Where Can Digital Transformation Take You? Insights from 1,700 Leaders
This is the first of our three-part “Leading in the Digital Era” series.
“Got a driver’s license? Good! Now, step into this Formula 1 racecar.”
This was how one executive of a Latin American e-commerce company described the challenge of digital transformation: Many of the tenets of effective leadership are familiar, but everything is happening much, much faster. And the task is not to cross the finish line and turn off the engine, but to get comfortable—as a leader and as a company—with this new pace and the attendant complexities.
Navigating through the digital era is not for the fainthearted. Most of us know how to drive—we have the basics—but we recognize we are ill-prepared to race against world-class competitors. While data and digital technologies were once enablers of efficiency and cost-cutting, today, they’re the engines of innovation and revenue growth, offering organizations unprecedented opportunities to develop new products and services, and even reimagine their businesses.
In mid-2020, we set out to understand the challenges of leading in the digital era. Teaming with the Harvard Business School Global Research Centers and Salesforce’s Ignite team, we held 21 roundtable discussions with more than 175 executives from companies around the world, ranging from dominant incumbents to digital-first start-ups. We also surveyed over 1,500 senior executives from more than 90 countries.
Their conviction was resounding: 97 percent of respondents “agreed” or “strongly agreed” that organizations will not remain competitive unless they radically adapt to the demands of the digital era. All but 3 percent indicated that their organizations were undergoing digital transformation.
How to do this successfully becomes the pressing question—one we will try to answer in this three-part series: first, to describe what it means to be a digitally mature company; second, to outline what it takes to create one; and finally, probing how leaders must change not just their organizations, but also themselves.
Everything is changing and technology is a key driver
When we asked executives to join our roundtable conversations about “digital leadership,” they warned us that the term was too narrow: “leadership in the digital age” better describes the strategic questions they face. After all, they’re wrestling with three major shifts in the global economy—changes born of technology that technology alone can no longer address:
New customer expectations. Customers want frictionless, end-to-end experiences with companies, said roundtable participants. Digital natives in particular expect customer-company interactions, even in business-to-business industries, to be as fast and intuitive as tapping out a text or playing a video game. Not only must a company offer high-quality products or services, but the way they deliver them to the customer matters much more today than in the past.
Customers demand more value and innovation than ever before, but they’re not always willing to pay more for that product or service. In fact, thanks to social media, dissatisfied customers can amplify their opinions about a company’s long support wait times or hold organizations accountable for their environmental practices. Moreover, the accelerating pace of technological development and global interconnectivity can erode a company’s competitive edge faster than ever.
New employee expectations. Information has become democratized both inside and outside of companies. In the past, CEOs and other senior leaders were seen as the legitimate strategic decision-makers because they had more access to data and could decide if and when to share it. With much more information available to many more people, leaders’ legitimacy must come from different sources, or they must share decision-making with employees—or both.
Workers increasingly resist one-way, top-down communication and commands; they expect to be heard and to help develop their organizations’ plans and solutions collaboratively. They take the responsibility that comes with “co-creation” seriously, with younger generations of employees ready to be judged on their creativity as much as their expertise.
New societal expectations. Roundtable participants said that Millennials and members of Generation Z seek purpose and fulfillment from their work, and care deeply about their organizations’ long-term impact. They demand that leaders serve stakeholders, not just shareholders, and proactively build a more equitable and sustainable world. Customers increasingly want the same and are especially concerned about issues that affect them personally, such as data privacy and security. Social responsibility in the broadest sense, roundtable participants said, has become a competitive “must,” essential for attracting talent and building trust with customers.
Six qualities of digitally mature organizations
Rather than waste time resisting, digitally mature organizations embrace and adapt to these key shifts in the business landscape, participants said. Companies able to navigate this unforgiving dynamic tended to have the following characteristics:
1. An intimate and dynamic understanding of the customer
With more and better data available, companies can get to know their customers like never before. Rather than expecting customers to buy whatever a company sells, the most successful companies proactively anticipate and discover customers’ problems and desires and innovate accordingly. Because of the transparency afforded by the internet, where customers can browse reviews and prices with ease, digitally mature companies aim to provide a unique, often more customized, end-to-end customer experience.
