Expert analysis from Fiona O’Carroll, Founder, Digital Mindset, and Dr Maria Quinlan, Sociologist, and Founder, Pink Flower Research. This article has been written exclusively for IoD Ireland members.
For digital transformation to be successful, leaders need to be aware of how their mindsets, and their behaviour influences their ability to be successful. Leaders need a digital mindset, and with awareness they may find that they need to change certain aspects of how they see the world. Awareness is a gift – it is the first step to transformation.
The digital revolution is changing the way organisations operate and dramatically reshaping industry after industry. The digital economy is radically different to the industrial economy. It is hyper-connected, with billions of online connections amongst people, businesses, devices, data, and processes each day. This is changing the very nature of companies and industries, how businesses are structured; how companies interact; and how customers obtain services, information, and goods.
This network of connectivity is only increasing, and what lies ahead is a further acceleration in the pace of digital transformation.
The Landscape has Changed
The pandemic is propelling digital transformation to the top of the agenda for many leadership teams and boards. It is arguably one of the most urgent and important topics in business today.
Digital capabilities are evolving incredibly quickly, and this inherently creates uncertainty for organisations, which must quickly adapt to ensure sufficient understanding of the new rules of strategy and mindset.
It has never been more important for leadership teams and boards to both understand how mindset can impact their organisation’s ability to move at the necessary pace and to create a shared understanding of how to navigate uncertainty while capitalising on the ensuing opportunities.
Despite spending millions of euros on digital transformation efforts, the stark reality is that most transformations fail. With a plethora of literature, frameworks, toolkits, books, and advice widely available on this topic, why are organisations getting such poor results?
The root of the problem lies in the disconnect between how leaders and boards understand the impact of digital era thinking on strategy development and the mindset required to lead. Leaders continue to apply outdated ways of thinking and strategic models in a world that is radically different from the time when these models were developed.
Instead of using new techniques and mindset, many leaders attempt to squeeze the competitive, and collaborative realities of the digital economy into traditional mechanistic, linear management practices suited to the industrial economy. Because they are not incorporating new lenses and new models for doing business in this changing landscape, they hit a variety of implementation blind-spots and produce frustrating results.
This is a key underlying reason for the high level of failure experienced to-date.
Digital Transformation – Common Leadership Traps
The table in Figure 1 outlines what we believe are the key drivers of the old ways of doing business. When we apply them to the new era of digital transformation, it can lead to less than ideal results. Each driver is underpinned by a certain set of organisational characteristics, which are, in turn, guided by a specific set of leadership mindsets. Mindsets are the lenses through which we view the world and that ultimately drive our behaviours.
If leadership teams do not put in the work required to assess their mindsets and develop an awareness and understanding of how those mindsets influence strategic focus, they run the risk of ‘mindset captivity’. Without an awareness of how mindset can influence behaviour and how certain mindsets can limit our ability to innovate and take appropriate risks, we remain blind to how we reinforce old models of leadership thinking and behaviour which may no longer serve us or our organisation.
In her research on what separates successful businesses from those who fail to capitalise on changing market dynamics, Rita Gunter-McGrath found that leadership mindset was a key differentiating factor.
Kodak and Fuji are one such example of this – when faced with an era-defining technological shift from film to digital, Fuji pivoted its strategy and operational focus to capitalise on the changing market dynamics, while Kodak’s leadership failed to act. A key factor was Fuji’s leadership team’s ability to let go of their old ways of doing business, including letting go of their emotional attachments to old service-lines and once-rich revenue streams which were being replaced by digital.
Kodak’s dogged attachment to old ways of working, old business models, and existing products and revenue lines is known as ‘path-dependency’. Path dependency is, in essence, a persistence in ‘doing what we’ve always done’.
We gain comfort from doing what we know and what we’re good at, often at the expense of the often-difficult work of accepting that the landscape is changing and to succeed we must let go of old ways of doing business.
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Overcoming Digital Transformation Traps Starts with a Digital Mindset
In their ground-breaking research ‘Immunity to Change’, Harvard professors Robert Kegan and Lisa Lahey found that transformation often fails because leadership development focuses solely on technical skill development or behaviour. Transformation efforts require both technical adaptations (changes to a leader’s knowledge base and understanding) and adaptive changes to a leader’s mindset.
By developing a digital mindset, leaders reset their knowledge and understanding of strategy for the digital economy as well as the adaptive changes to mindset required for leadership in the digital era.
Steps to Building a Digital Mindset
Step 1. Start at the C level and the Board
Strategy and mindset are set from the top of the organisation. Digital mindset needs to be role modelled by the senior leadership team. This is the starting point..
- Digital mindset is an economic driver of the business. For companies seeking to reduce risk and increase long term viability, it is not optional.
- Leadership commitment to developing a digital mindset pays back.
Step 2. Reset Leadership’s Knowledge and Understanding of the Digital Economy Impacts
There are several critical changes in the ‘jump’ from the industrial era to the digital era. Leaders need to understand the potential impact on the future of their business. This step is an important precursor to strategy formulation. These include:
1. Industry Thinking versus Competing in Arenas
Industry and stakeholder boundaries are transcending and undergoing reform – shifting power dynamics and consumer expectations combined with the democratisation of knowledge are radically impacting traditional industry borders. Sustainable competitive advantage is no longer guaranteed.
2. Competitive Advantage versus Ecosystem Leadership
Digital shifts open up marketplaces and provide companies with both the opportunity and necessity to create value in new ways. Collaboration amongst stakeholders (including competitors; employees; customers; suppliers etc.) must be reimagined to leverage the possibilities of digital transformation and to maintain relevance.
3. Business Models versus Digital Platforms
Traditional business model approaches are less relevant in the digital era and require re-development and innovation. Digitising existing business models is not enough, a more innovative, blue-sky approach is required, where companies identify how they can co-create digital platforms which create real value across their stakeholder groups.
Step 3. Understand Current Leadership Mindset
- Develop leadership’s understanding of the power and importance of mindsets. Mindsets are responsible for the way leaders process information and operate in the way that they do. They are the reason why two people in the very same situation can interpret it, and therefore act, very differently.
- What makes a great leader in this new economy? Leaders who have developed a digital mindset and can provide the vision and north star to build great teams, and great strategy. They understand the implications of digital on the business. They foster a mindset that enables the team to adapt to the speed at which business is happening.
Step 4. Review Your Strategy with a New Lens
With the right mindset and an understanding of the changing competitive landscape, both leaders and boards can ask the right questions. Moving away from the traditional business model canvas, which often drives strategic focus, leaders can start focusing on different areas, asking questions more relevant to the digital era;
- How do we reframe the digital challenge?
- Do we have a dual-focus – sweating current business model while identifying new innovations, opportunities for growth or diversification? If not, how might we do that?
- Are we spending time on exploring innovations with unknown Return on Investment(ROI)?
- How do we reimagine; re-define; re-conceptualise our business model?
- What does digital mean for our ability to play in different arenas?
- What information/data are we not leveraging?
- How could we turn that data into digital platforms?
- Who can I create value for in ways that are connected/collective?
Step 5. Evaluate your Organisational Culture and Context
Implementing the right organisational culture is key to being able to successfully play in the digital era. There is much written about concepts such as the learning organisation and the importance of fostering innovation-ready cultures in which all members of the team feel safe to challenge and take a risk. These kinds of cultures are not simple and straightforward to create – they are built with intention, and require the right resources, skills, and leadership mindsets to develop them.
The impact of digital on business strategy is significant. A well-structured approach can help leaders, enabling them to move forward with the confidence needed to deliver on the potential of digital transformation.