8. Organizational Capabilities to Drive Digital Transformation

Digital transformation requires both art and science to transform a traditional business model into a business model that can thrive in the digital age. We’ve seen companies try many different approaches to “get digital done” in their enterprise. The successful ones are those that are able to combine the right people (the art) with the right process and tools (the science). In this chapter, we’ll outline how companies can structure their organizations and implement the right processes and tools to build and scale a digital business.

Before you can really discuss how to structure your organization, it’s important to take a step back and understand your organization’s roots, where senior management came from and who is a digital native and who is a digital immigrant. For instance, most people in executive management positions today were born before computers existed in the workplace. If they were exposed to computers, they entered the workforce before computers were mainstream, and they conducted business effectively without computers. On the flip side, anyone entering the workforce today doesn’t know life or business without computers. It won’t be much longer before the workforce won’t have known a world before the iPhone or iPad. Until then, understanding who gets digital and who doesn’t will be critical for any traditional business who wants to build or enhance their digital capabilities.

Back in 2001, Marc Prensky, an education writer, wrote an article entitled “Digital Natives, Digital Immigrants.” The article dealt with the struggle of children raised in a digital, media-saturated world. To thrive and learn well, they required a media-rich learning environment to hold their attention. Prensky called these children “digital natives.”

The metaphor was expanded to define “digital immigrants,” meaning adults who were raised without digital technology, and who came to digital later in life. Like any immigrant in any new land, digital immigrants struggle with the “language,” the culture, the etiquette, and the learning curve of digital. They must adopt a new way of thinking, relating and interacting with the natives. It’s rarely easy and never quite like growing up a digital native. Some have more success than others obviously, but it’s an important distinction to be aware of, particularly when it comes to the business world. In a business setting, the difference between digital natives and digital immigrants can cause conflicting ideologies, lack of understanding, communication issues around digital initiatives.

When there are natives and immigrants, there are conflicts around how people view information, how they prefer to communicate, and how they see relationships around people and institutions. The goal of a digital transformation is to learn how your customers find, explore, engage, communicate, and buy from your brand. For that reason alone it’s critical for your employees to share, or at least understand, embrace, and leverage the different perspectives of digital natives and digital immigrants to end up with better overall decisions around digital.

Just as digital immigrant teachers struggle to teach digitally native students in a classroom, many traditional C-suite executives, most of them digital immigrants, struggle to understand the digital world and their digital native employees.

• Who “owns” digital?

• Where does digital sits in the organization?

• How does a digital team interact with other business units in the enterprise?

• Who “owns” the profit and loss (P&L) for digital business?

There is an argument that if most businesses have digital at the core of their business strategy, should there even be a separate digital division. In theory, once all employees at a company, including the C-suite are digital natives, the whole company should be operating the business by leveraging digital. How you structure your digital organization capabilities in your company should be correlated to how digitally mature the company is and how central digital is to its core business. The less digitally mature a company is the more it needs to centralize their digital efforts. Conversely, companies with a high level of digital maturity (e.g., Nike) the more digital may be decentralized. In digital native companies like Google or Amazon, digital is by default completely decentralized as the entire company is digital.

The diagram (Figure 8.1) provides a framework of common ways to structure digital organizational capabilities within a company depending on the digital maturity of the business.

Businesses often fail at digital because business units are usually fighting over who owns what in digital—who owns the P&L. Assessing your digital maturity and assigning a team structure will ensure a lot of the issues are eliminated before they become problems. A lot of companies have a concept of a shadow P&L where the digital team doesn’t truly own the P&L, the business unit does. However, the digital team keeps what they call a shadow P&L. They are not focused on incremental revenue or cost, but rather a capture of the revenue and cost that’s being driven by digital in one or many business units. Companies trying to digest this model, compared to creating a digital team that literally owns all the revenue coming out of the digital channel, makes it hard for companies because it’s simply not a practical step for a lot of companies.

