While a few firms—the digital giants—are winning big from digital technology, many large firms are investing heavily in electronic, by recruiting IT specialists and spending on digital technology—including artificial intelligence, cloud computing, machine learning, and algorithmic decision making, yet getting disappointing returns.
As noted in a previous article, ‘ How To Understand Your Digital Transformation ” firms must realize is that digital transformation is only partly to do with technologies. The chief obstacle is the fundamental change in the way the firm is managed—from industrial-era management to digital age administration.
From Industrial-Era In order to Digital=Age Manaegement
Thus, over the last two decades, it has become increasingly apparent that the most successful companies at digital transformation are usually being run very differently from industrial-era. They have a different set of principles , including a goal of co-creating value for customers , a business model that will generates profits as a result; team-based and network structures . These principles are supported by processes that are quite different from those of industrial-era management. Leadership now occurs at every level, not just the top ; strategy is dynamic, interactive, value-creating ; innovation enhances existing businesses plus creates new businesses ; sales is now about making a difference for customers and users ; HR is about attracting and enabling talent ; operations is about exceeding expected outcomes at lower cost ; budget is driven by strategy ; compensation is becoming more based on value created . The particular convergence among the digital winners around this pattern will be striking.
These are different management principles from those that drove firms in the industrial era and still drive most big firms today. Here, the particular concepts are typically of internally-focused and include an objective of prioritizing sharehold value ; hierarchical-work structures with individuals reporting to bosses; and key indicators being short-term earnings and current stock price . These principles lead to industrial-era processes , including top-down leadership ; technique that is usually backward looking and defensive ; development that primarily protects the existing business ; sales that induce customers to buy ; HUMAN RESOURCES that controls workers as the firm’s resources ; procedures that battle for sources among the particular silos ; and compensation where gains mostly go to the top .
The challenge for most firms attempting digital transformation is that these management principles plus processes were a good fit for the commercial ear, they get in the way of electronic transformation.
The Case Of Novartis
The particular case associated with Novartis can be typical. The firm did the right things inside terms of technology. It embraced cloud technology and invested in data platforms plus data integration. It invested in staff, as Marco Iansiti and Satya Nadella in their article “ Democratizing Transformation ” in HBR (May-June 2022). Novartis “recruited AI specialists plus data scientists to build machine-learning models and deploy them throughout the firm. ” But it “did not possess larger plus more-diverse groups of employees—executives, managers, and front-line workers—coming together to rethink how every aspect of the business should operate. ”
As a result, the article report s , “even as the particular technical teams grew, managers from across the business—sales, supply chain, HR, finance, and marketing—weren’t embracing the newly available information, nor were these people thinking much about exactly how data could enhance their teams’ work. ”
At the same time, the data scientists could not see into the business units and could not really integrate information into day-to-day operations. As a result, the investments resulted in few successes.
It wasn’t the money problem. Novartis spent heavily on digital. A study by the HBR authors of 150 firms showed that results “don’t depend on the relative size of IT budgets. ” It’s a management mindset problem.
The hope of management was the particular digital technology would infuse itself throughout the firm, as shown in Figure 2.
The result was the opposite. The hierarchical bureaucracy continued as before and prevented the digital technology through having any impact, as shown in Figure 3.
During the Covid pandemic, things began to shift at Novartis when some groups began to break the particular constraints of the silos.
· Experiments were launched, bridging separate units plus developing shareable data and technology to enable innovation.
· The initial focus was on quick wins such as “optimizing advertising, manufacturing, or supply-chain capabilities. ”
· The experiments were in effect “piloting not only technology but also a fundamentally different model of innovation in which executives, supervisors, and front-line workers from the business side work inside collaboration along with IT plus data researchers. ”
Managers began in order to see the possibilities: “they became increasingly excited about opportunities to deploy AI in various parts of the company and began to earnestly champion the efforts. ”
Novartis started pairing data scientists plus business staff: “Some administrators started to realize that technologists and information scientists alone couldn’t bring about the kind of wholesale innovation the company needed, so they began pairing data scientists with company employees who had insight into where improvements in efficiency and performance were needed. ” While much remains to be done at Novartis, in least the first steps have been taken.
Embracing Agile In IT Is Not Enough
The similar error is often made when introducing Agile management practices and expertise in to the IT department. The problem here is that frequently business managers don’t want to change, don’t know how to change, and are even being paid not to change.
Industrial-era management will attack anything brand new like Souple in the particular same method since the auto immune system associated with the human body attacks anything “foreign” coming into the body. Consequently, even very successful Agile groups has usually found hard to prosper over the longer term.
The situation Associated with Microsoft
Microsoft is another example. Digital age administration in the form of Agile methodologies began appearing in Microsoft while early as 2008, first in single teams, and then inside groups of teams.
By 2011, Agile management practices had been dominant within several great groupings, including the Developer Division and Cloud Services. However , the financial impact on Microsoft has been negligible because the top management was still pursuing industrial-era administration and so few if any gains were realized from your new approach all through the company.
It’s hard to remember now that in 2014, Microsoft has been on the particular ropes. PC sales were falling. Microsoft’s software products were in decline. Its static, old products lacked pizzazz plus personified ‘boring’. Windows couldn’t compete with Google’s free operating system. Microsoft’s investment in the Nokia phone was disastrous. Microsoft’s share price was stagnant. Few saw a viable path forward. Moreover, Microsoft’s corporate culture was notoriously combative, both inside and outside the firm. This was personified in the particular prior CEO, Steve Ballmer . Staff were demoralized and even saw Saty’s Nadella’s appointment because CEO within 2014 since disappointing: surely an outsider would be required re-energize the tired aged giant.
Ms seemed the relic associated with an industrial-era company that will, like so many other large firms, had failed in order to grasp the meaning from the emerging digital economy. Although each firm is certainly unique, many CEOs can learn from Nadella’s effective seven -step playbook.
The particular result was that Microsoft was able to transform the whole organization with a trillion dollar gain in market cap.
It is easy to forget that this has been a 14-year journey.
Using The Diagnostic Tool To Navigate The Journey
As other companies contemplate electronic transformation plus the need to transform almost every aspect ot their management, the diagnostic worksheet can be an useful tool. This can help firms diagnose their present status in relation in order to both industrial-era and digital age administration. It can be applied either to the entire organization or to any part of that will organization, such as the leadership team, or any kind of department, or even any individual team, at any point in time. The tool is demonstrated in summary form in Number 9 and discussed here .
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