The best time to start on digital transformation? Well, it was five years ago. But, says digital transformation expert David Rogers, starting now is the next best time.
Rogers, an author, speaker, and corporate consultant, is also a professor at Columbia University. He explains some of the ways companies hurt themselves in transformation efforts, why people management is such a big part of those digital changes, and how some companies are making gains even without big budgets or fancy, new apps.
What you’ll learn from this episode:
- A discussion on why digital transformations are so difficult.
- The importance of people alignment in a digital transformation effort.
- Why budgeting is not a vital part of such transformations.
- The advice about planting a tree that also applies to digital transformation urgency.
- Why there is no single KPI for digital transformation.
Play the episode below or read the edited transcript:
— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.
Transcript
Neil Amato: Welcome back to the FM podcast. This is your host, Neil Amato. I’m joined today by a digital transformation expert. His name is David Rogers. He is an author, he is an executive coach, consultant, university professor – all of those things. We’re going to talk more about the topic of digital transformation today. David, first, welcome to the podcast. We’re glad to have you along.
David Rogers: Thanks so much, Neil. Really glad to be able to join you.
Amato: Great. We’re glad to have you, and we want to first, I guess, go back a little bit in your history. Were there moments for you growing up, University of Michigan undergrad there, were any foreshadowing for your current spot in 2024 as, what I said, that expert on digital transformation? Where’d the curiosity come from?
Rogers: I don’t know if I’d go back to childhood, but 25 years ago, really, from the start of my work at Columbia Business School, my research has been focusing on this intersection of digital technologies in business, and how do new technologies and their adoption kind of transform business systems.
About 10 years ago, I really started focusing on the challenge this is posing for all kinds of established companies in different industries that had already built up their products, their offerings, their go-to-market, their organisational structures, and suddenly found this need to change, because of everything that was accelerating around them in the digital era. That’s really what I mean by using the term digital transformation.
I actually wrote the first book that was published on that topic, on digital transformation, and in that I argued that digital transformation is not about technology. It’s about strategy, it’s about mindset. It’s about new ways of thinking about our businesses and our customers and our markets.
In the years since then, I’ve spent a lot of time advising companies across many different industries in different parts of the world, and we’ve learned a lot in those eight years since that book came out. Most importantly, I guess we’ve learned that this is really hard for established companies.
There’s data at this point, multiple studies showing that 70% of digital transformation efforts fail, which is really a sobering, scary statistic. That really led me to the work and the research behind my newest book, which is called The Digital Transformation Roadmap. Really trying to find out why is it that so many companies are failing at this, and what can we learn from those who are actually succeeding.
Amato: I wanted to ask you specifically about the difference in the titles, or maybe the content. If you go back to the first one, make sure I have the title right, The Digital Transformation Playbook, from 2016, how are the books different? Are there any parts where you’re just like, “Oh my gosh, how long ago was that?” And it was just 2016.
Rogers: No, the two books are meant to really complement each other. They look at the same problem from two different perspectives. The playbook really focuses primarily on strategy. The subtitle was Rethink Your Business For The Digital Age.
How do you take an existing business and get past your blind spots — about this is what we’ve always sold and what the products are, who our customers are — and be really open to understanding the dramatic changes happening in customer behaviours, in competitive dynamics in the digital era, in the use of data, and how that can create value for you. How we manage innovation at this accelerated pace, and how do we continually rethink our value proposition. That’s the five domains that that book really focuses on.
That is still the framework that I would use, and do use with companies when you’re trying to rethink your strategy. But I guess what I’d say I’ve learned since then is even if you can make that shift in thinking and really start to re-imagine where your business’s growth trajectory is in this digital future, companies just find it very hard to make the change happen.
They’ve got people and ways of working, and processes, and everything’s in place and finance absolutely. How do we spend money and allocate resources? How do we measure outcomes and results? All of these things were established for the old business, and if we don’t take the time to go in and really dig into the organisation and these ways of working and these systems, then having the best strategy — we will not be able to carry it out effectively.
That’s really the focus of the new book. It’s all about the organisational change, it’s all about how do we make those processes change. It’s all about how do we get people inside the business to change.
