Appian: What about the conflict between digital labor and human labor? What about the critics who say that automation is a job killer, and the automation advocates who say that automation will boost productivity?
Automation: A Freight Train that Can't Be Stopped
Westerman: Well, this is the same thing. If we have fewer people delivering the same volume of service, that's higher productivity. So there's a real question to deal with in terms of what happens to the people who do the work that robots can now do. And that's a real question of how companies, society, and people will handle that change.
I think it's a freight train that we cannot stop, and we may not want to stop it. But we need to think about the implications for people. Can we retrain people, repurpose them or do we let people go? How can we help people learn new skills and make a transition? These are some of the big questions we need to think through.
Appian: What about our schools? Are they set up for the challenge?
Westerman: That's an important question. In a digital world where computers will do all the routine work...are our schools set up to teach people skills that will still be meaningful? I was talking to a manufacturing company that has gone from 300 down to 30 people.
And they're producing better product and more volume of it because the machines are that much better. Now, the high school graduates they hired are more highly skilled than before. They can program the machines, and they make more money. But they're using fewer people to produce more volume.
So what are our schools training people to do. Are they training people to do factory jobs that won't be there anymore? So our schools need to rethink things too. It's the same story with mid level office work. This kind of work is largely going away as well.
Appian: You've also talked about the concept of substitution and extension. What's the big idea with these concepts?
Westerman: It gets back to the caterpillar and butterfly analogy. You can take a website and put it on a mobile phone. This is an example of substitution. There may be some incremental gain there. But there's not a lot of value in it.
Appian: How's extension different than that?
Transformation: Not Just an IT Thing
Westerman: Extension is taking what's good in one area and putting it in another, like banks getting into insurance. There's more value, but also more risk. So if all you're focusing on is substitutions, there may be some incremental gain there.
And, occasionally there may be a big gain, because you made a substitution that's an order of magnitude better. But you're not going to get a lot of homeruns or huge productivity gains, because the higher value stuff, the riskier stuff? Other people are going after that instead of you.
Appian: Earlier, you said that one of the wrong ways to approach digital transformation is to hire the digital guy or woman, and say: "It's your job, take care of it." What are some other mistakes senior executives make in implementing digital transformation strategies?
"Another mistake is considering digital transformation as just an IT thing. There are some IT units that can help you change the business, and not just run the technology. But, in many organizations, IT is still focused on the technology piece. And digital transformation is not a technology challenge."
Westerman: And I think the third mistake is to think about digital transformation as technology and not fundamental change. If you do that, you're going to trip over the technology over and over again. If you think about it as a vision, as transformation, then the technology becomes a piece you can put into the puzzle, a tool you can use to transform, rather than an end unto itself.
Appian: In wrapping up our conversation, look into your crystal ball and give us your predictions for digital transformation for 2018 and beyond..
Westerman: I think digital transformation will become like e-commerce has become. It was kind of scary in the past. Companies invested wisely and unwisely. But now companies have gotten pretty good at it. And I think we'll start to see digital transformation look like that. And that will be across all industries. And not just the ones that led us in the past.
Appian: What about the C-suiters at non-tech traditional companies. How will digital transformation impact them?
Westerman: If you're running a company in manufacturing, utilities, insurance or retail, just because your industry has been slow to adopt digital, doesn't mean you should stay out of the race. Everybody's going digital. Now's the time to be thinking about it.
