Achieving digital maturity involves changing how things are being done and having the courage to fail. Tanya Ott met with Jerry Kane and Anh Phillips to discuss how organizations can overcome these challenges and realize fully the perks of going digital.
Your people are having to be more collaborative. They're having to be better communicators. They're having to learn how to be more agile, how to deal with ambiguous situations, and make decisions with a lot of ambiguity. So, this is a lot of stuff that's new to them and they're having to figure out how to learn how to do that.
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TANYA OTT: I’m Tanya Ott and today we’re talking about coming of age—digitally. Remember the awkward teenage years. The garish colors. The mix of jumbled fonts. The spinning graphics. 1990’s internet was … well, if you were there, you know.
We’ve shed the braces, cleared up our faces, and now we’re all slick and sophisticated with apps, 3D printing, artificial intelligence, and more. Digital is grown up!
But, for many companies there’s still some work to do, according to my two guests. Jerry Kane is professor of information systems at Boston College and guest editor for Digital Business at MIT Sloan Management Review. Anh Phillips leads Deloitte’s research around digital transformation in the Center for Integrated Research.
Every year they survey thousands of business leaders worldwide about how their companies are doing digitally. Then, they do a series of follow-up interviews with C-suite executives and thought leaders to really dig into the weeds. This is the fourth year for the study and the big headline is that they saw an uptick in the number of survey respondents who said they’re beginning to make progress digitally.
JERRY KANE: For the past several years, basically our maturity numbers—which is our measure of how advanced a company is digitally—have been pretty stable. And this year we've seen a roughly 10 percent shift towards more maturity. About 9 percent fewer respondents said their company was in the early stage, about 4 percent more respondents said that their company was in the developing stage, and about 5 percent more said that they were in the maturing stage. We'd be a little bit reluctant to overweight that shift if we also didn't see the same thing in our interviews. We see a number of traditional legacy companies really taking digital much more seriously.
TANYA OTT: So, what was holding them back before and why this shift now?
ANH PHILLIPS: One of the things that we talk about is this idea of competency traps. We have a lot of legacy companies that have been doing things the same way for a long time. And part of the challenge with that is they’re just starting to realize that what got them here—what brought them the success that they have now—won't necessarily take them forward and bring them future success. It's understandable that they have to really shift the way they do things.
TANYA OTT: Part of shifting the way they do things is making sure they have the right people in the right places, with the right skills. How's the talent pool look when it comes to digital leaders?
JERRY KANE: That was a really interesting finding this year. We asked respondents: Do you need more leaders or different leaders to help move your company into the digital age? And over 50 percent of even the most maturing, the most advanced companies said we need new leadership. Everybody needs new leaders or those leaders [who] can learn new things. Where the real differentiation came is when we asked the follow-up question: Is your company doing enough to help develop those leaders? And there the split was very significant. Only about 15 percent of early-stage companies said they were developing the leaders for this next generation of digital, whereas over 60 or 70 percent or up of the maturing companies said that they were preparing. So, we saw not a split in "do you have the leaders" or "do you need the leaders"—we saw the split in, are you doing something about it?
ANH PHILLIPS: That's very similar to what we've seen in the talent realm in lots of organizations. They all are saying that they need talent, but the difference is that the digitally maturing organizations are actually trying to actively develop that talent.
TANYA OTT: And they're actively developing that from within their own ranks?
ANH PHILLIPS: Yes.
TANYA OTT: In the past we've talked about the evolving role of CEOs in the digital landscape. And a few years ago, we were talking about how some CEOs were struggling to see or respond to the potential digital disruptions in their industry because, in part, they might feel that disruptions could come from anywhere and they didn't know where to start. Obviously, this isn't a report card, but if it were, what were this year's results? What did they tell us about the role of the CEO in these companies?
