MIT researcher, George Westerman, discusses digital transformation and the lessons described the book he co-authored, called Leading Digital. From the Leading Digital website

Digital mastery is a combination of two separate but related dimensions .The first, digital capabilities, is investment in technology-enabled initiatives to change how the company operates. Firms maturing in the second dimension, leadership capabilities, are creating the right conditions to drive digital transformation throughout the organization. Leadership capabilities include the vision to shape a new future, governance and engagement to steer the course, and IT/business relationships to implement technology based change.

-------

Digital Masters represent excellence on both digital and leadership dimensions. Beginners are just at the start of the digital journey. As a result, Beginners have only basic digital capabilities. And they lag behind their competitors on multiple measure of financial performance. Fashionistas are not waiting to act. They buy every new digital bauble. However, because they lack strong digital leadership and governance, they waste much of what they spend. Or they find that they need to reverse what they've done so that they can integrate and scale their capabilities. Although Conservatives have useful digital leadership capabilities, excess prudence prevents these firms from building strong digital capabilities. This caution can be useful, but it can also create a governance trap that focuses more on controls and rules than making progress. By focusing on control and certainty, Conservatives find it hard to mobilize top management – and the rest of the organization – to see the bigger prize that digital transformation can bring. Digital Masters have overcome the difficulties that challenge their competitors. They know how and where to invest, and their leaders are committed to guiding the company powerfully into the digital future. They are already exploiting their digital advantage to build superior competitive positions in their industries.

Transcript

Michael:

(00:05) The subject of digital transformation is one of the most important and profound in business today.

I’m Michael Krigsman with CXOTalk, and in this special edition of CXOTalk, which is sponsored by SAP I’m talking with George Westerman who is a research scientist at MIT studying digital transformation and related issues.

(04:41) Tell us about your role at MIT, I know you’re affiliated with a couple of organizations at MIT.

George:

(00:49) I’ve got this wonderful job where we can really focus on doing relevant research for companies. We’re with the MIT Center for Digital Business and what we do is we tend to do sponsored research, where we get together with a company to find a really good problem and then execute that project. And what’s nice about it is that it allows me to do research and work with my colleague. The research and work in the academic context, but we also tends to stay and keeps us very relevant. And so we tend to do not only the academic papers but also books.

(01:19) One of the things we’re going to talk about today is a new book we have coming out on some of the work on digital transformation. I’m also with a group that we’re just starting called the initiative on the digital economy, and we’re attacking problems there that are bigger than we can do with just one company sponsorship. Problems like what is happening what is technology doing to the work situation? What skills are going to be important going forward? As computers advance their skills, what skills for humans are still going to be going forward?

(01:49) These kind of big challenges are just giant problems that we’re able to go through the initial and the digital economy. So I’m with both of those groups and it’s just a really great place to be.

Michael:

(01:59) So you’re studying the effect then of digital transformation both on companies as well as on the broader economy as a whole.

George:

(02:08) Absolutely.    

Michael:

(02:11) When we talk about digital transformation, it seems like it’s become this great buzzword that everybody talks about and the meaning is quite unclear and it seems as if many people define the meaning based on their particular needs at that moment. So maybe tell us from your perspective what does digital transformation actually mean? What does it encompass?

George:

(02:36) So for us we define it as using technology to radically change the way you do business, and especially the performance and the reach of the company. The way we would look at it there is three kind of elements to this transformation.

(02:49) One is transforming the way that you deal with your customers, your customer engagement. Another is transforming your operations, and the last is transforming your business models. And companies we have studied have done one of those or all three of those because they can kind of fit together.

Michael:

(03:05) So why is digital transformation so profound?

George:          

(03:11) What’s happening is you know, we’ve got 50 years of IT that’s been happening where computers have been able to get very good at automating things, and that has great effects for companies, not always the best effects the workers but we’re all productive than we’ve ever been before.

(03:28) And what’s happened in the last 10 years or so is that technology now has improved its capabilities. Not only is it primarily about automating and putting efficiency in, we’re collaborating better than we ever could before, and we also now computers are able to do things with big data and almost cognitive work that was never there before.

(03:47) These things are completely changing the way companies can take that next step and move from automation into completely transforming the way they think. So for example, if you think about what a good data driven approach to customer engagement means, what Caesars does, what many other retailers

Michael:

(00:05) The subject of digital transformation is one of the most important and profound in business today.

