Change management for digital transformation: What’s different?

Digital transformation will fundamentally change your company’s mission-critical processes and operations. Done right, it changes the way your company, works, thinks and addresses challenges. If you want to change the game as CIO, you need a change management plan that addresses culture as much as technology.

“For us, digital transformation is really that intersection of technology innovation and business innovation,” says Mark Peacock, principal and Global IT Transformation practice leader with strategic consultancy The Hackett Group. “It’s how you’re taking digital technologies and as a company really, fundamentally changing the way you’re delivering products and services. It’s about applying technology innovation to come up with new business models which really drive new revenue above the line and new ways to deliver products and services.”

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“What it does is it also changes the mindset of how we think,” adds Scott Holland, practice leader of The Hackett Group’s Global IT Executive Advisory Program. “One of the things that I personally believe is that it’s not necessarily the competition that’s going to change the way you do business, it’s the customer.”

The IT function can’t drive digital transformation on its own. By its very nature, it requires close collaboration with the lines of business and other business functions (like finance, HR and procurement). But IT is the principle provider of technology to the enterprise, so digital transformation creates an opportunity for IT to move beyond the traditional service provider role and adopt a new strategic role as a driver of new digital capabilities critical to the business’s future.

According to a study by Forrester Consulting and Accenture Interactive, company culture and organization tend to lag behind process and technology when it comes to digital readiness. For digital transformation to succeed, you need to make cultural change and educational aspects of transformation a highlight of your plan.

“It not just an IT strategy,” Peacock says. “Some people equate digital transformation with analytics on steroids. If that’s all you’re thinking, you’re not going to get that fundamental business change. Our view of it is that you need a strategy and it has to be business-led and it has to be IT supported and enabled. Being able to pull that together means you need to develop an overall strategy from an enterprise level that can then be cascaded down.”

In other words, you need a clear vision for the end-state to get everyone moving in the same direction, and you need to communicate any changes to that vision during the process.

From the CIO standpoint, he adds, that means you need to focus less on back office operations and start thinking more like a technology product management executive. You still need to keep the railroad running, but free the IT organization of day-to-day transactional responsibilities (by driving migration of applications and infrastructure toward the cloud, for example).

For medical diagnostic equipment maker Alere, understanding its partners incentives and changing them was the key to unlocking its digital transformation. Alere used to have a team of analysts and managers spending more than 500 hours per month cleaning and processing data. Now they spend that time on pricing optimization, marketing campaign strategies, evaluating margins, product performance and more.

“In hindsight, we carried our legacy process for years and years,” says Jason Jarrett, global head of Financial Systems and the Reporting Center of Excellence at Alere. “If I could do it again, I would have done this sooner. You’re skeptical about disruption, but it would have been better to go ahead, bite the bullet and implement.”

Alere, with annual revenue of about $3 billion, uses third-party distributors to sell its products to hospitals and doctors’ offices.  To process incentive compensation for its sales force, it purchases data from those third-party distributors to evaluate sales performance and changes in market share. But getting the information on time and processing data from disparate sources — each distributor used a different reporting method — became a significant challenge.

With limited visibility into its own customer base, Jarrett made it his goal to transition Alere to a single-source data strategy with an integrated customer master that could be a data and reporting foundation for the entire organization. The only problem? Alere had 50-plus distributors and little in the way of incentive to get them all to adopt a common technology and process. Even if it could achieve that, Alere’s finance personnel would still have to clean the data and manually process it using Access and Excel. As with any manual process, accuracy and timeliness were issues. When errors were discovered the team had to start the entire process over again.

With the help of integrated sales and marketing services specialist ZS Associates, Alere mapped out its existing process and the data at its disposal and created new data collection and compensation processes, including scorecards that rate each distributors’ efforts to submit data as an incentive to deliver better data, on time. It reduced 25 days of processing time to 10 days of processing time.

Jarrett says change management was an integral component in making the project successful.

“It’s because we’re changing what your culture is used to,” he says. “You have to educate them about the value. You have to essentially sell it a little bit.”

The culture of the IT organization itself often needs to change too. Mark Bernardo, vice president of Professional Services, Americas at GE Digital, says CIOs need to inculcate a habit of active listening and questioning in themselves and their teams. CIOs that can see beyond requirements and identify desired business outcomes will be the ones to seize the opportunities created by digital transformation, he says.

“They have to take ownership of their leadership position in the change effort,” Bernardo says. “Forge relationships with all the other stakeholders in the business. Truly go into listening mode to go one step beyond the requirements they have to the actual outcomes they want.”

“We have to become incessant about the word ‘why,'” he adds. “‘Explain to me why that particular requirement is needed.’ Once you get to the root of that, you’ll essentially come to the desired outcome.”

Sometimes, you need to guide your customers, whether internal or external, to change their expectations. Bernardo points to GE Digital’s own business by way of example. In the past, he says, most manufacturing plants had lengthy lists of requirements that made running each plant a custom experience. Whatever those requirements were, the GE Digital services team would agree and make it work. But many of those requirements weren’t actually backed up by best practices. In many cases, Bernardo says, they were there simply because that’s how it had always been done, or even for reasons that might no longer apply. But those requirements could create bottlenecks in the design and maintenance of such environments.

“One of the biggest transitions we had to make in the manufacturing space was learning that custom experiences is not necessarily the path to speed or wide-scale value,” he says.

Creating relationships and listening is about establishing the credibility you need within the organization to help drive change.

“Has the CIO and IT organization really developed credibility with their operational and functional peers to even have brand permission to do something other than run the transactional systems? When you start to think about change management for CIOs and the IT organization, the first step is credibility,” The Hackett Group’s Peacock says. “Do you have the classic business relationship management capabilities? Have you demonstrated that you have the ability to do something other than to keep the help desk phone staffed?” 

First and foremost, Peacock says, you need to get some of your top performers face-to-face with your business partners. They need to understand what you’re trying to do as a business. These IT professionals need technical understanding, but they also need to have or develop the ability to communicate with business partners in terms of business outcomes, not technological capabilities.

“You’ve got to have people that can step up and talk about new technologies and how you can make them relevant to driving business change,” Peacock says.

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