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Digital Transformation

The online acceleration brought on by COVID-19 left companies vulnerable. Now, more than ever, businesses need to face Digital Transformation.

The COVID-19 pandemic brought to light the need for large companies to reconnect with consumers’ new habits and values. While this was already happening, the acceleration brought about by the pandemic forced companies to quickly adapt or risk losing customers. This urgency exposed the complexity of dealing with new management systems, leadership models, and technology arsenals. We call this Digital Transformation.

The urgency around the pandemic also made it clear that Digital Transformation is not only about technology, but also about culture. Large companies need to move at a faster speed which can be a difficult adjustment that affects culture. For that to happen, we need to ensure that the management system reaches everybody and that the Leadership model takes advantage of the company’s collective intelligence. To do that, executive leadership needs to forget command and control and instead adopt collaborative and participatory leadership. The best ideas are emerging, but it is executive management that provides the collaborative environment.

Christensen’s rationale for disruptive innovation does not work as before. In this model, it is common to think that innovation takes place in three time horizons. The first time horizon, called H1, is the short-term horizon where the company’s core business is concentrated, along with all the activities to run it. 70% of the company’s effort should be aimed at protecting and expanding current businesses. For the second time horizon, called H2, the effort should be focused on nurturing emerging businesses and creating extensions for the current businesses. The third time horizon, called H3, concerns future business. It is about validating new hypotheses and seeking disruptive innovation. Today, it’s become clear that these three horizons must be parallel.

The big paradigm shift is that some companies are working on H2 and H3 without having worked on H1. This is what happens with Uber, for example. Uber is the largest transport company in the world and does not have to deal with the problem of managing a fleet of vehicles. Tesla, for example, has not solved the problem of producing 1 million cars, such as Toyota or Ford, but has already resolved how it connects with new values of a society that wants to become green. This gives the company more breadth and brings capital (marketing value), enabling it to resolve H1 later.

That is a new reality. Previously, companies always started in H1, then they grew and began to invest in innovation. One consequence of this new reality is that more traditional companies do not have the same time horizon that they used to when it came to innovation. It’s time to be more agile, and for that, companies cannot be hierarchical. Nowadays, companies need to ensure they’re taking advantage of the skills of all employees, not just leadership.

Empowering operational teams with freedom to experiment more is an important factor in the digital transformation process. They need to feel safe to make mistakes, discard them, and move on to new possibilities, with leadership support. The necessary changes for the digital transformation of a large company happen at the operational levels, but only if seeded by executive leadership, promoting changes in the way of thinking, which will reflect in changes in attitudes and actions and eventually become the necessary culture change:

Shook's version Pyramid First level is culture, Second is Values and Attitudes, Third is "What we do". The old model goes bottom to top, and the new model is reverse.
John Shook’s transformation pyramid, inspired by the Schein model

 

Another important factor for digital transformation is the customer-centric approach, commonly applied to digital products. Digital products are responsible for a large production of data. Collecting and storing this data so that it can be analyzed later is a good strategy, since that data reflects the user experience and their relationship with brands. It says a lot about customer preferences and needs, their expectations, and generates insights into how to provide higher quality service and engagement.

Finally, the speed of information, market changes, and customer needs require profound transformations and changes in businesses to remain present and competitive in the market. These changes need to happen at all organizational layers, emerging and encouraged by leadership so that teams can experiment more in their day-to-day lives, creating new ideas and different ways to perform, using technology as an innovation accelerator and not as the only path to innovation. The horizons of innovation must be increasingly mixed and worked into the daily life of everyone in the company, then this movement can be called Digital Transformation.

 Author: Everton Gago, CDO

 Co-Author: Flávio H. Furlanetto, Squad Leader Data n’ Analytics

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