Digital Transformation is about innovation which is about willingness to fail.
As the traditional companies embark upon the digital transformation journey, they need to start appreciating nuances of adopting digital. Cultural aspects of this transformation are often just as important, if not more, than the technology itself. One of the best-run companies in the last century GE is a classic case of how the lack of culture for transformation could destroy significant value for the stakeholders. GE was the most valuable (by market capitalization) company for the year 2000. It was valued at around $500 billion in market capitalization. The iconic GE! The 6-sigma champion where every process was optimized for the efficiency. Come 2020, it’s market capitalization is $60 billion.
Something similar happened to Hewlett Packard (HP) and Sun Microsystems. So what went wrong. Many things. But a key factor was that …
… When macros (in this case the tech macros) are highly dynamic, they were fixated on optimizing efficiency and took their eyes off innovation.
If you are a traditional company, your success has come through adherence to processes. The set process can be run well when you have that hierarchy where the team members do precisely as the bosses/process/systems want them to. No variations. 6 Sigma. Since the process and its outcome is so well defined, the failure is never tolerated. Of course, if you are an airline or any such company, you need to have all those things.
So as a company, especially a successful one, you have geared your mindset (and culture) towards over-optimizing for efficiency. You have tried to kill any variation from your systems/processes. You are sanitized. Sterile and efficient. In the short term, sterile is very good. In some industries, you need strict compliances to the process. E.g. Airline.
The problem is when there is when digital technologies are changing the rules of the game. Fast.
That is what is happening in almost all spaces. Digital is eating the world! For the digital world, the most significant risk is not the lack of adherence but lack of innovation. Because lack of innovation poses an existential threat. The problem is that you have created a culture that is not comfortable with the variation / non-adherence. You are so sterile that the culture is not fertile enough for the (digital) transformation. You are not willing to tolerate any failure. And when you get caught in the technology disruption, which in the long term you will, fertile will beat sterile. Mind you, I am not at all hinting at having a chaotic culture.
(Read how Blockbuster Video perished to a very fertile Netflix - ‘Netflix did what Blockbuster, HP & Kodak couldn't do. They transformed! - A lesson in Digital Transformation Culture.)
You have to be very conscious as a leader on how you balance between long-term innovation and cashflows from the traditional businesses are enough to fuel the long term transformation. After having helped many Fortune 100 CXOs around the work to execute on their strategy, I can tell you that the most challenging change to make is that in the culture. But it's not impossible.
Thanks.
The blog post is dedicated to those fantastic innovators who are battered, every day, in corporations.
Failure? Tech companies. Even the most successful tech companies have been failing consistently at many things. If you do a quick google on Google’s failed products, you will see lists of 10s of failed Google product.
Amazon is one of the most innovative companies. They are so used to and willing to fail. They had this disastrous mobile phone foray. (The person heading it got well rewarded because everyone appreciated that the odds against. So many companies where this leader would have been fired.) And then they produce AWSs and Alexas which changes the world.
(By the way, the best way to minimise the impact of the failure is to choose the right area to work. What I mean is that put a lot of thinking behind how you want to start your digital transformation. That will help you pick up the right area to work on. And failure will leave you essential learnings. Read my blog ‘Digital transformation: How to start your journey?’)
