Aligning the organization for its digital future Findings from the 2016 digital business global executive study and research report

 

Almost every company expects digital disruption in some form or another—but how are they actually preparing for it? Perhaps surprisingly, this preparation may need to be more cultural than technological. Tanya Ott spoke with Gerald Kane about companies’ differing levels of digital maturity as they compete in a rapidly changing world.

It’s very easy to pretend to do it and not do it. It’s very easy to give it lip service and not execute on those things. If you want to be serious about competing in a digital world, you’ve got to look in a mirror first. You gotta recognize where you fall short on these aspects, and then you have to actually do real and meaningful and substantive change.

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TANYA OTT: How do you make that change? Jerry Kane has some ideas. I’m Tanya Ott, and this is the PressRoom, Deloitte University Press’s podcast on the issues and ideas that matter to your business today. Every year for the past five years, a team of researchers at MIT’s Sloan Management Review have collaborated with Deloitte LLP to study how companies use digital technologies—everything from cloud computing to mobile apps to social media. They interview thousands of corporate executives around the world and conduct in-depth interviews with some of those thought leaders. Gerald Kane leads the effort. He’s professor of information systems at Boston College.

GERALD KANE: The thing that set it off was we interviewed an executive from Facebook a few years back, and the only edit he wanted to his interview was to change Facebook from a social media company to a digital company. And so when Facebook is thinking of itself as beyond social media, it’s an indication that the rest of us probably should too.

TANYA OTT: What was the reasoning that he gave you on that? GERALD KANE: Well, he didn’t give me any reasoning, but I speculate. Certainly the future of Facebook is not the advertising model. It’s how do you use the data that’s created by Facebook to create new insights about customers and about people. And of course, the vast majority of Facebook’s revenue is also about mobile devices, and so if you want to think of it—is it social? Is it mobile? And so as it has evolved, it’s taken on new lives, new identities. And we’re seeing even more stuff coming down the pipeline. There’s an enterprise social media platform called Slack that’s trying to build in AI [artificial intelligence] bots to help managers use social media data to manage employees more effectively.

TANYA OTT: So they’re incorporating AI bots to help users be more productive? How does that work?

GERALD KANE: Absolutely. So what they’re trying to do—I spoke with Bill Macaitis, who’s the chief marketing officer, and he said, If you think about what is the subject of most business meetings, and that is just checking in and seeing where employees are as far as data goes. And he says, We can automate that: We can have bots go around and check in on people’s status and provide automated reports to managers so you don’t have to have as many meetings. Which is a pretty attractive feature if they can pull it off.

TANYA OTT: What’s the timeline on that?

 

GERALD KANE: Now! No . . . I don’t really know. You know it’s always going to be, when is it possible, and when does it get really good? And those are two very different timelines. And then the third one you might add on to that is: When does it become indispensable?

TANYA OTT: So you did the survey. You got more than 4,000 folks that responded to the survey, and then you did some of the one-on-one interviews focusing on digital this time around. I thought it was really interesting, the list of titles that exist—and this is just a very short list of some of the digital titles—you’ve got digital strategist, chief digital officer, digital engagement managers, digital finance managers, digital supply chain managers . . . I mean, I’ve seen digital-centric titles that I have no clue what they do!

GERALD KANE: Yeah.

TANYA OTT: The list goes on and on and on. So everybody is thinking and talking digital these days, but how much are they actually doing digital?

GERALD KANE: There’s obviously a huge range. And that’s one of the things that our survey this year really underscored is there is great diversity between companies that are doing it well and companies that just aren’t. And we talk about those in terms of early companies, developing companies, and maturing companies. We really found three different levels of digital maturity, if you will. And those organizations look very different from one another, so I’m not sure the titles alone tell you very much because anybody can change their title to be digital this or digital that. It’s more about how are they living out and how are they adapting to digital environments that’s particularly interesting.

TANYA OTT: As you said, you’ve got companies across the spectrum that you talked with, and there are some real cautionary tales out there that these companies are probably looking at—things like the taxi industry has Uber and the hotel industry has Airbnb. How vulnerable do company executives feel in this environment?

GERALD KANE: Extremely vulnerable. So we actually asked the question: To what extent do you believe digital will disrupt your industry? And 87 percent of respondents said they agreed to either a moderate or a great extent that digital is going to disrupt their industry. So everybody knows this. Everybody recognizes that digital is disrupting everything. What they’re doing about it varies quite a bit. And of those respondents, only 44 percent said their organizations were adequately prepared to deal with the disruption.

TANYA OTT: So it’s not like this idea of digital disruption is really new. What’s been keeping them from being more prepared, those who aren’t?

