In this episode of TechPod, Thomas LaRock sits down with George Westerman, senior lecturer at the MIT Sloan School of Management and principal research scientist at J-WEL Workforce Learning, to talk about the current state of digital transformation, such as how the COVID-19 pandemic affected existing operating models and the importance of transforming company culture to support these changes.

Insights into the Gartner Magic Quadrant

Dr. George Westerman works at the dynamic intersection of executive leadership and technology strategy. During more than 17 years with MIT Sloan School of Management, he has written three award-winning books, including “Leading Digital: Turning Technology Into Business Transformation.” As a pioneering researcher on digital transformation strategy, George has published papers in Harvard Business Review, Sloan Management Review, and other top journals. He is now focused on helping employers, educators, and other groups to rethink the process of workforce learning around the world.

Here are some key highlights from the conversation:

If you prefer to tune into this conversation over video, a live recording of our conversation can be seen here.

What Does Digital Transformation Mean?

Thomas LaRock: When I heard digital transformation a while back, my first reaction was that’s a slick marketing term. I’m pretty sure somebody over at Gartner thought that up. What does this even mean? How would you define digital transformation?

George Westerman: It’s so interesting you mentioned that Tom, because when we first started our digital transformation research back in 2010, we tried to get people to use the words, and everybody laughed at us. Like, digital transformation, what a stupid thing. Isn’t that just the same technology stuff we’ve been doing all the way along? And now, of course, we can’t get away from it. Now, if a company does anything with technology, they immediately put digital transformation on the front of it. So, I get what you’re saying. And I understand that feeling that it is just marketing stuff.

Having said that, it is real. And so, the way we define it is digital transformation is about improving the performance or reach of your enterprise using technology. And in this age where we have so many different technologies, whether it’s social or mobile or, like you said, data science, Internet of Things, all these things, they’re evolving very quickly independently, but through cloud and other elements we’re able to put them together in this combinatorial innovation we could never do before. And so, this is no longer just IT plus. This is a whole different way that we’re operating and it’s accelerating.

How Has Digital Transformation Changed in the Past Few Years?

Thomas: So, about the acceleration, how has digital transformation transformed in just the past few years?

George: Well, one of the things that’s really transformed is the recognition that it’s not just a technology problem anymore. And so certainly we all know what Moore’s Law is if we’re here in the technology space. The technology improves exponentially. It moves really, really quickly. I want to give you Westerman’s Law, really the first law of digital innovation as the editors made me call it, and that’s technology changes quickly, but organizations change much more slowly. And that’s really critical because while the technology side is hard, getting your organization to change the right way is even harder. It’s harder and it’s slower. And so, when we hear the word digital transformation, one of the realizations that everybody has come to over the past couple of years is digital transformation is even more about transformation than it is about digital. It’s even more about leadership than it is just about the technology side. So that’s the first bit.

In fact, we have this group of companies, we call Digital Masters, and they excel on two dimensions of the performance. One is, yes, they are better at putting digital into their customer experience and operations and those places. But they’re also better at leadership and in vision and driving change over and over again. And you need both of those. And especially if you’re in the technology space, whether you’re in a company or whether you’re a technology vendor selling into a company, it’s easy to focus only on the technology when this ability to drive change is equally important and we got to get that right. So, that’s the first set of changes.

What Are the Four Elements of Digital Transformation?

George: We have a new paper out just last year that talks about the new elements of digital transformation. And we talk about four areas to look: Certainly, there’s a customer experience, but there’s also operations. That hidden stuff, that is how you operate in your company, how you do all your back-office work that, if you do that well, it enables great customer experience. And if you do it poorly, then you’re just making up, you’re fixing those problems.

Same thing for business models. So, you’ve got your customer experience, your operations, your business models and, in the last few years, another one has popped up and that’s employee experience. That has become almost as important as customer experience. We know that happy employees make happy customers. We know that bad operations makes unhappy employees, but what we’re finding is if you can improve your employee experience, they will give better service but they’re also going to highlight areas where you need to do more change in your organization. And they’ll also highlight innovation for you.

So, digital transformation is about customers, operations, business models, but also that employee experience becoming really critical here.

Thomas: So, the quote I have from you here, George, is “Digital transformation is less of a digital problem than it is a transformation problem.” And I love that quote. I think that really does summarize it because when you hear that term put together, it’s what does this mean? But when you break it apart and you just talked about the employee experience, the customer experience, and operations, then it kind of makes a lot more sense.

How Has Remote Work Made Digital Transformation More Possible?

Thomas: So, let’s talk a little bit about remote work. How does digital transformation impact the ability to do remote work?

George: I think what we want to talk about it is how has remote work made digital transformation more possible? And that’s really an interesting thing. There were a number of changes we wanted to do in organizations that were just considered impossible. The idea of people fully working from home, the idea of totally meeting with your customer without actually traveling to him, doctor appointments. There were a few doctor appointments happening without being in the office then suddenly they all were.

