The Questions Leaders Should Ask in the New Era of Digital Transformation

The digital transformation era — and the pandemic era that is adding to the challenge — calls for a shift in leadership mindset. It’s essential to challenge the assumptions that we use to make decisions and identify valuable opportunities. Those assumptions allow experienced leaders to make choices efficiently in a complex world, but when the world changes, those assumptions can become anchors holding them back.

In previous articles, I’ve discussed ways in which companies and managers can benefit from rethinking assumptions about how employees work and the expectations of customers post-COVID-19. If those help to craft a new vision of the future, there is still the question of how to make that vision real. In this article, I’ll look at ways leaders can rethink assumptions about driving transformation to help their companies thrive in times of constant upheaval.

Transformation Assumption 1:
Digital transformation is a technical challenge.

This assumption is dangerous because it feels so true. In fact, it never has been true. Many companies are adopting new technologies, but few are doing it well. Technology produces nothing for a company on its own. The real challenge is changing the business using technology. In other words, when leaders think about digital transformation, transformation is tougher and arguably more important than digital.

That’s why the digital masters identified in Leading Digital (Harvard Business Review Press, 2014), a book I coauthored with Didier Bonnet and Andrew McAfee, excel not only at digital capabilities but also at leadership capabilities. Quality leadership plays a key role here because it provides a company with the ability to continuously envision and drive useful transformation. Digital masters build digital capabilities by embedding the right technologies into the right parts of their customer experience, operations, employee experience, and business models. They also build strong leadership capabilities to drive the transformational change that leads to business results.

In the face of constantly evolving technologies and fast-moving startups, it can be tempting to think that a strategy focused on keeping up with technical innovation will provide a competitive edge. However, focusing only on digital and not transformation sets you up for failure. You need the leadership capability to innovate — and execute — on the options that technology enables.

Questions to consider:

• What possibilities might technology enable in this new era?
• How well are you positioned to drive organizational change, not just technology adoption?
• Rather than thinking about each change as a major project to execute, how can you create a capability that supports continuous transformation?

Transformation Assumption 2:
Our IT unit can’t keep up. We need a separate market-facing group that works independently from IT.

Many senior leaders have fallen into this assumption’s trap. However, my research on digital transformation efforts found that when companies launched digital-focused units or digital chiefs to drive transformation, they could not do the job alone for long. The companies that succeeded were the ones in which digital and IT and business units collaborated closely on the broad digital transformation agenda. While the original intention was to work around IT, the digital people found that they had to work closely with IT people to make real change happen. For instance, the digital group could create a customer-facing app, but IT knew the back-end systems that were essential to processing customer transactions. Over time, these groups began to work together more closely on envisioning and executing change.

The pandemic further highlighted the importance of IT in powering business innovation. Even in companies where IT teams were disrespected, these same people were fundamental to getting the companies up to speed quickly when everything fell apart. Moving forward, instead of assuming that IT can’t keep up with the pace of new digital projects, it’s better to examine the conditions that create friction, and to use lessons from the remote-work transition to improve how business and IT teams interact in general.

As a cochair for the MIT Sloan CIO Leadership Awards, I’m familiar with the accomplishments of many leading executives who are driving valuable IT work in their organizations. At this past year’s symposium, nearly every CIO applicant talked about the way they enabled their company to continue working when offices were shut down. The best examples of leadership went beyond the initial crisis to help their company rethink the way it does business in general. They drove innovation despite the pandemic and sometimes used the new conditions to even drive further innovation. For example, the Toyota Financial Services IT team, led by Vipin Gupta, launched key financial service products in record time during the early days of the pandemic and then broadened them into a finance-as-a-service business that Toyota can use itself and resell to other car companies, such as Mazda.

Now is a good time to build on the reputational gains your IT unit developed during the pandemic. The remote-work infrastructure that may have been quickly developed at the beginning of the pandemic can be further refined to enable new ways you want to work. Quickly constructed digital overlays to your brick-and-mortar business can become prototypes or solid building blocks for future customer engagement processes. But such efforts will also require you to improve the ways you think about and engage with your IT leaders.

Questions to consider:

• What drives dissatisfaction with the IT unit — its performance, or the way that both sides engage?
• What did IT do well in the pandemic, and how can you build on that to further strengthen the company’s capabilities?
• How can you improve the ways your IT and business and digital people interact in order to drive change?

Transformation Assumption 3:
The regulators (or the unions) will never let us do that.

