Digital Transformation and Enterprise Inertia

The phrase of the day is digital transformation and its kissing cousin, which is disruption.

What is less well understood - nor is it widely discussed - is the impact of organizational or enterprise inertia.

Creative destruction, transformation and change

The overwhelming talk-track heard in conference halls, in expo centers, on podcasts, in webinars, and in online and mainstream business coverage is all about transforming this and transforming that.

When the modifier "digital" is appended to "transformation" everyone nods their head in agreement and in unison: bound to one another by social compact about expected behavior and the unwillingness the admit that they have no idea what others are talking about.

All this talk about transformation - digital or otherwise - and disruption is music to the ears of all the people who are in the businesses of offering management consulting, advisory and guidance services, especially about the nexus of strategy, markets and digitally enabled business processes.

But even these companies - the advisory firms - suffer from the same enterprise inertia that afflicts their clients.

The reality of transformation - digitally enabled or not - is that it is something that companies with little or no baggage do to big brands: in sort of like what David did to Goliath. This is the creative destruction of capitalism espoused by Joseph Schumpeter, and its reality is a witness to his insights.

Everyone is familiar with any number of master brands that are no longer around, including: Blockbuster, Woolworth's, Borders Booksellers, Oldsmobile, Pan Am, Jennifer Convertibles, General Foods, A&P, and Amoco among many others.

These companies are not alone and the experience of failed master brands is not just recent. Business failures of the past include the Medici Bank, the Virginia Company, and the South Sea company among others. Other failures can be seen in the ancient records of Rome, Greece, Egypt, China and India.

Other massive brands are still with us today, but some of today's companies are sitting on the edge of the beach about to be recaptured by an onrushing high tide that will return their raw materials of sand back out to sea.

The trouble with transformation

So why is it that everyone - the big digital transformation advisors and their clients alike - have such trouble with transformation?

Some of the difficulty comes from the fact that change is hard for humans, and transformation is impossible. And while the digital transformation part is relatively easy, what is forgotten about is the interaction between people, business systems, customers, finances, supply chains, and digital enabling systems.

And for this the big consulting companies have answers that focus on strategy, outsourcing, end-to-end business processes, and process transformation.

But even they face the same problems as their clients.

Organizational inertia is personal

The reality is that what made the enterprise successful are people. Large organizations employ a lot of people who are fully invested in keeping all the current order of business humming along with no change or only lip service paid to change, never mind transformation.

In most organizations, more than 95 percent of the workforce and almost all of the end-to-end processes are cast in concrete that set years ago. Trying to change people's behavior is the real challenge of transformation.

Trying to change this is like trying to move dead-weight.

Anyone doing the work of transformation in larger organizations is inevitably caught up in the rip-saws of people whose livelihoods and paychecks are made possible only by keeping things the same, without any change whatsoever.

The common refrains that are the hallmarks of enterprise inertia include, "Well, we don't do things this way", or "We've never done it this way", and "No, we can't see a use for it/him/her/them."

Keys to change

The key to any business change - including those aided by digital transformation - is NOT digital: it is market behavior, organizational structure, competition, and people.

When markets change and customers find substitutes, new allegiances, and orders: it is overdue time for change.

The key for most of us is to recognize that we are now in a constant state of change and that constant change requires companies to institutionalize change across three different strategies and incentives systems of their businesses.

  • The first are the existing businesses. These should be carved off and run as their own independent operations so that they do not infect the other two.
  • The second are any number of emerging businesses: These are longer-term plans for success. Quarterly numbers are a no-no and managers and staff that like to swim in do-it-all startup mode should be brought in from outside with a passion for growing new businesses and customers.
  • The last are the truly visionary new businesses. These will forever change markets as they exist today. These are the R&D shops where failure is high and risks are low.

The next time you hear the sirens of digital transformation from your advisors, consultants and other whisperers, remember the hard part about change has nothing to do with digital at all - it has to do with how people are compensated, rewarded, and incentivized, and what their skill sets are.

If factors guiding people's behavior and abilities remain unchanged, digital transformation will just be swept away by the next high tide.

Start your digital transformation with changing the organizational structure of the businesses, the people running the businesses, the financial incentive systems, and let people go for the end-zones.

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