I’m Michael Krigsman with CXOTalk, and in this special edition of CXOTalk, which is sponsored by SAP I’m talking with George Westerman who is a research scientist at MIT studying digital transformation and related issues.

(04:41) Tell us about your role at MIT, I know you’re affiliated with a couple of organizations at MIT.

George:

(00:49) I’ve got this wonderful job where we can really focus on doing relevant research for companies. We’re with the MIT Center for Digital Business and what we do is we tend to do sponsored research, where we get together with a company to find a really good problem and then execute that project. And what’s nice about it is that it allows me to do research and work with my colleague. The research and work in the academic context, but we also tends to stay and keeps us very relevant. And so we tend to do not only the academic papers but also books.

(01:19) One of the things we’re going to talk about today is a new book we have coming out on some of the work on digital transformation. I’m also with a group that we’re just starting called the initiative on the digital economy, and we’re attacking problems there that are bigger than we can do with just one company sponsorship. Problems like what is happening what is technology doing to the work situation? What skills are going to be important going forward? As computers advance their skills, what skills for humans are still going to be going forward?

(01:49) These kind of big challenges are just giant problems that we’re able to go through the initial and the digital economy. So I’m with both of those groups and it’s just a really great place to be.

Michael:

(01:59) So you’re studying the effect then of digital transformation both on companies as well as on the broader economy as a whole.

George:

(02:08) Absolutely.    

Michael:

(02:11) When we talk about digital transformation, it seems like it’s become this great buzzword that everybody talks about and the meaning is quite unclear and it seems as if many people define the meaning based on their particular needs at that moment. So maybe tell us from your perspective what does digital transformation actually mean? What does it encompass?

George:

(02:36) So for us we define it as using technology to radically change the way you do business, and especially the performance and the reach of the company. The way we would look at it there is three kind of elements to this transformation.

(02:49) One is transforming the way that you deal with your customers, your customer engagement. Another is transforming your operations, and the last is transforming your business models. And companies we have studied have done one of those or all three of those because they can kind of fit together.

Michael:

(03:05) So why is digital transformation so profound?

George:          

(03:11) What’s happening is you know, we’ve got 50 years of IT that’s been happening where computers have been able to get very good at automating things, and that has great effects for companies, not always the best effects the workers but we’re all productive than we’ve ever been before.

(03:28) And what’s happened in the last 10 years or so is that technology now has improved its capabilities. Not only is it primarily about automating and putting efficiency in, we’re collaborating better than we ever could before, and we also now computers are able to do things with big data and almost cognitive work that was never there before.

(03:47) These things are completely changing the way companies can take that next step and move from automation into completely transforming the way they think. So for example, if you think about what a good data driven approach to customer engagement means, what Caesars does, what many other retailers are doing, what many banks are doing, they’re just smarter about what individuals want as opposed to classes of customers.

(04:12) As a result they’re able to give us a personalized experience that was just never even possible before. And that’s become possible because of big data, because of analytics and because of some other technologies that are out there that have only been in the last 10 years. It’s a qualitative change in the way that companies are working.

Michael:

(04:30) So the implication then is this is important for some of the organizations because it’s ultimately going to drive very significant changes as you said to business models, to relationships. We have customers potentially in relationships with employees. So it’s getting at the fabric of many of the activities in which a company engages.

George:

(04:53) Yeah, we studied 400 companies over the last three or four years. These companies aren’t the Googles and Amazons of the world. They are big billion-dollar companies. They’re large banks, it’s Nike, it’s Caesars gaming, it’s Burberry in retail. And what we’re finding is these companies, the companies you don’t think as tech companies are radically changing the way they are operating.

(05:23) In addition the way consumer technology has advanced, we’re seeing a radical change in the way consumers want to deal with companies. So, if you haven’t started this change already, the expectations of your customers are changing and you need to catch up

Michael:

(05:38) But let’s play devil’s advocate for a moment, you know you’re mentioning brands like Burberry and I know that you’ve written about Nike but these are really large companies and some of the most progressive and innovative in the world. So this notion of digital transformation, is it just for the shall we say corporate elite or are there broader implications beyond that.

George:

(06:04) Well the first thing we said when starting this research is all of these stories that we’ve been hearing about social media, about analytics, and even these embedded devices, the Internet of everything, tend to all talk about the same firms, and often they were start-ups where they were technology firms.

(06:20) And that’s all great, but at best we can find it may be is 10% of the economy. So what we wanted to do was study the other 90%, the companies really are not noticed as technology companies and we’re wanting to see what they are doing.

