Digital Economy Dispatch #108 -- The Four Pillars of Success for Managing in a Digital Disruption

Digital Economy Dispatch #108 -- The Four Pillars of Success for Managing in a Digital Disruption4th December 2022

We are living through a time of crisis. Of course, you already know that. Regardless of your situation, the past few years has taken its toll on all of us and reminded us that so many things in our work and personal lives are out of our control. Areas we thought were well understood and stable have turned out to be volatile and variable. The risks we planned for were overwhelmed by those we had thought could never happen. Dependencies we could not have foreseen have resulted in major disruptions and extreme variations in the sustainability of supply chains. It has left us all wondering how to make sense of it.

In response to these pressures, two distinct and opposing sentiments about the role of digital technology have emerged. On the one hand, all this uncertainty has been described as a boon for digital transformation. Organizations such as the World Economic Forum believe disruptions such as Covid-19 forced a massive increase in the deployment of digital technologies to the point that some commentators have referred to it as “the great accelerator” for digital transformation. Organizations of every size and in every domain turned to digitization to connect remote employees, interact with suppliers, keep track of supply and demand, and redefine supply chains to adapt to the conditions.

On the other hand, rapid changes in the operating environment for most organizations has also exposed many weaknesses in their planning and management functions. Some academics have gone as far as to conclude that the impacts of these traumatic events were exacerbated due to a crisis of leadership and mismanagement. They particularly point to slow decision making at key points in the Covid crisis and lack of preparation to cope with such events. For example, limitations in most organization’s risk management practices have been highlighted as a major contributor to the chaos faced by many over recent months.

To resolve this dichotomy, it is essential to consider the challenges faced by organizations as they adapt their management practices in times of digital disruption. What are the key priorities for managers to be successful when dealing with such turbulence?

Managing in Uncertain Times

All organizations require management discipline that focuses on setting directions and marshaling the workforce within a strategy aimed at achieving the right balance between short and long-term goals. While the theory and practice of mangement is replete with approaches for leading and managing organizations at all stages in their life-cycle, they often assume an incremental approach based on well defined techniques for using past experiences as an accurate guide for what to do next. Few such approaches take account of fast-paced disruptive change driven by digital transformation.

In today’s uncertain environment, organizations facing digital transformation must adopt a management approach particularly aimed at addressing three critical questions:

• How do we change fast enough to stay relevant in a turbulent world? The VUCA characteristics of the digital age place pressure on an organization’s ability not only to deal with change, but to recognize that constant change is the new norm. Such change is an anathema to existing management practices which tend to focus on stable structures designed to regulate and rationalize all processes. Adoption of approaches highlighting flexibility and adaptability is essential.

• How do we innovate boldly enough to stay ahead of our competition, and to meet growing user expectations? The dilemma facing most organizations is how to invest more on evolving existing products and services while at the same time exploring radical and potentially disruptive avenues for future offerings. As Clayton Christensen elegantly summarized, organizations have a tendency to keep doing the things that made them successful, even to the point where those things begin to harm their future prospects. Making bold choices is difficult due to the constraints imposed by established organizational structures and decision-making dynamics. Such reticence is reinforced by the cultural inertia inherent in all human-centred activities.

• How do we create an organization where people are able and willing to do their best work even in times of uncertainty? Great ideas need to be enacted through a strategy aligned to meet market needs. Establishing an appropriate pace of change is critical. Without the skilled workforce capable of delivering that change, however, an organization falls into the trap where “vision without execution is no more than hallucination”. Successful organizations must establish a working environment that attracts the best talent, engages them effectively, grows their capabilities, and retains their services in a highly competitive marketplace for digital skills.

While straightforward to define, these challenges are acutely difficult to address. This is particularly so for more mature organizations with a long heritage of products and services to manage, an extensive list of urgent demands from existing customers, tremendous pressure from shareholders to meet short-term financial expectations, and a myriad of other concerns based on the complexity of the organization’s current working practices, assets, and locations. Despite these barriers however, most organizations have begun to adopt new management practices that address these issues.

Four Pillars

Based on personal observation of many organizations embarked on a digital transformation journey, I have found that those making progress exhibit a set of characteristics that encourage and support a management style adapted to the disruption they are experiencing. While they vary in the details of their implementation approaches, they base their structure and decision making on 4 key principles. These are the core pillars for success in managing digital transformation. They form an important framework for all those seeking to bring appropriate management discipline to the chaos that often engulfs digital transformation activities.