“Understand your customer” has long been a business mantra, but even roundtable participants from digital-first companies admitted that too often their organizations merely sell the products and services they have rather than develop new offerings based on evolving customer needs and desires. Interestingly, only 55 percent of survey respondents ranked customer focus as one of the most critical characteristics for success in the digital era.
Getting to know the customer has become a dynamic, ongoing process, and is fast becoming table stakes. For example, companies understand they need to get reacquainted with their customers after the COVID-19 pandemic and recalibrate their pain points and desires. One participant remarked, given the unpredictability of the pandemic and the economy, companies should “serve their customers, not sell to them,” and build the connections needed to move to the next normal. Global strategies are also becoming more “glocal,” with growing pressure to develop products and services for the needs and expectations of specific national markets.
2. Culture that’s data-informed, not data-driven
Digitally mature organizations embrace data—lots of it!—and use it to make better, faster decisions. However, data informs, not determines, their decisions. Analytics are important, but judgment and critical thinking ultimately set the roadmap. All employees, not just the data scientists, use data to develop new insights and foresight instead of relying on past experience. Given the speed of change, hindsight might be irrelevant to the task at hand. Digitally mature companies have the right technical expertise (such as experienced data scientists or analysts), tools (dashboards and data visualization applications), and platforms (computing infrastructure and operating systems) to integrate data across their organizations.
Simply making data available doesn’t guarantee that teams will use it. Can employees access data easily? Is it integrated into employees’ workflows and processes? Do employees—regardless of seniority, experience, or age—know how to interpret the data? While 61 percent of survey respondents ranked “data-informed decision-making” as one of the most critical success factors in the digital era, judgment—an analog skill—is still required. Digitally mature companies have employees up and down the hierarchy who can look at data critically, knowing that some analyses will be incomplete, imperfect, or even biased.
3. A challenger mindset and willingness to disrupt
Digitally mature companies encourage employees to challenge the status quo—even if this means fundamentally rethinking the core business. Everyone in the organization is responsible for listening to signals from customers, suppliers, and other stakeholders outside the company. They’re empowered to question all aspects of the business and suggest new ways to create value for customers. People who thrive in these conditions are actively curious about everything happening around them; they’re comfortable admitting what they don’t know, and are willing to unlearn, relearn, and embrace the latest and best practices.
Curiosity and creativity are vital resources for a digitally mature company. Even with the automation of many functions, participants were adamant that human ingenuity continues to be critical. Leaders of these organizations tend to look for people who apply their creative sparks to the insights they gain from data, artificial intelligence, and feedback from colleagues. Learning and performance are twinned, not split as is often the case at companies that have yet to embrace agile approaches.
When hiring and promoting staff, these organizations look for candidates with a “growth mindset,” who can adapt to changing conditions. One participant said their business assesses each employee’s “AQ”—adaptability quotient—to gauge their capacity to be agile and grow even under stress.
4. Distributed decision-making and co-creation
Companies have been aspiring to bust silos for well over a decade, but growing demand for end-to-end customer experiences has made cross-functional work imperative. Roundtable participants agreed that digitally mature organizations are highly collaborative.
Leaders of digitally mature organizations see beyond functional silos and organizational levels to bring together individuals with varied skill sets to frame and solve problems.
These leaders view employees more as “collaborators” than “followers,” in part because data and technology enable more employees to have input in decisions. For that reason, diversity, equity, and inclusion efforts that bring more perspectives and experiences inside companies have become critical to stimulating new thinking, some participants said.
“The COVID-19 pandemic has forced leaders and organizations to reimagine collaboration.”
Executives we talked to say leaders must carefully balance when to “weigh in” and “step back”; their ambition is to empower employees to own and act on their decisions. But these companies are also willing to go outside their organizations, sectors, and regions to harness talent who can deliver differentiated customer experiences.
Of course, the COVID-19 pandemic has forced leaders and organizations to reimagine collaboration, the participants said. We have all grown accustomed to the virtual meeting and collaboration tools that global companies are using to engage people from around the world at different organizational levels, but success requires more than technology:
- Explicit discussions about shared purpose, values, and norms can encourage ownership and collaboration.