(06:32) And I think the interesting thing is that we’ve found with these companies what you know, basically boring companies from a technology standpoint are all doing interesting things with technology. But what we also found is some companies are doing better than others, where a lot of companies are 70% of the companies we studied are investing in these new technologies, and only 25% are getting the real benefit from it.

(06:54) What they are doing is there not only investing in technologies, they’re also investing in leadership capabilities to really drive change. So, you can invest in technology and get some benefit. You can invest in the leadership capabilities and get some benefit. These digital masters they’re putting things into it, and that’s really where it comes from.

(07:13) So what is it about these elite firms? Yeah, those elite firms are digital masters. But we’ve seen at Asian Paints, they make a white paint. Not a company you think of as an elite digital firm, they are doing amazing things. We’ve studied Kideco in Chile, a government owned mining company doing amazing things with technology. So you don’t need to beat one of the digital elite, we’re seeing companies in all industries doing amazing things.

Michael:

(07:40) Now, in your research, the framework you’ve developed talks about digital capability and leadership capability as to important dimensions against which you examined these companies, maybe tell us about that.

George:

(07:57) So the digital capability is that just investing in new digital, and we talk about that in three areas right. You’re changing your customer experience, you’re changing your operational processes and you’re changing the business models.

(08:09) And that’s all fine and good, but you can do that well and you can do that poorly. It’s the other dimensions that’s the important part also which is this leadership capability. We find the digital masters are very good at identifying the vision and for where they’re going, and driving the organisation in the direction of that vision. And if you can put these two-dimensional is together, the digital stuff and the leadership stuff then you’ve got this kind of Magic quadrant, that’s the digital masters we call it.

(08:38) The companies that are investing without the leadership, they tend to invest two or three times in the same problem and they tend to waste a lot of money because they can’t integrate later. The companies that invest with the leadership capabilities are the ones that are able to push forward and really transform the companies.

(08:54) We also see that when we look at the financial position it’s an interesting relationship to, that the digital masters are 26% more profitable than other large companies in their industries. So it seems that these are really good lessons is this idea of being the best run firms manage digital this way, it’s a good practice to use.

Michael:

(09:16) So you mentioned 26 more profitable, why? What’s the driver behind that?

George:

(09:23) Well so we don’t know actually it’s poor relation and we don’t know whether doing digital in this way makes you more profitable, or whether the most profitable companies in the world do it digitally this way.

(09:35) And from an academic standpoint that can be bothersome. From the standpoint of management, it’s actually not , because what we are seeing is the best-known companies in the world seem to manage digitally this way. They put the digital capabilities and the leadership capabilities that seems to be a good practice that you want to follow.

(09:50) So I think what’s happening is these companies are very very good at moving the organisation in a common direction, and they are doing this in the digital world and that’s where they get the payoff. So just for example, at Kideco, it’s a mining company and they’ve put in some basic information so they can do a better job at understanding what’s happening in the mines in real time, and that’s great. But what they also did is they said let’s do more. So now, they have automated machinery, large trucks driving round the mines without people in them, because they know where those trucks should be and the nice thing if you take a person out of the truck, it doesn’t have accidents anymore. So it gets on time with a better safety than the past.

(10:34) And that was the next step and it was kind of neat, but now there extending it and they’re actually thinking of a world where it may be you never need to send a miner underground anymore, because if the vehicles drive themselves you don’t need people down there. Suddenly, that’s a complete change in the way you do mining and you know nobody will ever have to die underground either, which is just a wonderful wonderful thing.

(10:55) So what they’re doing is there saying, what’s our vision and how do we actually get towards there. That’s amazing. That’s what these digital masters can do. Other companies will just invest in these two things and they wouldn’t tie them together, they would lose out on that advantage of continuingly driving for more and more change.

Michael:

(11:11) So George, what is the defining characteristics because let’s play devil’s advocate for a moment that couldn’t you say  that companies that have good leadership are going to succeed, whether it’s the digital domain or any other area. So what is it about these companies and maybe drill into the characteristics of leadership that makes them particularly make the conditions particularly right for them to succeed with digital transformation.

George:

(11:48) So as I said it’s putting the two together, we didn’t find companies that have better leadership capabilities, but not the digital side. They are more profitable, but they’re not driving as much revenue. It’s when you put this together with the good solid digital investment that you get the value where the improvement seems to happen.

