If a business hasn’t committed to a digital transformation yet, the coronavirus pandemic has forced them to adapt.
“The Covid-19 pandemic introduced a new kind of disruption for all businesses, but in many ways, it is simply accelerating changes that were already well under way,” wrote Business School (formerly Cass), City, University of London Professor Feng Li in a recent paper. “It forced every organization to scale their digital initiatives in a matter of days or weeks, fast forwarding to a future world where digital has become central to every interaction.”
The paper, titled “Leading Digital Transformation: Three Emerging Approaches for Managing the Transition,” analyzes the approaches that Amazon, Alibaba, Baidu, Google, JD.com, Uber, VMWare, and Slack have taken to grow into the massive organizations they are today and continue to persist in the face of new competition. Li told Inverse that similar trends have also been seen at legacy companies and startups.
“Digital transformation has been described as the modern-day fight to survive the existential threat of digital disruption,” Li wrote. “The leadership challenge is not in developing new strategies and business models or new organizational designs enabled by digital technologies, nor in effectively executing them as planned, but in successfully managing the transition from where the organization is towards a desired future state by frequently evaluating and recalibrating both the path and destination for the organization using emerging intelligence.”
To survive and thrive in this environment, organizations can no longer develop strategies that will unfold over the course of years due to the ever-changing nature of business, especially faced with emerging technologies such as 5G and artificial intelligence. According to BCG Henderson Institute, only a quarter of digital transformations succeed — with expensive failures at legacy companies such as GE, Ford and Procter & Gamble. So what approaches have been most effective? Li outlines three.
3. Innovating by experimenting
Li quotes a senior executive from Alibaba as saying, “If an idea works, then scale it up rapidly; if not, move on to other ideas and you have not lost much.”
Li added that, “This approach gives business leaders the opportunities to test and learn, which has been proven far more effective than traditional linear approaches. It has played a key role in the success of Alibaba, Amazon, Google, and Didi Chuxing. … Strategy is increasingly defined as an overall direction, and the broad path and final destination are frequently evaluated and recalibrated through execution using emerging intelligence. This approach significantly increases the odds of delivering great results through new strategies and operations enabled by digital technologies.”
2. Radical transformation through incremental approaches
“Radical transformation does not have to be planned and implemented in one big step,” Li wrote. “Rather, radical changes can be achieved through a series of incremental steps. … This approach enables organizations to nurture and test an evolving portfolio of innovations and constantly move forward while avoiding the risks of one big bet. Ineffective ideas can be killed off before they cause any real damages. Different from the ‘big bang’ approach, this approach asks business leaders to decide whether the initial upfront investment is worth making in the light of potential returns; and if the balance changes, they can stop investing.”
1. Dynamic sustainable advantages through an evolving portfolio of temporary advantages
“When sustainable advantages are rare and difficult to come by, temporary advantages can snowball with the increasing return to scale dynamic,” Li wrote. “Instead of obsessing with the elusive sustainable competitive advantages, some business leaders are increasingly pursuing successive temporary advantages by experimenting with an evolving portfolio of incremental — and sometimes radical — innovations. The gains from each temporary advantage are often small, but the cumulative effect can be significant over time, and any one such temporary advantage can become ‘the last straw’ to tip the balance of competition.”
Putting it together
These three approaches aren’t exclusive to one another — they’re complimentary. For example, an organization can embark on innovations by experimenting while still taking an incremental approach, and also while holding onto temporary advantages.
“These approaches are intertwined in practice and perhaps can be seen as different facets of the same phenomenon,” Li told Inverse. “Senior leaders often talk about competitive advantages, while middle level executives and people at the frontlines tend to talk more about innovations and experiments, but the distinctions are not clear cut.”
There’s no prescriptive solution for organizations to undergo a successful transformation, but Li offered some universal advice based on his research.
“Set long-term objectives and directions,” he said, “but hedge your bets and be prepared to make changes to your plans based on emerging intelligence.”
The costs of not adapting are high, as Li warns in his paper: “After decades of digitization, the distinctions between born digital and traditional companies were already blurring before the pandemic. When life returns to ‘normal’, such distinctions may become irrelevant. The new distinctions will be between those that are successful in continuously managing the transition to new technologies, new business models, and new organizational designs and those that are left behind.”
Despite over half a century’s research and practice, our track record in leading digital transformation remains notoriously poor, with a failure rate of over 70%. The challenge is not in developing new strategies and business models or new organizational designs enabled by digital technologies, nor in successfully executing them as planned, but in effectively managing the transition from where the organization is towards a desired future state when both the path and destination are frequently shifting. Emerging evidence suggests that in the highly unpredictable digital economy, the traditional linear process of developing a strategy and then executing it is increasingly replaced by an iterative process where strategy is developed and recalibrated through execution. My research of a group of global digital champions at the forefront of digital transformation – including Amazon, Alibaba, Baidu, Google, JD.com, Uber, VMWare and Slack - has found that three new approaches are emerging, which enable these firms to successfully manage the transition while mitigating the huge risks involved. The coronavirus pandemic has forced many organizations to go digital almost overnight, which has significantly increased the urgency imperative for digital transformation. A new opportunity exists to systematically study such emerging approaches in order to develop new theories, guide practice and maximize impact.
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