Moving from a legacy business to a digital disruptor?

Over the last several years, the siren call of digital disruption has become louder and louder. Here is what some of the biggest thought leaders have said regarding this topic:

• “The introduction of new technologies creates entire new ways of serving existing needs and disrupts existing value chains” (The Fourth Industrial Revolution, Klaus Schwab, World Economic Forum, 2016, page 51)
• “What makes modern business different? Simply put, speed plus disruption. Wave after wave of next generation technology, is continually transforming the landscape of business” (Zone to Win, Geoffrey A. Moore, Diversion Books, 2015, page 13)
• “MIT Center for Information Systems Research (CISR) has found that only 28% of established companies have successfully digitized” (“Don’t Confuse Digital with Digitization”, MIT-Sloan Review, September 29, 2017)

The question is a company’s lot cast? Jeanne Ross’ research has certainly found that many established companies do not necessarily believe they will successfully cross the ‘digital chasm’. But does this have to be the case? This is the question that I posed recently to CIOs within the #CIOChat.

What are the biggest obstacles for legacy organizations?

I was amazed that technology leaders do not see technology as the biggest obstacle to crossing the digital chasm. They say it often comes down to culture, resources, and analog thinking on the part of business leaders. In fact, CIOs believe analog thinking is a significant obstacle for many legacy organizations responding to digital disruption. Changing this is about breaking out of status quo which according to Geoffrey Moore is pursuing ‘best in class’ strategies where returns drop to the cost of capital.

CIOs stress that CEOs need to understand that someone is out there is trying to eat their lunch and that their inaction can lead to business obsolescence. It is amazing but CIOs say there are large, successful legacy organizations that do not even believe digital disruption is possible for them. They believe in the language of the ‘financial crisis’, they are ‘too big to fail’. CIOs say that resting on laurels, underestimating the urgency, or willfully downplaying the importance of preferred customer experience are issues that will kill a legacy organization.

CIOs believe that for many organizations there remains a resistance to change and a lack of vision or leadership. There, also, can be an intolerance for risk and a fear of changing corporate culture. What is needed could be labeled as a ‘change culture’.

CIOs say that business leaders are needed that have a degree of fearlessness to themselves. Something CIOs believe is rare. CEOs are needed that understand today’s disruption comes generally from outside their industry and can absorb this fact and act quickly upon it. This means, by the way, that digital is like a hot knife against the butter of the barriers to entry described by Michael Porter’s book in “Competitive Strategy”.

The reason often for CEO timidness, CIOs claim, is that boards do not typically incent CEOs to make of big, risky moves. For this reason, CEOs often think in a few years, I’ll vest and retire if nothing blows up. CIOs believe the fix for this is making CEO compensation reflect a longer term, bigger picture. CIOs say disruption is uncomfortable. Real leaders, however, accept the discomfort, including questioning ideas, filtering out those based internal orthodoxy, and let some ideas blossom slowly.  It can be difficult for legacy businesses to reimagine themselves through the lens of market needs, customer experience, competing with analytics, leveraging emerging technology, and driving a collaborative, smarter, and faster organizations. 

Where there is a business willingness to respond, the barrier conditions include technical complexity, insufficient talent, burdensome processes, and wrong-weight governance. CIOs like to call these things together as ‘technology debt’. Legacy process and technology debt represent a huge burden for many legacy organizations. CIOs suggest that technology debt doesn’t necessarily equal old technology. It is poorly implemented, integrated, and architected technology. It is often based on inefficient processes. Technology can be 5 minutes old, says one CIO, and still create technology debt. The reality is businesses need the agility to respond to disruption.

Additionally, when presented with opportunities to shift, culture should not drive people to the least expensive or band-aid solution, rather than driving towards appropriate investment in transformative solutions.

Paths forward for legacy organizations

I shared with the CIOs that Jeanne Ross at MIT-CISR claims there are two paths forward for legacy organizations, customer experience and digital business services. CIOs believe that user experience is a path and definitely disrupts. CIOs are open that enterprises are still thinking in ways that limit customer experience.

CIOs say as well that most don’t think of the employee in the customer experience equation. CIOs say this is about adding information and experience to everything. One educational CIO suggested for this reason that they consider things like:

• Learner Experience
• Faculty Experience
• Alumni Experience

But having said, this CIO say that maybe all of these do fit under customer experience. Other CIOs suggested that digital transformation is about deciding what markets you want to pursue and what to markets you want to divest or milk for funding. It’s clearly hard, expensive, and wrenching. CIOs suggest this is place for leadership. It is an opportunity to drive the business forward. Done correctly, it will lead businesses to decide when to partner, divest, enter, or leave markets. CIOs suggest that customer feedback is critical. CIOs, for this reason, believe that digital transformation needs to be about changing culture and creating tools that allow faster, more profound change to become the new normal.

Some CIOs interesting suggest that they like the two paths put forth by Jeanne Ross but see a third and maybe even more. One CIO asked whether new products and services should be added to the current service catalog such as looking at the data you currently have and repackaging it or monetizing it somehow. I personally believe that Jeanne conceptualizes this as part of digital business services. CIOs also suggest importantly that digital business services should be designed to enable great customer experience too. These CIOs say the customer is whomever the user is of IT delivered services.