(12:08) As we define in digital leadership there are four elements. Number one, it’s having a very strong vision of how you’re going to be different. So in Kideco it’s the idea of being as information and as digital as they can be throughout all their processes, and now the vision has evolved to being a world where you don’t have to have people in dangerous environments anymore. That’s a large vision. It’s going to take them time to get there.

(12:32) You start with this vision, and then you need to make that vision a reality, where you add engagement and governance. Engagement is the idea of helping your employees buy into the vision, and when they buy into division it’s easier to change the organization, and it’s also easier to come up with new ideas. But then you need governance.

(12:52) And governance is the set of rules that keeps you going in one direction. Because once people are energized, they’re going to go all over the place and you need to have a larger steering wheel to keep them going the right way.

(13:03) So leadership is these three things, it’s a vision, it’s the engagement, it’s the governance. And the last that’s really critical is that these digital masters they have got a great relationship with her IT and business people. As an IT researcher, that was very comforting. We didn’t set out to do this stuff this idea about IT, but it turned out that having a great relationships driving that great platform, being able to be very strong at building your new capabilities was critical for these digital masters.

(13:34) So that’s how we define digital leadership. It’s the vision, the engagement, the governance, and the strong IT business relationships. If you’ve got those in place you can really drive change.

Michael:

(13:44) So then if you bring together this leadership with vision engagement governance, good relationships between IT and the business, combine that with the right type of digital platform and digital capability, and then mix it all together under the umbrella of a strong and visionary leadership, then in effect that’s your recipe for success based on your research.

George:

(14:19) Well I think it’s a little simpler than what you said, because you’ve added a lot of whole things in their about you know just having vision. I think it’s more clear. What we see is that whether it be the most visionary company in the world, or the most boring company in the world, these four elements are things that you can build and you can really move it forwards.

(14:39) So we studied the Yellow Pages, one of the Yellow Page companies in France you know, that’s an industry that is in real trouble and get one of these yellow Page companies said, as we become digital we are going to lose vision of what we’re doing. And what they’re doing is they’re basically saying digital and books, it’s still the same business. We’re connecting small businesses to local customers. We’ve always done that.

(15:03) But because they set the vision in place, the employees can buy into it that digital is just a new technology to do what they always did before. Other yellow page companies are having a little bit more trouble in getting there.

(15:12) So any industry these four elements, set up a vision, putting the engagement and governance, and build your IT relationships. I think it’s a little simpler than the way you laid it out in the question there, now it still really hard to do. There’s nothing simple about it, but it’s something that any company can do because we’ve seen it happen in many many companies.

Michael:

(15:31) Okay, so we’ve laid the foundation which then it brings us to the next point that you’ve just raised, how do we do it? You’re talking about really significant change that in some cases runs through the company, and as we said at the beginning has a profound impact on their relationship with their customers as well. So what are the elements of successful transformation?

George:

(15:59) It’s the same elements, right. You have to define that vision and push it through your organization and that’s critical, so how do you define the vision? Well, one way we’ve seen is for companies to go out there and just start to prospect. We’ve seen senior team is doing these kinds of learnings towards Silicon Valley, Boston and in other areas to understand what technology firms are doing, just to kind of get smarter on what technology is capable of doing.

(16:23) That can be a tremendous opportunity to get your senior team to think about what the threats and opportunities are that they face. And then you’ve got to drive this change forward. Now, if you’re in a company that’s a burning platform, so like the Yellow Pages, right, your industry is just dying. People are ready to pay attention.

(16:43) If you’re in industry that’s a little less fast-moving, whether it be farmers or others you need to give a little bit more push, but you have got to set up this vision for where you’re going, how you’re going to be a different company, and you’ve got to drive it through. And those are the elements and you’ve got these four things in place that’s what makes these transformations happen.

Michael:

(17:01) But as you said it’s very difficult to do this and there are not that many companies who are doing it well enough to be what you refer to as a digital master. So what are the kind of obstacles that tend to us or the academies.

George:

(17:17) Absolutely, if everyone was doing it, it wouldn’t be that interesting. So a way in effect that only a quarter of the firms are digital masters is a good opportunity for research of course, but for other companies.

(17:30) Obstacles one was just the idea of just inertia, you know why should we do this. This is hard stuff quite should we do this and that’s a big issue. Another issue tends to be a disconnect between leadership and the rest of the organisation, where this is just you know a kind of interesting opportunity is do as you are and if they wait long enough it will just go away. So that’s a different kind of inertia.

