In the last blog we discussed the fact that 70% of company transformations fail and explored General Electric’s downward spiral since launching their digital transformation effort in 2014.
GE is not alone. Notable companies that have stumbled on their path to transformation include Nike, Ford, the BBC, and many others. Why do companies like GE fail to obtain the outcomes and benefits from transformation that they anticipate? Some of the reasons certainly include the traditional behavioral, cultural, managerial and organizational issues that change management addresses.
While most companies look to better manage their transformation journey, the issues really start at the beginning. Indeed, as we covered previously, most transformation efforts are focused on inward improvements to productivity and efficiency. These are great for improving profitability, but that shouldn’t be confused with customer value or competitiveness.
In general, this inwardly-focused transformation efforts fail due to four major pitfalls. They include:
1. Not Making Customer Outcomes the First Priority. The intense focus companies place on maximizing operational efficiencies has made the delivery of better customer outcomes, including the customer value and experience, a third priority for most organizations. A recent IDG survey found that increasing customer experience was an objective for only 46 percent of the organizational transformation efforts, well behind employee productivity and business performance. Another survey found that improving customer experience was seen as an advantage of their transformation project in only 34 percent of the cases.
This may be a result companies’ perspective that they either adopt digital transformation or they are disrupted by it. Four out of five businesses expect to see a negative impact on revenue in the next twelve months if they fail to complete digital transformation initiatives.[1] For many organizational heads, transformation is a gun to their head, not a way to benefit their customers or derive meaningful advantage.
2. Failing to Articulate Vision and Create Alignment. The second pitfall that companies fall into is failing to make transformation a point of company-wide alignment. Most employees simple don’t know the why and how of the transformation journey. In a recent survey of IT managers in organizations undergoing transformation, 69% said that they wouldn’t be confident explaining the concept of their company’s transformation to someone else.[2]
This lack of clear, motivating, aspirational vision is a result of the operational focus of transformation. No one but management gets behind a vision to increase earnings by 20%. Failure to create illuminating the path to get there is a significant barrier to transformation success. As an example, former CEO Jeff Immelt said of GE’s transformation process, “One of the things I’ve said during every transformation is, ‘We’re on a forty-step journey. Today we’re on step twenty-two. I don’t know exactly what step thirty-two looks like yet. But we’re going to explore that together.’”[3]
Step twenty two of forty? While forty-step journeys may be necessary, that journey is not going to garner the attention, understanding, and motivation of employees to support the efforts. Great leaders know they need to create a vision that is simple and outcome oriented, and then over communicate that vision by 10x to employees to turn it into a company-wide journey and effort
3. Confusing Effort for Effectiveness and Tools for Outcomes. The third pitfall of transformation efforts is that the actual effort put into transformation, especially digital transformation, tends to have an appeasing effect for organizations that they are making some effort toward change, with little regard for whether its effective. With the prospect of returns from and the effort required for transformation, it is easy to get caught up in the hype the process and potential for returns and lose sight the real outcome.
Interestingly, the act of embarking on a transformation project may create a bandwagon effect, a cognitive bias that reinforces leaderships’ overall positive assessment of their organization and their actions because they have committed to organizational transformation, even if it ultimately fails to achieve positive transformative outcomes. This is reinforced by an already high self-perception by senior leadership that their company is technology leaders. A recent CEO survey found that 41% think of themselves as “innovation pioneers,” a self-assessment that is 52 percent higher than it was in 2013. Another 37 percent believe they are “fast followers” who quickly adopt new innovations.[4]Fascinatingly, the sum of those two groups leaves only 22 percent of CEOs who would be classified as anything other than a leading or fast following innovator. Are there really that few laggards out there?
4. Settling for Efficiency vs. Long-Term Differentiable Advantage. The fourth major pitfall for organizations is confusing the pursuit of efficiency with the concept of creating advantage for their organization. With a largely operational-efficiency focus, the outcomes most organizations create have little to do with improving an organization’s competitive position and long-term competitive advantage. While investment in digital transformation is the theme of the day, these efforts alone often go toward strategies that can be copied, internal processes that are replicated, and new technology that can be similarly acquired or developed, providing, therefore only a transitory advantage. If every other organization has access to the same consultants, open source code, cloud computing partners, machine learning engines and algorithms, and so forth, is there a long-term advantage?
Stepping back, these pitfalls open up the question of of whether transformation efforts sustainable if transformation don't create a better and differentiated outcome for the customer and a long-term advantage for the organization. The answer is no, and the solution lies in not focusing just on transforming the organization, but in transforming customer outcomes.
Next week we’ll discuss outcome transformation, and what steps organizations can take to improve the likelihood of transformation success.
#Transformation #digitaltransformation #transformative #strategy #changemanagement #generalelectric #GE #customeroutcome #customerexperience
[1] Connectivity Benchmark Report 2018, Mulesoft Corporation
[2] Not Everyone Understands Digital Transformation, Salesforce survey, June 2018
[3] Inside GE’s Transformation, Harvard Business Review, September-October 2017
[4] 2018 CEO Survey: CIOs Should Guide Business Leaders Toward Deep-Discipline Digital Business." Gartner, 6 April 2018
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