- Regular meetings—not just ad hoc troubleshooting—help standardize processes.
- Rituals can forge a sense of community and belonging despite physical distance and cross-cultural differences.
- Orchestrated “social” encounters can foster mutual trust.
However, participants know firsthand the limits of virtual collaboration. When it comes to horizontal collaboration, there appears to be no substitute for face-to-face interaction for building trust and connection, even among digital-first companies and digital natives.
5. Continuous experimentation and learning
In a world where speed matters, digitally mature organizations act even when the appropriate move is ambiguous. They don’t wait for perfect information before making decisions; they see their decisions as “working hypotheses” based on the best information available.
“Digitally mature organizations leverage design thinking, lean start-up, and agile methodologies to power innovation.”
We’ve heard for years about the need for organizations to develop a workforce of calculated risk-takers, able to live by a “fail fast” and “learn fast” approach. Leaders still want this, and to get it they need to create an environment that makes room for uncertainty, experimentation, and well-intentioned failure. They themselves must be willing to have the courage, as one participant put it, to launch new products or programs, experiment with them, refine them, and even drop them.
Digitally mature organizations leverage design thinking, lean start-up, and agile methodologies to power innovation. They conduct rigorous, relevant experiments, and test, learn, and adapt in light of new developments—even dropping once-promising projects when the data suggest they no longer work. With customer intimacy guiding their operating models and cultures, these experiments put customer needs first. In fact, we heard examples of companies co-creating new products and services with their customers, for instance, in innovation labs designed for that purpose.
6. Ethical decision-making and proactive governance
As technological advances give rise to previously unimaginable use cases, digitally mature organizations recognize that they are accountable for the unintended consequences of their actions within and even outside their organizations. Participants acknowledged that ethical dilemmas will arise, but that leaders must go beyond “do no harm” and establish the processes, habits, and talent that serve as the company’s compass and guardrails. Millennials and Generation Z in particular want to work at companies that stay true to espoused values.
Leaders of digitally mature organizations align their employees around a shared purpose that puts ethical decision-making on behalf of stakeholders at the center. These companies earn the right to collect and use employees’ and customers’ data, for example, by being transparent about their intentions and relevant processes. When they use that data, they actively ensure they are abiding by the expectations they set when they gather it. Organizations want to get to the point where customers want
to share their personal information because they trust they will benefit from its use. Building this trust needs to be a multi-pronged effort embraced by all in the company—not just policed by those in compliance roles.
“Indeed, digital transformation can be an odyssey, but it has a destination.
We had lively discussions about the relationship between the private and public sectors and how that relationship needed to be reimagined given the challenges and opportunities emerging technologies have unleashed. Participants described how complicated it is to do business across the globe—where there is no standard or “level playing field” for handling employee or customer data, for example. American companies were seen as far behind those in Europe and much of Asia in working with governments to address the moral dilemmas associated with digital technology. Many participants, especially those in emerging economies, said they proactively partner with policymakers to develop regulations and practices that encourage competition, protect customers, and meet the needs of society.
Digital technology: Enabler or disruptor?
Companies around the world are trying to harness the potential of digital technologies and data to ensure their very survival. When we asked leaders what it takes to prepare organizations for this effort, they shifted quickly from talking about digital tools to talent and culture—a surprise to us. Many companies find the journey to digital maturity daunting, with its seemingly endless considerations and constantly shifting landscape. It’s new ways of working and new relationships with customers and other stakeholders that separate digitally mature companies from those whose transformations are still underway or have stalled.
In part two of our series, we will share what we learned about achieving these hallmarks or simply getting in the race. Indeed, digital transformation can be an odyssey, but it has a destination: at the end of the journey, digitally mature organizations can test and learn, change course, and reinvent themselves while remaining true to their core values.
About the Authors
Linda A. Hill is the Wallace Brett Donham Professor of Business Administration and faculty chair of the Leadership Initiative at Harvard Business School. Ann Le Cam is senior vice president of global talent and animation production at Weta Digital. Sunand Menon is chief product officer of RANE, a risk intelligence company. Emily Tedards is a research associate at HBS.
What sets digitally transformed companies apart?
Share your thoughts in the comments below.