DIGITAL TRANSFORMATION: LEADERSHIP AND CULTURAL CHANGE

PEOPLE OFTEN FIND IT EASIER TO BE THE FRUIT OF THE PAST THAN A DRIVING FORCE OF THE FUTURE

Today technology is at the forefront. Businesses are facing a pervasive digital transformation, inevitable in today’s world, to be competitive in the market.

When it comes to digital shift, it is easy to fall into error, making everything revolve around technology and believing that it is enough to digitalize processes or to introduce new technological tools.

Deloitte’s study confirms this line of thinking. Approximately two-thirds of CEOs surveyed consider technology to be a key to creating more value.

This is also reflected in other evidence. The vast majority of organizations, both nationally and internationally, keep investing large amounts in tangible assets – products and technologies – but not as much in intangible assets, i.e. people. This trend has not been reversed yet.

Many reports and studies have been carried out on processes and methods to implement digital transformation in companies, allowing us to get a clearer picture.

Below is a glimpse into the current international situation and some facts about Italy.

The Global Scene

Starting from the international business scenario, it turns out that a large proportion of companies are guided by the organization’s driver of digital transformation. In fact, about 56% have already embarked on a transformative project, with an additional 15% who are actively planning their strategy (Forrester).

However, according to McKinsey’s study- a global management consulting firm – 70% of digital transformation projects do not achieve the desired or set results, due to a lack of ability to promote digital culture within the company. It is different for organizations that have embraced digitalization setting guidelines from the beginning and that manage to have consistency in achieving their goals. For the latter benefits come within two, maximum of three years.

In companies where the shift was successful, there is greater competitiveness in the target market and an upward trend of gains, about 26% higher than those who did not update their processes (Accenture data), leading the firm’s management to consider it essential to accelerate the pace of adjustment to remain competitive.

Investment in digital transformation has risen over the past several years. In 2018 alone, investments exceeded $1 trillion, and the trend shows no sign of waning, confirming its continuous growth.

How about the Italian scene?

Even on the Italian peninsula, digital transformation has become a well-established reality.

The figures from the study carried out by MIP (a non-profit joint stock consortium) at the Polytechnic University of Milan prove the following. 91% of small and medium-sized businesses (SMEs) feel the need to rapidly implement digital innovations to develop their business. However, the same research also calls attention to an alarming fact: 62% of innovation and transformation projects fail.

In addition, only two out of three companies have started or completed the change, while the remaining third have not started yet. To date, only 26% of Italian SMEs have achieved a satisfactory level of digital and technological maturity to be competitive in the global market. In order to align with the international scene, it is necessary to examine the advantages of initiating digital change. Returns can be seen after a period of two/three years from the start, for virtuous organizations.

The culture of change

Along with this trend, which sees technology as the main player, a large number of articles refer to the centrality and uniqueness of individuals (Human Centred Processes), the importance of developing grass-root initiatives, collective intelligence, and creativity, which are all conditions that no Artificial Intelligence can reproduce.

It is mostly HR professionals who bring to light and stress the importance of people and of ongoing growth, considering it as the core of digitalization and key to its success.

Change is continuous, whether you like it or not, and it is an integral part of life. The true difference comes when you make sure that change leads to improvement. History is littered with success and failure in keeping up with market trends, in adapting to different situations, or in undertaking business transformation. There are many striking examples to mention, one of these, is the experience of two giants such as Blockbuster and Netflix, both companies operating in the film and DVD rental sector. If the former has not grasped its clients’ needs and the market surge of renewal, failing to modify its services and its video rental shops chain structure, the latter has successfully transformed its business model towards online entertainment and has expanded its offer by investing in films and TV series production.

What was Netflix’s trump card?

How about other organizations that have similar track records? One can first trace Netflix’s strength in its ability to remodel using existing technologies. However, considering the company’s success based on technology itself would be a short-sighted assumption. Technology must be supported by a wide-ranging vision, a clear digital transformation strategy, and leaders who are willing to act as sponsors, guiding the process. ‘Stay flexible’ is Reed Hastings’ motto, co-founder, and CEO of Netflix. He imbued the company with a culture based on individual responsibilities and ‘act in Netflix’s best interest’ is the result (basically if people feel free to express themselves and have wide freedom of choice, they improve their performance and act in the real interest of the company).