Amato: You mentioned the percentage of digital initiatives that fail. You also mentioned the word people and the ways of working, so I want to tie in how people challenges, maybe, are part of digital transformation, and how you overcome maybe the top two or three, if there’s a category for them, people challenges.
Rogers: That’s a great question, Neil. One of the things I’ve seen is the longer a company that I meet with or work with, the longer they’ve actually been doing, like actually focusing, on digital transformation, putting people in charge of it, putting resources — not just a bullet point on your slides, but actually trying to do this. The longer you’ve been on this path, the less likely you are to believe that the hard part, the challenge of transformation, is about your technology, this legacy technology, you’ve got the cost it’s going to take to replace. I mean, that’s a real challenge. That is part of what you have to do, and there’s pain involved in doing it and so forth.
But the longer you’ve been on the path, I consistently hear this, the more leaders will tell me, that the really hard part is about people. It’s about legacy systems and ways of working and habits that we’ve instilled as a group of people inside an organisation.
In terms of addressing that, really this starts with one of the key themes in my new book, which is about aligning people. You have to get alignment across the different parts of the organisation, and that starts with having a common shared vision of where you’re actually heading and why. What is it that it is forcing you, or requires you, or what’s the opportunity for you as a particular business to change in this digital era?
Then once people start to get on board and understand why we’re doing this and where we’re aiming for, then as a leader, it’s critical that you look at the systems you have in place and make sure they are actually going to empower people to push you forward. Because you can’t do this all top-down. It can’t just be a bunch of orders from the top.
You actually need everybody at every level pushing the change forward so you’ve got to actually remove the blockers, the red tape and bureaucracy of old systems that are actually getting in the way of the people in your organisation doing what you want them to do.
And that’s all kinds of things. Again, bringing it back to the financial point of view, a lot of it is resource allocation, it’s measurements, it’s things like not doing everything by the traditional annual budgeting process, having in parallel much more iterative funding mechanisms for experiments.
For a lot of what you’re going to do, you don’t know at the start whether it’s going to work or what it’s going to look like, so you got to break out of these old, slow-moving systems of funding and financing and have smaller pools of money that you can give out much more iteratively based on rapid testing and learning in the market.
Amato: Where we are, 2024, things have changed dramatically on so many fronts in the business landscape. This might be a change fatigue question, maybe it’s not, but is there ever a bad time to undergo a digital transformation? Or is there a better time?
Rogers: There’s a sign outside of the tree nursery down the road from our house. It’s spring and people are starting to plant and so forth, and it says, “The best time to plant a tree: 20 years ago. The second best time to plant a tree: Today!”
I would actually say the same thing for digital transformation. Ideally, you would have started at least five years ago. You’re already on the path, you’ve been learning things, you got things started before COVID, so when suddenly everything had to be remote, you already had some learning in place.
Get started now. The only bad time is, “Just as soon as we solve this problem X that we’re facing.” Or, “As soon as we can afford it and have a bit better EBITDA and our margins are a little better. We’re really tight right now.” It’s actually harder, I often find, to invest in transformation when things are financially very strong because people don’t want to touch those profit numbers.
The main thing is to not make it this huge thing getting started, to understand you’re going to start small and build out and learn and accelerate as you go, but to start that learning process today if you have not yet.
Amato: That’s a good answer. You’ve talked about aligning people. I think that’s one of the preparatory steps in the next question, but what do you think are the key things you have to get in line first? Even though you said don’t want to do the “Well, once we do this, then we do that.” But what are the key preparatory steps before starting a project like this?
Rogers: I wouldn’t think of it as preparation, but I actually lay out in the book what I’ve learned is what I call the five steps of the digital transformation road map. This is just based on looking at those outliers. We all hear 70% are failing. I went about studying, what are the 30% doing right? What do they all have in common?
There were certain behaviours, certain things they all did which I saw in various forms, across all of these success stories. Those are these what I call these five steps. The first step is defining a shared vision. I mentioned that before, how critical this is to really align people. That really is where you have to start. All the other steps build on that, one after another.
But again, the key point here is — while I call them the steps — these are iterative. It’s not that you spend six months and you define your vision, and then you’re done with that, and then you go on to picking strategic problems and priorities to focus on, and then you’re done with thinking about strategy, and then you start experimentation. And then you do — no.