In between there are a number of various models. For example, at Federated they have digital teams in each business unit as well as a central team that’s more of a center of excellence. Other organizations also have decentralized team structures where digital is housed completely in their business units. What we have found is that if digital is centralized in an organization, this represents the least mature model a company can create where digital is a separate, distinct business unit.

In this instance, these companies are typically creating digital divisions with the thinking that digital is a shared service that performs all their digital initiatives, and therefore, all their digital people should be clustered together there, doing everything the same way. Then there are organizations where one business unit has the biggest digital team and the other ones have smaller ones and they connect to the larger, core business unit.

As we said, how you structure digital in your company will have something to do with how digitally sophisticated your company currently is. How digitally sophisticated your company is doesn’t mean how sophisticated your Chief Digital Officer is. It’s more about the culture and how digitally sophisticated your people currently are. It also has something to do with how much digital currently plays a role in your business. For example, if your business involves digging natural resources out of mines, your digital structure may be different than if you’re a retailer where digital is completely core to your operations and therefore should be at the center of your business. Digital in a natural resources company is an enabler of certain things, but it really doesn’t have that much to do with the core business.

Ultimately figuring out what the right digital team structure for your company is becomes an important part of creating a digital team. Ask yourself whether your business needs a completely centralized team where the business units literally come to them like they would an IT department. Do you want company structure where people aren’t allowed to touch technology or digital channels unless they go to the team in charge of digital? Or do you want to be more like a retailer, where you know you can’t just centralize everything because there’s going to be digital usage in the stores? How will you align the business so the people who run the stores are at least working closely with the digital team, or have a stake in their success so that the digital piece can thrive?

To become a truly secure enterprise in today’s business environment, building a website, mobile app, and social media presence isn’t enough. Real digital leaders should be bridging the gap between physical and digital, leveraging digital capabilities in the physical world with wearables or smart devices. But before your company can become an industry leader, it needs to make wide-ranging transformations in several areas:

• Your organization and structure

• Your culture

• Your digital tools and technology

• Your focus on digital products from “must-have” features to the ideal customer experience

Completing these changes is the primary task of a DCoE. This department should be completely entrusted with your transformation, and be exclusively focused on digital operations. To give your company the speed and fluidity, it needs to compete with digital competitors. The DCoE must:

• Move your company away from a waterfall methodology toward an agile one, emphasizing adaptive planning and continual improvement of initiatives and products.

• Usurp the existing company culture with a new set of enduring assets. This strategy calls for the development of comprehensive roadmaps and plans of action that keep your workflow dynamic rather than static, while also building teams of digital champions who act as resources for employees and spread ideas to lines of business and digital partners.

• Researching and purchasing the latest digital tools to enhance both production and internal operations.

A CDO requires more than just extensive knowledge of the digital world—he or she needs to design and execute a vision that integrates each and every digital aspect of a company or organization. Not just anyone has the know-how to ask the right questions, and a good CDO will urge a company and a brand to continue to push for digital innovation while bridging the gap between marketing and technology.

At this point, there are plenty of people who’ve spent their entire careers in the ecommerce divisions of brick and mortar retailers, but traditional companies have to make sure that employees like these don’t get—or stay—complacent. Traditional organizations must challenge themselves to bring in new talent with strong backgrounds in digital, and they must set them up with the right organizational structures and incentives to disrupt the status quo.

First, let’s look at the CTO and the CIO. A CIO is the go-to commander and problem solver for a company’s existing technologies, responsible for making sure the company is constantly adapting to new and necessary tech and IT products—software or hardware. The CTO’s focus, on the other hand, is on identifying and implementing new technologies, and it’s the more externally driven of the two roles—the CTO wants to make sure the customers and clients are on the receiving end of the highest-quality and most efficient technology possible. To completely oversimplify it, a CTO handles external operations and improvements, while a CIO’s focus is largely internal.

On to the next and most easily differentiable role—the CMO. Often referred to as a company’s informative “nexus,” the CMO’s responsibilities span from sales to product development to marketing, and even all the way to customer service. As this marketing-driven nexus, a CMO must work closely with other C-level employees to make sure that the marketing sector is utilizing the most up-to-date technologies and strategies to promote their product or brand to the world.

