Digital Transformation Requires More Than Technology Upgrades

Most companies are getting digital transformation wrong, assuming that the correct response to digital disruption must involve the deployment of modern technologies, according to the author of the best-seller 'The Technology Fallacy.' In reality, effective digital transformation may not involve new technology at all.

In a global survey of managers and executives conducted by MIT Sloan Management Review and Deloitte, close to 90% of executives anticipated that their industries would be disrupted by digital trends to a great or moderate extent, yet only 44% said their organizations were adequately preparing for the disruptions to come. This aligns strongly with research done by the Digital Banking Report, where only 12% of banking organizations considered themselves digital transformation “leaders” and where less than 40% of organizations considered themselves prepared for consumer expectations or competitive threats.

The reason why most banks and credit unions fall short of what is needed to transform their organization is because becoming a “digital bank” is tough. Not only must legacy systems be upgraded, but business structure, operations, people, culture and leadership must all be in sync and aligned. This leaves many organizations taking on digital transformation “projects” that are limited in scope as opposed to trying to transform the entire organization.

Making matters worse, research discussed in the book, The Technology Fallacy: How People Are the Real Key to Digital Transformation, reveals that the human and organizational aspects of digital transformation are often more important than the technological ones. Instead, the book discusses how digital transformation involves:

  • Forward-looking leadership that is open to change.
  • Development of talent.
  • Innovative, collaborative and risk-tolerant culture.
  • Cross-functional organization structure.
  • Clearly communicated digital strategy.

To better understand the findings discussed in the book as it relates to financial services, I conducted an exclusive interview of Gerald C. (Jerry) Kane, Professor of Information Systems at Boston College’s Carroll School of Management and co-author of the book for my podcast, Banking Transformed. A portion of my interview is included below.

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What components of an organization did you find most difficult to change?

Kane: Some of the components are actually the things that we were touting as most important back in the 20th century. Instead of looking for the perfection of Six Sigma, it is important to get the appropriate risk tolerance in place. This is something that a lot of companies struggle with because digital technology is a moving target, and if you are hoping to get the answer right all the time, it’s going to be really hard to adapt and change. What companies need to do are a lot more little experiments. Figure out what works, iterate, and then build on the successes.

Does today’s positive economic results hamper efforts to embrace change?

Kane: We say that if you’re waiting for the necessity to show up in your bottom line, it might be too late. It’s really hard to innovate from a position of weakness. Alternatively, some companies have the foresight that to realize that the environment is going to change and they’re better off trying to pivot amidst the success.

A great example here is Walmart. Despite being an older, large and established company they are doing some really remarkable things. Some of it was through acquisition, while some was just by driving that transformational mindset from the top level. The CEO made digital transformation part of annual reviews down to the line level employees.

What is the biggest transformation you believe is needed?

Kane: We found that a growth mindset is perhaps the biggest difference between companies that are “getting it” and “not getting it.” With a “fixed mindset,” we hear, “We’re just not a digital company. We’re a legacy company. We can’t do these things.” In contrast, when firms can change that mindset, they can really accomplish great things. As I talk to companies about this, mindset is the first thing that I work on because if you can shift that mindset and say, “We can do this,” lots of good things can follow.

Are legacy skills transferable to a digital era?

Kane: Some skills change and some don’t. The need for things like vision and good communication skills don’t actually change. How they get lived out, however, in a digital world does sometimes change. So, just because somebody uses Slack to communicate with their employees doesn’t mean they’re an effective communicator. But you may need to use digital technologies to communicate effectively in this day and time.

We don’t want companies or managers to throw the baby out with the bath water and think everything changes — and we see leaders and managers sometimes making colossally stupid decisions when they should know better because they throw common sense out the window. But we also recognize that we need to update things in terms of communication, in terms of how often we interact with our employees. Those things need to change because frankly the expectations have changed.

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Is there a ‘talent gap’ today?

Kane: When we asked respondents to what extent do you have enough talent, and do you have the right leadership to compete in a digital world, over 50% of respondents – no matter the company’s maturity level – said “We need new leaders and more talent.” So, the bottom line is that nobody has enough talent and everybody’s looking for more opportunities to grow.

That said, we saw a massive disparity between how well firms are developing talent within. For instance, only 10% of less digitally mature companies said they were doing enough to develop their employees to get the digital skills needed. On the other hand, about 80% of the maturing companies said they were developing their talent within. That’s a huge jump there that distinguishes the leaders from the laggards.

Is there a correlation between innovation maturity and digital maturity?

Kane: We found that early stage (less digitally mature) companies said they were spending less than 10% of their time on innovation. Alternatively, digitally mature companies said they spent 10% or more time to innovate. This can take many forms. It can be through rotating them through new and challenging projects. It can be doing innovation competitions within the company. I’ve seen a number of different ways.

We found that the biggest differentiator between those companies that were doing innovation right and those that were just doing “innovation theater” was whether those innovations that happen in the experiments actually get rolled out across the enterprise.

What role does culture play?

Kane: Culture is an important driver of digital maturity. When we asked digitally mature companies how they most drove digital innovation and digital change, it was through this culture. So, culture really becomes this virtuous cycle that, if you can start to develop the right culture, you can get better digital innovation which then helps feed back into your culture. If you don’t get the culture piece right, it doesn’t really matter if you’re innovating because those innovations will never ever see the light of day. They will never affect your core business.

How do you encourage people to embrace change?

Kane: Adapting to change is the business challenge of the 21st century. We asked our respondents an open-ended survey question, giving them a blank box and said, “What is the biggest difference between doing business in a digital age versus a traditional one?” And they said the pace of change was the number one difference. In fact, 25% in this free form question said pace of change was the biggest challenge. That is the defining business challenge of the 21st century and how companies deal with that – how they address that – is going to be the key differentiator.

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