The fact we all had to go remote opened up possibilities for innovation in organizations like we never saw before. What’s the quote from? From Satya Nadella, “We did more in two months than we would, typically, have done in 10 years because this hit.” So, that’s one good thing.

The second thing we want to think about that from a remote work side is just all the things we used to make up for, all the sloppiness we used to make up for just because we were all in the same place, and suddenly so our information needed to be in a place where we could share it. We needed to all have the right equipment at home to make that happen. We needed to find ways to really pay attention to the way meetings operate because we’re all in so many meetings now. And this idea of also having the information with the meeting, with the people, now we can do that, but we had to learn how to do it. And I think that will change our organizations for the better even when we go back.

Thomas: Since we’ve not really said the word COVID but this is what we’re talking about when we talk about remote work and how you just said, “When we go back.” But let’s think about how COVID challenged some basic assumptions that we have. And I think you mentioned it about the human interaction, right? So, there was always this assumption that, as a customer, you would value interacting with a human versus any other type of interaction. I think we’ve all felt that “I want to speak to a person and not a computer.”

So, what are some of the basic assumptions that COVID has challenged?

George: Well, there are a lot of them and many of the assumptions that COVID challenged were assumptions that digital challenged and then they’re continuing to be there. But when I said, “One thing that COVID and remote work did is it took things that were impossible and made them more possible,” what I really meant by that is it made things possible that our assumptions wouldn’t have allowed in the past. And so for the idea that we can’t work from home, we can’t know what people are doing, we can’t be productive, that was an assumption that we had to overcome.

Another one is that our customers really value the human touch. I’m sorry, there was about a year there where I didn’t want to be touching anybody. And so organizations had to learn very quickly how to sell remotely and how to deliver remotely than they ever were before. And that’s going to be better for us in the end.

How Do You Build a Company Culture That Supports Transformation?

Thomas: So, let’s talk culture. As part as this digital transformation, and transformation is the harder part of all this, how do you build that culture that embraces the idea that you have to transform?

George: So, one way you do it is you get people asking a certain question over and over again. And we talk about employees being satisfied. I want them to be constantly dissatisfied. I want them to be constantly saying, “We can do better. Here’s the thing that we can always improve.” And so, the first step you can do for culture is get your people to be constantly suggesting things that are new and to pick up on a few of those ideas and make them happen and give people recognition. So, have people constantly questioning the status quo. If you do that, you’re going to go a long way towards changing the culture.

Now, having said that you can also go farther. We did some very interesting studies in another paper that came out of about a year and a half ago. Won some awards on how you have digital culture in a traditional organization. And really there are three things: You want to start some things; you want to keep some things; you want to rethink some things. You definitely want to start the rapid experimentation that the digital firms do. Self-organizing to solve problems to do quick experiments and figure out whether they’re working and then pivot and keep on going, just like the digital firms do. You can do that in a traditional company.

And those of you who are adopting Agile, you already have the tools to do it if you can make sure you got the right people in the room and you’re doing it the right way. So, you want to start that.

Number two: You want to keep. It turns out these digital firms often learn some very bad lessons about how to treat their employees, very bad lessons about how to handle regulation, and you’re usually pretty good at that. So, you don’t have to give that up. Just keep it streamlined, keep it smooth. Don’t let it be roadblocks.

And, last, you want to rethink. The digital firms say that they’re very customer responsive, customer obsessed, they say that they’re really managing by results, and traditional companies do too. But traditional companies, what you want to do is you don’t want to ask your customer, “What do you want?” You want to innovate and see what the customer likes. That’s how the digital firms do it.

Similarly, managing by the numbers does not mean waiting for the quarterly numbers to come out because you’re already a half a quarter behind or more. It means getting those numbers to be much cleaner, much faster, getting those signals to be faster, so you can act.

So long answer on culture? Number one: Constantly be questioning the status quo and help your people to make those changes happen. Number two: Think about this more digital ready culture, and that’s about the fast experimentation, the change in the way you think about customer responsiveness and results. And, last, doing this in a streamlined way of treating your employees right and doing your compliance the right way.

How Has Digital Transformation Impacted Employee Learning Environments?

Thomas: So, let’s talk a little about employee learning environments and learning development. How’s digital transformation impact that area?

George: So, this is really an important area. With all the change that’s been happening with digital in customer experiences and in Internet and in product development and in global operations, the learning and development organization just has not kept up. It’s still pretty much a process of, “Hey, here’s the catalog of courses. When the course comes up, maybe you can take it if you can get your boss to sign off on it.” It had not caught up. And now it is.

So, we’ve been doing some work we call the Transformer CLO, which is how it should look. And the idea is this learning should be available when you need it in small pieces, rather than making you wait for a degree or wait for a course to happen. And so, we talk about it as being more digitized, more atomized, more personalized, and more optimized than it ever was before.

