According to Charlene Li, founder and senior fellow at Altimeter, a Prophet company, and author of the excellent book The Disruption Mindset, many organizations are approaching digital transformation and disruption backwards. They often hope that new innovations will disrupt the market and drive growth in customers and revenues. “In reality, disruption doesn’t create growth; growth creates disruption“, states Charlene.
Based on years of research, including interviews with some of the most prominent organizations globally, she believes many innovation efforts fail because we use current customers as the basis for new ideas as opposed to looking at the customers of the future. Charlene states, “Disruptive transformation is so difficult because it upsets the status quo and shifts power relationships.”
Charlene also believes many organizations do not fully understand what disruptive transformation is (or isn’t). For instance:
- Disruptive transformation is inspired by ‘future customers’ as opposed to the customers you have today.
- Disruptive transformation requires leaders with an ‘openness to change’ mindset that empowers others.
- Disruptive transformation needs a movement away from the comfort of status quo.
- Disruptive transformation is not the same as innovation: As opposed to being an orderly process based on current customers and a desired return on investment, disruptive transformation infers more risk and less defined parameters.
- Disruptive transformation is often not about new technologies, but about new applications of current technologies.
- Disruptive transformation is not always fast and definitely not predictable.
- Disruptive transformation is not just for start-ups … but it requires getting out of the way and changing from one state (today) to another (tomorrow) throughout the organization, including the products, strategy, leadership and culture.
I conducted an exclusive interview with Charlene Li for the podcast, Banking Transformed. A portion of my interview is included below.
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What is the goal of digital transformation?
Charlene Li: The goal is to become operationally more efficient and excellent and to change business models so you can serve your existing customers in better and more efficient ways. But it could also even be pivoting your company … having a new business strategy. It’s clear today that the way you create that competitive advantage is in many ways through your digital capabilities.
Is it more than a new shiny app?
Charlene Li: Yes. Oftentimes people think, “All I have to do is make [the app] a reality – just adopt that technology – and we’ll be done.” The reality is when they come face-to-face with that transformation part, they go, “Wow, this is hard. We didn’t expect it to be hard. So let’s not do it now.” It is often more than they bargained for.
How do organizations deal with the ‘toughness of transformation’?
Charlene Li: Change is hard. We like things to be constant and the same. When we come in and actually come face-to-face with change, we’re not prepared for the difficult first step. But in terms of that first step, if you anticipate how hard that first step is, and then prepare yourself to take it, knowing that it’s going to be the beginning of a fairly long journey, the process becomes more manageable.
What is the first step?
Charlene Li: Focus on your future customers. I have found that to be the consistent idea and the behavior that all disruptive companies do. The reason why this is so powerful and yet so difficult is that it allows you to think about that picture of the future to understand who this future customer is … and then make sure it’s aligned across the entire organization. When you have that alignment, then you can say, “We’re going to have to take these difficult decisions – these difficult choices today – and take that big gulp and decide we’re going to do this and then be committed to doing it.”
Is the ‘comfortable current state’ a challenge?
Charlene Li: Yes it is. This is what Clay Christensen wrote in his wonderful book, ‘The Innovator’s Dilemma’. We are pulled and blinded by our beautiful, profitable customers. It makes total logical sense that we would want more of these customers. The reality is, current customers don’t necessarily represent your future … they represent your today. It’s fantastic if you can reap the benefits of serving them, but I think the paranoid survive in many ways. So you have to constantly be looking to the future, looking at the edges, at the unprofitable customers, at the customers who don’t even exist today, and begin thinking about how you would serve them.
How do you identify a future customer?
Charlene Li: I would encourage financial institutions to think three years, five years, ten years down the line. Where do you think you need to be? And then take a very close look at how the market is changing and the demographics. If you want to bring longevity to your institution – if you want to truly build value for your customers and value for your shareholders – then you’re obligated to talk about the future in the longer term and to make those investments.
How do you avoid just going after the same next segment like everyone else?
Charlene Li: It’s understanding who your current customers are and making it the job of every single person to think about future customers. Putting them in your dashboards and making sure that you have a really good customer advisory board. For example, don’t put your most profitable, beautiful customers on there. Put the ones who, frankly, complain the most, who demand the most of you – people who you think represent what these future needs are going to be.
Create some empathy maps of who these people are. Understand what do they do? What do they think? What do they say? And what do they feel? By understanding them not as transactions, but as real people who have different needs … you begin to build that understanding across the organization.
How do you create a disruption mindset?
Charlene Li: This is like turning a battleship. When you’re going full speed ahead, it takes a huge amount of energy – and everybody on that ship working together – to turn that ship. I think that’s one of the biggest problems with banking and large traditional institutions. It’s really difficult to turn the ship unless everybody is aligned.
For instance, ING Bank in the Netherlands blew up everything … they blew it all up. Because they said, “This is going to be too hard to change on an incremental basis, so we’re just going to wholesale change the way that we do business.” They took their headquarters and made it all agile. They fired everyone and hired them back based on their ability to think about the customer.
Is it imperative to have the top of the organization guiding the transformation?
Charlene Li: Because this is something so hard, you need the top people in the company to truly believe in this and to never waiver. No matter how hard that journey is, they have to truly believe in the process. One of the questions I get from people is, “What do I do if I’m not that top person?’
My response is that you can begin no matter where you are in the organization, because all it takes is to focus on that future customer. You shouldn’t ignore your current customer, but orient your entire team so that when the rest of the organization is ready to think about it this way, you’re all aligned with each other.
Are leadership styles different in disruptive organizations?
Charlene Li: One of the most important things a leader can do is to create the sense that, this future is something worth fighting for and acknowledging it’s going to be a very hard journey. The leadership archetypes that I have found include four different types determined by two factors: one, an openness to change mindset, and the leadership behavior of empowering and inspiring others to take action.
Is there a gender gap around disruptive styles?
Charlene Li: Our research did find a significant gender gap, and especially in the U.S. I think partly it’s because other countries like the U.K., Germany and Brazil all have had women political leaders in places where they were creating a lot of disruption. One of the biggest issues is that some segments have been trained their entire life … growing up and being in a career … to be a team player, and that they feel like they’re penalized when they raise their hand and disagree. Alternatively, male counterparts are applauded and encouraged to do this more.
I think the first step is – as leaders – to develop all disruptive leaders. We have to be aware that this gap exists. If you have ever been the only person in a room, the only woman, the only person of color, the only old person, the only young person, you know what it’s like to have to raise your hand, because you stick out already. It’s incredibly hard to have a diverse point of view. So, it’s incumbent on us to make it as safe as possible for that person and to encourage them to raise their voice because that voice is worth being heard.
What is the biggest challenge to being a disruptive organization?
Charlene Li: By far the biggest challenge – the belief that’s holding them back – is that, “I don’t know what the future looks like, and I need to be sure. I have to be certain, I have to be perfect. I can’t be wrong before I take that move forward.” I think that’s the most debilitating thing, because I don’t think anybody’s ever asked anybody to be perfect. We know mistakes get made.
What should be said is that, “We’re asking you to do your best and be excellent in everything that you do, but when things go wrong, be accountable for it. But keep moving us forward. Because we know that if you don’t keep taking those risks, taking those chances where you’re going to push the envelope and move out of your comfort zone, we won’t be able to benefit from that as well.
It keeps coming back to, “How will you be open and transparent about what is going on in your relationship with your customers and your employees in your entire ecosystem?” I think that’s what people are asking for … not the fact that you’re perfect.