If you ever want to shut down an innovative idea, this statement will do it. It’s pure gold for obstructionism. Anytime someone makes this assumption, it’s worth questioning — strongly. In recent years, regulators in many industries have become much more comfortable with innovation. In some ways, COVID-19 forced an increase in regulators’ willingness to engage with innovation. For example, when doctors wanted to transition to online appointments early in the pandemic, there were valid concerns about privacy protections and federal restrictions on the release of medical information. Understanding the need for speed, regulators basically said, “Do the best you can, and then we’ll find a way to do it the best possible way.” The same happened for emergency vaccine approvals.

The pandemic spurred changes in education as well. For example, many K-12 school districts in the United States revised the number of days required to complete a year’s work, fewer universities required the SAT for admission, and there is serious discussion about how many classroom hours are required for a credit hour in hybrid college courses.

The same rethinking may be useful when it comes to unions. Although unions can see automation and telework as threats, it would be wrong to assume that they will automatically veto any transformation efforts. Increased management attention to the employee experience, as well as new efforts to help workers gain the skills they need to thrive, align with long-standing union values. For example, Kaiser Permanente and Service Employees International Union-United Healthcare Workers West partnered in 2020 to establish Futuro Health, which is creating innovative ways to provide skills and career growth in the health professions.

It’s important to keep regulators and union leaders in the loop instead of springing changes on them. It’s also essential to know the boundaries between what’s permissible and what never will be. But when properly included in the process, these stakeholders may be flexible if you can show a benefit to customers or employees.

Questions to consider:

• What elements of your proposed innovation might run afoul of regulators or be seen as a threat to unions? How can you change the approach to be more palatable?
• How can you engage regulators or union leaders in the process of envisioning and testing innovative approaches?

Transformation Assumption 4:
(a) First mover wins, or (b) I can wait and watch what competitors do.

When someone argues strongly for either side to be universally true, the right approach is to ask them under what conditions their statement holds up. In other words, ask them to test their assumptions and then assess your willingness to work with them based on the reasonableness of their answer.

The past two decades of digital commerce proved that traditional companies needed to be faster than they were before. But they need not be the fastest. While Amazon wasn’t the first company to sell books online, it was a very early mover, and it scaled rapidly in order to gain dominance. On the other hand, Walmart, Best Buy, and Home Depot have all built sizable online businesses while moving more slowly. GE arguably invested too much too quickly in its digital transformation, while Nike slowed its digital investment to align its ambitions more closely with market changes. The key is not being fastest but rather innovating at the right speed for the business and its customers, especially if the company can leverage assets that challengers don’t have.

The COVID-19 era showed once again that neither assumption about speed is universally true. If companies waited to see what others did in the early phases of the pandemic, they could have been out of business for months. Yet, moving too quickly risked missteps that might require costly rework to make the solutions scalable for the long term.

Looking forward, drop the simple assumptions and move at a pace that allows you to learn quickly and scale effectively. You can move quickly to test innovations while also monitoring what others are doing. Then, as you gain clarity, you can act decisively to capitalize on the direction you choose. Either way, traditional companies need to be much faster at innovating and executing than they have been before. It is a key tenet of a more digital-ready culture that can take on digital competitors and adapt to unexpected disruptions such as the pandemic.

Questions to consider:

• In what areas do you need to be a pioneer, and where is it better to be a fast follower?
• How can you increase the speed at which you innovate?
• Is your organization’s culture digital-ready?

Innovating by Breaking Assumptions

The shock of the pandemic forced a number of companies to rethink many tried-and-true assumptions about the “right” way to do business. But as we’ve seen, many of these assumptions were already worth rethinking, given the ways digital transformation has reshaped markets and organizations over the past 10 years. Operational approaches that have been ingrained for decades changed rapidly. Innovations that were too tough to attempt were not so tough to implement. Business models that customers would never accept became acceptable overnight.

COVID-19 has been a terrible trauma for the entire world. It has also forced reckonings across business and society that can drive positive changes. Looking forward, leaders now have an opportunity to revamp their businesses for the better.

The key to getting started is to think about your managerial assumptions and assess whether they are still true. Not every pre-pandemic or pre-digital assumption needs to be rejected. But now is the right time to think carefully about the assumptions that rule your decision-making processes. You don’t just need to rethink how your business does business. It’s also important to rethink how you think about business — the assumptions that drive your decisions about what’s right and wrong for your company and its employees and customers.