The Digital Leader Newsletter — Strategies and Techniques for Change Agents, Strategists, and Innovators
Imagination has a great deal to do with winning -- Mike Krzyzewski (Coach K)
How can both of these trends be true?
Trend #1 — The market for digital transformation solutions and investments is large and accelerating in spending.
There are many estimates and analyses supporting this observation.
Global spending on the digital transformation (DX) of business practices, products, and organizations is forecast to reach $2.8 trillion (annually) in 2025, more than double the amount allocated in 2020. According to a new update to the International Data Corporation (IDC) Worldwide Digital Transformation Spending Guide, DX spending will have a compound annual growth rate (CAGR) of 16.4% over the 2021-2025 forecast period1
The digital transformation market size to grow from $521.5 billion in 2021 to USD $1247.5 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 19.1% during the forecast period. 2
Trend #2 — the vast majority of digital transformations are failing to deliver the expected business value or are seen as “failures”.
Again, many estimates to this effect with estimates ranging from 60% to 90%
Only 30% of transformations met or exceeded their target value and resulted in sustainable change; companies in this group are in the win zone. Some 44% created some value but did not meet their targets and resulted in only limited long-term change; these companies are in the worry zone. And in the woe zone, 26% created limited value (less than 50% of the target), producing no sustainable change. — BCG Research3
Why would so much money be going into a market if the odds of success and ROI are so bad? How can both of these trends be true?
Like lemmings, are most business leaders just following the “digital Pied Piper” off the cliff?
Making Sense of It
Here’s how I reconcile these two seemingly contradictory trends.
Conclusion #1: Executives know they have to innovate and compete with a digital edge to be successful. It’s no longer optional. We’ve seen enough and everyone is sold. Allocate money and resources at it, build a digital strategy and let’s get our digital transformation underway. But are they really changing?
Conclusion #2: Most businesses leaders don’t understand how to effectively create “the future state” — they don’t know how to change. They don’t understand what digital transformation takes or what it means. They want the outputs of digital transformation, but they either do not understand or are not committed to the inputs required to achieve them. This includes persistence through failure.
Hence, we are investing heavily in digital capabilities, but not having the success and ROI we’d hope to be having.
The next question business leaders should ask is…
Is there a “secret playbook” — a better way to succeed & win at digital transformation?
I’ve been researching, reflecting on my discussions, keynotes, and client engagements, and running this through the WWJD filter (What Would Jeff Do), and I have developed an answer — I have the secret playbook.
The secret playbook consists of five factors needing calibration, adjustment, and consistent application. The factors need to be calibrated to your business, your industry, your situation, and your risk/reward appetite. These factors are tuned and implemented differently for every situation. Together the factors form an overall system — they influence each other. And like most systems, if the factors are out-of-balance, if one of them is extremely weak, the rest of the system tumbles out of control. In other words, you can’t decide to just skip one of these factors.
Five Factors to Succeed at Digital Transformation — The Amazon Way
I believe Amazon is THE most interesting company of the digital era, not because of “what” they do, but because of “how” they do it. “It” is a culture of operational excellence, continuous innovation, fighting off the bureaucracy, and applying “invent and simplify” leveraging digital technologies. “It” is digital transformation.
(see “And In Other Shocking News” at the end of this article)
Over the next several editions of The Digital Leader Newsletter, I’ll be unpacking this secret playbook, but here’s the condensed version. Implementing these factors is best done as an adjustment, an addition to your techniques, not a “hard switch”. To use a golf analogy, often what’s needed is just a “grip adjustment”, a “minor swing correction” and a point of emphasis, but this yields significant impact. Let’s find ways to shrink the change and leverage as much of the current culture and approaches as possible. But to shrink the change, the recommendations have to be tailored to your organization.
Create a digitally-transformed vision for your brand, your culture, your customer experience, and your business model. Create consistent communication points about the digital journey — something like “it’s still Day One”. Demonstrate patience at the right points focusing on getting the inputs right. Set the playing field for digital transformation through organizational structure, senior accountability for digital transformation, and resource allocation.
Leadership — consistently “walking the talk” by spending time in design sessions, curiosity, and supporting independent and dissenting points of view, celebrating the “failures” experimentation and innovation present creates the environment in which the rest of the transformation exists in. Will it get oxygen, or be suffocated?
Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.4
Work Backward — The Amazon Way
The term “digital transformation” is interesting as a market category definition. BUT… is not helpful as a name for a corporate strategy. If I had my way, we would never use the terms “digital transformation" or “digital strategy”.
Better strategy starts with building a common language and taxonomy on what “it” (digital transformation) is or why “it” fails. Having this encompassing, squishy, and amorphous buzzword of “digital transformation” is fine at the macro-market marketing level. But this lack of shared definitions and taxonomy is a massive issue if you are trying to succeed in the transformation. What should our common language and taxonomy be based on?
Here’s an essential truth:
You can’t “transform” if you don’t have a definition for the future state
“Working backward” stands for imagining, articulating, envisioning the specific and clear future state to transform — at the start, and then progressing to “how” you might accomplish this. What is the “hard problem” or “superpower” being delivered? These future state statements are in the categories of reimagined customer experiences, employee experiences, operations, and supply chain, product & service innovation, and business model innovation.
