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It is very hard to succeed with digital transformation in an established organisation without addressing structural barriers and blockers and in particular the stultifying effect of management-by-cascading-hierarchy, which creates a divided, vertically-oriented organisation instead of a laterally connected structure.
For this reason, we are doing a lot of digital leadership development work these days. I will probably teach organisational transformation methods and models to over a thousand senior people in large organisations this year. It is intense, challenging and rewarding.
I almost never come across a group of senior leaders that is not passionate about digital transformation, change and leaving behind a better organisation than the one they inherited. But I also never come across a group who feel they have the agency and the freedom to do it, except in situations of crisis.
Almost all leaders are pinned to the wall by KPIs, short-term stock price movements, or the sheer complexity of change in a divided organisational structure. But also many who have fought hard to reach the top simply want to enjoy their time in the sun, so when things look hard they will leave it for the next generation if they can.
I believe the most important priority for any leader today is organisational change and, in particular, the reform of old structures that are holding back evolution. We need to galvanise a generation of leaders to become organisational architects if we are to break free from the powerful gravitational pull of hierarchical process management and create an alternative way to coordinate work that is agile, adaptive and fit for the future.
How we do digital leadership is the logical starting point for this, because digital technology will be the basis of new organisational operating systems, and this can provide a model for the rest of the organisation to follow.
The roots of the leadership problem
Management theory arguably began as an attempt to replicate feudal class structures in the industrial era – the idea that a special class of managers can get more value from workers and create an efficient organisation, even when the cost of this overhead is factored in.
The structural form this took – cascading management hierarchy and vertical integration – was not universally seen as a good idea even 150 years ago, but we lacked the communication technology to do make other models work at scale.
Now we have more communication technology in our pocket than IBM in the mid-C20th, but management theory has become a kind of religion, with the reasons why we do things this way apparently forgotten. So we continue to train cohorts of managers who work (and even look) like the old managers, despite advances in communication and work culture, and then we set them up to compete against each other so that the most sharp-elbowed rise to the top and run the organisation.
What began as an attempt to make management a science has ended as a ritualistic approach that makes as much sense to modern eyes as the process of choosing the next Pope.
In his entertaining exposé of management consulting, Matthew Stewart put it this way:
“The gurus hold on to the pretense of management expertise because that is the idea that fuses their work into a meaningful whole … [and] subscribe to the myth that Taylor concocted and that has sustained the business of management ever since — the idea that management is a specialized body of knowledge or expertise that evolves over time and is the preserve of a certain class of professionals.”
This separation of thinking and doing has resulted in a learned helplessness among the workforce when it comes to digital, and a creeping fear among leaders that they have no idea how things work any more, and so they fall back on positional authority and financial engineering, which is sometimes all they know.
This issue is the biggest barrier to digital transformation today, and we have to address it with practical solutions, not just new theory, values, cultural initiatives, self-help or pleas to the powerful. It is all too easy to fall back on ‘culture’ as the solution, but this is like blaming lab rats for the maze.
Peoples’ behaviour and culture is usually a product of the system that underpins them, so if you have a culture of lack of trust and transparency, perhaps the solution is to enable people to communicate and collaborate in the open, rather than by sending messages up and down a hierarchical chain of command.
People are capable of almost anything, and in high-performance teams and workplaces, a small group can produce exponential value if we get out of the way and encourage them to act. But the opposite is also true: large groups of people in repressive management structures can become collectively stupid thanks to the learned helplessness such structures create.
The biggest opportunity for leaders and managers to create value today is by acting as organisational architects, designing, curating and sometimes protecting the structures and spaces that enable people to achieve their best work.
Give power, take power, share power
We need the most senior established leaders to give power back and re-define their role as strategy, horizon scanning and supporting the organisation in navigating complexity. We need the second tier of leaders to take power from them, over digital decisions and developments they understand better than the people who hired them.
And we need emerging digital leaders and guides to stay present in the organisation – not seek elevation to generic management roles – to build out the fabric of a digital organisation by engaging, supporting and sometimes challenging their colleagues.
But we also need all key digital stakeholders to work together to design, deploy and develop a practical digital strategy that is aligned to the most important strategic goals of the company. We don’t want an all-powerful CDO or CIO to “own” the entire digital agenda, since this should be everybody’s job; but nor do we want to see HR or marketing building or buying their own platforms without regard to how they all fit together to create the digital business capabilities the whole organisation needs.
C-suite functions are used to competing for budget and attention and often find it hard to work together on an ongoing, day-to-day basis in an open and transparent way to coordinate digital development. But it is important to make a collective approach work, as this is a more effective digital leadership solution than an all-powerful CDO or CIO.
The approach we recommend is to create a Digital Leadership Group (DLG) that includes all major digital stakeholders and works together to ensure that all digital development is coordinated and contributes to a growing set of strategic organisational capabilities.
This can dramatically reduce duplication and waste, and where the DLG takes a service-oriented approach, it can support re-use and the development of a core service platform that the rest of the organisation can build on.
Build the fabric of the new, don’t just change the old
Digital transformation is not just about changing the old organisation, but rather creating new organisational fabric – often digital in nature – that can coordinate work and communications in a better way. Sometimes it is better to build the new, and thereby render aspects of the old structure obsolete, than it is to change old, calcified teams, processes and structures against their will.
A digital leadership group needs to move away from just buying or building software and think instead about the capabilities the organisation needs to succeed, and only then about how to build, buy or (increasingly) rent them.