Chief Digital Officers and Chief Data Officers not only share an acronym, but some responsibilities. As you might expect, a data officer extracts and analyzes data to inform a company’s business strategy—they must know how to gather information and, more importantly, they must know how to effectively use it to improve a business. The Chief Digital Officer, on the other hand, oversees data assets with a marketing- and technology-sensitive eye.

In many ways, a fruitful combination of the CIO, CTO, and CMO (and also, perhaps, their successor, according to Znet), a CDO’s job is to constantly reshape a company’s structure and strategies to ensure that it’s taking advantage of any and every new technology or data-driven service. These slight differences in roles and responsibilities aside, keep in mind that most of these jobs are working toward a greater common goal—using technology and data to transform business. Although some positions are certainly more data driven while others are more geared toward marketing, the point is that companies are now increasingly allotting C-level roles to people who know how to seamlessly incorporate technology into a business’ overall strategy and daily operations.

This completely specialized department will be made up of a number of teams and roles, each of which emphasize accountability for individual projects, initiatives, and products. Here are some of the typical functions within a digital center of excellence or team:

Assess attitude as well as skill sets. Do you have a collaborative culture? Do your employees work well as part of a team? Are they able to dialogue, engage, and work things out? One of the challenges with digital is that people often spend more time with devices and less time on developing their skill sets around interaction—which can lead to a workforce where collaborative skills are often lacking, especially if you have a mixture of digital natives and digital immigrants. Take time to ensure that each group understands they have something to contribute to the mix. To ensure that the experience being designed is aligned with user needs, these managers take ownership of individual products and help development teams by becoming the voice of the customer. As the design teams try to bring business goals and requirements to life, product managers serve as experts on what users actually want from individual products. These employees are tasked with developing the user experience. They determine how customers should move and feel when they use your product or service, mapping out the individual journey they want individual users to take.

Digital transformation requires a mix of in-house and outsourced talent because of the different perspectives outside and internal digital teams can bring to your business. Not only do outside contractors live, breath, and work digital every day, they have a unique perspective on your company because they bring “new eyes” to your various opportunities and challenges. They also have a much wider awareness of what’s trending in other industries that could be used in your strategy—digital applications that either aren’t being utilized in your industry, or that no one has yet thought to utilize.

Digital is a very hot space to work in. Consequently, the very best people working in it want to do the most innovative projects, or they want to be challenged constantly, or they want to make a difference. They “do digital” because it’s the world that is changing. It’s not just about receiving a regular paycheck. It’s more about a pathway. Digital stars, like the ones in demand by top companies want to learn, want to work with the best and the brightest, and want to be mentored to grow and continue to develop really amazing digital capabilities. They are driven by the opportunities to change the world, not just get a paycheck. They want to be part of something larger than their individual selves. They want to make a difference.

Don’t think you can hire the best talent just because you offer a bigger paycheck. If you want brilliant digital stars, be prepared to compete with other companies to get their attention. Challenging projects, bleeding-edge opportunities, and a living and working environment on the east or west coasts are given if you hope to even get a digital talent to interview with you. That’s why trying to cultivate this environment in an older, or more traditional company is going to be difficult.

If you’re a traditional company not located near a coast, you can consider acquiring a mix of outsourced and insourced talent. This will allow you to bring in the top talent that wouldn’t want to work for you directly on a full-time basis, but they might like the challenges of your projects mixed in with their other projects and clients. Sometimes finding a way to digitally transform a traditional company is more challenging and exciting if it’s part of a mix of projects rather than a permanent position.

Another mistake companies make is trying to find people with digital experience and acumen in their industry, often thinking this will help them understand and work within the culture or the company. Traditional companies in your industry may not be good at digital to begin with. In addition, they likely bring the same ideas and thinking that’s standard for the industry and possibly your company, limiting exposure to new ideas, strategies, and models. The whole point of bringing in outside talent is to bring new blood, concepts, experiences, and ideas to your transformation.

