The Boston Consulting Group (BCG. Perspectives)

MAY 22, 2017 Martin Danoesastro , Grant Freeland , and Tom Reichert

This article is part of an ongoing series exploring changes in the workplace and in the nature of work. The first piece explored 12 megatrends, such as automation, big data, demographics, and diversity, that are revolutionizing the way work gets done. Subsequent publications will explore digital governance, talent, and culture.

The success of a transformation depends on an organization’s leaders, especially the CEO. In digital transformations, the CEO is even more critical because of the magnitude of change, the degree of disruption, and the power of inertia.

Digital transformation requires new ways of working, not just new technology. The scarcest resource at many companies is not necessarily technological know-how but leadership. Leaders need the ability to sift through an avalanche of digital initiatives, manage accelerating innovation cycles, and reshape the organization around new approaches such as agile.

Here are five golden rules of digital transformation for CEOs to follow.

LEARN FROM THE OUTSIDE BUT STAY TRUE TO YOUR DNA

Established companies need to embrace the innovations that are powering the digital economy. Digital natives such as Uber, Airbnb, and Spotify, for example, have successfully attacked the taxi, lodging, and music industries by meeting customer needs in new ways and taking advantage of technological innovation. Equally important, these companies have created new operating models and cultures.

Incumbents need to learn from the successes of these attackers, not assume that such lessons don’t apply or make only slight adjustments to the status quo. CEOs should carefully study how they can broadly apply new ways of working, new levels of customer service, and new technology platforms to their own organization. It’s not enough to take a quick road trip to Silicon Valley or Bangalore or put a tech executive on the board of directors.

At the same time, companies should not abandon their core strengths and culture. An organization that has been around for 50 or 100 years or more has enduring and proven qualities that do not just vanish in the digital age. The turnaround of the LEGO Group, for example, one of the most famous business stories of this century, was conceived as both a bridge to the digital future and a return to the past. “LEGO had lost its focus and its core…. What was it really that this company did better than anybody else?,” recalled Jørgen Vig Knudstorp, the CEO who orchestrated the transformation. “There’s an incredible community around the LEGO brand and the LEGO brick, and we didn’t nurture it well. Those were the things we started addressing, and that led us on an incredible journey of very strong growth for more than a decade.”

FOLLOW THE MAP, TRUST THE TERRAIN

Vision creates intention and establishes direction and ambition. Plans lay out responsibility and deliverables. Vision and plans are both critical requirements in a transformation. But digital transformations require room for course corrections. It’s impossible to button up every last detail and identify the transformation’s precise landing place.

Leaders, in other words, need to articulate a broad strategic outline and the purpose and context for change. But they also need to be open to feedback from people in the organization, from customers, and from partners. They need to be able to course correct. We call this approach adaptive leadership.

Adaptive leadership is not code for indecisive leadership. One commonsense way to become more adaptive is to perform more frequent reviews. Quarterly business reviews replace annual planning cycles. Course corrections happen weekly or even daily instead of monthly.

Another commonsense idea is to force face-to-face interactions to resolve differences. ING, the bank based in the Netherlands, has hardwired these interactions into decision making by running its digital transformation from an Obeya room. The room is “the heart of ING’s transformation,” says Roel Louwhoff, the bank’s chief operating officer and chief transformation officer. “The purpose is simple: having a full overview of the status of all projects and solving issues quickly. If an issue can’t be solved in five minutes, it’s escalated to the next level.”

PLACE MANY BETS

In the same way that leaders must establish a broad vision but allow for improvisation, they also need to take more than one approach to digital transformation. The level of volatility and ambiguity in the market makes it impossible for leaders to know precisely what will work and what technological and analytical capabilities they may need to acquire. There are at least two types of bets that companies should consider:

  • Open Innovation. Companies that have successfully transformed themselves generally participate in broader digital, innovation, and mobile ecosystems. They tap into developments beyond the organization and let outsiders improve upon their bundle of products and services. In open-banking initiatives, for example, many banks publish APIs, or entryways into their software, that allow financial technology startups to build add-on services.
  • Portfolio Construction. In terms of deal making, partnering, and venturing, digital transformations are built on many small, manageable bets. Companies should evaluate dozens of different approaches, investments, and partnerships; pilot or incubate a few; and then build and scale up only the most promising. These exercises need to occur in the context of the overall vision. “Let a thousand flowers bloom” is a nice slogan, but it can be a recipe for losing focus and wasting resources.

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