Winners integrate business capabilities to create a differentiated market position?

Paul Leinwand and Cesare Mainardi (Booz and Company) and David Teece (Haas Business School) have been the major thought leaders for capabilities business strategy. Here companies with the ‘right to win’ have 3-5 coherent business capabilities that work together to give them advantage in business markets. Jeanne Ross has suggested that legacy organizations that win in digital disruption can take capabilities that others may or may not have and integrate them to create something new and this action creates a differentiated market position.

CIOs believe, in general, that this makes sense. Fixing processes that provide new capacity is a great direction. As well, they agree that providing a backbone capacity for improved and targeted services makes sense. However, they interestingly warned that not all services are equal and that you do not want to reconceive the wrong things. For example, you shouldn’t attach a steam engine to a Tesla or create a state of the art general ledger system to differentiate your businesses—unless of course this is your business. And just lowering costs shouldn’t be an objective for most businesses. I am fond of saying in my marketing classes that Michael Porter’s strategy of cost leadership does not live in the United States anymore.

CIOs, in general, think that intersections are a fertile ground for innovation for digital disruption. They say that it is one of the many ways to innovate at scale. For this reason, organizational change management is critical to success with digital. In digital transformation, capabilities should change as your assumptions of what digital looks like changes. It’s also a project and like any big project, digital transformation should have clear vision and mission from the C-Suite. Otherwise, employees will not get behind it. Clearly, CIOs do not want to be part of creating a ‘Kodak Moment’ where the middle decides not to participate with the transformation strategy.

CIOs, in general, see value in ‘Blue Ocean’ thinking.  It is good to be where the competition isn’t. It is good to be as well where the disruption isn’t occurring today. Digital business services, CIOs say, alone aren’t always the next great thing. I think they are good when digital changes business models like GE’s move from selling jet engines to selling a jet engine service powered by data and predict maintenance analytics. Here, the opportunity is to provide guaranteed uptime to airlines.

CIOs believe that digital transformation needs to free up people and costs as well. It should allow enterprises to refocus. CIOs say, for example, that monetizing APIs is happening across many industries, but governance risk and compliance and information security are keys to keeping public APIs from wrecking your business bottom line. 

In the meantime, legacy organizations are often hindered if they cannot sell the importance of process change and improvement to legacy people. It is critical here that organizations debate effectively what to leave behind. Gary Hamel several years ago suggested that it is important for leaders to root out orthodoxies that hold their businesses behind.

Are the biggest obstacles to success people and processes?

CIOs believe that in digital transformation legacy organizations are hindered by vision, legacy people, and legacy processes. Now this is not the fault of people and processes. Large technology projects fail at high rates. The root causes of this has been inattention to process, insufficient resources, absence of change management and so on.

One CIO said here that their favorite sayings is, “I love process, unless it impedes progress”. For too many, they say this is how it’s always been or always will be done, instead of challenging the status quo. This limits their response to digital disruption. The fact is legacy organizations are hindered by a lack of intent. Wherever there is intent, there is unimpeded innovation that results in continuous change and transformation.

At the same time, change is easy for those who are in charge of it. It’s not so easy for those who are doing it. Leaders need to empower change in every imaginable way. Clearly, better IT is necessary, but not sufficient for digital transformation. You need board and CEO vision, C-suite buy-in, and then the CIO can wave their magic wand. CIOs are fond at saying culture eats even cool technology for breakfast.

One CIO suggested here that everyone is not a process thinker.  Identifying and empowering good process thinkers in the right spot is a challenge, particularly in legacy organization.

What people oriented steps should CIOs take to enable their businesses to transform?

CIOs say if you don’t have the team on board with the vision, you will fail before you even start. If you have a supported vision, almost everything you do after that (people, technology, and partners) can be linked to it. It is important that CIOs educate the board, CEO, C-Suite about what’s possible and almost possible.

With this said, CIOs say a framework for idea evaluation and prioritization is needed which is repeatable and supports strategy.  It is important to align resources to priorities. This includes identifying process thinkers and transformative leaders. You need to get them into the right project roles. CIOs insist it is critical, as well, to enable one team to make customers happy. Otherwise, you will fail by a significant degree. One CIO said set the table properly by removing fear from your employees. When employees feel safe and empowered, everything is possible. CIOs believe you should encourage–even reward–risk, failure, and the response to both. Use failure and deep learning to determine the not-to-do’s that prevent success.

The good news here is that legacy organizations do not have to be disrupted. What it takes to avoid disruption is a willingness to challenge strategy, culture, and legacy business processes. Those that can’t do this will surely fail in the days to come as the longevity of public companies continues to become shorter and shorter. Those with the right to win will eliminate their legacy debt and prevent it from reoccurring in their organization. And one more thing, those that win will increasingly look like software companies. There is much to do technically with the right vision, the right people, and the right processes. With these things aligned, real change is possible for legacy businesses.