Introduction

In their 2018 global markets outlook report, T. Rowe Price added a new section on technology innovation and disruption recognizing the increasing importance technology plays across all industries. They site big data analytics and Artificial Intelligence (A.I.) among the key trends driving value and disruption. Companies leading the charge with these technological trends have had outsized success, today this group includes the four largest companies by market cap and the first trillion dollar companies. These powerful trends have enabled relatively new entrants to disrupt a myriad of well-established areas including finance, transport, retail, automotive, hospitality, entertainment and even space exploration. In the 2019 KPMG CEO Outlook survey, emerging/disruptive technology was most commonly cited as the greatest threat to the organization’s growth.

By now most companies are well aware of the digital transformation taking place and the need for them to adapt and leverage the new opportunities. Over 70% of Fortune 500 company CEOs now say that their company is a technology company, and Deloitte’s 2nd biennial global cost survey shows that digital disruption is considered a top corporate risk by 61% of global respondents. However for many the quest to transform themselves into a technology company is very slow, costly and difficult. As organizations struggle to incorporate new digital and data based technologies, the technology space continues to evolve at an exponential pace further increasing the organization’s technology gap and putting them at an ever increasing competitive disadvantage. The gap eventually becomes insurmountable and more able competitors step in and take market share.

The companies that successfully leverage the technology and data trends are growing stronger and getting the bulk of the benefits from innovation, while the rest are falling behind.

Challenges

There are certainly plenty of challenges to successfully move an organization into the digital age. At the same time new technical developments have reduced the barrier to entry in almost all areas of endeavor with new market entrants readily disrupting the incumbents. Examples include the rise of ride share that is putting pressure on traditional taxi service and in some cases causing them to shut down, online retailing’s impact on brick and mortar stores, FinTech innovation forcing financial behemoths to take notice and adapt, big car manufacturers working to keep up with car startups and even NASA having to compete with private companies in space exploration. New regulations such as the European Union’s General Data Protection Regulation (GDPR) and California’s Consumer Privacy Act require organizations to develop strong data governance and security policies and procedures, and ethics committees to ensure customer trust is maintained.

The rapid advance of technology has been particularly challenging for IT departments that have had to quickly adapt to the rise of mobility, technology democratization, move to structured and unstructured data warehouses and data lakes, move from in-house data centers to cloud computing to serverless computing, and software and architectural changes needed to support evolving needs such as a move to microservices or continuous intelligence. Playing a never ending catch-up game with corporate demands for processing and storage which grow at an exponential rate to support expanding analytics and A.I. modeling needs. The importance of these technological developments has placed IT groups in the corporate spotlight, transitioning from an internally focused service organization to a strategic partner driving the company’s transformation and future success.

Companies also face plenty of analytical challenges which are not limited to the oft cited difficulties in growing their skill sets in data science, artificial intelligence and deep learning. They need to bridge corporate data silos and deal with legacy systems and data quality issues to properly handle dispersed and diverse data sets that exist throughout the organization. They need to increase the availability of end user data, which might be shielded behind a distribution channel partner. They must handle issues related to high dimensionality data, understand the limits of their “raw data” and ensure the accuracy of their models while avoiding common problems such as model overfitting. While things like data bias, deep fakes and A.I. explainability are still active areas of research, companies nonetheless need to find ways to guard against them to minimize the chances of falling prey, such as the recent example of an English energy firm whose chief executive’s voice was impersonated using A.I. to demand a large funds transfer.

Yet often the biggest challenge is overlooked – for the transformation to a tech savvy firm to succeed, the people and culture have to be aligned with the change. Culture issues can be significant even for seemingly successful transformations underway as described in Bloomberg’s article on Walmart’s culture clash. A recent Deloitte study assessing the state of business analytics found that nearly 70% of executives are uncomfortable using data analytics insights. The study concludes that corporate culture is the biggest roadblock to leveraging analytics. Similar results have been echoed by other studies, a recent NewVantage Partners study found that 77% of respondents said business adoption of A.I. and big data initiatives continue to be a challenge and that the problem is people not technology. MIT Sloan study respondents reported that the biggest obstacle to digital transformation was a lack of urgency which they simply summarized as complacency. Research by Christensen shows how even well-meaning and well managed companies can fail to adapt to new technologies and succumb to outside disruption. This work together with the work of Henderson and Clark point to existing corporate structure, processes and competencies as the main cause of failure for otherwise very successful organizations. So, while there are many challenges on the journey to become a technology company, the first and most important to overcome is the alignment of people and culture to the new technology goals.

The Transformation Starts With People And Culture

My experience working with several large and midsized companies is consistent with the research and suggests the following key steps that should be in place to successfully adapt the organization.

Assess The Opportunity and Develop The Vision – Many times digital transformations are kicked off without clear business purpose and with limited commitment, simply to “test the waters”. Progress with this approach tends to be very slow and likely lead to wasted effort and failure, all the while the organization continues with work as usual and no progress is made. Successful transformations result from a careful assessment of the business opportunity and risks, making clear the need to adapt to new trends impacting the market and facilitating the development of a lucid vision statement for the future. The assessment can be carried out by the leadership or done at the grassroots level, but in the end the leadership needs to own the results and the vision. A thoughtful assessment takes into account the potential for disruption by new entrants which can be easily overlooked if only gauging progress against established competitors who themselves may now be struggling and trying to figure out how to become a technology company. It should consider the use of technology not only to improve current products and processes but also look for opportunities to innovate, which is where disruptors are likely to arise. The 2019 Fortune 500 CEO Survey reports that 60% of the participants said they used A.I. to improve efficiency and reduce cost, while only 22% used A.I. for product innovation. While there is clear value in increasing efficiency and reducing cost, often times there may be an even greater opportunity to do very different things or in very different ways that can end up disrupting the market or perhaps enter an entirely new space. I have met with companies that are working hard to improve their current product line but miss the opportunity to leverage their assets and unique position to enter what could become a much more lucrative market. A recent MIT Sloan and Boston Consulting Group survey reports that 70% of companies investing in A.I. have little or no impact to show for their efforts, the successful ones view A.I. as a way to upend their current business practices.

Build The Plan and Commit To The Change – With the assessment and vision in place it is important to develop a clear plan with the understanding that while the approach and intermediate goals will be modified based on successes and failures, the commitment to the new vision is unwavering. The assessment of business opportunities and risks associated with the evolving digital landscape should have made it clear that what made the company successful in the past will not be enough for continued success into the future.

The plan should include changes to corporate processes including human resources to ensure the needed skills are nurtured (hiring, reporting structure, rewards system, employee training, etc) and funding mechanisms to support the growth of nascent areas which at times may come at the expense of traditional project areas.

Engage The Organization – Communicate the plan and build support across all areas and levels of the organization. Starting at the top. The transformation cannot be simply delegated to underlings or relegated to a small group. Everyone in the organization must understand the plan and be a part of the journey, from the senior most executive down to the recent hire. Roles will be different for each person, but everyone needs to know their role and that they have a stake in the change.

Proceed With Urgency – Once the pieces are in place, proceed with urgency to drive through the plan and deliver on the vision. With each passing day that progress is delayed the technology gap and potential for new disruptive entrants grows bigger and harder to bridge.