(17:56) And one other one that really is getting in the way is IT issues. So if you’re going to have this single view of you know personalized, customized, intimate relationship with your customers, intimate in a good way that’s hard to do if you don’t have a really strong platform that lets you know what you’re doing with customers at all times. If you don’t have the integrated view of customers it’s just really hard.

(18:20) So you’ve got the inertia things, you’ve got the inability to drive your company once you’ve got the idea, you have the platform thing and one more is just skills. Some of the skills are hard to come by, and so a lot of companies are working with consulting companies to build those skills to get moving.

(18:36) The obstacles are they are, but people are able to drive through these obstacles. Some companies are, and the other companies are struggling and they’re going to have to learn how to do it.

Michael:

(18:47) So is this a top down push or a bottom up push, or both or how does that work?

George:

(18:33) We were looking for – you hear the stories  for innovation about letting 1000 flowers bloom and doing everything from the bottom up, we didn’t see it. But these transformations are every time we saw them we were like very very strongly top-down. It took senior leadership to sate this is the change we are going to do, this is the vision help we’re going to be different and then driving that through the firm. You know, sometimes they will take one unit to be the pioneer to move forward, but it has been very top-down and this is eventually going to effect the whole company.

Michael:

(19:23) But you also need the participation and collaboration of the people down on the ground, right simply giving the edict out, hey guys, we’re going to change our business model. That’s not going to work.

George:

(19:35) That’s why the engagement is so important because there are a lot of companies where the employees will just say, okay, you know I can ignore that, because next week it will be something different.

(19:44) Or one of the employees inside organizations which we seen and said you know, that CEO is only going to be with us for three years. I can wait until he gets fired, and you don’t want to do that.

(19:52) So this engagement things is incredibly important, so help the employees to understand what this means for them. How can employees understand why the future is going to be better in the current world, and if you can do that you can create energy around it. If you can’t do that, you’re just going to get resistance at every turn.

Michael:

(20:14) So the vision and the direction comes from the top, but the engagement and therefore the energy comes from the grass roots, would that be a correct way of saying it.

George:

(20:29) The engagement comes top down, but if you don’t have your employees energized around the problem it’s going to be very hard to make it happen. Because leaders can’t force employees to do things. They can get employees to see that it is in their interest to do things, and that’s what the engagement is all about. He want to top-down energize your company around the problem.

Michael:

(20:49) So you need both sides, you need the top-down engagement as you say, but you also need the participation and the sense of purpose that comes through the grassroots.

George:

(21:03) If you’re leading this the right way, the organization will be energized and. Moving in the right direction with you, and that’s what you want to get.  

Michael:

(21:12) Now what about the role of the Chief Digital Officer, that’s a title or a role that is relatively new and growing. What did you find about that in your research?

George:

(21:24) So this is that governance angle and also some other pieces. You know anything that you’re doing needs somebody in charge of it. And it can often be difficult in an organisation to figure out who will own digital. Do we put it with marketing? Well, maybe that means operations is going to get short shrift. Do we put it with IT? Well maybe that means that some of the more in the other organizations like marketing and others that don’t deal as much with IT are going to get short shrift.

(21:52) So many companies are setting up in essence role of the Chief Digital Officer, and their job is to drive the transformation, to be the kind of a point person to make these things happen. So Starbucks have done it. they done it at Asian Paints, at Kideco the CIO is doing it. Having somebody who can drive it is the answer.

(22:14) Now there’s a question about that role of who it should be. That really depends on what your company is, who has the right talent and the right context to make it happen. There is also a question about whether it’s a permanent role. The jury is still out on that.

(22:27) You know, you’re driving the transformation, does that role need to stay there after the transformation has started really getting momentum. That also is going to be by your company, but the role itself, the Chief Digital Officer it’s an important one and we are seeing more and more companies figuring out how to make that happen.

Michael:

(22:43) It’s an interesting question because if a company puts a Chief Digital Officer in place, is that simultaneously a statement about the CIO and the CMO, the Chief Marketing Officer.

George:

(23:02) Well you need the role. You don’t necessarily need the title. So it can be driven out of marketing, that’s great, if it can be driven out of IT it’s great, and we’ve seen that in different organizations.

(23:14) But in general what you’re trying to do is you’re trying to cross silos. So whoever’s running it, it’s not really about this person lacking or this person lacking. It’s about the ability to cross and coordinated between them and that’s the importance of having a role like this in place.