JERRY KANE: One thing we saw in our data is that as companies moved up our maturity scale, they were more likely to report that their digital efforts were being led by the CEO's office. In the early stage, companies were led more by the IT group. And then we see the shift as they become more mature, that has it being taken over by central leadership. That is really key because one thing that companies realize when they begin down this digital transformation path, they realize basically so much of the organization needs to change. It's not just about the technology. It's also about the decisions. It's also about the talent, and that can only really be led from the CEO's office. And many of those interview subjects we talk to repeatedly report that support from the CEO's office is really key to making this happen.
TANYA OTT: One of the things that I found really interesting in your study is that you said digitally maturing companies push decision-making further down into the organization. On the one hand, it's important for the CEO and the CEO's office to be fully supportive and take up the mantle of promoting the digital transformation, but on the other hand they can't micromanage it or hold it just up at that top level— [that] is what I'm hearing from some of the things that you heard.
ANH PHILLIPS: That's right. What we found in our research here is [that] digital leaders look different. It is true that they need to be able to create that vision, but what they need to do is also empower their own people. And so, the top things that we found that are needed in a digital leader is, first of all, providing that sort of vision and purpose. Secondly, creating this condition for experimentation within the organization. Third was empowering people to think differently. And then fourth is getting people to collaborate. This is really about leaders creating the vision and then actually creating the environment that would enable all this to happen and pushing that into the rest of their organization.
TANYA OTT: We understand that digitally maturing companies really need to push decision-making down further into the organization. People, say, at the VP or director level, need to feel empowered by the CEO's office. But is that actually happening at most companies?
ANH PHILLIPS: Well, that's interesting because what we're seeing is that the leaders think that they are pushing the decision-making down. But when you get the perspective of people lower in the organization, they're saying that that's not happening. So, you get a little bit of a discrepancy between the two.
TANYA OTT: How do you bridge that gulf between what the CEO thinks he or she is doing and what their employees think is happening?
JERRY KANE: That's a really good question. Part of the answer depends on what is the nature of this gulf. And we asked the follow-up question about were leaders or [were] employees more likely to facilitate or inhibit change. And much to our surprise, respondents reported that employees were far more resistant to change than the leaders were. I think [many] leaders are probably uncomfortable with surrendering some of the decision rights to employees, but perhaps more of a problem is [that] employees don't feel empowered to step up and make those decisions. And creating an environment where employees do feel empowered to step up and make those decisions when necessary is really key.
TANYA OTT: Do we have a sense of why they don't feel empowered?
JERRY KANE: That sounds like a good question for 2019 research!
ANH PHILLIPS: I think we might be able to speculate. A lot of it could be that they're not used to being asked to do this stuff. They're not used to making decisions and being asked to take up additional responsibility. And part of this gets to one of our other themes in this year's study, which is around learning and how important that is in a digital organization.
TANYA OTT: You hint at the fact that a lot of this is culture-oriented. Culture has always figured prominently when talking about digital because it's a fast-moving climate and companies have to be willing to experiment. I'm wondering if some of those employees that aren't embracing that opportunity to be decision-makers are not doing so because they're worried about what happens if things fail. And in digital, you have to have a little bit of comfort with the idea that you're going to try things that aren't going to work out well.
ANH PHILLIPS: That's a big part of it. We've been writing about culture for a few years now and the importance of that in a digital organization. The number-one challenge that we still see is this idea of taking a risk and failing. That's still a barrier. It's still a struggle that a lot of organizations are facing and they're unsure how to get past that.
TANYA OTT: What were the other pain points that you see? I think one of them is continual training for staff.
ANH PHILLIPS: Yes. What we found is that people want to work for digital organizations, but another component of that too is that they want to be in a situation, in an environment, in an organization where they feel like they're constantly getting opportunities to develop and grow. And we saw in our past research that talent is up to 15 times more likely to leave an organization if they can't get the opportunity to learn and to grow in a digital environment.
And this year we were following up on that and we saw that 90 percent of the people felt that they needed to constantly update their skills or needed to update their skills at least every year. Forty-four percent of those, so half of that 90 percent, felt that they needed to update their skills continually, on a regular basis. We're seeing that people are recognizing this need to constantly update their skill set, and if they're not getting that within the organizations, they're more likely to leave. And we saw that 34 percent of people this year said that they are getting these opportunities in their organizations. That their organizations are just not preparing them for the digital world.
