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In mid-2018, the Leading Edge Forum (LEF) published a research paper entitled Digital Transformation and Leadership – The Five Big Questions.
This research was designed to help leaders, especially CEOs, get clear on the questions they needed to be asking themselves, their Boards and their leadership teams as they embarked on and/or continued their digital transformation journeys. That article prompted a deeper dive to address the biggest question that the article’s publication prompted – “Who can help me get started moving forward, and/or get me unstuck, once I ask these questions – who really drives digital transformation?” The question of “who?”, is as critical as the question of “how?”. But before we get to the “who?”, let’s step back and look at the “how?” that CEOs, their Boards and their leadership teams will be dealing with on their digital transformation journey.
In looking at what has and has not worked over the past several years, the authors have come up with several recommendations for ways forward with digital transformation in your organization. And we need to start with this statement – transformation (digital or otherwise) is not an event, or a destination, rather it is a journey. And, every journey needs a roadmap and navigation support. We would also be remiss if we didn’t also note that ‘digital transformation’ is an imprecise term, to say the least, and that the scope of change associated with it increases as the need for change moves from IT modernization to business transformation to industry disruption. You always have to start with this question – what does digital actually mean for your business?
As we reflected on our work and discussions to date, we were struck by how often CEOs, Boards and leadership teams looked at change and transformation as a project, a destination, rather than a journey focused on ongoing, continuous business transformation. In truth, this journey is a multi-year cross enterprise change management approach impacting your business model, your financial structure, your organization (people, skills, process) as well as your go-to-market plans. This is a team game, not an individual sport. It takes leadership from the CEO, the Board and the entire executive team to keep the programme on track, adjust for risks, look at unintended consequences and communicate throughout the changes affecting all aspects of your business.
Note that we did not refer to it as a project or programme, but an approach. If we treat transformation like an event, or worse – a function, we believe you are doomed to fail. What is happening with digital is about building capabilities to transform, not just going through a so-called ‘transformation programme’. It is about responding to a world where business models are shifting towards subscription-based, outcome-driven Platform as a Service and Software as a Service models. It is about turning strategy into operational ability. And, above all else, the journey we are talking about is a leadership transformation play.
How Did We Get Here?
To understand our thesis, let’s remind ourselves of what is driving enterprises and leadership teams to embark on transformation, especially in the context of digital. At its simplest, it is that the ‘going digital’ hype is matching the reality. The evidence is in the power shifts to the technology and platform companies who are quickly encroaching on just about everything. The ubiquitous example for this is Amazon. Over the past 15 years, Amazon has gone from an online bookseller to a dominant player in retail, technology, media, etc. The question many CEOs and Boards are now asking is “when are we going to get Amazon’ed?” The journey Amazon has been on to build the preeminent digital platform business has not been a straight line (anyone remember the Amazon Fire?), rather it has been one of constant innovation and continuous improvement. And, while Amazon may be considered a ‘digital native’ entity, many other non-traditional firms or ‘digital immigrants’ have crossed the chasm to become effective players such as: Nike, Southwest Airlines, Disney, and, in a sense, even Microsoft.
The amount of money going into creating disruptive business models and the digital technologies supporting these efforts is staggering. The authors have spent time in Seattle and Silicon Valley as well as NYC and Boston with some leading PE and VC firms as well as established and emerging digital players. All of them said that they are increasing the scope of their efforts – capital, people, process and technology – every day. CEOs and Boards are starting to realize that all industries and all business models will be upended by someone, if they don’t do it themselves.
Overcoming the Innovator’s Dilemma is the top challenge before all legacy organizations today. However, it is a challenge that most CEOs, Boards and executive teams are still failing to consistently activate and execute across their organizations. Too often, what we see is a one-year project and/or the hiring of a CDO and/or the development of a grand strategy with little or no follow up or follow through to drive needed change and improved results. We believe it is because business leaders are trying to play this new game by the old rules instead of being receptive to starting by innovating the rule book itself.
Who Can Get Us There?
In LEF’s recent publication From IT Modernization to Business Transformation, there are three leadership phases of digital business transformation described:
Building the case for change – which requires hard-edged Board, CEO and executive team leadership that is willing to bulldoze existing management structures, deliver a strong dose of reality, ask the uncomfortable questions and showcase where things are going wrong. These people are almost always brought in from the outside and then end up leaving as the change is hard and some glass gets broken along the way. Often too much glass is ‘swept under the carpet’ once the initial hard work is done.