Rather than looking for someone or something familiar, search for people who have worked outside your industry. Look at other industries with similar functional attributes and operational complexities (e.g., a retail ecommerce or digital healthcare executive for a digital bank position). It’s critical to recognize what roles are best suited for internal employees, as it requires a much greater connection to the business, versus what roles require more connection to outside the industry in order to gain a fresh perspective. For example, your digital strategy team should have its leader, and depending on your size, some core resources as internal employees. However, the digital team will also benefit from having an external strategic thinking partner or consultant that focuses on digital all day for multiple clients. This partner will be in a position where they can get fresh outside perspective on a regular basis. Alternatively, depending on your business and location, you may do better by outsourcing roles like user experience designers. These roles are more functionally aligned than business aligned. Plus, the type of talent that seeks out these roles may not thrive in a traditional company environment. They will bring more creativity and unique ideas to their work if they are working in multiple industries at the same time. The average traditional company will not be focused on how to cultivate a role like that. Therefore, consider outsourcing roles like this. On a role-by-role basis, determine if you are able to provide the infrastructure and acquire the talent to fully mentor and grow that talent.

First of all, digital itself has brought great communication tools that help any remote teams stay connected and working collaboratively whether they are in the same building on different floors or in different contents. Internet-based video chat applications such as Google Hangouts and Skype are low cost or free, very easy to use, and are far more engaging than a telephone-based conference call. Couple this with other real-time collaboration tools (e.g., InVision for design, Trello for product backlogs, etc.) that can be used on digital projects, you can begin to see how you can address the issues previously reducing the advantages of leveraging remote teams. There are also many web-based marketplaces like UpWork which can help source talent all over the world, eliminating the need to establish local infrastructure before building teams.

Other things that have changed are the emergence of many areas of talent across the world and even the patterns of specialties that tend to favor one area or another. While India is certainly still a strong source of talent, both in numbers and technical ability, there are many other areas to integrate into your talent pool. Talent is global. There are countries known for certain areas of expertise, or who have a history of certain skills. For example, many companies have had tremendous success in Central and South America (e.g., Argentina, Columbia, Costa Rica, etc.) finding companies who specialize in design and front-end development. Eastern Europe (e.g., Hungary, Poland, etc.) are world renowned for software architecture and development talent.

Don’t limit leveraging global teams to purely product development. Many companies are also leveraging global teams for digital business and marketing capabilities, such as analytics, lead generation, search engine optimization, social media management, and so on.

As digitally focused and expansive as the world is becoming, digital demand continues to exceed available digital talent. Enter the talent wars. Companies compete fiercely in the digital arena, boldly and brazenly poaching from each other’s talent pools.

There are often agreements between some companies about not stealing each other’s talent, yet talent is poached daily. Talent wars often focus on company versus company. Poaching and talent wars occur primarily on the east and west coasts, becoming the main challenge of larger, coastal companies. But what about the midwest, and companies located in rural or landlocked states?

How do companies attract people who would otherwise want to work at Google? Many traditional companies, and certain industries, need and want the best talent but they don’t have the cache or the “sex” appeal a digitally native company has. So how do they compete?

Is it possible to attract the quality of digital talent that the digital native companies are attracting? Yes, it is, but only if you adopt, build, and then communicate to this digital native work force. You must convince the best talent, and that your company is committed to digital excellence, to digital transformation, etc. Offering young talent a chance at greater responsibility and a larger role than they might find on the west coast is one way to attract better talent. Making sure you understand what motivates them and how to communicate with them also helps.

Research continues to show that employees, particularly Millennials and Generation Z employees, aren’t primarily motivated by money. Of course they like it, but it’s not what drives them. Digital natives and digitally talented people are motivated by the chance to change the world and have an impact on the future of the people around them.

At first glance, a digital native may think your company is nowhere near the digital edge where they want to play. It’s up to you to make sure that they know you are on a digital edge, or plan to be, with their help.