TANYA OTT: So, a third of them aren't getting the training they think they need. And that's a real personnel issue. That's a real risk to retention and loss of employees.
ANH PHILLIPS: There is the retention issue, but there's also the issue of your organization not being able to have the right kind of skill set and capabilities that will propel you forward. If you think about the way technology is changing at such a rapid rate, it's really an imperative for people to keep abreast of that. And not only is the technology changing, but the way of working is different too. Your people are having to be more collaborative. They're having to be better communicators. They're having to learn how to be more agile, how to deal with ambiguous situations, and make decisions with a lot of ambiguity. This is a lot of stuff that's new to them and they're having to figure out how to learn how to do that.
TANYA OTT: In your conversations, did you get into the issue of why training isn't being provided or why employees may feel like it's not being provided?
JERRY KANE: There's the old joke that says: the CFO comments, "What if we train our employees and they leave?" And the CEO says, "Well, what if we don't and they stay?" You know, this isn't a new issue. It's just happening much more quickly. The shelf life of skills is dropping so it's becoming much more of a pain point.
I also think, what we talk about in skill development is, it's not just about traditional forms of training. A lot of our respondents or interview subjects said that traditional forms of training just don't work. It doesn't stick. It doesn't change the way employees work. What employees need are new challenges, new ways of working, new environments to work in. You're moving around in different environments, so you develop the skills on the job. And in maturing companies, on-the-job training is much more important. And so, some of it may be about providing the right training, but much more of it is about creating the type of environment where employees are encouraged and able to develop their skills as a part of their work.
ANH PHILLIPS: Exactly what Jerry was saying. We have to get beyond just institutional learning so that we're really thinking about learning in a holistic way that is a part of everyone's daily job. And learning takes place in many forms. So as Jerry was saying, there's a lot of on-the-job training that's critical as a part of this. But beyond that there are things like webcasts and podcasts and books and articles that really add to and sort of round out a person's learning. So, having the learning shift from the classroom to be a lot more experiential and exploratory is extremely important. The classroom setting is great for teaching concepts that we already know about, but one huge component of digitally maturing organizations is this idea that they experiment. And what experimentation allows you to do is to explore things that aren't known yet. Things that you can't teach in a classroom because people haven't figured it out yet. And that's a critical part of being successful in a digital age.
It's about getting different kinds of exposure and experience—so, mixing up the people that you work with. Mixing up the type of work that you do. Learning from other people is a huge component of this, so mentoring and coaching is very important. And when it comes to this kind of learning, I think that when you think about the traditional HR organization, they are thinking in terms of this institutional kind of structure for developing their people. But learning really needs to begin from the individual and needs be driven by the individual. Having this concept of "growth mindset" is very important—when the individual owns that learning and drives that learning, but they're supported by their organization, so they're given the resources, they're given the time, they're given the environment to learn—that's sort of where you want to be.
TANYA OTT: I imagine it's easier for someone that's a startup company to bake all this stuff right into the company, but when you're looking at a company that's been around for much longer, it can be a bigger push. You have a case study—John Hancock, a 150-year-old company, millions of policyholders. Two years ago, leadership realized that they had to do something different. What were their issues and how did the company address them?
JERRY KANE: Like a lot of these companies that are moving towards digital maturity, they recognized that the competitive environment is changing and they need to change. What John Hancock did first was hire in some outside experts that really knew what they were doing. They hired a lady who'd worked in digital for 20 years to be the chief marketing officer and then she brought in a dozen of her own employees from previous companies to help drive this change. Then what they did was creating cross-functional teams that enabled them to work outside of the traditional bureaucratic environments that define most large companies. They needed to have the freedom to be more agile—to be free from these larger organizational concerns.
Then as they got up and got running, her effort was put into how do we make this learning that this startup team has done—they're working on a robo-advisory app—how do we take the lessons that we learned from this environment and then have it propagate throughout the company to really drive change? Those are steps that are critically important.
