This article was first published in DirectorCorps
Clayton Christensen, the author of the ground-breaking book “The Innovator’s Dilemma,” died recently at the age of 67. Thanks in part to him, almost no one thinks that companies are future-proof anymore. Firms across industries have to transform themselves in the digital age, but they don’t always do it well. In honor of Christensen, here’s a look at some of the mistakes corporate leaders make when it comes to digital transformation.
Not Going Big Enough
Companies have a tendency to assume that if they’ve been valuable to their customers in the past, they will be valuable to them in the future. They fail to see the scope of change that is happening in their industries. Like a frog in boiling water, they don’t move, says Jim Burson, a managing director at the consulting firm Cornerstone Advisors.
“There is complacency risk,” he says. Often, businesses will focus on just one piece of the digital pie, prioritizing the transformation of the customer’s experience but neglecting the back-end processes that lead to inefficiencies, Burson says. The research firm Gartner found 82% of CEO survey respondents said they had a digital transformation program underway. But the survey results also showed a lack of business model change, “which causes us to think that many of these digital transformation initiatives may not be sufficiently deep corporate transformations,” says Mark Raskino, a vice president and analyst at Gartner.
Too Much Inward-Thinking
Raskino says organizations too often focus on themselves and what they want to do. Instead, they should analyze customer needs as well as the opportunities those present and incorporate a full competitive market view. “An outside-in perspective is what most successful digital transformation projects hinge on,” he says in an article on Gartner’s website. If the goal of digital transformation is to improve customer satisfaction, then any effort must be preceded with in-depth input from customers, writes Stanford University professor Behnam Tabrizi in the Harvard Business Review.
No Terms and No Goals
Corporate leaders must start with what transformation looks like. They should be able to articulate the value of transformation to the business and why it matters, says Pete Bentley, chief commercial officer for global consulting firm Aon’s human capital business.
They should also set goals to measure their achievement, Burson says. “We don’t see a lot of companies willing to set crystal-clear goals,” he adds.
One example has been global supply manager Li & Fung, which launched a three-year strategy in 2017 that focused on speed-to-market and improved use of data in the supply chain after struggling for years with declining revenue and margins. The company first defined what transformation looked like and then established concrete goals.
Not Building an Agile Workforce
A lot of companies assume they’ll just replace workers who don’t have the needed skills. But that approach can be expensive and tough to execute. Instead, companies could try upgrading the skill sets of their employees and help them learn new ways of doing things. Companies should let staff know they’re investing in their skills so they remain relevant in the future, Bentley says. No one claims this is easy to do. Companies may encounter resistance from employees who don’t want to learn new software programs or new ways of doing business — but this is where communication and corporate leadership can excel.
Having a Legacy Mindset
Banks are one great example of an industry laboring under a legacy mindset. Risk management systems don’t change to accommodate the world around them, which is why many banks require prospective customers to open an account in person. Digital transformation doesn’t mean abandoning risk management. But new software allows banks to check identification digitally and look for red flags that prompt further inquiry, Burson says.
Creating Slow Processes
Companies can also adopt a startup mentality and create nimble, digital teams that can build prototypes and solicit feedback from the appropriate people in the organization, rather than company-wide approval processes that are likely to quash new endeavors.
“You need to get the business involved but you can’t get the entire business involved in the build,’’ Bentley says.
Li & Fung established six cross-functional teams staffed by employees in offices in Hong Kong, mainland China, Britain, Germany and the United States. The structure of the teams was flat, meaning team members presented ideas directly to CFO Ed Lam and the heads of business units.
The jury is still out on whether Li & Fung’s digital transformation will be a success. But the need to transform is clear.
With its retail customers struggling in the United States and de-stocking their shelves, and e-commerce giants such as Alibaba eating its lunch, companies such as Li & Fung know they have to evolve their businesses or die. Other companies might not have such dire circumstances to confront, but they know that at any time, the market could shift and they won’t be prepared.
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