Traditional companies have to identify the unique capabilities, features, models, etc., that they could bring to the market that digital native companies can’t. They have to show that they’re committed to pursuing the cutting-edge digital initiatives that will attract the best of talent the current marketplace has to offer.

Meanwhile, there are also legacy employees—people who weren’t born before digital, but for whatever reasons aren’t comfortable or well versed in digital. They’re not as adaptive with it. So how can companies marry the two skill sets and train these very different groups? We think it’s definitely something to explore.

Companies often don’t know how to integrate the two parties. A lot of times we see the digital team is generally younger, and generally more digitally sophisticated, but they often lack the core business understanding of what the business is. As a result, the core business units brush them off. They try to minimize what they’re working on. If and when companies figure out how to make those kinds of different viewpoints work together better, they really take it to the next level.

Thought leaders can be made, so another option is to implement digital education programs across your organization and see who stands out, or quickly assimilates the teachings. These classes can look like live sessions through lunch-and-learn programs and/or online sessions. They don’t have to be long classes. Even hour-long sessions that share the details and benefits of the transformation can go a long way to develop support throughout your company as well as alert you to existing talent and potential in your current staff. Employees greatly benefit from this additional education. They are more likely to ask questions in a class environment where they’re not expected to have all the answers, than in a work situation where they feel they may risk their job for asking about something they feel you may expect them to know already. Studies validate again and again the benefits of supplemental educational programs, so it only makes sense to host them.

Yet, the companies we’ve worked with did it either because they didn’t know what to do with these people, or the person had expressed an interest in digital yet didn’t necessarily have the skill sets needed. These companies thought they could build a digital team better by pulling a people that “know their business.” We’re not saying everyone is cut out for digital, or that if you transfer the doubters and resistors into the heat of the kitchen they’ll thrive. Many won’t, but some will.

Success with finding the best slot for each employee goes back to a need for companies to have an understanding of digital acumen as a set of skills that are separate, but not necessarily equal to industry knowledge, experience, or acumen. For example, let’s say that you are a great engineer who now has moved up in an engineering-focused organization like Motorola. You now have 2 years under your belt in marketing. You and your company believe that because you know your company’s products like the back of your hand and you have some marketing experience, that you can confidently move up into a digital leadership role.

But will your skills translate well? Most likely they won’t because you still need digital experience. This is where we continue to see companies making the mistake of trying to build their digital team from within their current employee ranks—let alone their marketing ranks.

For a variety of reasons, they’re usually also scared to pick a leader for their executive digital team, meaning a Chief Digital Officer (CDO), from outside of their organization. Part of this reason is because an outside CDO won’t know how to navigate the politics of their company. So, sometimes someone is chosen internally and made the CDO, but they’re not really a digital person. As a result, we continue to meet people who are not skilled enough to manage or lead digital initiatives. Because of this, their entire company suffers and exposes itself to severe market-share erosion and financial decline.

Many companies have business units that don’t necessarily discount that digital is important, but they do discount how important certain elements of it are for their business. They fail to imagine the impact digital now has on everything they do. So then part of the problem is that the digital team comes to them and says something like, “We’ve got to be on Facebook because everybody is on Facebook.”

Digital resistors may think social media is only for younger generations. Here they’re both wrong. First of all, the fastest-growing segment going into social media is an older, retired demographic. Part of the phenomenon there is that this is where all the digital natives or as we call them “new generations,” also are today.

They are busy daily posting pictures of their growing kids. So that’s where their parents, who are now grandparents, go to see their grandkids. That’s a large part of what has driven so many new people into the digital world.

Meanwhile, the other mistake they’re making is that they are overlooking the fact that this is just how a traditional company may need to leverage those channels.

The answer isn’t always to get a Facebook page and get all your customers to like you. Instead, the answer to your challenges may lie more in the data that’s on these networks. It’s up to you to tap into this data to figure out how you can use it to make better decisions about what your customers want.

