Editor’s note: George Westerman is a research scientist at the MIT Sloan School of Management Initiative on the Digital Economy. He is coauthor of the book, Leading Digital: Turning Technology into Business Transformation.
Digital technologies — from social media to mobile computing to big data to the Internet of everything — are transforming businesses in every industry.
Do you want to have conversations with your customers in ways that surveys and focus groups never could? Social media can make that happen. Do you want to make your employees more productive anywhere and anytime? Try mobile computing. Do you want to understand what’s really happening in your company so you can make informed decisions rather than just working by instinct? Big data analytics can do that. Do you want to kick the pants off your competitors through digital customer engagement or business model innovations? That can happen, too.
In my research on digital transformation, I’ve been amazed to see how many digital activities companies are undertaking, especially in non-digital industries. But despite all of this activity, relatively few companies were really doing it well. Why are some able to do amazing things with digital technologies, while others just do “more of the same”? What makes some firms “digital masters” while the majority of them lag behind?
You might think it has to do with technology expertise. So many accounts of successful digital businesses focus on Internet startups or companies in the tech industry. You also might think you need to hire a hundred employees from Google or Facebook or Amazon. That thinking is reasonable, but it’s wrong. For digital masters, technology is important, but it’s not the most important thing. The critical factor turns out to be leadership.
In a new book I coauthored with Didier Bonnet and Andrew McAfee, Leading Digital, we looked at how more than 400 large companies in traditional industries like finance, manufacturing and pharmaceuticals are using digital. We identified four key leadership practices for driving digital transformation.
The first practice involves creating a transformative digital vision for the company. Just saying you’ll adopt digital isn’t enough. You need to describe how the company will actually change: How will you engage differently with customers? How will you rethink your operations? What new business models are possible?
Codelco, the world’s largest copper company, is a good example of a digital master with a strong vision. Codelco executives are envisioning a radically new kind of copper mine – one where humans will never need to work in the dangerous underground environment again. There will be plenty of jobs for miners, but all of them will be above ground.
This vision is well on the way to reality, with autonomous trucks driving around mines, mining control centers located hundreds of miles away from the mines, and strong collaboration with vendors to push the limits of technology. As a result, Codelco is also pushing the economics of the industry, making it possible to harvest copper ore that would be far too dangerous and costly for humans to mine.
Codelco is not alone. P&G’s vision is to create digital dashboards for everything in the company, enabling employees to make decisions based on real-time data. And Boeing’s vision puts the airplane at the center of a digital airline for which Boeing will provide many services beyond the airframe.
Great leaders know that they can’t change businesses on their own. They need to convince their employees to change. Once you have a strong vision, you need to help people figure out what it means to them and how they can play their part in making the vision a reality.
Engaging employees in a new vision can be a tough task. Many employees have seen visions come and go. For digital masters, top leaders focus on communicating the vision and helping people know what it means to them. They use every channel possible from meetings to internal collaboration platforms. And they focus on making it a two-way conversation, where employees suggest ways to build out the vision, not just follow orders to implement.
You can see this type of engagement at the technology giant EMC, which holds an annual innovation conference to gather great ideas for moving the company forward. Each year, employees share more than 4,000 ideas. Winners get recognition across EMC, but all participants gain from being part of the conversation.
Of course companies can’t fund every new idea. Leaders need to be clear about what is appropriate and what is not. If your vision says you will be a unified company and someone wants to fund an idea that runs counter to it, you need to think long and hard about it.
Global media company PRISA is a good case in point. It built capability so that an interview with a soccer player in Argentina could be played on the news in Spain that same day. The company had to be very strong in saying that each business unit must work with this system; if a unit tried to do its own process then the company wouldn’t fund it.
But governance is more than just standards and investment processes. The Guardian, Starbucks, and other companies have appointed a chief digital officer, a role responsible for steering governance and driving the digital conversation across the firm. Other firms like Nike and Lloyds Banking Group have created digital units that provide capability and some resources, making it easier to work with governance rather than against it.
Strong Relationships with IT
In all of the Digital Masters we studied, top business executives work closely with IT executives. IT leaders find ways to speak the language of the business, and business leaders find ways to include IT leaders in strategic conversations. This doesn’t mean that IT goes unchanged. In many companies, IT is seen as too slow or stodgy for the fast-moving digital realm. IT leaders must find ways to improve the performance and speed of IT.
Some companies choose to practice dual-speed IT, where one part of the IT unit does digital and coordinates with the rest of IT as needed. Others like Lloyds Bank have a digital division co-led by IT and business people. And in some firms like Codelco, the CIO leads digital transformation.
The Long Haul
Becoming a digital master isn’t an overnight process. Digital transformation requires a long-term commitment and, above all, a focus on strong leadership. Companies that profit from digital see it as a leadership challenge, not a technology one. They understand the opportunities that digital can provide, and strive to make them real. And they find that each new action creates new possibilities to digitally transform their companies and industries.