Management Teams Have to Cross the Digital Divide

Crossing the digital divide is critical to becoming a digital-first business – and (as importantly) to avoid becoming obsolete and left behind. It’s very much like jumping across a chasm. Like jumping between two skyscrapers. And everybody falls the first time.

Why Do Businesses Fail to Cross the Digital Divide?

I see this over and over in companies.

• The new digital strategies and initiatives are laid out. There is enough consensus in the management and board to start implementing significant changes.
• New teams are formed, and new digital initiatives are launched.
• Then things go wrong. New services don’t get adoption by employees or customers. Revenue doesn’t come in. Expenses and other costs keep going up. And internal culture and bureaucracy problems emerge.
• One year later, everyone at the management meeting is frustrated. Fingers get pointed. And, very frequently, everyone just reverts back to previous behaviors and systems, which they understand and are more comfortable with.

Being fast requires becoming data-driven and implementing a more agile organization. Creating intangible CRAs requires longer term commitments of time, energy, and resources. And building moats always requires coordination across the organization.

Basically, all of these things require top-down leadership. Especially because most digital initiatives fail. Think 70%. Failure (i.e., falling) is inherent to the process of digital transformation. And leadership not responding well to such failures is why most longer-term digital strategies fail.

The low success rate of digital initiatives is the result of two things. The first is that this is actually hard. These are complicated technologies that are inter-dependent. Companies don’t fail 70% of the time when they try to open coffee shops. But they do when they try to implement new software. There is a significant degree of technical complexity here. Plus, things tend to happen faster, including failure.

The second is that management and the Board often do not have the depth of expertise to assess and manage the inevitable failure of many digital initiatives. They tend to lack self-confidence in digital, which is exactly what you need when things go wrong.

I met with a large and very successful Latin American retailer. The company has hundreds of outlets and decades of operational history. Yet management is facing internal arguments because their recent digital initiatives didn’t really work. They spent lots of time and energy building and deploying an app and nobody is really using it. As mentioned, this is not an uncommon problem.

But the resulting management dissension about this is not normal for this particular company. Their response to a failure or setback in digital is very different than their response to something like a failure in opening new retail stores. Imagine this management had decided to enter a new region of the country and had opened 5-10 large new stores (plus all the supporting logistics). That would also have required significant time, energy, and capital. How would they have responded if those stores had little to no traffic and were losing money?

• Would management have doubled down because they were confident the stores would eventually do well?
• Would they have stayed in the market but made major changes to the operations or management?
• Would they have closed and exited the market?

I don’t know.

But the management discussion and decision would have been very different than with the failed digital initiative. The leadership team has deep expertise in physical retail. Each member of the management team has specific expertise in their area (retail operations, marketing, logistics, merchandising). And they have all faced numerous setbacks in retail before. So, everyone has a lot of confidence that they can figure this out. They can make the difficult decision to stay the course, adjust, or exit. And they can do so from a position of expertise and confidence.

That is very different than what happened with the struggling digital initiatives. When things went wrong, most of the management team didn’t’ really understand the situation very well. Only a few managers had deep digital expertise. None had experience dealing with failures and setbacks in digital. And none of them had that much confidence in their decisions.

Expertise and confidence across the entire management team is critical when things go wrong. When money is being lost. When careers are getting impacted and when people are no longer willing to just take the project leaders’ word for it. In this case, the management and/or board usually pull the plug. Fingers get pointed. The natural reaction is to pull back from digital and go back to what you know.

Compare that to the example for a retail operations problem, where the entire team had deep expertise and experience in the subject. Management teams don’t respond well when things go wrong in digital because they lack the depth and uniformity of expertise across entire the leadership. And in digital, things always go wrong. It’s the nature of complicated technologies and operations. And when there is a need for constant experimentation.

Crossing the digital divide requires leadership. And the acceptance that everybody falls, especially the first time.

In practice, this means doing two things.