Obstacles to Digital Transformation

The question is: why are digital transformation projects so unsuccessful?

Digital-oriented strategies are not a mere introduction of technologies but imply a considerable cultural shift within organizations. In a nutshell, failure cases are often characterized by a lack of focus on objectives, by a lack of clarity on ‘where we are headed and why’, which in turn generates a reluctance towards technologies and a widespread fear of change.

More in detail. The biggest obstacle to digital maturity, as MIT Sloan research scientist George Westerman puts it, occurs when organizations ‘consider transformation a technological challenge rather than a strategic or leadership challenge‘- and clarifies – ‘When it comes to digitalization, transformation is the key concept. In fact, the main reason for a failure is the inability to shift one’s mindset, perpetuating behaviors that do not embrace change and generate corporate resilience’

A complete understanding of the psychology of human behavior is thus crucial for a successful reshaping. People are at the heart of the company and the reason behind its success. Another key element is a focused leadership that can drive change and guides people into the future of the digital age.

It is a delicate and complex process. Who promotes it must be able to interlink and improve all organizational functions.

The importance of Leadership in making a successful shift

A study from Deloitte points out that most struggling businesses have self-referential leaders, short-sighted in transmitting appropriate digital culture within their organization. 50% of these people struggle to inspire people and another 40% fail to communicate their vision.

Any attempt at transformation is vain unless leaders understand how to activate a digital DNA in people to properly incorporate them into the change.

The recipe for a positive and motivating People Strategy is reducing individuals’ feelings of anxiety and inadequacy regarding the digital revolution, thus generating great benefits both for employees and organizations.

There is no model or predetermined strategy for that. However, there are virtuous behaviors that leaders can put in place:

  1. Identify a digital will
    To ensure that change is set in motion, it is not just a matter of ‘telling the company’ to change. A clear and forward-looking vision is crucial to ease a profitable transition to digital, establish strong connections, and identify new possibilities. The cultural shift underlying digital transformation must start with who takes the lead and reflect the change on people and on their needs to adapt and evolve.
  2. Acquire digital skills
    If you want to make a company competitive and attract the right talents, digital skills cannot be ignored. To understand the change that is occurring, leadership needs to master one or more technologies. This can help to map out the actual context and the potential evolutions, it can shed light on how to implement the necessary procedures and foresee their impact on the organization.
  3. Focus on leadership
    Digital skills alone do not complete the picture. Whoever leads the organization will increasingly be a discriminating factor for the creation of differential value, hence the need to well develop soft skills to lead the change: active listening, the ability to convey core values easily, transparency, and the propensity to share the vision. To date, technology is unable to replace or simulate human behaviors such as empathy, persuasion, and non-verbal communication. Leadership must focus on teamwork and team enhancement, to enable a conceptual transition between leaders and coaches, based on motivation and a sense of belonging.

Leadership in the future

leadership icone

Culture / People / Process

To conclude, digital transformation must become a business approach that pervades the entire company, undermining the concept that it belongs to a given division or confined to a single investigating team (far beyond the IT team). Nor can it be the mere implementation of new technologies, even if these are crucial to any modernization strategy.

The winning choice consists in developing a medium-long term strategy with well-defined goals and KPIs and whose main actors are primarily the people who lead the organization (they must be fully engaged and committed to change). This could establish a distinctive culture, which could engage even the most reluctant.

It is also essential that people are given the right support on personal transformation and competence development. Those who work in changing contexts must be able to adapt without fear, must ‘co-operate’ with technology, and understand how to assess their work and how to carry out tasks.

To come full circle, establishing and fostering a strong culture of continuous and transparent feedback is crucial: innovation in small steps and based on shorter and faster cycles of interactions, makes the organization leaner and open to continuous learning.

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