Most senior executives are valued for their reliable, safe management. Now they need to learn how to enact radical change—and quickly.
Covid-19 accelerated the pace of IT-based change for almost all organizations and individuals. While consumers shopped, socialised, worked and learned more online, organizations saw more changes in their products and services, processes, supply chains and relationships with customers and employees.
These changes have increased the urgency of meaningful digital transformation. Our research at the University of Waterloo, where I am the author and instructor of our online Digital Transformation Certificate program, showed that prior to the pandemic, most organizations were facing significant barriers to moving forward with the radical change digital transformation required. These were human changes—including skills shortages, the need for cultural change and the capabilities of senior managers. They were also technical, including integrating old and new technologies.
The urgency to address these challenges has been heightened by the easing of the pandemic. Much of the technology-based change that took place is here to stay and will continue to progress, as indicated by Gartner’s forecast of a 12.3 percent increase in software expenditure (mostly due to data analytics and business intelligence) in 2023.
Effective leadership is critical for digital transformation, and engineering executives may have to leave their comfort zone to succeed.
The two fundamental problems for leaders
A fascinating recent study from the Boston Consulting Group emphasises the importance of improving organizational digital transformation capabilities. BCG surveyed transformation leaders on the success of their efforts against their expectations and registered significant declines over the period 2020 to 2022. The survey recorded declines in digital transformation value realization (down from 73 percent to 45 percent), increases in cost overruns (from 15 percent to 31 percent), increases in timeline delays (up from 19 percent to 69 percent) and a decline in leader engagement (down from 53 percent to 38 percent). There was also a slight decline in employee buy in.
Optimistically, we may expect some improvement in these statistics with the pandemic easing, but they are still of concern. They may also show the impact of the modest acceleration in technology-based change that occurred over the past three years. They appear to indicate that organizations are ill-prepared for an expansion of their digital transformation efforts. Without a substantial improvement in transformation capability, most will fail.
We have reviewed many industry and academic studies of technology-based change in organizations and spoken with many transformation leaders to help us design our Digital Transformation Certificate program. Unsurprisingly, there are a wide range of challenges, both technical and human. When viewed together they reveal two fundamental problems: most organizations are not designed for radical change, and most organization leaders are not prepared to lead it.
Confidence in the face of disruption
Consider the hypothetical example of Suzanna Veich, a CEO of a major food producer. Before the pandemic her company had been investing in information technology in many areas, including in creating greater supply chain visibility and automating some production processes.
The pandemic significantly increased disruption in the food industry. Demand increased as more people ate at home, tastes changed as consumers became more health conscious and were influenced by inflation in food prices, supplier costs increased, the raw material supply chain became more erratic, supermarkets were demanding integration with their new systems, labor costs rose, and labor shortages were disrupting production processes.
Suzanna knew that IT-based solutions could help her address many of these challenges, but she wanted to make sure that her investment would be in the most strategically important areas and that the implementation would be successful. She had never led a change on the scale needed and lacked confidence in her ability to do so. Suzanna’s position is like that of many other senior organizational leaders in most other sectors.
Leading leaders out of their comfort zone
Leadership of most organizations today is focused on achieving short-term performance objectives, which demands managing reliable, repeatable processes. This requires a high level of skill and a conservative culture that values gradual change and risk aversion. Organizational and process design, including common forms of the division of labour and siloed departmentalisation, support these organizational aims. It is important to emphasise that today’s organizations have evolved to their current state because this was appropriate for their market—in the past.
Over the last 20 years information technology has played an increasing role in organizations. In some sectors this has happened more quickly than others. Some have already been dramatically altered, while others have seen more gradual change. The pandemic accelerated technological change in most sectors and led many CEOs into situations like Suzanna’s.
Change in most organizations will only be successful if it deals with this reality. Existing senior leaders, most of whom have never managed a radical change and who have been valued for their reliable, safe management now need to act a long way outside their comfort zone. How do we help them do that?
Three means to organizational change
There are three main aspects to the approach that is typically taken to help senior leaders with organizational change. First, they need to develop their own vision for the future, combining understanding of the world outside their organization, their internal capabilities, technical knowledge and the societal and environmental impact.
Second, they should create a transformation roadmap to apply the vision, which can be modified as needed. It should include human and organizational changes, sustaining and continuing the transformation in the future.
Third, they can increase their probability of transformation success using models and templates as well as case study examples that demonstrate good practices.
But is this enough?
Confidence is key
It is critically important to understand the extent of the change in leader practice that is needed for digital transformation to be successful. Confidence in applying knowledge is critical and should be the focus of the training leaders receive. Simply providing models and tools, without overcoming the confidence barriers to their use, is insufficient to facilitate digital transformation.
While technology has created serious organizational challenges, it also has the potential to address them more effectively. In the University of Waterloo program, for example, we use information technology to focus on real world leadership capability in better ways. One-on-one discussions between instructors and learners is much easier with Zoom. Online peer-to-peer activities lets learners share their experiences and enhance their application knowledge, making possible direct support for organization-based transformation project activity. Online simulations can replicate real world challenges and reinforce understanding of transformation processes. We are now looking at how augmented and virtual reality tools could strengthen learning further.
Success in digital transformation is now critically important to national economies and so to the quality of life of citizens. It is essential that organizations overcome the challenges they face with digital transformation today, and that starts with more effective leadership.
