For years, organizations have viewed becoming digital-first as a “transformation,” as if, like summiting a mountain, it was some fixed point they had to reach. But that relies on an antiquated approach to reinvention that fundamentally misunderstands today’s—and tomorrow’s—digital world. Transformation, by definition, is a one-time process, but technology is changing at a faster pace than ever. Organizations today need to create a self-sustaining culture and infrastructure to continuously adapt and thrive in the digital economy.
Put another way, organizations, like people, don’t stop evolving when they reach maturity. In fact, if they do stop evolving—just as with people—it usually leads to stagnation. The retail sector is a perfect example. Despite building robust e-commerce platforms, improving the user experience, connecting via social media, and offering on-demand convenience, no one would accuse the industry of being digitally sustainable. Retail is only now starting to move from knowing where its customers are to who they are, what they are buying, what motivates them to buy, and how to serve them in the most convenient way possible using data.
Statistics lay bare the current misalignment in digital transformation efforts. Organizations are estimated to spend about $1.2 trillion on digital transformation technology in 2017, and according to a 2016 survey by Progress, 96 % of those surveyed said digital transformation was “critical” or “important” to their future success. Yet 75 % of organizations are “not very confident” in their ability to execute a digital transformation.
Perhaps counter-intuitively, people are the key to creating digital sustainability.
To thrive in the “new normal” of disruptive change, organizations need to put the right conditions in place to continuously adapt. Based on research conducted in conjunction with Oxford Analytica and the Korn Ferry Institute, we measured five key dimensions that foster digital sustainability in organizations. Those dimensions include:
- Agility: Rapid decision-making, execution, and response to environmental changes.
- Connectivity: Consistent collaboration with internal and external stakeholder ecosystems.
- Discipline & Focus: Unequivocal clarity on what “digital” means to an organization and how to achieve desired outcomes.
- Openness & Transparency: Deliberate clarity about ethics, responsibilities, and practices. Employees are valued and creativity is encouraged.
- Empowerment & Alignment: A clear and definitive mission statement that equips talent to make decisions with the velocity to match the pace of business.
Perhaps counter-intuitively, people are the key to creating digital sustainability. Organizations view transformations in three buckets: people, process, and technology. And while they have spent massively on tech and heavily emphasized process, the people aspect of transformation has been meaningfully neglected. Part of the reason for that is because the digital economy requires organizations to access people in a completely new way. In the past, as companies got larger and more complex, they focused on creating autonomous groups of people and minimizing risk. The result: hierarchies, traditional rewards, static teams, and closed ecosystems.
The digital economy mandates organizations be more agile, emphasizing team-based work where innovation is encouraged, decision-making is flat, and employees are aligned and empowered. Underlying all five dimensions of the Digital Sustainability Index is people muscle. While many organizations have focused on the “hardware” of digital change—such as introducing new technology and systems—it has proven a great challenge to create the “software” needed to alter culture and improve employee engagement and alignment. But businesses must focus on this complex area to sustain success in the future of work.
While the greatest downside in digital transformations to date has been experienced through people, the greatest upside in digital transformations is also possible through people. Leaders who leverage a cross-section of employees from different units and experience levels to tackle a problem and those that look unsentimentally at unofficial, but highly culturally embedded rituals can meaningfully improve the digital sustainability of their organizations.
The compelling commercial imperative for becoming a highly flexible, digitally sustainable company is clear. According to our research, organizations that score high on the five measures of digital sustainability see a 5.6 percentage point increase in profit margin (earnings before interest, tax, depreciation, and amortization—EBITDA) versus the low performers. For a mid-cap company with revenue of $7 billion, this could potentially represent a difference of $392 million.
Creating lasting sustainability is a struggle common to most organizations across industries. It requires a new approach to talent recruitment, development and retention, new ways of operating and a shift in leadership. But most importantly, it requires an understanding that reinvention isn’t a one-time occurrence and that future success will belong to those organizations who are always iterating and adapting.