All Management is Change Management

Inevitably, much of the focus in any organization is change management. Indeed, it can be argued that the heart of all management tasks is the need to define and enact changes within the organization. Even so, traditional change management often considers change as being detached from “normal” management responsibilities, treating it as a separate process handed off to other teams responsible for taking the organization from one stable state to another. In contrast, in digital transformation where change is constant, it must be considered the essence of management, with implications on all the organization’s activities.

Consequently, how change is managed across the organizing becomes a critical aspect in the success of any digital transformation. It requires careful attention to ensure the updates in technologies and working practices are meaningful and sustained. What can we learn from traditional approach to change management? Where do they fall short when an organization is involved in a digital transformation? How do we maximize our organization’s ability to handle change across all aspects of how we work?

All Project Management is Expectations Management

As organizations adopt digital technologies to improve their operating processes, they also look to make more fundamental changes across their business practices. Surrounded by the instability and uncertainty prevalent in many sectors in the digital economy, organizations are forced to accept that plans and predictions about future activities will be subject to substantial uncertainty.

Industry experts such as Eric Ries take this further and remind us that much of project estimation is really just guesswork. They advise us to treat such estimates as guides for planning purposes and not as straightjackets to force us into rigid timelines that become “death marches” toward a predictable conclusion: project failure.

Instead, more agile project management techniques are encouraged that focus attention on building a close relationship across all stakeholders to build trust by delivering demonstrable capabilities in a steady stream of well managed short cycles. Then, using the inputs from frequent feedback sessions, the project direction is reprioritized and recalibrated to refine the expectations of everyone involved. What are the high-risk items we need to address? How can we learn more about the best way to address them in the current environment? What is the most effective way we all work together to adjust the plan as we gain greater insight and respond to the changing context?

All Partner and Ecosystem Management is Incentives Management

Much of the early attention in digital transformation centred on ways to reduce friction in business processes through the end-to-end digitization of all physical assets and their integration into ecosystems with value chain partners. Broadly referred to as Industry 4.0, improvements to the flow of goods and services were created by generating, analyzing and communicating data seamlessly, and by leveraging a wide range of new technologies to create value.

This has shifted many organizations to view their partner relationships as ecosystems in which innovation and adaptation is carried out by engaging partners in discussions about how to work together to create, manage, and share value. The various arrangements that emerge are often focused on platforms for service delivery and innovation. The key to encouraging this approach is alignment of incentives across all parties. Each needs to understand what role they play and how they are rewarded for their contribution.

This approach results in a more flexible, emergent relationship in which partners and stakeholders must consider their role as part of a managed ecosystem. What value is created as a result of these partner relationships? How do all actors in the relationship view their role? What governs the behaviours of all parties to maximize benefit for the client?

All Performance Management is Outcomes Management

In most organizations, existing performance measurement approaches focus attention on ways to compare individual and team performance based on the outputs produced. To assess contribution, goals and objectives are inevitably defined in concrete terms by considering metrics such as time spent on tasks, amount of work carried out, and conformance to plans.

Such measures have their place. However, the disruptive nature of digital transformation has introduced additional concerns. Agile ways of working require more indirect approaches to performance measurement. By demanding faster reaction to market changes, for example, flexibility in the formation and disbanding of teams means they must focus on achieving outcomes rather than maximizing outputs. Each team is dedicated to deliver on current needs and declares success once the mission is accomplished before disbanding to move on to new challenges.

To manage this fast-paced environment, traditional ways of defining performance measures fall short. What are the most appropriate ways to measure individual and team performance in a rapidly changing work environment? How can we reward flexibility without introducing instability into the organization? What skills do we need to emphasize in current and new employees to maximize outcomes for clients?

The Future of the Future

We see no visible end to the uncertain times in which we live. The introduction of digital technology has been important to help bring insight and to accelerate response to the pressures we are facing to adapt quickly. Yet, in many cases the management practices necessary to support fast-paced digital transformation have been found wanting. Instead of providing the agile discipline we need to encourage adaptation to changing circumstances, many organizations see their management approaches as restrictive, slow, and cumbersome. Those organizations making the most progress in managing digital transformation consistently highlight 4 key pillars to their approach: Change Management, Expectations Management, Incentives Management, and Outcomes Management.