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The Non-Digital Keys Your Firm Needs for Digital Success

Every company is in need of a digitization strategy, but it will falter if the company isn't built on the foundations now necessary to deal with constant change

Digitization is now so prevalent it’s doubtless become a buzzword in many industries. Vendors will use it to make their products seem more important or cutting edge, and executives will use it to justify any number of investments or, worse, pet projects.

Yet its prevalence is also a sign of how important the trend is. It signifies far more fundamental change than what’s summed up by a more typical faddish management term. In fact, every firm regardless of industry now needs a digital strategy, and a plan for implementing it. And this type of “digital transformation” depends on more than just having a digital vision or supporting digital initiatives.

If they haven’t already, companies must lay the groundwork for the challenges that accompany all corporate change, and especially the lightning-fast pace at which digitization is moving. They should focus on two things that can make any transition much smoother – building a culture of innovation and mastering responses to uncertainty.

Build a Culture of Innovation

An innovative corporate culture makes a firm more agile, creative, able to spot trends earlier, and take advantage of opportunities faster. Many companies devote their attention to improving the innovative process, yet as one VP of external innovation told CEB, “You cannot force your employees to innovate on command.”

The best results come from improving the corporate environment, hiring the right people, and overcoming internal impediments to business model innovation (see chart 1).


Chart 1: Key elements of a culture of innovation  Source: CEB analysis


  1. Create an environment where innovation thrives: This involves three steps.

    1. Ask employees to challenge your assumptions: Make assumptions explicit, create a space for employees to challenge them, and make those challenges an ongoing activity.

    2. Be open to new ideas: Allow ideas to incubate, fight biases like seniority or groupthink, and encourage employees to go outside the firm for ideas.

    3. Create a culture of learning: Always reward lessons, even those drawn from failure.

  2. Develop innovation-minded talent: There are also three steps here.

    1. Find natural innovators: Identify existing employees within the firm who have the right personality traits for coming up with new ideas, and driving innovative, risky, or uncertain projects through to completion.

    2. Identify and develop innovation competencies: Build innovation skills into personal goals and objectives, and provide the right experience for employees to develop those skills.

    3. Organize around the innovation you want: Make sure team structures and skill sets fit the company’s need for incremental or breakthrough innovation.

  3. Business model innovation: One-third of 45 strategists CEB surveyed in 2016 said that digitization will fundamentally change their business models and 37% are already involved in creating and evaluating new models based on digital platforms. But strategists at incumbent firms face a set of impediments to any business model innovation:

    1. Too much attention devoted to short-term incremental improvements to the current model: To overcome this, strategists should create a sense of urgency about the future; they should:

    2. Confusion about what business model transformation entails: Strategists should help managers explore options for successful business model transformations. Chart 2 provides a starting point for how digitization is reshaping business models.


      Chart 2: Digital innovations across the business model  Source: CEB analysis


    3. Too much focus on the needs of existing customers over those of potential customers: One way of escaping from the pull of existing customer need comes from a business software and services supplier in CEB’s networks that went through four steps. The company:

      • Looked at what jobs their customers wanted to accomplish.

      • Associated those jobs with a customer’s desired outcome.

      • Grouped those outcomes into higher-ordered themes.

      • Prioritized those themes to allow the company to begin responding to them.

Master Responses to Uncertainty

Digital transformation brings with it new competitors (often smaller, more nimble, more focused companies), multiple new technologies to master, and changing customer attitudes. And all this, of course, brings greater uncertainty, makes planning more difficult, and opens up new opportunities for growth. Senior management teams should be prepared to tackle new trends, follow successful ones quickly, and seize any new opportunities that arise.

And to help, the strategy team should identify executive bias and prevent it from directing decisions, and also help execs overcome indecision or anxiety about big growth bets.

  1. Overcoming biases: But there are a lot of biases that can overwhelm decision-making when leaders want to move quickly, achieve consensus, and implement projects as soon as possible (see chart 3). Strategists must prevent this. While fast action is needed, decisions still need to be vetted. During past times of uncertainty, companies that focused on a small number of big growth bets performed better in the long run than those that made smaller, widely scattered growth bets.

    Taking a more collective approach to decision making – or using the “wisdom of crowds,” as the jargon has it – can help overcome individual biases, fill in the gaps of vague or limited data, and question assumptions that may be limiting options. A payroll processing firm in CEB’s networks takes a collective approach as part of its digital strategy. The strategy and risk teams host competitions that challenge employees to spot emerging digital trends, and then reward the best ideas.


    Chart 3: Biases present in the decision process  Drivers of decision bias and complications posed by uncertainty  Source: CEB analysis


  2. Overcoming indecision: Indecision can come from a variety of sources yet strategists can do a lot to limit managers’ risk aversion. For example, executives often see more data as an antidote to risk aversion. They reason that if they can decrease the uncertainty, then their options become clearer and a decision becomes easier. Yet that more often than not leads to “analysis paralysis,” where they fail to make anything like the scale of decision the company needs.

    But strategists can foster an appropriate risk appetite through other means, either by providing context for acceptable risk levels or by redesigning the decision-making process to make it less risk averse:

    • Make executives more comfortable with exposure: Strategy first needs to work with Risk to establish what the company’s acceptable level of risk is. This step can include defining the company’s risk appetite, setting benchmarks for which actions are too risky or too risk averse, and creating clear definitions for what counts as a bold growth bet.

    • Redesign the decision-making process: If a choice appears less than urgent, executives will delay or allow an exhaustive discussion and debate. One company in CEB’s networks recognized that it was allowing too little time to consume information and too much time for discussion. It redesigned its process to set rules for each stage that allocated an appropriate amount of time and avoid reiterative discussions of issues

      Perhaps most importantly, the company required executives to justify any delay of a decision. As a result, the company reduced decision-making time by 50% to 60%.

 

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