Governance and death, the problems that will kill and cure digital transformation

SUMMARY:

2016 is shaping up to be an odd year. Conflicting forces suggest that a reality check is a-coming that could derail digital transformation. What’s going on?

via HfS
via HfS

2016 has barely got going and I am seeing conflicting issues that threaten to leave those who trumpet ‘digital transformation’ in every other sentence looking like a bunch of idiots come the middle of the year. Some might characterize this is a symptom of the famed hype cycle. I think it is more fundamental. The problem comes in a variety of flavors but when you look more closely, it is a problem of omission.

Here’s a selection of recent topical discussions that have gained attention. None of them tackle what I believe to be the central problem although some get close. Each has a take on different elements of transformation, each could be decomposed, cherry picked and re-assembled into a coherent strategy for change that delivers the kind of results people are imagining will come from ‘digital transformation.’ The problem is that useful though the solutions on offer may appear, they represent partial answers.

Digital Transformation Requires Total Organizational Commitment – well yes. Of course. But how? It’s about people! Sure. But how? It’s about processes! Sure. But how? And why then is it not working in the vast majority of cases of we already know the problems?

Super Tech Waste Bowl – productivity in the US has bumbled along at a meagre pace, despite the billions spent on technology in the last 25 years. Why?

Software is eating the world – well, a handful of tech companies are making out like bandits but as for the rest? Not so much. Why are companies missing out?

A plague of managers – the mushrooming of management layers doesn’t help. But how to solve that problem? Surely technology is here to help us, but it isn’t. Why?

“Scaling Trust: Marketing in a New Key” – An Interview with John Hagel III – trust should be the basis for business in a connected world, yet trust is diminishing. Why? How does this get fixed?

Governance is the enemy

The missing link? Governance that was designed for an industrial age and which has been enshrined in ever more complex legally enforced structures, executed by complex softwares and extraneous paper puzzles. Some of this is almost inevitable given the scale at which some businesses are operating. What does this mean? Here are some examples:

  • I have seen companies where the processes in place for even the most mundane operations like travel and expenses are built to solve for the 0.01% of people who will defraud the system. The other 99.99% suffer.
  • I have watched as startups blossom and all of a sudden find there are process layers for even the simplest of things. They add friction.
  • I have watched as procurement cycles lengthen at a time when automation and approval processes could and should dramatically reduce time to action.
  • I have seen pricing policies arise that have the direct impact of making it impossible to change a SKU inside six months.

All in the name of ‘policy’ or ‘governance.’ Each adds oncost to the provision of goods and services. Collectively, the cost in clogged up supply chains, repurposing and refitting must run trillions of dollars. All of this before we even get close to thinking about any form of transformation that will deliver effective efficiencies in a digital age. In that sense, Brian Sommer is probably howling at the moon when he recently bemoaned the finance department’s continuing spreadsheet addiction.

The exceptions

Surely there are exceptions? Of course. I guess the best and most obvious example is Uber. At the heart of how Uber operates and upon which everything else stands or falls lies the determination to do two things:

  1. Upend bureaucracies that perpetuate state created barriers to entry and that impose significant levels of governance on the cab trade but which Uber tries to avoid.
  2. Ensure that its drivers are classified as contractors so that Uber escapes the burdens of acting as an employer.

The implications of the first activity are largely economic. We’ve already seen some Yellow Cab coops declare bankruptcy, although it is arguable whether Uber should bear all the responsibility. The second is structural with far reaching consequences for workforce organization in multiple industries.

It should come as no surprise then that the governing anti-bodies in numerous states and countries are doing their best to see Uber off. Uber for its part has an enviable war chest with which to fight legal battles for many years to come. Others may not be so fortunate. GrubHub, DoorDash, Caviar, AirBnB and Lyft are all embroiled in lawsuits, many of them based upon the employee classification topic but also including cases that impact the economics of the business model these ‘As a Service’ style businesses wish to operate.

But let’s be clear, Uber and its business model spawn are not representative of the vast majority of businesses. Some industries, like agriculture, have been consuming technology for many years, the latest advancements coming in agronomics. Anyone see an Uber model there given the massive amount of consolidation that has happened in the last 50 years? Put another way, as one colleague told me:

Where is the uberization of potato chips going to come from?

Death spirals

A good point. But then we see companies like GM taking on Uber through its partnership with Lyft. Readers with long memories will recall that GM went bankrupt in 2009 and was bailed out by the US government to the tune of $50 billion. While that bail out cost US taxpayers $11.2 billion, GM emerged much leaner, if smaller, and has since gone on to make consistent if small(ish) profits. The causes of the GM insolvency were many and numerous but they can be distilled down to two factors that loom large in people’s general thinking about the future of business and one crushing problem it could not escape:

  1. Product centric instead of customer centric.
  2. Obsessing over the bottom line instead of investing in genuine innovation (think process strangulation.)
  3. A huge commitment to past employee pensions that became too burdensome in the context of how GM was operating.

Governance? Yep, it’s the hidden beast in and among these three.

Most recently, we have seen the once mighty IBM looking increasingly uncertain. It can’t catch a break with financial analysts and for good reason. Its business model is under threat across multiple dimensions but, more to the point, it cannot move quickly to remedy process bound issues. IBM has been here before and it wasn’t pleasant, culminating in a near death experience. Some will argue that the last few years have seen IBM hollow itself out with the insane drive towards an unreachable financial target and in a fashion not dis-similar to GM. That seems to be on the reverse but progress is glacially slow.