Michael:

(23:29) So going across silos seems a foundational capability in trying to accomplish what your describing.

George:

(23:40) Yeah, that’s where the top down push is so important, because you know within a silo, you’re just going to change product development. You can do that with your product development chief. If you’re going to change your supply chain, you can do that with your supply chain, and Nike did both of those, like figuring to do social marketing, Nike did that out of marketing. Where they got the real benefit is when they started tying this together and created a digital unit called Nike Digital Sport , and the job in that unit was to start making sure that everything was coordinated together, so that they could link across these many different silos that they had and it’s been a tremendously valuable opportunity for them. It’s really worked.

Michael:

(24:13) When you start crossing silos you’re applying different types of relationships among people in the organisation. Is there a cultural shift that’s required as well?

George:

(24:26) Yeah, and you know ideally you get the cultural shift where people want to work across silos, but then that can be really hard like anybody who works in a big company knows, so you drive it. You put the leadership into really kind of force it to happen, and in a good world the kind of collaboration across silos you want will become more natural over time.

(24:47) There are some some companies that have said we’re going to do the cultural change and skill building first and then will get on with the transformation, that often can delay their effort by a couple of years, where you could just drive it and let the culture catch up, that may be a better way to go.

Michael:

(25:04) So basically what you’re saying take the forward momentum, push it, get some results and the culture will go through what upheavals it does, but eventually is going to fall in place.

George:

(25:19) Yeah, well so there is getting the change done and there’s making the change permanent, and so there’s an awful lot you need to do on building skills, on changing incentives, on making it easier for people to collaborate. So you build the momentum with some quick wins, and then you add these things on as you’re moving forward.        

Michael:

(25:41) What about metrics? How do you measure the success of this type of digital transformation that we’ve been discussing?

George:

(25:48) So a lot of companies go out and you know, especially the more consumer focused companies tend to talk about their percentage on digital to physical sales, and that’s a good measure. And a lot of companies are doing that whether you know in the Yellow Pages they wanted it to be just 75% digital within five years. You can do that.

(26:13) There are other measures though that I think are the same measures that you’ve always had. You know, we measure this process by a lot of days in inventory that if you transform it you still measure along that way. We measure this process by customer satisfaction. If you digitally transform it you’re still measuring customer satisfaction.

(26:31) So you have some digital measures, but I would also argue that the measures you’ve always been using to talk about process performance are still useful. You just want to raise your sights on how good those things can get, because they are digital is there.     

Michael:

(26:45) So the result of your business in terms of profitability, in terms of customer satisfaction, these kinds of traditional measures don’t go away but hopefully they’re actually improving and the way that you are delivering on these things underneath maybe changing significantly.

George:

(27:08) Yeah, so you know if you’re only measuring yourself by how digital you are, and your customers are less happy with you, then you’re actually not doing such a great job. So you want to keep those traditional measures and raise your thresholds. You know, you want to bump up the customer satisfaction by a large number and the digital it will help you get there.

Michael:

(27:28) Now, we’ve spoken about technology and it’s interesting to me because on the one hand technology plays a key role in all of this, and yet it’s not about the technology. So what is this relationship or the intersection between the technology and the leadership, and the business outcomes and so forth, how do these connect?

George:

(27:54) So the big thing is that you know you can look at it in two ways. You can look at technology as a technology adoption problem, or you can look at technology as an opportunity to transform. And the digital masters are the ones that look at it as technology is an opportunity to transform the rest of the business.

(28:09) And then the next thing is whatever  links to the rest of it, the rest of it is involved in making that transformation happen which is why the leadership capability is so important. So, how do you look at this first and then driving the changes is the second piece.

Michael:

(28:25) So, you’ve mentioned a few times about the relationship between IT or the CIO and other parts of the business. It seems like this interconnection now becomes extremely important. So maybe talk about that.

George:

(28:42) You know it’s interesting, when we did our first round of interviews we interviewed 150 people in 50 companies around the world. A lot of them were saying you know, our IT is a mess. We’re going to try and do this as kind of go around our CIO. The digital masters didn’t talk about way. They talked about how their relationship was so good that IT was allowing them to do things that they never drained as possible.

(29:05) And some of them actually said our IT relationship wasn’t good before but we fixed it, and that is help we’re in this situation. Digital masters have strong relationships between their IT and their businesses, colleagues, it’s at the CIO level and it’s at levels down below that. And it’s essential because for all of the great ideas on organisation change, you still need technology to make this happen, and the technology specialists in the organisation, you’re better off working with them than without them.