All of these steps repeat, so the point is to just get started today. Take your first pass-through in 90 days. This is always my advice. Try to take a stab at all five of these things within your first 90 days of effort, and the point is you’re going to learn from that first attempt to define, “What is this vision? Where do we think we’re going and why? ” — in terms of what digital means for our particular business and the other steps as well.
Then you start to learn from that and then you take another passthrough. It’s really an iterative process of learning through doing. It’s not about a big plan up front before you start, and it’s not about big budgets at the beginning.
Over time as you learn and get ready, you are going to want to be ready to accelerate investment, but it’s the wrong mindset to say, “Well, we’ve got to build this big, detailed business case and spend a lot of preparatory time because we’re going to spend a lot of money, and before we hire a vendor, I’ve got to decide before signing a big contract” — that’s not the approach we should be taking.
Amato: You’ve consulted with a lot of famous companies, big brands I’d say are known all over the world. Not everyone works at those big companies. I know you said budget is not the absolute key, but it does help. Are there examples of digital transformation done well at those bigger names that are maybe applicable to someone who’s at a company with maybe a smaller focus or even a smaller budget for transformation initiatives?
Rogers: Sure. This is not just about big, famous companies, it’s not just about large companies. One of the companies that I’ve advised and has been doing amazing work is Acuity, and that’s a regional insurer. They’re not one of the top nationwide insurance companies in the US.
They’re a property and casualty insurer, and they’ve been doing amazing things bringing data in to their underwriting teams in new fashion, bringing in new sorts of data to better improve their underwriting models. They are experimenting with different ways to go to market finding that there are some customers who want and who they can profitably serve going directly to the insurer, actually selling directly to the customer rather than the traditional broker route. But that’s happening in parallel to the traditional model.
Insurance is all about risk, new risks. They have very specific industries, midsize businesses and things like trucking and transportation, midsize firms in retail manufacturing, and so forth. But they’re finding new risks that those companies need coverage for, like cybersecurity, but also other new markets, things like actual gig economy workers who want some insurance protection for their business and their livelihood. Really staying close to the customer, looking for new problems to solve, looking for ways that every team in your business can start to do its job better.
Then we also have companies that are maybe a bit bigger, but not the ones you hear about every day. There’s a lot of opportunity here for industrial firms. One of the companies I talk about in the book is Air Liquide. This is a French-headquartered company that manufactures gases that go into everything from an oxygen tank in your hospital room to manufacturing a product in a supply chain.
They’re not creating cool apps for the consumer or anything you would necessarily ever see, but they are unlocking a lot of value from the data that they’ve got in their operating plants. They are using new digital tools to simply collaborate better across a distributed workforce in different silos and different parts of the world.
Also, they’re starting new partnerships. Interesting, looking to try to solve new problems around areas like air pollution, for example, where it’s not their historic business. They couldn’t necessarily do it themselves, but they’re partnering with startups, with governments, with other partners, and finding, “Hey, we may actually have a way that we can start to make a difference here as well.”
A lot of companies will say, well, we’re small, we don’t have as much money, so surely we can’t really do this. I would again stress, money is not the hardest resource to get ahold of here. It’s actually about speed and agility and customer-centricity. Those are the most critical ingredients, if you will, for digital transformation. Those are often actually more present, more accessible in smaller firms. It starts with just recognising digital transformation.
It’s not about the technology, it’s not about buying a bunch of big, expensive tech. A lot of the tech can get now it’s software as a service, it’s pay as you use. It’s very flexible and modular. But really the transformation, it’s about your customer and about your business. The closer you can be to the customer, and the faster you can be in trying out new approaches in doing your work, working together different kinds of teams more collaboratively, the more successful your transformation is going to be.
Amato: We’re recording here in late April 2024. We’ve had this discussion about digital transformation and the term “generative AI” hasn’t really been mentioned. Can we have a conversation about digital transformation without bringing up generative AI?
Rogers: I certainly can. Generative AI is just the latest in a long series of technologies. They keep changing the environment for your business. Certainly right now, if you are in a business where you do a lot of content creation, you’re in media production, you’re software development or coding. There’s a lot of immediate application to it right now and you probably don’t need me to tell you’re probably already using it in your workflows.
