From the internet of things to the sharing economy, digital trends are once again setting many large, established companies back on their heels. But neither new competitors nor mounting pressure represent the biggest threat in today’s dizzying digital environment. According to the “2016 Digital Business Global Executive Study and Research Project,” conducted by MIT Sloan Management Review and Deloitte Digital, the most significant peril large enterprises face is their own organizational inertia.
“In many cases, a company’s worst enemy isn’t an external market threat; it’s the company itself and its lack of motivation or wherewithal to adapt to digital trends,” says Gerald Kane, associate professor of information systems at Boston College’s Carroll School of Management and a co-author of the annual study.
This year’s study identifies corporate culture as one of several major barriers to digital transformation at many large companies. Other challenges include talent acquisition and development, digital strategy development, and execution. The research involved a survey of more than 3,700 business leaders across 131 countries and 27 industries, as well as interviews with 15 executives and subject matter specialists.
Digital Maturity and Corporate Culture
The survey asked respondents to rate their companies’ digital maturity on a scale. Nearly one-third (32%) of respondents rank their organizations as “early,” 42% as “developing,” and 26% as “maturing.”
Respondents were also asked to rank their companies along six culture attributes: agility, risk appetite, decision-making, leadership structure, worker passion, and work style. The results reveal common traits among organizations in various stages of maturity (Figure 1). For example, maturing organizations are typically nimble and unafraid to take risks. They employ distributed leadership structures and collaborative work styles designed to give employees authority to enact change.
In contrast, organizations in the early stages of digital transformation often operate slowly and are more risk averse, hierarchical, and siloed. Developing organizations fall somewhere in the middle. Notably, culture traits associated with each maturity stage are consistent regardless of industry and company size.
Organizations in the early stages of digital transformation often have a difficult time recruiting needed talent because many digitally savvy professionals want to work for leading-edge companies. As a result, less mature enterprises typically rely primarily on contractors and consultants to strengthen digital innovation capabilities (Figure 2).
Developing and maturing organizations take a different approach. They focus first on building existing employees’ knowledge and skills, which aids retention-a critical imperative given demand for digital talent. Survey results show an undeniable flight risk among employees at organizations that don’t provide opportunities related to digital business. Those individuals are six times more likely to seek new employment than professionals who are receiving training.
“The people expressing a desire to leave their employers are not just millennials and entry-level staff,” Mr. Kane says. “In fact, the individuals most likely to look for new jobs have reached the VP and director level or work in sales. They are arguably the people organizations want to retain most. Our data shows providing employees with digital skills and opportunities may reduce an organization’s turnover risk.”
A well-articulated digital strategy that aligns with the broader business strategy allows companies to more aggressively pursue digital opportunities. Eighty-one percent of maturing companies have a “clear and coherent” strategy, compared with 54% of developing companies and 23% of early companies. Digital strategies integrate with the business strategy at 86% of maturing companies, compared with 64% of developing companies and 38% of early companies.
“Many organizations have a ‘digital-first’ strategy, but its meaning is often unclear to employees, who then have a hard time understanding what it means for them and how they can help with transformation,” says Doug Palmer, a principal with Deloitte Digital and a co-author of the study.
Survey results also reveal that respondents’ digital strategies may not project far enough into the future. Only half of maturing organizations look beyond a two-year horizon. The proportion of respondent organizations whose digital strategies exceed two years falls to 46% for developing organizations and 34% for early organizations.
John Hagel, a managing director with Deloitte LLP and co-chairman of its Center for the Edge, advises companies to follow the “zoom in, zoom out” approach that many Silicon Valley companies use for strategy development. These companies zoom in on trends unfolding over the next six to 12 months to identify one or two initiatives employees throughout the organization can implement, while the executive team and board of directors zoom out 10 years to forecast where the business may be headed.
Maturity and Execution
Executing digital transformation requires a solid strategy, access to talent, and a corporate culture and organization structure conducive to innovation, collaboration, risk-taking, and agility. Effective execution also requires what study authors call “digital congruence”-the ability to consistently connect culture, people, processes, and tasks across the enterprise to the strategy. This is a hallmark of maturing companies.
“Execution presents huge stumbling blocks for many large companies, and overcoming their internal inertia is half the battle,” Mr. Palmer observes. “Organizations can’t wait until they’ve changed their cultures to begin this journey. Culture change and execution can take place concurrently, and one can fuel the other.”
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