Building the coalition, changing the players – companies need to build a coalition of the willing and isolate the outsiders. This often involves visibly removing executives and key employees – everyone either gets on board, is greatly diminished, or is fired. This means that new talent must be developed within the organization and/or hired from the outside, and not to fit the culture today but the culture of tomorrow. Understanding this is critical to building a strong coalition of the willing that can deliver on needed change across the digital transformation journey.
Getting the change to stick – leadership style moves to more of a ‘warm embrace’ with less confrontational behaviour as new norms and metrics broadly take hold. This is something that is very difficult for the leaders driving the first phases to do, and they are often not the right people for that job. Normalizing and bringing comfort and stability is not the forte of bulldozers. Effective digital transformation leaders build achievable business cases, leverage strong coalitions and communicate effectively with all stakeholders as the journey evolves.
Our research goes on to state that they often see this at the most senior levels of firms where certain executives are brought in to shake things up, followed by others better suited to taking the new organization forward. We’d like to go even further to say that the timeframe between periods of stability and periods of change is starting to disappear. So, what can you do to support those leadership phases?
We believe a place to start is to realize that the current ways of organizing and leading are not working for enterprise-wide transformation. Yet we keep trying to put the new wine in the old wine skin. We propose that we need to create a role, and/or roles, to enable enterprise-wide transformation, but that we have to do it in very different ways. Here are the criteria for these new roles – their work should:
- Be horizontal in reach, not vertical.
- Help build the future but not be a part of it.
- Be finite, not permanent.
- Become redundant, not necessary.
- Be measured by new metrics, not current ones.
Based on our research, we believe Boards and CEOs need to look for someone who is part Chief Digital Officer, part HR leader, part PMO leader, part change leader, and part marketing leader. For many of the functional aspects of these roles it would be very useful it this person, or persons, has ‘been there and done that’, and has the operational chops as well as the communication skills, political adroitness, and ability to work cross functionally to lead the enterprise-wide digital transformation journey. But, that’s a lot to ask and hard to find. We believe CEOs and Boards need to engage someone with breadth of understanding across all of those roles and who has the coaching, consulting, leadership, and facilitation skills needed to effectively leverage the depth of the functional and operational leaders in the business. Ed Schein describes this kind of person as a Process Consultant – a highly qualified professional that has insights into, and understands the psychological and social dynamics of, working with whole organizations, groups and individuals. Process consultation is a philosophy of helping, a general theory, and a methodology of intervening1. In essence, it says that the most helpful help an advisor can provide starts in the interpersonal process with their client, helping the client uncover their own problems, create their own solutions, and own the implementation of those solutions.
In addition, we believe this role must be raising the digital savvy, sometimes referred to as the digital quotient, of the other executives and business leaders, as a team (Pat Lencioni style)2, and getting ready to make them all transformational leaders3. Once this is accomplished in a measured, outcomes-based way, then the role ends and the person(s) playing it departs. There is no threat to status or future of other executives or to the power structure in place, and they leave the C-suite better than when they found them – driving and guiding experiential learning for the team. This creates executives with a high ‘Digital Quotient’ who are true change leaders, where the ability to role model and drive change is a key capability they possess and develop.
Finally, we believe that Boards and CEOs need to focus on preparing their executive and senior leadership teams to lead their enterprise-wide digital transformation journeys today, tomorrow, and the day after4. We are recommending that you need to add a missing player to your executive team, because you as an executive team have to fly this plane as you build it. Let us introduce you to the new kid on the block – The Expirational Leader. We admit, the name might not sound really sexy, it may even seem a little downbeat, but remember that all great truths begin as blasphemies (thank you, George Bernard Shaw). So, just what is an Expirational Leader? Here is the role description, for your consideration.
First of all, they are an executive leader. They have to be inserted into the power structure at a very senior place. Depending on the size of the organization, they must report to the CEO or have clear, overt sponsorship, and be very close in the organizational structure to the CEO. Second, they are brought on to drive specific outcomes across the enterprise’s transformation journey, and then they will leave. Those outcomes are future-focused, and how they are defined and measured will have to be created in partnership with the Expirational Leader. If you’ve selected the right one, they will help you do this.
