Digital Economy Dispatch #034

2nd May 2021

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Accelerating Digital Transformation in Large Established Organizations

I recently chatted with a colleague who earlier this year kicked off a major digital transformation project for a large organization. When asking about progress, he indicated a significant breakthrough: He had at last managed to get his organization’s IT team to set up email lists for his team to communicate with each other. After 2 months of work, I was hoping to hear about more ground-breaking steps forward in delivery of digital products and services, but he assured me that this was as fast as they could go in his organization.

What is it about large established organizations (LEOs) that makes digital change so difficult? Does it always have to be this way?

The new DIGIT Lab Research Centre I lead is addressing these questions. As organizations mature and grow, they have a strong tendency to slow down and stagnate. Faced with the disruptive challenges of digital technologies, they inevitably require careful attention to deliver the transformation they require across many aspects of their infrastructure, practices, and behaviours. It demands clarity in the role and impact of digital transformation in LEOs, where change is inhibited by their size, heritage, complexity, and structure.

One answer, of course, is the “Peter Pan” option: Never get old. It is an approach that has dominated in companies such as Amazon from their inception. It was described in a well-known shareholders’ letter written by Jeff Bezos in 1997 where he made it clear “there is no Day 2”. Faced with the rapid change cause by digitally-driven disruption, the only way to stay relevant is to avoid the over-bearing structures and complex processes that too often come with growth and to maintain an attitude and approach that makes it feel like it is always Day 1.

Or as Jeff Bezos memorably put it:

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1”.

Unfortunately, for many existing organizations looking to take advantage of new digital technologies, the option of staying forever young does not exist. And while corporate leaders have increasingly regarded digital transformation as essential to their future survival, delivering substantive change across established businesses and industries has been found to be expensive, complex and unpredictable. While commonly discussed in boardrooms, high profile examples of failed businesses, such as Kodak, Blockbuster and Nokia, reveal a great deal about the difficulties involved in delivering organizational change in the face of digital disruption.

Organizations engaged in digital change programmes are recognizing that the technology is only one element in the complex set of issues that must be addressed to succeed in a digital world. In recently formed organizations, this recognition is pushing many towards new, wholly digital approaches, involving lightweight processes, minimal investment in capital assets, and a flexible workforce.

However, LEOs face a rather different set of challenges.  Careful consideration needs to be given to the migration of existing investments in staff and equipment, revisions to well-understood operating procedures and roll out of enhancements to support mechanisms for existing and new clients with diverging expectations about the products and services they consume.

The last 20 years have seen an intense focus in all organizations on the opportunities and challenges related to the use of digital technology. This has changed how these organizations operate to automate and accelerate day-to-day activities, provided new insights into what the organizations know about their products and services, in production and in use and, often, has revolutionized the nature of the products and services they deliver to make them more virtual, personalized and responsive.

In many cases, the toll on the organization undergoing this transition is heavy. In the case of LEOs, several critical tensions have built up – to the point that a rethinking of their ongoing digital transformation has become central to their strategy and their success. LEOs are rife with technology-led change initiatives, agile delivery squads, experiments with new business models, piloting of cloud-based services and much more. Yet current studies confirm that executives in LEOs remain confused about how to bring these activities together, at scale, to achieve meaningful results. In practice, LEOs are experiencing a growing gap between state-of-the-art use of digital approaches in small silos and a predominant state-of-the-practice across large parts of the organization.

This gap is threatening the sustainability of LEOs in markets that are being redefined by faster moving competitors. Beyond digitizing their current products and practices, LEOs need to address several critical questions:

  • How to direct their digital transformation efforts to deliver greater value while adapting to demands for greater responsibility and sustainability in the delivery and use of existing products and services;
  • When to compete in evolving markets where sharing and cooperation within ecosystems may be a better strategy than directly challenging market entrants;
  • Where to prioritize the drive for greater efficiency in current working practices through automation, without dehumanizing the workplace;
  • How to deliver effective leadership for a new workforce generation and engender flexibility and agility to ensure employees feel engaged, included and supported.

Progress is being made as LEOs address these questions and with the influence of a new generation of born-digital LEOs that have emerged. The rapid growth of companies such as Amazon, with over 1.2 million employees, is now a prime example of a LEO. How are they maintaining their digital transformation momentum?

Earlier in April 2020 in Jeff Bezos’ latest and final letter to shareholders of Amazon, he emphasized several key points. First, he described at length the amount of money that Amazon had made for its shareholders. He then made strong commitments around support environmental concerns and the need to slow down climate change. Finally, he urged those at Amazon to stay forever young at heart and to maintain its focus to be a distinctive, industry-defining company.

And of course, he duplicated in its entirety the first shareholder letter from 1997 in which he announced that for digital transformation there is no Day 2.

Digital Economy Tidbits

Data science lessons we’re not learning fast enough. Link.

This is an excellent summary and reminder that the challenges with data science are not always to do with numbers. It has to do with understanding the context of what you are doing as a data scientist.

I’ve become much more attuned to the types of mistakes people make in applying, developing, and using data science when they start out. Sometimes these are purely technical errors, but more often, these mistakes result from more profound misunderstandings about how we can best leverage the increasingly more massive amounts of data available.

Proposals for the new EU Artificial Intelligence Act. Link.

Much like the debate on data privacy that resulted in the GDPR regulations, we’re in the early stages of legislation around AI and its use. The latest EU proposal for regulation on laying down rules to harmonize Artificial Intelligence (the Artificial Intelligence Act) is providing a view into the battleground areas, and is an indication of where this is likely to end up.

Faced with the rapid technological development of AI and a global policy context where more and more countries are investing heavily in AI, the EU must act as one to harness the many opportunities and address challenges of AI in a future-proof manner. To promote the development of AI and address the potential high risks it poses to safety and fundamental rights equally, the Commission is presenting both a proposal for a regulatory framework on AI and a revised coordinated plan on AI.

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