(29:35) Now having said that, sometimes IT is just not ready for whatever reason. And so we’ve seen organizations setting up a kind of a dual speed idea approach, where they have created a digital IT group within the IT unit. It’s going to work at a faster, more innovative approach, and then they have to coordinate between what the innovative people need and what the more traditional IT needs and that can also be a very useful way to work. But yeah, you’re not going to do it without strong IT and it’s just a matter of figuring out how to get there.

Michael:

(30:08) What about in many companies other functions outside of IT are taking greater and greater control of the technology budget, so before that marketing. The relationship between marketing and IT is often fraught with difficulties, because marketing wants things done very quickly, and yet IT has a set of constraints like security for example, like authentication, again another aspect of security that it has to address. And so marketing then sets up shop and says okay, you know we’re going to just do it ourselves and leave IT out of it. What’s the implication for those kind of relationships in this digital transformation that we’ve been discussing.

George:

(31:01) So great IT leaders are able to make the link between their rapid innovative activity, fast-moving and experimental, and a longer term really resilient things that you need to keep this stuff running. The great IT leaders can do it.

(31:15) When you see these shadow IT things popping up, often it’s because the IT people have not been able to deliver what they need, and as a result other people are doing it and at leads to problems that we all know about.

(31:27) So what you want to get is have the situation where you’ve got dual speed IT, or you just have a great IT shop where you can meet both needs. Because if you are putting pieces of IT around the organization and they are not coordinated, you’ve got trouble. If those pieces around the organization are coordinated you’re in much better shape.

(31:51) Now, does that mean you’ll never want to put an IT shop into your marketing organisation? No, you’ll have them there but you want to make sure that coordination is there with enterprise IT to make it happen. So you know, for years in IT we’ve had this idea that you’ve got your CIO and you’ve got business unit CIOs. And business unit CIOs is a very very hard job, because you live with the business units but you also have to to coordinate with enterprise IT. But that role is essential to make sure that you’re not doing things that are dangerous in these business units even if the business units have their own IT. When the role is done right it also introduces innovations from one unit and brings them across to the others. So you want to make that happen.

Michael:

(32:33) In many companies it seems that the goal of IT is to reduce cost, and so from that standpoint is it accurate to say that technology budgets are zero sum gain, so that if money is flowing away from IT into other parts of the business, it represents a challenge for IT. And when that happens it seems that you’re driving greater schisms across these different groups rather than bridging the silos and bringing them together the way it needs to happen in order to accomplish the kind of changes that we’ve been talking about.

George:

(33:21) Michael, I have got this great to book for you. We have got a new book, on leading digitally that’s coming out in October. But the previous book was called the real distance between IT, how CIOs can create and communicate value. And you set up the question by saying if IT is a cost center, does that create problems. Well the fact that IT is a cost center is already the problem. And so this book and what we studied is how do you turn IT from a cost center to a true strategic partner. We studied dozens of IT turnarounds and what we found is that if you can communicate in three levels of communication, you walk a path where you change the way you think about IT. You change their perceptions about how you’re doing at IT, and you change the way that they work with you, you become their strategic partner.

(34:08) So, taking the fact that IT as a cost center is a given is actually the wrong way to think. What you want to do is, you want to say how can we get IT out of that cost mindset and then the rest can happen. So it can be helpful.

 

 

Michael:

(34: 27) I’ll have to take a look., But how can CIOs who are in this situation get out of it, I mean I know a number of CIOs where really, their mandate is reduced their percentage of IT as relevant to the overall budget of the company.

George:

(34:46) I think you know, what’s interesting about companies that use IT well, they actually spend more money on IT. And so if the conversation is about how to reduce IT as a percentage of revenue, you want to change the compensation and this book can give you some examples on how to do that.

(35:04) If the conversations are all focused on the cost, you have already lost. So what you need to focus them on investment. You want to focus on performance per cost. There is some other things that we talk about in this book to change that conversation. If you take the cost mentality as a given, it’s hard to do anything else. You’ve got to break out of that.

Michael:

(35:26) So give us some advice for CIOs who might be watching this conversation. How can they break out of the cost mentality into the investment and value mentality?

George:          

(35:39) So in the book we talk about three steps to value. Number one, rethink what you do and what you think about IT and how you talk about IT. Because if you’re talking about IT as a technology thing, then you are actually asking people that only talk about you when they want a technology conversation. If you’re talking about IT as a cost of doing business, you’re actually asking people just to cut your costs. You got to change that first of all.