BUT…most organizations work from the “current state forward”. They put a name to an initiative, and develop scenarios, allowing the constraints, assumptions, and bias of the current state to build a complicated and uncompelling case for what the future is. There is a lack of the SINGLE killer feature. Ask “why will customers LOVE this new approach?” Silence.
When teams start with specific, clear, and compelling “future state” statements and are then given the latitude and mandate to solve for this capability, we are forced to rethink many constraints, and value realization from your investments is accelerated. This is how imagination plays an understated role in business.
But don’t start “building” or spending any real money until these clear, concise “what if?” statements are clear and feel highly valued. These are the ideas and bets worth chasing!
Done correctly, the Working Backwards process is a huge amount of work. But, it saves you even more work later. The Working Backwards process is not designed to be easy, it’s designed to save huge amounts of work on the backend, and to make sure we’re actually building the right thing. — Jeff Bezos5
Technology and Data Science
The transformation scenarios, the ideas, and bets from “working backward”, need “magic” to occur. The magic is often powered by technology and data science. Every organization needs to have teams, partners, and vendors harnessing the magic to work for the business transformation scenarios — and not the other way around.
Often the magic comes from a combination of technology and techniques. A critical unlock is having an environment, a digital laboratory, where a complete stack and integrated solution set can be used to quickly build, test, prototype, and even take to a limited market before having to figure out “how we scale”.
Traditional technology is key and has to be mastered. Architectures supporting real-time optimizations, API’s and nimble changes are table-stakes. The next generation of magic comes from AI, ML, NLP, computer vision, voice systems, blockchain architectures, robotic process automation, and other field-specific disruptive technologies. There are many “keys” here having great partners and having a nimble environment for prototyping and fast development are two. These feed into the actual process of going from “bets” to “proven concepts”.
When I lead discussions about innovating, I ask the group “how many believe that innovating is vital for your organization’s success and survival over the next 5 to 10 years?”. Typically everyone raises their hand.
Then I ask “how many of your organizations have a defined process for how “innovation”? Typically, only a couple of people (or no one) raise their hands.
That fundamental disconnect is consistent in most organizations.
A “system” for experimentation is required — a consistent approach for operational excellence and innovation. Innovation is not an accident. There are many different approaches and methodologies, but the five consistent steps to be included are scanning, envisioning, prototyping, validating, and scaling. A playbook for how each of these is done for solving operational problems and high(er) risk, high reward innovations is mandatory for true organizational transformation.
The system has to lean toward a different type of “optimizations” than our normal processes. The innovation system needs to optimize for “speed to learning”. This “fail fast” concept can easily be twisted to allow for poor execution or poor execution. Quite the opposite is needed — great execution is required. But “speed” is the key, not “negotiating the best price” or other types of optimizations. The tone of leadership, metrics, decision making, and supporting processes (like HR, and procurement) have to be geared toward this mission.
Companies rarely die from moving too fast, and they frequently die from moving too slowly. — Reed Hastings
The overall governance structure, decision-making processes, metrics, business case, and portfolio management have to fit the transformation journey you are on. We have to be able to tell the story of our strategy, our approach, the goals & business justification, and where we are. The standard management techniques need adjusting for the nature of investments we are making. We have to build awareness and systems to avoid “asking the right questions at the wrong time”. Questions like “What’s the revenue plan for next year?” or some form of “Can you prove it?” are fair questions for proven and ready-to-scale concepts, but actually, cause damage and reduce calculated risk-taking early in the innovation pipeline.
Or, you can continue to follow the “Pied Piper of digital transformation”, hoping you are one of the exceptions that won’t go off the cliff.
Your Homework — Start With Better Facts and Understanding
Prescription without diagnosis is malpractice!
Start with a better set of facts and unbiased understanding, a diagnosis of your business and culture by leveraging these five factors to succeed at digital transformation. I’ve created an online assessment & survey that is FREE for you to use. Just contact me to discuss (info @ rossmanpartners.com).
And In Other Shocking News…
According to Time magazine’s cover article “Andy Jassy on Figuring Out What’s Next For Amazon”, Andy tells us to expect completely new businesses and industries from Amazon.
There are businesses that we just haven’t started yet that have, I think, a real opportunity to change what’s possible,” he tells TIME. “Think about our low Earth orbital satellite Kuiper, providing connectivity to the hundreds of millions of people that have no connectivity and can’t participate in the internet … or what we’re doing with Zoox with autonomous driving ride-hailing. There are just so many opportunities.6
I’m really surprised ;0
Amazon’s next 25 years are likely going to be as unpredictable, disruptive, and expansive as the first 25 years, with new industries tackled by THE most interesting company of the digital era.
Remember — it’s not “what” they do, but “how” they do it!
About The Digital Leader Newsletter
This is a newsletter for change agents, strategists, and innovators. The Digital Leader Newsletter is a weekly coaching session with a focus on customer-centricity, innovation, and strategy. We deliver practical theory, examples, tools, and techniques to help you build better strategies, better plans, better solutions — but most of all to think and communicate better. You’ll be able to follow up with questions and advice.