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INSEAD: Why Is Digital Transformation So Hard? Leaders Must Manage Multifaceted Change, Not Technology Adoption

Leaders understand that digital transformation is an imperative.  Shareholders demand it. Customers expect it. The commercial impacts of COVID-19 are accelerating it. Yet only a quarter to a third of digital transformations fully achieve their goals.1

Research points to several keys to transformation success, such as customer-centricity, well-sequenced technology adoption, employee enablement, effective use of data and analytics and taking a step-by-step approach to transformation management. Meanwhile, torrents of best practices and expert advice flow from every imaginable source about what it takes to win at digital transformation. Large-scale digital transformations demand so much adaptation to specific company circumstances that much of this insight is useless without a context for transformation management and leadership.

 

What’s a transformation leader to do?

We’ve concluded, based on synthesising research undertaken by MIT, McKinsey, Accenture, Altimeter, BCG, Forrester and Gardiner, that actively managing the multifaceted aspects of organisational change across the enterprise is the path forward for transformation leaders. Active management requires moving beyond treating transformation as a set of independent, technology-adoption initiatives by thinking about it as a comprehensive change-management undertaking.

Actively managing the multifaceted aspects of organisational change across the enterprise is the path forward for transformation leaders.

Our research among transformation leaders and our examination of case studies among Prophet’s clients and INSEAD’s case partners indicate that actively managing the multifaceted aspects of digital transformation can be accomplished by addressing four dimensions of transformation: agenda-setting, change management, in-market implementation and capability-building.  Not even the most successful transformers get every aspect of each dimension right. But those who fail to actively manage, measure and motivate teams in even one dimension rarely succeed.  The dimensions of transformation are like layers in a wedding cake.  Each supports the one above and consists of multiple aspects – cake, frosting, decoration – that must be carefully assembled.  Insufficient attention to one layer or to binding layers together results in an unstable cake that topples easily.

We’ve been able to organise what we’ve learned about important aspects of each dimension into the following taxonomy to enable active, multifaceted change management.

 

Transformation Agenda

Planning a transformation seems straightforward and self-evident. It is remarkable, however, how many companies have identified and prioritised individual transformation initiatives but don’t have a comprehensive agenda to address their most important growth and cost-saving opportunities, key leadership accountabilities, the desired pace of progress or even an articulation of a vision of what they want to achieve.  Often, this is the result of falling prey to the pitfall of not declaring that a transformation is needed or underway. Failure to declare transformation can result in a piecemeal approach as a substitute for a cohesive agenda.  A cohesive agenda can make the difference between improving in pockets versus transforming major inter-functional areas for sustained growth. Taking extra time and effort to identify and prioritise customer growth or internal improvement opportunities is a best practice among those who create a transformation agenda.  The opportunities ground the vision in reality, inform the selection of the first moves to make and help set the pace of transformation.

 

Change Management

Actively managing the transformation requires sequencing initiatives, integrating them with each other, measuring and reporting out progress, using governance to overcome roadblocks and troubleshooting stalled initiatives.  It also includes fostering the cultural changes that are so crucial to success, as well as maintaining a steady drumbeat of employee communication and dialogue.  Resource and investment choices are another important aspect of change management. A best practice we’ve observed is the establishment of a transformation management office (TMO) with a dedicated team and budget to take on this role, and with the support of a C-suite sponsor who is charged with guiding the overall transformation. A common pitfall is treating the job of guiding the transformation as a project-management, rather than a change-management, activity. Project management is important, but it doesn’t include building a culture, generating momentum and prioritising the use of human resources that are important aspects of transformation change management. Managing, measuring and motivating change in agenda, capabilities and in-market implementation are essential to transformation.

 

In-Market Implementation

Digital transformations succeed when the work of the business in sales and marketing, services, customer experience, innovation, operations and HR substantially digitises in ways that tangibly and measurably improve business and customer results. This requires running new processes and using new digital tools and data. It also needs dedication to continuous improvement and progress. Two best practices have emerged in our examinations of large-scale transformations. The first is the implementation of test-and-learn processes that often start with small-scale efforts, followed by scaling and enhancement as they prove their worth and as barriers or mistakes in implementation are overcome. Agile processes and teams are required, because they speed up piloting, testing and learning that otherwise can bog down the pace of progress. Failure to train, incentivise and enable middle management is a common pitfall. They are essential to execution but may feel threatened by the disruption of digital transformation.  Despite their criticality, they are also often ignored in large-scale transformation efforts.

 

Capability-Building

Digital transformations cannot scale in most companies without significant capability-building in both technology and data, and in organisation, people and culture. Diligence is required to identify the capability requirements for individual areas of transformation, like marketing and sales transformation, and the capability requirements across multiple areas, such as transformations that involve customer experience, solution innovation and operational improvements. It is also important to determine what skills or processes should and should not be strategically owned or developed, what should be outsourced with ecosystem partners and how outsourced capabilities can play a productive part in transformation delivery. Benchmarking capabilities is a best practice in successful capability-building.  Benchmarking opens leaders’ eyes up to what it really takes to change. Over and over again, the biggest pitfall companies fall into is underinvesting in people, culture and leadership, because these aspects are more difficult in terms of setting requirements and measuring progress than the technology or data side of capability-building. These “human’ aspects of transformation may also not be valued as much by the IT professionals who frequently lead digital transformations.

