A favorite topic of mine is how digital transformation will require legacy organizations to reinvent their business models and how they organize themselves if they are to be competitive in the sharing economy. And thus, how they proactively can plan for leading a digital transformation and what needs to change in order to not become the next obsoleted victim of digital darwinism?
So far, we’ve only experienced the first wave of digitalization. But, as we’re entering further into digital darwinism, connectivity will become ubiquitous, products turn into ‘smart’ services and the way we as consumers look at value will forever be reshaped. This will require new business models fueled by fast iterations, where relevant utilization of data together with consumer experience will be the differentiators.
Many legacy organizations are still being reactive towards the transformation – only transforming when they really ‘have to’ which is often when a disruptor already has entered the market. Or, when the adoption of a phenomena has reached certain maturity (often when it’s reaching about 15% in the law of diffusion of innovations and are crossing the ‘chasm’). At both of these, things are starting to get uncomfortable and stressful for real.
By being reactive, you risk not only to not utilize the full potential of your current assets, which could enable the organization to disrupt itself rather than being disrupted by external factors. But even worse, as the pace of transformation increases, you risk not being able to change fast enough when you ‘have to’, before becoming totally obsolete.
One of the main obstacles for organizational transformation is the more than hundred years old theories of Taylor, which is still how the majority of legacy organizations are built up. Strategic decisions are supposed to be made in the top, trickle down through silos owned by middle-management and then being executed in the bottom. Governance is used as a way to control risk, ultimately limiting the creativity of the employees close to the market instead of empowering them. Things like R&D, product development, marketing and innovation are handled by separate teams – ultimately telling the rest of the employees they shouldn’t bother.
Substantial amounts of time and money are often plunged into planning for execution in order to validate business value, mitigate risk and create internal alignment. Here, both the sunk cost and uncertainty is often higher when deciding to abort an initiative when the planning shows it won’t reach certain goals, than what it would have been to actually test it on the market and then reach a more certain conclusion cheaper.
Disruptive organizations on the other hand – often being agile in their ways of working and utilize ideas similar to those of the lean startup – show a clear purpose, their raison d’être – which often functions as a macro-strategy. Profit in itself isn’t a good enough purpose, but rather a consequence of a good purpose. If the purpose is clear enough (which it should be), governance can then be turned around and instead aim to empower the employees and facilitate their creativity, which gives better asset utilization. This in turn, will create a lot of different ideas, which instead of being too thoroughly planned can be built, not by teams in silos but by networks of people with required competencies, and then launched on the market as MVPs. Many of them will fail either partly or fully, but they will fail a lot faster than in the case with the traditional organization – and will provide valuable collective learning for the organization that can be further built on.
The ideas that succeed on the other hand are often the ones becoming truly disruptive, enforcing the more reactive organizations to wake up and stressfully transform.
Having a clear proactive roadmap for digital transformation should be one of the most, if not the most important decision for management of legacy organizations to secure its survival. This will only be done by sailing away from Taylorism and embracing customer centric innovation.
A glimpse at history, 87 % of Fortune500-companies in 1955 didn’t exist in 2011. And as we’ve seen things are moving faster, according to a fairly recent study from the John M. Olin School of Business at Washington University, 40 % of current Fortune500’s risk no longer exist in 10 years.
Image credit: Peter @ Flickr