From this knowledge, you can learn how to develop the best lead-generation initiatives and so on. Part of the trick here is to find people who can put digital in context for traditional business units. This is the only way to get around the digital disbelievers. You can’t just pull employees from across your organization into the digital team. Rather you have to find those people who understand the different digital landscapes and who know how to translate digital for traditional business units.

The reality of business is that while budgets may be annual, companies need to allocate a certain amount of money that’s available to digital without locking down exactly what that money is to be used for. Have a more agile approach to prioritization and backlogging. The whole reason behind an agile approach is that you don’t necessarily know the end result until you get there. You iterate as you proceed. You want to be able to be move, to be flexible, limber, and responsive to trends and opportunities as they arise. Coming up with a prioritization process that is constantly revisiting what the company’s priorities are as availability of resources comes up monthly or quarterly is important.

This doesn’t necessarily have to be a meeting, but it should be a regular report that’s sent out. It could be a webinar or conference call, but there should be some kind of regular reporting similar to how your sales reporting, or supply-chain reporting in traditional business is done. There should be regular digital reporting as well.

The basics, like traffic to the site, bounce rates, and social media metrics are important; but it’s more than just reporting a bunch of numbers. This kind of reporting is about providing insights. A dashboard with the most important information available will let you do this. Dashboard the most important KPIs so you can get insights into what the most important numbers mean. Track the improvement generated by new implementations or new things you should do in digital.

Champions include those in your organization who really understand the politics of the company. They should know and have influence with other key players in the organization. These people don’t understand the landscape of the company, they understand how to best navigate it safely and effectively. Sometimes these strategists will overthink every little detail of something that somebody else may interpret as not such a big deal. A thought leader could be kind of obsessive about the details. Initiatives are sometime lost, not on their failure to deliver, but on their failure to keep people engaged. Additionally, if an initiative drags out too long, people become disengaged.

A top champion is also going to be the person in your organization who has accountability for improving the digital P&L of the business. Sometimes that could be a Chief Marketing Officer, or a Chief Consumer Officer. Sometimes champions could be the heads of divisions or business units or anyone who has the accountability for the digital P&L.

Ideally your best champion will be someone who is a natural leader and easily inspires other people. They should be someone who is a bit of a maverick and not afraid to take calculated risks and stick their neck out. Champions aren’t just inspiring. They’re also persistent, extremely hardworking, and dedicated to a passion and a goal. These are the most desired traits an individual needs to have to invoke change, yet they’re less common than you’d think. In other words, leaders with all or even most of these traits aren’t found in the 80 percent of most leaders; they’re in the 20 percentile.

Communicating plans in any size organization, but especially the larger ones, is a vital touchpoint for any company. If you’re going to improve the way your organization functions, you have to effectively and efficiently communicate the things you’re doing, planning, or preparing to do. We touched upon this earlier when we talked about how quickly a small organization can change versus large organizations.

Large organizations aren’t going to instantly become a 9-out-of-10 on the scale of digital transformation after reading a few books, or going to a seminar. Even working with a company who does the heavy lifting of the transformation for them won’t magically transform them overnight. However, progress can be made. One of the keys to making progress is getting buy-in across as many key groups in the organization as possible and that means creating a good communication plan. This means, as we like to say in consulting, socializing the plan. With any kind of large, multiyear transformation initiative, you’ve got to have a good communication plan that doesn’t lose momentum to ensure projects are kept on track. You also have to have executive buy-in and participation, persistence, and consistency. It takes time. And by time, we mean 3 to 5 or even 10 years. Smaller companies are looking at a minimum of 2 to 5 years. Understanding that it takes time and letting your employees know this is an important part of changing the culture so people embrace it, not dread it.

• Commit to finding the right digital talent and don’t just look internally to find true digital acumen needed to compete effectively.

• Search for people who can put digital in context for traditional business units.

• Determine the right digital structure for your organization.

• Assess your talent, tools, and processes on a regular basis to ensure you have the best mix possible to stay competitive.