As digital technologies permeate all aspects of their operations, companies around the world anticipate the need for massive change over the next five years, according to a new global survey by Harvard Business Review Analytic Services. But can these organizations adapt fast enough?
Almost all of the 376 business leaders in the survey said they expect that the pressure to transform will only accelerate and intensify. Three-quarters of these executives – from primarily large organizations in financial services, manufacturing, technology, healthcare, retail, and many other industries – say their organizations will require substantial or extensive change to become even more digital.
But when asked about what worries them most about their company’s future, most of these executives focused on their organization’s inability to change fast enough to survive and thrive in an increasingly digital world.
Indeed, only 7 percent of the executives said their organization is extremely open to change, with another 35 percent saying their organization is somewhat open to change.
This raises concern about the viability of some organizations during the next waves of disruption. About a third of respondents said their organization currently is not very digital, meaning that less than a quarter of their products, operations, and business models depend on their ability to exploit digital information and technologies. Over a third (39 percent) are moderately digital.
Just 29 percent were very digital, with more than half of products, operations, and business models dependent on their ability to exploit digital information and technologies.
This emerging group of “digital leaders” – those who have moved their organizations forward – offer guidance for business and technology leaders in all industries. The path is not easy: The shift starts with creating and broadly communicating a compelling digital strategy, but it also demands changes to organizational structures, systems, and processes.
And because digital demands new skills, aptitudes, and ways of working, it requires a greater investment in employee support and culture change. IT departments need to move into leading roles in innovation.
There is no one-size-fits-all pattern or timetable to creating change initiatives, but the study identified key steps for companies to consider as they seek to capitalize on disruption.
Communicate the Strategy: People can’t change what they don’t understand. Transformation begins with creating a sense of purpose and a common understanding by defining and communicating a compelling strategy for the digital economy. While more than three-quarters of the very digital companies in the survey have taken this step, only 40 percent of the not-very-digital have done so. Indeed, a majority of respondents said that communication from leadership about the need for change is one of the three most effective means of building a change-embracing culture – more than any other single factor.
Build New Structures: Most respondents (89 percent) are creating new organizational structures and teams to support digital operations and business models, with more than a fifth making major changes – not just in pockets of the organization. Very digital organizations are twice as likely as the not-very-digital to be doing this to a great extent. These digital leaders focused on breaking down silos and keeping the organizational structure more fluid than fixed in order to respond to the dynamic nature of the digital economy. In the survey, very digital organizations were almost four times as likely as not-very-digital companies to be somewhat or very fluid (42 percent versus 11 percent, respectively).
Think Teams: In launching transformation efforts, the leading companies bring together cross-functional teams, including employees with deep industry knowledge, analytics skills, creative skills, policy knowledge, and more. Innovation accelerates when people think about problems differently. These teams often focus on using an agile approach to development: The survey found 51 percent of companies using design thinking, and 42 percent deploying a minimum viable product approach to new-product rollouts.
Experiment and Learn: Digital innovation means working with and exploiting data in completely new ways. And digital organizations must adopt a mind-set of speed and experimentation. As they make this shift, companies are focusing on developing faster responses to customer insights and market shifts, as well as making full use of assets and capabilities that are available in the cloud, both from outside talent and from ecosystem partners.
Rethinking IT: Many legacy IT systems are too slow and rigid for digital business. As companies modernize their IT infrastructure, they are looking to gain flexibility, scalability, and – above all – speed. Increasingly, this means cloud and an API/services-based infrastructure. But along with using new technology, organizations are rethinking the role of IT. With IT being incorporated into new products, services, and business models, it’s not surprising that almost half of respondents report that IT and product development collaborate closely at their companies – though they remain separate organizational units. Only 16 percent say they are part of the same organization.
This innovation approach to IT is still the exception rather than the norm. Overall executive confidence in internal IT is mixed, with only 17 percent viewing their own IT organization as being extremely capable of executing their company’s digital agenda and another 45 percent seeing them as moderately capable. But this varies dramatically based on organizations’ digital maturity. Forty-three percent of respondents at very digital companies view their IT organization as extremely capable, compared with only 4 percent of the not-very-digital. Conversely, 61 percent of the not-very-digital firms view their IT organization as not at all capable.
The Payoff
More than half of the very digital companies said they have experienced a significant financial lift from their digital efforts. This compares with only 20 percent of the moderately digital organizations and just 6 percent of the not-very-digital.
To catch up, these organizations will have to determine which area will provide the greatest benefit for their business – digitizing their core operations, creating a new kind of customer engagement, or innovating around new digital products and business models – and then provide the means to get there. This will require leadership, investment, restructuring within the organization, and new relationships inside and outside the organization. Companies must also find ways to overcome inertia and resistance to change. Above all, it will require flexibility. As disruption accelerates, the requirement to adapt is more urgent.
DXC Technology helps companies bridge the gap in digital transformation. To learn more, visit www.dxc.technology.
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