Buying stand-alone software solutions is what we are used to, but if we look to cloud, serverless and micro-service architectures, it is more likely we will be plugging in services rather than products to build out the capabilities we need.
Too much digital transformation has suffered from chasing trends – “we need a blockchain with VR!” – and it needs to be grounded in real business needs:
- what strategic opportunities and threats do we face?
- what new business capabilities do we need to address them?
- how can we all work together to create and improve these capabilities?
Instead of a one-off or occasional ‘big push’ to create these digital business capabilities, this needs to become an ongoing part of how the organisation evolves.
We tend to think about digital capabilities on three main levels:
- Optimisation: how can we use digital tools and platforms to make what we do today better, more efficient, and more connected. For example, how do we improve the digital workplace, employee experience, data sharing, collective intelligence and knowledge sharing. Ideally, the time and cost savings from working more effectively in the day-to-day can be banked and used to support more transformational change. By coordinating work using digital platforms, we also need a lot less management, which frees up some experienced people to functions as organisational architects and change agents, rather than enforcers.
- Transformation: the exciting thing about developing digital business capabilities is not improving what we do today, but transforming work into something better. For example, many organisations want to operate small, agile teams but this means switching from a process-centric to a service-oriented way of working. Teams should be encouraged to create or request the services they need to automate and orchestrate their work, and the role of the Digital Leadership Group is to support, connect and coordinate to ensure the whole organisation states to develop a shared services platform to support these teams in all their variety.
- Innovation: customer-facing teams should be able to pick up these services and capabilities and assemble them into packages or value-added services that support customer needs and desires. This is where we create some outside-in pull to help drive the organisation’s digital development towards customer and market requirements.
The key role of the Digital Leadership group is to own the map of these capabilities and how they fit together, and also the shared backlog of improvement actions that will help develop them, and to make sure that different departments don’t keep buying their own unconnected point solutions.
More and more digital teams in large organisations are starting to realise that their main challenge is how to create a core service platform that can replace hierarchy as the coordination system for work, but where to begin with such an ambitious initiative?
This approach provides a starting point, and if done properly, it provides a practical route to helping the whole organisation define what its platform should include.
Think like architects and developers of the orgOS
Where are we headed with this?
If we return to the question of the crisis of leadership in organisations today, and how we can fix it, we need a clearer vision for what an organisation is, how it is structured, how it develops, and also how it supports the people who exist within it. In the old management theory model, both the organisation and its people work for the managers.
I think we need instead, a vision of how the organisation and its management work for the people who make it up, and who deliver value for customers.
I would characterise the traditional organisation as neither fully human nor a machine, but a kind of dysfunctional machine made of meat that treats people as its components. Instead of an evolutionary system that adapts and grows as a result of external stimuli, it is run along the lines of ‘intelligent design’ – with Gods at the top designing and guiding everything. Even if we had faith in this approach 50 years ago, it is clearly not working now.
Where digital technology can play the most important role, I think, is in automating, orchestrating and connecting the many service and processes that make up the value chain of an organisation to create a platform on which agile teams and people can be free to work in a more autonomous and creative way – a structure that is more machine-like and automated at the back-end to enable the organisation to be more human and adaptive at the front-end.
The design pattern of platforms – that embody rules, constraints and security – supporting a variety of specific apps that work on top is now almost universal. It is how our phones, TVs, cars and other devices work. It will also become the dominant organisational model for organisations.
Pioneers like Haier or Amazon are already showing the power of this model to create exponential growth, and more will follow their lead. But for many organisations today, their digital workplace platform is the only example of this they can point to, so we have a lot of work ahead to build out from the digital workplace to create a true example of ‘business as a platform’.
This is what we think of as an organisational operating system, which is less reliant on a special class of managers telling everybody what to do from above. Instead, it needs leaders who can set a course and bring people together to follow it, and it needs embedded leaders who can support, coach and most importantly, act as organisational architects and change agents to create and continuously improve the system that connects and coordinates peoples’ work.
A continuous process of assessing the fitness of our organisational capabilities, defining capability goals and then orienting development efforts to create them is the crux of agile management – a process of continuous design with employees in the centre as the customer. Pursuing this approach can also help remove the friction faced by any organisation struggling to ‘do agile’ in a non-agile organisational structure.
Making it real
Everything is digital, so digital leadership is leadership and digital strategy is strategy. Change is now routine, so guiding digital strategy should be everybody’s job, and we should use what Dave Snowden refers to as the human sensor network of the connected organisation to guide and inform it, and to measure results. Digital strategy should set the framework for action, standards and guidelines, but it should leave room for operational freedom.
We need to help existing leaders to shape their roles, and to encourage the whole organisation to support a distributed transformation process, with the most engaged digital passionates acting as guides and change agents to provide embedded, situational leadership and assistance to those who are less confident.
We need to set the bar higher for digital skills among leaders, and we can no longer afford to tolerate the pride some of them take in being ignorant of how the modern world, and the modern company, operates. We should challenge them to adapt much faster, but most of all we need them to let go of all but the most high-level strategy questions so that those who are closer to the topic can step up.
The digital leadership group can play a key role in joining together a divided organisation and ensuring a common approach to developing core digital business capabilities, but they too must also push power down and out towards those closest to the ground and closest to the topic, using a network of digital guides to support change on a local level.
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