The best preparation for digital transformation: an open mind

When Thomas Edison built the first commercial electricity generators in New York and London in the 1880s, businesses were surprisingly slow to adopt this miraculous new energy source. Their factories were designed around steam power, and few could see the benefits of the new paradigm. Those that did were reportedly disappointed with the results. 

This, at root, was not just an engineering issue; it was a matter of mindset. As economist and writer Tim Harford puts it, “to take advantage of electricity, factory owners had to think in a very different way”.

The real benefits from electrification were realised once work had been reorganised around the potential of the technology. Electrification permitted innovations such as assembly lines driven by conveyor belts, which in turn revolutionised manufacturing and spawned the mass production model that defined the 20th century. It also changed the nature of factory work, requiring fewer, but better trained, employees.

Today, many businesses are considering how to make digital technology work for them. This requires consideration of both technology and the talent required to use it. But as the example of electrification shows, it also calls for new management practices, new working processes, and new ways of thinking.

Unlike the factory owners of the late 19th century, however, today’s executives suffer no shortage of new management methodologies. In fact, there is a bewildering array of concepts, from Agile development and the lean start-up movement to design thinking and holacracy, vying for their attention.

The diversity of these approaches offers businesses a toolkit with which to address specific challenges, explains Mark Ridley, chief technology officer at Blenheim Chilcot, a UK-based start-up investor and incubator. “Do you need to quickly validate a solution to a customer problem? You could run a design sprint, made famous by Google Ventures’ Jake Knapp. Are you concerned that your business has inefficient processes? You could look at applying the concept of Value Stream Mapping, which Toyota popularised. Do you believe that a team needs to quickly solve a blocking problem? You could run a ‘Kaizen event’.”

One of the most prominent management ideas in the digital era is Agile software development. The Agile methodology encourages iterative development and collaboration with users, and proponents argue that it produces better quality software in a way that is more responsive to customer needs. Agile has become the dominant model in many forms of software development, and according to research by the Project Management Institute, 71% of organisations use the Agile methodology for projects, at least some of the time.

The principles of iteration and experimentation, which underpin Agile, have proved highly influential in digital business strategy. Digital systems can be modified and updated with relatively low incremental costs, and the data they collect can be used to quickly judge the impact of those modifications. This approach can be applied to minor modifications to a user interface, and to entire products and services. 

However, undirected experimentation alone is unlikely to deliver the kind of breakthrough, market-beating innovation that the heightened competition of the digital economy demands. It is doubtful, for example, that iterative development would have ever transformed steam-powered factories into facilities optimised for electricity. 

That kind of innovation requires vision. This is apparently in short supply: in a global survey of 821 executives by PA Consulting, an advisory, 50% of respondents say their organisations’ leaders lack the vision and passion required to make innovation happen. 

David Kester, former chief executive of the Design Council and now founder of his own business consultancy, is a proponent of “design thinking”, an approach to solving complex problems by applying the principles of good design. Design thinking combines the iterative approach to product development with measures to encourage creativity, and in particular to empathise with the user of a given product or service in order to imagine how it might be improved.

Mr Kester describes his experience working with a large luxury goods company that wanted to transform its product-centric business model to become a services-led company. Although digital technology was an enabler for this shift, he says, design thinking was the key to success. 

“It was about simplifying something very complex then looking for very elegant, brilliant solutions,” he explains. “It’s about multiple teams working together to create momentum because they are up against competition and time is at a premium.”

For Mr Ridley, the adoption of design thinking is an attempt to make the mystique of a creative process scientific and inclusive, bringing a variety of talent and experience together to solve problems. The method simply codifies what successful companies have been doing for years, he says. 

Experienced executives know that management theories come and go and, if improperly applied, they can do more harm than good. According to Michael Küsters, a business coach, some companies used the “lean methodology” as a pretext for cost-cutting initiatives without meaningfully transforming their operations, leaving them less able to innovate.

So how should companies make the best use of the current crop of management ideas? Certainly, they should be open to trying new ideas. A study by management consultants McKinsey shows that risk aversion, siloed mindsets or ideas, and a “non-digital culture” are all negatively correlated with company performance. 

Indeed, the same study, based on a global survey of over 2,000 executives, identified “cultural and behavioural challenges” as the biggest hindrance to digital transformation. Introducing new management approaches is a way to manage a company’s culture by communicating the values that it expects to see reflected in employees’ behaviour. 

“Technology does not cause change; only the cultural impact of technology causes change,” says Mr Ridley. “While new technology is a huge enabler of change, it is driven by the change to activities and habits of employees in the organisation.”

The best way to accommodate new management thinking, Mr Ridley suggests, is to apply the iterative approach that many of these new methodologies advocate: pick an approach that resonates with your executive team, commit to reflecting on the success of the approach regularly, and then adapt it to incorporate the lessons learned.

Making effective use of new technology requires new management thinking. How should executives make sense of the current wave of management methodologies?