GERALD KANE: Gosh, there are so many answers to that question. Some of it is, I think, Wall Street short- and long-term. You know Wall Street demands short-term performance, whereas preparing for digital really requires long-term thinking. Many executives just don’t feel that they can do it in the time frame that this recognition of digital disruption’s going to take. One thing we recommend in the report is actually what John Hagel talks about as zoom-in, zoom-out strategizing. So you look at the short-term one-to-two-year timeframe, but you also zoom out and say, okay, what is the world going to look like in 10 to 20 years? What is the world going to look like when Uber is everywhere and we can do different things with it? How does that change your business model? What does the world look like with self-driving cars, which, you know, are going to come in that time frame. And how does that change the way we do our business? And I think it’s going to change in really remarkable and unexpected ways. One way we found out is a company called Olo that’s building an infrastructure for restaurant delivery on top of Uber. So basically any restaurant can now have a delivery service with virtually no extra overhead. And what does that mean about where you locate your restaurant? The real estate prices, etc., etc.? And so some really interesting things are happening.

TANYA OTT: I did a conversation with John Hagel and with JSB—John Seely Brown—both who have extensive experience thinking and working in the realm, and one of the observations that they made is that some company executives or managers feel a little overwhelmed because when they hear a word like “digital disruption” it’s like, oh my gosh, it can come from anywhere!

GERALD KANE: Yep.

TANYA OTT: So you have no focal point to figure out where you should go.

GERALD KANE: And I think that’s fair. And it’s also true. You know, we don’t necessarily know where it’s coming from. At the same time, I think the broad brushstrokes are fairly apparent that we do think the capital-C Computer is getting more ubiquitous, smaller, more powerful. They’re become more user-friendly. They’re embedded in more things. More things are collecting data. And so some of the time, we don’t need to know the particulars. And of course, technologists and consultants like people being confused because that means they have to come to them for advice.

TANYA OTT: Job security.

GERALD KANE: Yes, exactly. My sort of take is a lot of this is not rocket science. Another really important finding, I think, from our study is this year is we asked about cultural aspects or what features of the organization really characterize mature digital companies. And what was really interesting—I was expecting to find a whole range of companies, like, this company does it this way and that company does it a different way. And what we actually found was the hallmarks of successful companies are actually very consistent. Things like: increased tolerance. That we’re okay with a certain amount of risk. In fact, one government organization we talked to actually said we have a failure rate built in and if we don’t fail enough we have to increase our risk profile. Things like collaborative and non-siloed organizations. Things like distributed leadership rather than hierarchical leadership. And those were distributed across the board. So our advice in this report is if companies are really looking to begin preparing for a digital future, there are a few things they can start doing. Not with technology, but with the organizations. It’s how do you make yourself a more risk-tolerant organization? How do you really cultivate the people and give them permission to experiment? How do you make it less hierarchical and bureaucratic, to allow yourself to be more agile and nimble? And those are questions that are not primarily about technology. But they are questions that are about how companies are going to succeed in a digital world. And it doesn’t matter where the disruption comes from, if you don’t have those things—those things apply in all situations.

TANYA OTT: so I would imagine the bigger picture is not looking at digital as projects or activities that occur within a given division of the company, but as part of the DNA of the company.

GERALD KANE: Yes. It’s how to go from doing digital to being digital, to live and compete in a digital environment. And those are big questions.

TANYA OTT: The one thing you said they have to do is they have to be comfortable with risk and experimentation, but how do you take a company and make it comfortable with risk and experimentation?

GERALD KANE: Those are cultural questions, and those are managerial questions. They’re not technical questions. And so it really has to come from the top, you know, C-level managers, with mid-level managers really freeing up and empowering their employees to do this. And often times the real danger, I think, is it’s really easy to give lip service to these things. It’s really easy to say, okay, we’re to be risk tolerant. We’re going to embrace these principles yet actually do nothing about it.

TANYA OTT: One of the other things that is really important, and you’ve touched on this a couple of times, is talent. And you found that in the more digitally mature companies, they’re recruiting and developing leaders who aren’t necessarily technologists.

GERALD KANE: Yes. Repeatedly, when we talk to thought leaders as well as when we look at our survey results, technological skills are actually fairly low on the list of important features for leaders and employees in succeeding in a digital world. We actually did a couple of open-ended responses, and we just asked what skills are most important to succeed in a digital world as employees and for leaders. Most of what we got were not technical—they were things like you need to be flexible; you need to be nimble; you need to be forward-looking; you need to embrace risk. And technology questions were only about 20 to 30 percent of what respondents said. So it’s not about knowing the technology as much as being able to manage and thrive and work in a world that is increasingly dominated by technology and changes the way the organization works.

TANYA OTT: One of the other things you looked at is what happens if a company doesn’t respond and embrace risk and really invest in talent and things like that. And you talk about talent being ready to flee from companies if they’re not moving forward digitally.