(36:05) Next, you got to show that you’re a very strong leader in the IT organisation by showing that you deliver great value for money, and then you want to change the way investments are made, so that every project investment is tied to performance and you can measure when that performance hits.

(36:18) You go through the idea of rethinking of what you’re about, showing value for money as a leader in IT, helping the other leaders of the company work with you better. And you almost automatically become their strategic partner, but it has to happen in that order. It’s really hard to have a strategic conversation if they don’t think your costs are right. You have to drive it. You have to take control of that conversation as a driver. And like I said this book has some really great ideas on how to do that.

Michael:

(36:44) I think many IT organizations from what you are saying really makes perfect sense, for many IT organizations either the CIO and the IT organization as a whole don’t seem ready. They don’t seem to have the skills, the communication skills, they don’t understand the business. Even if they do, they don’t have relationships with the business and the business is not willing to except them in this different higher value role.

George:

(37:21) That’s the leadership problem. Great IT leaders are able to turn the situation around. We’ve seen it dozens of times. That you take it on yourself to change the perception of IT, and you can make that perception happen.

(37:34) If you’re going to sit around and wait for the business units to start thinking about you differently, and you haven’t done anything else, you’re going to be waiting a long time. But what we are seeing and CIOs say we’re going to change this, they go through this set of three steps and they are able to change it. It takes the leadership on the IT side to be willing to go off and try to make those changes happen.   

Michael:

(37:51) So the CIO is the person where the buck starts in effect for driving this type of change your relationship between IT and other parts of the company.

George:

(38:02) I mean that should be the CIOs role right, the CIO should be about to lower the strategic value, and part of the role for the CIO may be to change the conversations so that the organizations are ready to have those conversations. But the organizations are not likely to have the conversations unless the CIO can help them start changing the nature of the game.

Michael:

(38:23) So George, as we draw to a close maybe give us a kind of summary or read First off of what we should want and expect from IT, what the IT opportunity is within the context of digital transformation.

George:          

(38:43) One of the things that we have learnt from this research and this leading digital book is that companies aren’t paying attention. Senior executives made time to talk to a bunch of academic researchers about this, because they care about what’s happening in the digital world. They want to have conversations and they’re looking for guidance. And as IT leaders you have a lot of the skills that they need and you’ve just got to step up and try to enter that conversation.

(39:09) So technology driven vision, that’s something that IT people want to be able to do and many IT organizations have it and there are ways to insert yourself in the conversation. Governance, IT has got a very strong governance in organizations, and that same governance is useful for the digital world. Engagement and getting people to go along with these technology changes, IT people have been fighting that battle out for years. And of course the platforms, that’s all about IT.

(39:37) So basically what organizations need from the leadership side, IT organizations actually already have the skills and the vision and the capabilities to make that happen, and you have got to find a way to put yourself in that conversation because they are waiting for it. They would love to have the great guidance if you can get yourself in this situation where they will be able to listen to you.

Michael:

(40:00) George, this has been an interesting conversation on digital transformation. Any final thoughts that you would like to leave with the people listening who might want to embark on this journey. What words of advice and wisdom can you offer them as somebody who has been studying this with hundreds of different companies?

George:

(40:21) So, it’s easy to think that you have time to wait. It’s easy to think that these technologies, digital transformation are happening in somebody else’s industry. We found digital masters in every industry that we studied. And we found the digital masters are not only doing better than their competitors, they’re actually able to accelerate ahead. So whatever your industry is in, start paying attention to what the digital opportunities and threats that you’re facing, and start the conversation now because it’s time to get moving.

Michael:

(40:52) So the summary is you have to do this, there’s no alternative and they need to start right away.

George:          

(40:59) Rethink what your company can be with all these technologies and make them start to happen.

Michael:

(41:06) Great, well this has been a fascinating conversation. We’ve been talking with George Westerman, who is a research scientist at MIT studying digital transformation. I’m Michael Krigsman and this show has been sponsored by SAP and we’re grateful for SAP to give us their support. George, thank you so much for taking the time today.

George:

(41:33) Thanks for having me here.  

Michael:

(41:35) Have a great day, bye bye.

 

Companies mentioned in the show

Caesars           www.caesarscorporate.com 

Kideco             www.kideco.com

MIT                 http://www.mit.edu

Nike                 www.nike.com

SAP                  www.sap.com