The truths that shape digital transformation

Digital businesses (‘digital natives’) were born in technology, and they grow and thrive according some simple principles. Understanding these can help to shape successful digital transformation initiatives.

1. Digital businesses are technology businesses in whole or in part.
2. Technology creatives solve business problems, and start by understanding the customer.
3. Digital businesses know and thrive on the fact that software development is an uncertain and complex undertaking in a complex environment.

Truth #1 – Digital businesses are technology businesses.

At minimum, traditional products, services and customer experiences are augmented and enhanced by technology. At most, entirely new customer experiences and business value is created in software and devices.

This is important, and one of the leading factors in the unprecedented growth of digital businesses over traditional; because if you get it right, the value created by technology products and services, can scale at speed.

In short, software is eating the world.
_{Marc Andreessen, August 2011}

Traditional businesses need to adopt technologies and transform how they operate, particularly when the existing business model is under threat from competitors who are finding new, more efficient and effective ways to connect with and understand customers.

Internally, diverse and mobile teams need flexible technology tools for communication and collaboration, so they can work more efficiently together.

Truth #2 – Technology creatives solve business problems, starting with the customer.

Technology creatives such as software engineers and product designers solve problems, and discover opportunities, in software and hardware. And they definitely do this better when they understand customers and users, and work every day in partnership with other teams in the business.

But this kind of knowledge work cannot be managed in traditional ways. Teams, not managers, solve complex problems. Leaders need to set the direction and describe context, to outline the problems without prescribing the solution, and make sure that teams have the right environment and tools for the work in hand.

Creatives and engineers work best in flat structures that are free from hierarchy, autocracy and bureaucracy – take a look at Spotify’s Agile Engineering culture as a great example. For digital native companies, it’s easy to understand as they were born like that, where engineers effectively created the business in the first place. For traditional businesses and management teams, it’s a hard change to make – to give up control, and handover your toughest problems, and competitive success, to self-directed autonomous teams.

Truth #3 – Successful digital businesses know and thrive on the fact that software development is an uncertain and complex undertaking in a complex environment.

It’s impossible to plan for the unknown, so successful teams invest in a delivery system that welcomes uncertainty, and adapts to it, and as a result they are open and able to capitalise on unexpected opportunities. And they can do this quickly and continuously.

The biggest challenge for most traditional businesses taking on digital transformation is to move away from rigid command-and-control management structures, in part because we still like to believe we can predict, plan and control the future.

I know a product director who was asked by a company board, in 2012, to produce a 5-year plan for mobile apps. Their bemused response was “I can’t…. smartphones didn’t exist 5 years ago”. _{(The iPhone was launched on June 29, 2007)}

Budgeting, prediction, planning and control are the underpinning principles of business-case and project-led approaches for technology development. Unfortunately business cases make too many assumptions about the ‘right’ solution in order to estimate cost and associated benefits, and projects are concerned with managing cost and risk when delivering that predefined solution.

Business cases also lead to incentivising teams to deliver fixed outcomes, with rewards based on cost and payback thresholds. This is short-termism to please shareholders, or for other financial gain, and does not encourage building value for the long term. And you need a small army of people to plan, estimate, track, report and control… this is an overhead that adds nothing to the value of the end product. Usually its the scarce resources – the smart engineers – that are pulled off working on the product, to plan and replan for the next board presentation. Lean and agile methods focus on removing exactly this kind of overhead… they call it waste.

“(A business case) overprotects the present at the expense of the future.”
_{Andrew Winston, The Big Pivot}

Often team objectives and financial rewards are tied to these preconceived and specific outcomes. These are extrinsic rewards that don’t work well with creative teams who ultimately end up demotivated and take shortcuts.

“The problem with making an extrinsic reward the only destination that matters is that some people will choose the quickest route there, even if it means taking the low road.”
_{Daniel H. Pink, Drive: The Surprising Truth About What Motivates Us}

Because preconceived solutions, budgeting*, command-and-control mechanisms, and extrinsic rewards don’t work, smart companies are instead investing time and money in supporting cross-functional, self-directed teams, with modern software engineering approaches and tools, and support and coaching in agile and lean practices.

Instead of a project-led approach, digital teams take a product-led approach, similar to R&D research-and-development methods, where they iteratively test hypotheses, carry out experiments directly with customers and users, and deliver something of value early and often. And the shorter the cycle from idea to production, the faster you can react to change.

Technology platforms, frameworks and languages need to be lean, open, and loosely coupled to support rapid change and deployment. Companies with lots of legacy IT, that can’t manage change quickly in backend systems such as ERP, develop APIs – sets of services that present data and content in a consistent way, allowing for a different pace of change in customer-facing systems. Digital transformation initiatives also prioritise investment in systems for managing and enriching customer data, and analytics to provide fast feedback on all customer interactions.

The whole enterprise, not only the IT teams, needs to adopt this agility. Success begins by breaking down silos, setting up cross-functional teams working to a common vision and purpose, which starts with the customer.

---

^{1 – The Beyond Budgeting Institute have some great resources and case studies for how this works in practice.}