• Step 1: Train the leadership and management. Plus identify the digital leaders.
• Step 2: Begin to manufacture digital talent as an asset. This means lots of training, team projects, and retention.

Step 1: Train the Leadership and Management. Plus, Identify the Digital Leaders.

In the digital operating basics, I listed Leadership and Management and People, Culture and Teams as key steps in digital transformation. And these two are usually the bottlenecks for digital initiatives. Companies just can’t get enough digital talent. And when things go wrong with digital initiatives, the management and board don’t respond well (as described).

Digital Operating Basics 5 is about leadership and management. And, as mentioned, this is where you start. You need to begin to train the entire leadership, which often includes the board and founder. You can do this with scheduled training sessions and reading. You can create an internal academy or leadership institute. You can coordinate with other companies and create a joint institute.

This does take time. But here’s the good news. It’s not that hard. And you can get there faster than you think.

Anyone who is at the senior leadership level is already highly accomplished. They already have deep expertise in a field. This is just an additional skill. And while digital strategy tends to be perceived as daunting as a topic, it’s really not. It takes 1-2 years of training. It happens pretty quickly. It’s like learning a language. You practice an hour a day and within 1-2 years, you realize you can speak Spanish.

But here is another important factor here, which is identifying the digital leaders. This can have an outsized impact on the digital transformation.

There is a great McKinsey framework for talent in digital transformations (located here). They point to five “talent factors” that matter the most (plan, hire, train, deploy, grow). And they point to identifying the digital leaders as a critical step. From their report:

“Prioritize hiring senior digital leaders to attract talent and sharpen your value proposition”

“Ultimately, performance is defined by your talent and technology strategies and the capabilities of the senior leadership, such as lead data scientists, driving the transformation. Indeed, up to 50 percent of the variability in group or unit performance is attributable to individual leaders. These people shape the future organization in multiple ways: screening and hiring candidates, establishing technical standards, and setting the tone for ways of working (for example, collaborating, innovating, failing or learning quickly, and maintaining high quality). Selecting the right individuals for these roles will define the success of the digital transformation.”

Step 2: Begin to Manufacture Digital Talent as an Asset. This Means Lots of Training, Team Projects, and Retention.

Digital companies are fundamentally about people. While IP, proprietary tech, and other intangibles can certainly matter, people are the primary asset. That is what creates and continually recreates the enterprise. And now that leadership has been trained and a data-driven culture has been launched, the next step is to build digital talent across the organization.

How do you do that?

Using external digital expertise is important but is only part of the solution.

Hiring externally and promoting internally are important. From McKinsey, “companies often have untapped pockets of digital talent…At the same time, not all digital products require sophisticated skill sets. Companies with strong nondigital talent can aspire to cover up to 70 percent of their digital needs by upskilling some of their current employees. Being able to spot these people is vital and can be achieved via techniques such as skill surveys.”

But this can be expensive and difficult in many industries and geographies.

The best (and sometimes only) solution for most companies is to manufacture digital talent internally. You want to manufacture digital experts the same way you manufacture products. The benefit of this approach is it is totally under your control. You don’t have to try to hire and see how it goes.

And you really do not want to be reliant on outsiders for your core capabilities, which for many industries includes digital talent. For many companies, creating digital talent has to be viewed as a core capability of the business.

So, you start with training, and, in many cases, you create an internal academy for this function. For medium to large companies, you can create a leadership institute. For smaller companies, this can be done with outsiders and fun weekend sessions. There are lots of examples for both. I can see this happening at companies like Bosch and Huawei where there is systematic training and institutes. I can also see it a large regional companies like Majid Al Futtaim in the Middle East.

These two steps are the things I am currently looking for in businesses.

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Ok. That’s a bit of theory on this. I’m going to hunt for more frameworks for the organizational and human aspects of digital businesses. If you know any good ones, please send them my way.

Cheers, Jeff

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