Most companies, this is a fascinating technology. We’re really early in fguring out in most industries, where is they’re really going to be a business opportunity here, and that’s fine. This is the process we’ve seen with the web, with streaming media, with then the arrival of smartphones and then the social media revolution and then the Internet of Things and the first wave of AI with all the predictive models from a decade ago and then blockchain and more technologies. Now we have generative AI.
Yes, it’s going to be important. But the point is, the hard part is actually, as organisations, learning to not fall in love with the technology, but to keep the focus on who is our customer, what problems are we solving and where can we find an ingenious way to grab this new technology like a generative AI application and bring this in to really make a difference in the lives of our customers and our employees.
Amato: A question I borrow from from an editing cohort of mine is, I think this has been a great conversation, but what have I not asked you about that I should have?
Rogers: Well, this being an accountancy audience, I guess maybe a question about measurement, KPIs, what you’ll be looking at?
Amato: That’s a really good one and probably was in my head, or maybe even on a pre-sent list and I just forgot. I can be open about that. Yes, how did I miss that? Because you were ready with an answer so we will ask. What are two or three or more — what are some of the key KPIs for a digital transformation project?
Rogers: There isn’t a single KPI. It’s not very obvious when you start what you should be measuring, because digital transformation is going to look different in every single business. So it’s critical to find them. But the KPIs are going to depend on the strategy you are pursuing. You’ve got to really start asking – you’ve got to craft what I call a business theory. This is a theory of how the investments you make in digital transformation are going to capture value back for your firm.
Maybe in your particular case you think, we’re going to capture value by improving the customer experience, which might help you acquire more customers rapidly or maybe you think you’re going to create more average revenue per user. Maybe for your business, digital is more about improving your internal operations. You’re going to, I didn’t know, reduce your headcount or improve the productivity of the people you have.
You’re going to improve the resilience of your systems or reduce the risk in your supply chain, or maybe the opportunity financially is more about new business models. We’re going to strengthen our business. We’re in a legacy business. It’s kind of in structural decline, but we’re going to branch out and bring in some new sources of revenue. Once you figure out what you think these drivers are of value creation, then you can start to pick some specific KPIs.
Let me just give one example. A major bank in the Middle East, a former student of mine was leading their transformation, and I helped advise him. A big factor this strategy, their business theory as I call it, was look, if we can improve the resilience and the accuracy of our banking systems, which had become a spaghetti mess over the years — too many different systems all trying to talk to each other required a lot of manual intervention to make everything accurate. What they measured as the straight-through processing rate. They said, look, if we can improve that, the straight-through processing of the whole system, that’s going to free up people, who currently their job is putting all these little Band-Aids on.
We can then move those people into a market-facing role where they’re going to help us push into new geographic markets. There’s some untapped geographic markets we’re going to go after. At the same time as the underlying technical systems get more reliable, we’ll be able to launch a new app that’s going to be seamless and reliable and super easy. Customers will self-serve, they’ll need less of our headcount just answering their questions and doing things for them.
This is all going to drive growth. That was this really clear theory they had. With that, although they didn’t actually get profit back from their investments for a few years, they could measure along the way. They could say, are we on the path to where this is going to pay off?
Are we improving that straight-through processing rate? Are we seeing more and more people who we can peel off from that role to the new role? Are we starting to get some headway on this geographic expansion, reaching into new customer markets? Are we seeing adoption of this new app, which we know if we get enough people using it, it’s going to reduce our operating costs? Those became their KPIs.
Again, you start with knowing your business, you develop your strategy. You have a business theory of how that’s going to capture value, and that is where you find the KPIs that matter for you.
Amato: Well, I’m glad we remembered to ask that question. Thank you.
Rogers: Absolutely.
Amato: David, This has been great. Anything you’d like to add in closing?
Rogers: I’ll just share that I write every week on these topics on my newsletter. If anyone’s interested to read more or to get a free chapter of the book, actually, you can just go to my website davidrogers.digital. Not dot-com, but dot-digital, and you’ll see a subscribe button on every page of the website. Again, you’ll get a chapter and [be able to] keep in touch on some of my latest writing on the topic.
Amato: David Rogers, thank you very much.
Rogers: Thanks, Neil. It’s been a pleasure.