 

The Maersk Example of Active Transformation Management

A.P. Møller – Maersk, powered by a company-wide digital transformation that began in 2015, found new ways to sharpen their customer focus, increasing revenue by 41% and boosting EBITDA by 221%.2  In 2016, A.P. Møller – Maersk declared that digital transformation was a key strategic pillar. To maintain its leadership position, Maersk shifted from an operational to a customer-centric, experience-driven, digital orientation.3

Maersk shifted from an operational to a customer-centric, experience-driven, digital orientation.

Maersk leaders established a transformation agenda by identifying customer opportunities at key points, such as booking and traffic management, by talking to customers and prospects throughout the world. They established a bold vision and articulated it clearly. “We want to transform our business to fit around our customers’ needs instead of our assets by delivering a more personalized experience,” said Vincent Clerc, CEO of Ocean and Logistics. The vision demanded digitising the entire industry ecosystem, not just Maersk’s interactions with customers.  The agenda clearly articulated and sequenced a set of quick wins to improve terminal utilisation, inland services, hub operations, joint production planning and cross-purchases across its brands.

From the outset, Maersk leaders took the job of managing change extremely seriously and invested substantial resources in it.  Søren Skou, A.P. Møller – Maersk CEO, and Vincent Clerc, CEO of Ocean Logistics, took personal ownership of the transformation, declaring it openly in quarterly investor calls and explaining it to employees through regular communications and updates, assigning clear accountabilities among key leaders in the organisation, such as Sonny Dahl, the Head of Customer Experience for the enterprise. They also developed an entirely new measurement system to judge the progress of the transformation from the customer’s viewpoint through a shipping information viewer that can be used by individual customers, while it provides an enterprise-wide view of transformation progress.

 

 

In-market implementation of the transformation began with quick wins in shipment booking and management and grew into significant customer experience redesign as Maersk built momentum and dedicated resources to areas that could generate the most impact.  These initiatives included:

The digitally powered Spot System to streamline a time-consuming 13-step, person-to-person booking and purchase process into five simple, integrated steps – all online.

The launch of Self-Service Instant Bookings was another major initiative. Using a portal on Maersk.com, Instant customers can receive booking confirmation within seconds, instead of waiting the two-hour industry norm.

Maersk’s largest digital experience initiative is TradeLens,  an open digital platform jointly developed with IBM, which CMA, MSC, Hapag-Lloyd and Ocean Express joined in 2019. TradeLens gives supply chain parties easy access to, and the ability to share, data. The first two applications that Maersk has launched on the platform are a tool facilitating paperless trade, and a viewer to improve visibility of the shipping information pipeline.

Capability-building evolves as the transformation proceeds.  The experience-design teams powered by the customer data and analytics function remain at the heart of the talent that powers this transformation.  What sets Maersk apart is the incorporation of expertise in integrating systems and data within a larger ecosystem with multiple stakeholders.  Capability-building has extended from new software platforms to support customer applications to helping line managers implement change within their teams and use the new digital tools at their disposal.  Both Skøu and Clerc have been particularly attentive to managing cultural change in an organisation skilled at operational efficiency but not oriented towards customer-driven innovation and personalisation.

Implications for Transformation Leaders

Three priorities for active, multifaceted transformation management emerged from our examination of cases and discussions with transformation leaders:

Actively manage all four dimensions of transformation; set the agenda, manage change, implement in-market and build capabilities. Don’t let any single dimension lag. Don’t fall prey to the trap of project-managing individual in-market initiatives rather than driving a comprehensive agenda.

Focus on getting most aspects mostly right most of the time within each dimension, while improving and filling in the gaps as the transformation proceeds. A culture of improvement based on testing and learning is essential in this regard, as is the ability to shift over time as the transformation and outside circumstances evolve or change.

Keep in mind the people side of transformation. In this article, we’ve highlighted the human aspect to every dimension. We’ve also noted that failure to address these human aspects is a common pitfall. Active transformation management requires melding employees, customers and partners with technology. In some ways, it’s more of a people challenge than a digital one. 

 

About the Authors

Joerg Niessing_authorJoerg Niessing, a Professor of Marketing at INSEAD, is a globally recognized leader on digital transformation, digital strategy, customer-centricity, and data analytics and has authored a series of reports and frameworks on these topics. He is the programme director of INSEAD’s flagship programmes “Leading Digital Marketing Strategy” and “B2B Marketing Strategies”. His credentials do not only come from his academic career, but also from over 14 years in consulting.

Fred GeyerFred Geyer is a Senior Partner at Prophet, a leading transformation consultancy. Fred and Joerg are co-authors of The Definitive Guide to B2B Digital Transformation, curators of B2BDigitalTransformation.com – an resource hub for transformation leaders and facilitators of a webinar series featuring B2B transformation leaders. For more information go to B2BDT.com.

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