Many companies think that, oh, if I just set up an innovative innovation lab or if I just set up a startup scene to work on an app, then I'm being digital. Well, that's not enough. You need that. You need to get that team separated from the company culture so that they can begin to figure out new ways of working. But then you need to take those lessons, you need to take those changes, to really drive digital transformation across the rest of the organization. And that's what we saw in previous years was a real driver of distinguishing between early-stage companies and even developing companies and more mature ones. It wasn't experimentation. It was using that experimentation to drive change. We talk a lot about the need to fail fast and to have the courage to fail. The way I talk about this is that you also need the courage to succeed. It’s easy to experiment off on your own when there's no risk involved. It's a much harder to use the lessons learned to then drive change across the rest of the enterprise.
ANH PHILLIPS: We had asked this year, “What's the biggest challenge impacting your company's ability to compete in a digital environment?” And the top thing was experimentation ... getting people to take risks to work in a more agile way. And that's unfortunate because we're seeing experimentation as the key way that organizations learn. Just as individuals need to begin to learn, organizations need to do that, too. And what’s separating the digitally maturing organizations from the others is that they're able to take the experimentation and figure out where all the learnings are, to share those learnings and share it in the form of feedback. And then also to be transparent about some of the results from failed experiments. It's not just about doing the experiments and hiding them away somewhere, but it's really about extracting all knowledge from the successes and the failures of those experiments and really using that as a way to educate the rest of the organization.
TANYA OTT: Do you have a sense of whether the failure to do that is because leadership or the experimental teams just don't even think about going outside their little silo, or is it because they think about it but are afraid of the risk associated with it?
ANH PHILLIPS: It's both. One thing that Jerry mentioned was the fact that they don't have the courage to succeed. They're unable to figure out how to take that success and expand it into the rest of the organization. How do we take this thing that we've incubated, that's very different, that's cut off from the rest of the organization, and bring into the rest of the organization knowing that there might be a lot of resistance? And the other component is this fear of taking risk, and this fear of failure that a lot of companies still haven't been able to get past. If they're sharing their failures, how is that going to look? How is that going to look for the people involved? How is that going to look for them as an organization?
TANYA OTT: So, there are internal and external considerations, because they could worry that it's perhaps demoralizing to employees to see the failures laid out there. What's the biggest difference you see between working in a digital organization and a more traditional organization?
JERRY KANE: We actually asked respondents that question. One that came out on top with the pace of business. They said the speed at which decisions need to be made, the rate of change, is really the key. About 23 percent of our respondents said that. The next shift was culture and mindset—the need for creativity, for learning, for risk taking, for collaboration. And that was about 19 percent of our respondents. And then the third was a flexible, distributed workplace—collaboration, decision-making, and transparency were key there. Some other ones that followed were the need for continuous improvement in productivity, improved access and use to more advanced tools, and then the connectivity part—the remote working or always on. Although those lists might not come to much of a surprise to many people, it's interesting to think that this is what people on the ground are saying about what's different about a digital working in a digital environment.
TANYA OTT: Jerry Kane is a professor of information systems at Boston College and guest editor for Digital Business at MIT Sloan Management Review. Anh Phillips leads Deloitte's research around digital transformation as part of the Center for Integrated Research.
Their new study is Coming of age digitally: Learning, leadership, and legacy. You can find the full report and a whole lot more at deloitte.com/insights.
Jerry and Anh also have a book coming out in early 2019. It’s called The Technology Fallacy: How People Are the Real Key to Digital Transformation.
JERRY KANE: The theme of the book is really what’s driven our research over the past four years. Many people talking about digital transformation focus on the technology side of things, but often the much more difficult side are the organizational changes that need to take place to get your company up to speed in a digital world.
We focus on the strategy side—the talent development, the leadership, as well as the cultural changes that need to happen, as well as the practical steps that companies can take to put that into action and start taking the next step toward digital maturity.
I’m Tanya Ott. Have a great day.
This podcast is provided by Deloitte and is intended to provide general information only. This podcast is not intended to constitute advice or services of any kind. For additional information about Deloitte, go to Deloitte.com/about.