It was therefore interesting to note that IBM is scrapping the annual review. This is a big change but one that comes with challenges. The reason for the change is obvious when pointed out:

…during the year, “new things [would] come along,” [Diane] Gherson [CHRO] says. IBM employees are “iterating and experimenting,” she says, and oftentimes that means they’re not necessarily working towards what they originally listed as an annual objective. Nevertheless, staffers would end up in an “irrelevant discussion” in December, Gherson says, trying to assess whether they’d fulfilled the goals they’d drafted 11 months earlier.

This has enormous HR governance implications but if executed well, should have a significant positive impact on all stakeholders, i.e. employees, IBM and its customers.

The near death experience

The ‘near death experience’ is an interesting element of this problem. In 2007, Bill Taylor at HBR wrote of the IBM case and others, referring to a conversation that took place in 1994 with  Irving Wladawsky-Berger (IBM):

But to this day he wonders whether Big Blue would have made such big changes had the company not walked to the edge of the abyss. “Can a company reinvent itself,” this legend of corporate transformation asked, “without going through a near-death experience?”

We’d all like to think so–that was the point of our gathering back in 1994, that is the point of the never-ending stream of books and articles exhorting the leaders of big companies to make big change. And yet, how many examples of truly deep-seated transformation can you site that did not involve what Wladawsky-Berger calls a near-death experience? There’s General Electric under Jack Welch, who forced his troops to engage in something of a death march to avoid a near-death experience. Then there’s Procter & Gamble under A.G. Lafley, who may be the most underappreciated big-company CEO on the planet. Then there’s. . . there’s . . .in the immortal words of the high-school economics teacher in Ferris Bueller’s Day Off, “Anyone? Anyone?”

What is it about big-company change that continues to defy the best efforts of big-picture thinkers and tough-as-nails CEOs? Why do organizations remain so “stubborn,” as Irving Wladawsky-Berger described them, in the face of undeniable evidence that they have to change or die?

I don’t have easy answers. But I do recognize that this is the toughest question facing leaders at every level who are trying to make a difference inside organizations. What are your answers?

The solution?

Sadly there are no comments to that piece so the question, while raised almost nine years ago, goes unanswered. To date I have never seen a satisfactory set of alternative answers, yet Taylor’s piece echoes unnervingly down the years.

My sense is that growth leads to acquired governance which leads to institutional paralysis that resides in the middle layers of management and which, once acquired, is extraordinarily difficult, if not impossible to move without a near death experience. Why? Careers depend upon maintaining the status quo and, it is surprising how easy it is for people to hide inside large hierarchies for years on end doing just enough to escape the hard questions. It is little surprise to find that what started off as an exercise in establishing processes slowly but relentlessly morphs into atrophied systems, glued together with piles of mindless paperwork and where the incentive to automate is zero.

Change becomes almost impossible, even when mandated by the C-Suite and which can be supported by technology. I recall a tiny but interesting initiative that could help one company reward top performers in a fresh way get squished into almost complete irrelevance once middle management got hold of it. Endless rounds of discussions and email instead of ‘just getting on with it’ in the name of policy, governance and budget shuffling. Why did this happen? The C-Suite advocate didn’t have the time to cut through the red tape. Is there an answer?

According to HfS in an article entitled Why 77% of the C-Suite really want provider-replacement therapy:

What’s startlingly apparent, is that the C-Suite is clearly ready to make real impactful changes to their organizations to drive out more cost and really look to design their business operations more intelligently. It’s also very obvious that most know they can’t change what they have with their current middle layer and legacy service provider relationships. The only way to do this is to entertain competitive rebids that are radical – and include real change parameters, such as an effective Robotic Process Automation strategy, a genuine focus on self-learning and Cognitive Computing and to leverage Design Thinking to understand truly how business models can be transformed to take advantage of Digital technologies.

Well yeah. And from the comments, plenty of applause to go around. Will the combination of C-Suite findings and apparent willingness be enough? In another recent HfS piece, the authors explode with: 50% of Buyers are change imposters, so avoid them if you can! So not only has HfS discovered a disconnect between what buyers say and what they are prepared to do, the disconnect between what the C-Suite sees as useful and what their own middle management think only serves to emphasize the dilemma faced by the C-Suite.

Right there you have the problems in a nutshell and I am betting that if HfS was to dig a bit further, they’d uncover a slew of nasties such as:

  • Long term relationships that no-one is too keen to review.
  • Processes that both buyers and sellers maintain on the basis that there is enough policy ‘meat’ around them to keep both sides gainfully employed.
  • Disconnects between IT services and business needs that are reflected in duplication of effort in the name of control coupled to quiet turf wars among providers.
  • Outright corruption between buyers and sellers.

The squeeze on cost may be real, but the appetite for dramatic change is far from universally accepted.

My take

In the seemingly endless stream of thinking about ‘digital transformation’ topics, I see plenty of answers to perceived problems and a clear acknowledgment that large swathes of industry, including almost the whole of the technology industry, needs to move to an ‘As a Service’ basis for the future. Where there are challenges, we can easily point the finger at organizational and people topics but I am not convinced that provides the basis for arriving at long term solutions.

It may well be that the forced march of automation and robotization of the kind HfS promotes will act as the catalyst so many companies need. But the weight of governance and policy related issues will need a significant root and branch overhaul before the other ‘things’ can be addressed. That’s not going to be easy and it’s not going to be simple. Simply looking at how the startup generation is managing is not going to be enough. This is a multi-year journey that could take decades to percolate throughout industry.

Unless of course we see another period of global economic contraction. That would shift the needle.

Featured image credit: misty mort 3 © stuart, Fotolia