Second, per the name, the Expirational Leader, it is critical to note that they will not have a permanent seat, although they have to have an integral one while they are there. They do not replace anyone! To make this happen you will need to bypass your normal executive structure and put them on a contract with a definitive beginning, middle and end. Our recommendation is for three years. Oh, by the way, that contract is not one you can get out of easily, it needs to be costly to break. You have to know that there will be resistance and bumps in the road. So, unless it is a case of gross misconduct or ethical lapses, if you fail to make it work with this person, you pay out the whole contract. You must put substantial skin in the game and make that clear to everyone. This allows you to say to everyone else that there will be change and challenges, but this person has a clear mandate for driving the enterprise-wide transformation journey for the business. Things will inevitably go sideways somehow, somewhere, and the whole team will just have to engage with backbone and heart and make it work. The going will get tough and you have to be prepared to get tough and get going to deliver the results and outcomes you need to compete in the marketplace of today and tomorrow!
The third aspect of this role is the person. In addition to driving your enterprise-wide digital transformation journey, they must be able to build capabilities and a team that develops the digital leadership savvy to continue to lead your company into its digital future. This person has to use their time to architect and guide and, most importantly, render their temporary role irrelevant – that’s why it goes away, because the end game is to have the Board and executive team continue to drive the digital business journey.
Finally, the fourth aspect of this role must focus on supporting each and every one of the executive and leadership team members by adding transformational capabilities to their repertoire. Without effective and engaged transformational leaders, you will be right back where you started when your Expirational Leader leaves. You’ll be ahead and maybe even have dealt with the digital disruption facing you now. But digital business is the new way of the world and if the team doesn’t have the relevant, ongoing transformation leadership skills, you won’t be any more ready for new changes than you are now, without that upgrade to your leadership team.
We fully acknowledge that this modest proposal means doing some things that most of our organizations, particularly the ones that are not native tech firms, are not used to doing or comfortable doing across your business. And, we say this with the caveat that in smaller organizations, this role may be fractional and be there for a shorter time. And, in a larger organization, this will take time and very visible leadership engagement and support. These changes will be resisted in your organization in many ways. We truly believe that the Expirational Leader will be one of the most critical manifestations of the gig economy, and a solution that not only addresses today’s needs, but those of the all-important tomorrow as well as the day after tomorrow.
How Do You Measure Success?
Once you have hired and onboarded your Expirational Leader(s), you have to know how to hold them accountable. To start with, the success for this role is about future or growth-based metrics and outcomes. It is not about current operations. A recent study of CEOs illustrated that the vast majority were involved in some sort of digital transformation (almost 90%) but that very few (not much more than 10%) were changing or identifying new metrics to support those transformation efforts.
Traditional business leaders want metrics that define outcomes and then help measure progress towards those outcomes, whether it is top line growth, operating margins, EBITDA, or others. Digital transformation – which focuses on the optimization of technology, data and analytics across all aspects of a business – aims to change the focus of the organization to be more agile and responsive. Some key performance indicators (KPIs) to measure progress with your Expirational Leaders focused on your digital transformation journey include (not in any specific order, it depends upon where your starting strengths are):
- User adoption – are customers adapting to and utilizing your new digital platforms, products and services?
- Leadership engagement – are your key leaders across all functional areas embracing digital transformation, raising their digital maturity quotient and embracing the use of your new digital platforms, products and services?
- Employee adoption – are key members of your staff embracing the use of new digital platforms, products and services?
- Net promoter (NPS) score – are your customers recommending and promoting your new digital platforms, products and services (or are they passive or detractors)?
- Marketing spend –- how much of your marketing spend is digital and what is the ROI on that spend over time?
- Sales engagement – in a B2B sales environment, are your sales leadership, sales operations and key AEs embracing digital transformation and embracing the use of your new digital platforms, products and services?
- Customer experience – are the users of your new platform, products and services completing their buying process (customer journey) or are they abandoning and/or not clicking through important parts of your new platform, product or service (may indicate poor navigation, lack of user friendliness, poor customer support)?
- Return on investment (ROI) – are you tracking costs versus revenue and/or profit realization over agreed timeframes?
We also believe you will need to explore some new metrics that really aren’t in general use yet. Here are a few suggestions:
- Time to failure – is the duration of your prototypes or Minimum Viable Products shortening and are you pivoting faster as you get better at more agile ways of working in your organization, especially outside software development?
- The DQ or Digital Quotient – have you identified the human capabilities and knowledge that your senior leadership groups need to have to be digitally savvy, current, and connected?
- Willingness to learn – how strong is the ‘learnability’ of your people? Do they have that sense of healthy self-doubt that causes them to wake up in the morning and ask themselves what has changed and what did they know to be true tomorrow that is no longer fully true? And if so, what are they going to do to learn?