GERALD KANE: Yeah, so that was actually a surprising finding from last year’s report. We asked people to what extent is it important for you to work for a digital company, a digital leader, and a very high percentage of people across all age spectrums said it’s very important. And so this year we dug into that a little more. We asked a couple of questions. One was, how long do you anticipate working for your current organization? And we found that people who were working for less digitally mature companies were actually looking to leave their companies at a much earlier rate. I believe our data says about 40 percent of those at the lowest-maturity companies, the early-stage companies, were looking to leave within a year. So really, surprisingly, shockingly high numbers!

TANYA OTT: And it’s not just, as one might think, millennials and junior-level employees that really want to be in digital-centric companies. It’s also more senior-level leadership.

GERALD KANE: Not only that. The single largest groups looking for digitally mature companies were actually vice president level and director level. So it’s this middle management that companies really desperately need to hang on to that are looking for opportunities. And what we found is that the biggest sort of reason for that is they wanted to keep developing their skills so they could individually compete in the digital world. And then what’s interesting is that many of the other companies that we talked to who are digital leaders recognize this advantage and are poaching great employees from less mature companies. Employees are on LinkedIn. They go find them and say, hey, how would you like to come work for a digital leader? And they’re actively seeking out these valuable mid-level employees.

TANYA OTT: When you go through this process, you do some in-depth interviews with thought leaders and people who are really maybe shaking things up in their organizations. And one of the case studies you have is for a nationwide pharmacy chain. What makes them such an interesting case study?

GERALD KANE: Well, I think for me the most obvious one is this is just not a place where you would expect digital innovation and transformation to take place. I mean you don’t think about pharmacies as the most cutting-edge digital companies. Yet here we see a pharmacy chain really investing heavily in digital. They’ve developed an innovation lab that is very robust and actually not only developing projects internally for digital innovation but actually acquiring start-up companies. And so I was just really surprised to see, you know, a company in an atypical industry moving in this direction.

TANYA OTT: You mention that they have not only been doing innovation within, but also acquiring companies. And I think one of those companies that they’ve acquired has basically given them the ability to do what’s called “locational awareness.” Tell me about that.

GERALD KANE: So what they’ve done is that they’re trying to integrate this company so that when you place an order at one of these retail locations, the employees inside will know when you have arrived, and they will actually walk out and deliver your order to your car. I asked the gentleman that we’re interviewing: Well, that sounds fine, but why not just do drive-throughs? And he noted that well over 50 percent of their locations do not currently have drive-throughs, and drive-throughs are very expensive real estate. And so by implementing these location-aware technologies, a mother with her sick kid comes up to the pharmacy and doesn’t want to have to take the sick kid out of the car and into the drugstore, can the sales associates can come out and deliver to the car. And they just thought that was going to be a very important part of the competitive differentiation.

TANYA OTT: As a mother of three children who are thankfully not young children anymore . . . man, that would have been nice!

GERALD KANE: Wouldn’t it have been? But I think that’s a sign that almost, I would say, every industry is ripe for digital disruption at some point in time and if you’re not taking active steps to keep your company up to date, you’re going to struggle.

TANYA OTT: Are there any industries that are exempt from this? That don’t have to be worried about the digital focus because they won’t be disrupted?

GERALD KANE: Again, I think the Airbnb and Uber examples are classic for just that reason, because in some ways if you thought about “industries that should be safe” in the short term from digital disruption, hotels and taxis—very physical products, you know; you have to be in a certain time in a certain place—you wouldn’t think about those being disrupted digitally, and yet they are, or are in the process of being. I think to the extent that it is changing our world, it’s going to touch every company in some way. Even if you’re in an industry that arguably will be disrupted not at all by digital—and I can’t think of one off the top of my head because even some classic examples like oil and gas are becoming much more digital—the fact that your employees want to work for a digitally mature company because they want to develop the skill sets so they can compete if something goes wrong with your company, sort of means that everybody’s going to have to deal with this

TANYA OTT: Gerald Kane’s new report on embracing digital has just come out—and in it he writes about a concept he calls digital congruence.

GERALD KANE: Despite all of this overwhelming emphasis on strategy and different ways to do technology and all the different ways disruption could happen, several of the most essential steps are very straightforward. It doesn’t mean they’re easy, because cultural and organizational change is very hard. But it’s pretty clear what the first steps should be if you want to become more digital and you want to compete more aggressively in a digital world.

TANYA OTT: Those are cultural shifts toward risk tolerance, toward collaboration, toward more distributed leadership. Jerry Kane says it’s pretty clear what managers should do now. You can find that advice in his new report—it’s just out and available on our website, dupress.com.

If you’re listening to this podcast and you haven’t yet subscribed, you are one click away from making your life a little easier: Just find that subscribe button on your computer, tablet, or phone, and click it! You can also subscribe on iTunes or through your favorite podcasting app. The episodes will be downloaded to your device automatically when they’re released, so you won’t miss a thing. You can set it—and forget it. We love to hear what you think about what we’re doing. You can tweet us at @DU_press and email us at podcasts@dupress.com I’m Tanya Ott for the Press Room. Thanks for listening, and have a great day!

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