- Digital leadership skills improvement – a recent MIT study uncovered that some of the top skills needed to drive digital transformation included providing direction, innovation, inspiration, and influence (among other things). Are you assessing your team on these skills? These one-time soft skills that now drive solid outcomes?
- A culture index – there are two things we know for sure. One, is that there is nearly universal agreement that culture is key to transformation. The second, is that no one has any real idea how to measure it in a truly objective way. There is some interesting research being done at schools like Penn, Berkeley and others that are looking at data sources that objectively give you a better picture of your organization’s culture. Are you looking for those or experimenting with them?
Each digital transformation journey is unique and the KPIs need to be tailored to each situation. However, it is critical that you establish KPIs and that you track them (and if needed adjust them) over time as your journey evolves.
Hey, Wait, Can’t We Just Outsource This?
One thought that might be swimming around in your head right now could be, “Can’t we just hire a consulting firm to do this transformation? Isn’t that what they do all the time?” Just about every traditional consulting firm we know of, big or small, will certainly claim a capability in digital and transformation but we worry about that being the answer. Consulting firms are set up to sell and scale what they’ve done, not to lead innovation. And their models are going to suffer from the same concerns with just putting accountability for digital transformation into one department or function, which is that digital will be defined too narrowly. Finally, the model of providing help, transferring capabilities and then not come back for more goes against the core business model of a consulting firm. Having them full-time and fully focused for a few years and then departing, never to return, is just not a practical business model for consulting firms, even if it is what’s needed.
Now, before our consulting friends and colleagues start to excoriate us for what might appear as a blanket condemnation of consulting, let us be transparent – both of the authors of this research have been and/or continue to be consultants at the time of writing and both have been part of the consulting world at times in their careers in addition to their operational and leadership roles. We are not anti-consulting, not at all. But we are concerned that the traditional consulting business model of ‘land and expand … and then expand some more’ is not conducive to building and transferring transformative capabilities to an organization. Transformation requires outside help to support it or to do it, but that help must clearly be ‘expirational’ in order to shift the helping dynamics that make it effective.
You might also be thinking that this sounds like a great opportunity for a separate business unit or skunkworks. This kind of setup can be useful for product research and development or technology innovation, or to just get a new business started. But it is critical that transformative capabilities are integrated into the fabric of the firm and most bimodal or innovation centre efforts do not result in quick or full integration. Since this is not a discrete product or technology, but a way of working and building new capabilities across the enterprise, you need to engage in fundamentally changing the way the organization does what it does and how it does it, not just what it sells.
So, What Is Next Or First?
We believe you need to take a very honest, maybe brutal, look at where you really are with the skills, experiences and capabilities demanded by any transformation, especially digital ones. And you need to do this without ego or any self-protective thinking. Because what you don’t know, or don’t admit, will truly hurt you. This is not a time to be perfect, it is a time to be vulnerable enough to understand what gaps in your transformation journey need to be closed quickly.
In addition, you must realize that what got you here won’t get you there with regard to your enterprise-wide transformation journey. You, and your team, need to be aligned and progressing on these new realities and transformational leadership skills required to be successful in the 21st century. Make this role, and the key outcomes it drives, a key part of your talent development strategy at the executive level.
Finally, engage those who can help you. One of the key lessons of our increasingly digital ecosystem drive world is that no one can do it alone. We specifically recommend that you bring in the person and/or persons who can drive you forward while supporting your learning and capabilities development. Find your Expirational Leader(s). They will never run your business, that is not their role. Their role is to help you drive your transformation journey and help you run your digital business better, while they are there, and enable you and your team to drive ongoing change long after they are gone, and the next transformation begins.
- Ed Schein’s groundbreaking, and still leading edge, work in the science of helping is something every leader should understand. Start with picking up Humble Leadership as a great way to begin.
- Pat Lencioni is probably still best known for The Five Dysfunctions of a Team. He believes that leaders need to see their peers, not their direct report team, as their ‘first team’. It is the mature ability to talk about and make strategic trade-offs between each other that helps leaders move functionally through change.
- Digital transformation merely cites digital as the context and disrupter. It is the transformation that really matters, digital is just the context – a nearly ubiquitous and prominent context today, but a context after all.
- For a deep and incredibly insightful dive into what the day after tomorrow is all about, read Peter Hinssen’s excellent book The Day After Tomorrow. Highly recommended!
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