And so one of the things we’re doing in this lab J-WEL, Jameel World Education Lab, is really thinking about the whole process of workforce learning around the world and how can we reimagine that so people can take charge of their career whether they’re in a company or not and they can get the right advice on what to do, the right kinds of learning they need in the moment, and then they’ve got a way to show through certifications and others, what skills they have, even if it’s not a college degree or whatever.

So, we’re right in the middle of this now. How can we rethink the whole process of getting the skills you need? It’s the right time for it.

Thomas: No question. As you said, the way training works or workforce learning works is, “Here’s a catalog of courses. Pick one and maybe you’ll get funded in eight months and you can take it.” Of course, by then the technology you have learned will have moved on. Or maybe you’ll get to go to a conference this year. Maybe not, but maybe you will. And that’s really how the learning kind of happens for a lot of people out there. And, absolutely, we’ve got to do better than that.

George: And if you think about that model, Tom, it has led to all kinds of dysfunctions that need to be fixed. I can charge more for a three-day course than I can for a one-day course. So, if I’ve got one day of material, I can pad it out to be three days just to get … Not me. I don’t do that, but training people can. Right?

Another idea is why do we have trainers teaching these technical topics? Why don’t we have people who are actually practitioners doing it? And so, this idea that organizations are doing peer learning. Now, you got to teach the best people how to teach, but that’s often a lot easier and better than teaching the trainers how to do this really complex stuff. And so, there are all these different opportunities coming up with peer learning and with pinboards that people can put their best quick reading on with the idea of learning in the moment. It’s becoming real in organizations.

How Do You Manage Risk Within Your Digital Transformation Initiatives?

Thomas: So, SolarWinds puts out this IT trends report annually. I think we’ve done it for the last eight years, and we gather feedback from the respondents on overall IT trends. And one of the trends that came out this year was where are they going to be investing time and money over the next, say, year to 18 months? And 60% of the respondents came back saying that, “There was going to be this focus on security and compliance.”

So, with regards to digital transformation, is risk ever a part of those conversations as people are looking to make these transformations?

George: One of the really critical elements that gets in the way of digital transformation is if you’ve got a really messy legacy infrastructure, legacy applications. If you’ve got legacy spaghetti, it makes it hard to do anything. Okay, so one of the things that you can talk about is if you have legacy spaghetti, you really want to talk about turning that into legacy lasagna. Taking all that messiness and turning it into nice, clean layers of functionality. But that’s only a start. Then you want to get the legacy ravioli, getting closer to this microservice idea we’re talking about, where you can rearrange these things on a plate where you pick up.

So, one of the things that we’ve learned over time is that the executives, they manage risk, but they don’t always have a comfort level on how to do it. And in our research we’ve found that there are four words. If you can talk about these four words, you can make it clearer what risks you’re facing and what to do about it. And so, the four risks we talk about as being most essential from IT are four A’s: There’s availability, keeping things running, bringing them up at the right pace if they go down; number two is access, making sure the right people have access to the right things and the wrong people don’t; number three is accuracy: Is the information clean, integrated, and ready for people to use the way it needs to be? And then, last, is agility: Can you change with the right time at the right pace and cost?

So, the interesting thing is that the farther you go up in those A’s, the harder things get to be, but the farther you go in the A’s the more important they are to the business. And so if you can talk about these four A’s and they say, “Hey, we want to be more agile,” that gives you an opportunity to say, “Well, if you want to be more agile, there’s spaghetti we got to clean up, there’s some other things we need to do first.” And you can have that conversation about that.

Number two, it gives you an opportunity to be clear about the risks you’re facing as part of the conversation about the investment in the first place. So, it is routinely the most highly rated session out of the two-day course I teach for essential IT for non-IT executives, is how do you talk about risk? And those four A’s just resonate for the business.

Now, I know if you’re in security, you’re going to say three of those are what we talked about already, but these four, it’s a good experiment. Find your favorite businessperson, and say, “How important is each of these four A’s to what you’re doing and how are you doing on managing them?” And there’s no right or wrong answer, but that’s going to give you a really good conversation. So, as you’re talking about these four A’s in your organization to think about risk, that’s a great way to get better alignment on what’s working, what’s not, what the real tradeoffs are in there. But then you want to think about your general risk posture. How can you be just less risky, more able to be more agile over time?

And we say there are three ways to get that done: And number one is just cleaning up the mess you’ve got in your platform. So, this idea of moving from messy spaghetti into good clean ravioli is number one. And that’s hard, but it’s payoffs because it not only allows you to secure it better, but it also allows you to be more agile moving forward from there.

Number two is the governance process: What risks do you face? What are you going to do something about? What are you not? Let’s be clear about what those are.

And number three is the culture: The more your culture is risk aware, the better you’re all able to move forward in the right way. You all bear risk, but you can take on a little bit more risk because the culture is ready to work with it.

So, if you can think about that, getting your platform clean, fixing your governance process, making it as streamlined and clear as possible and, last, putting this risk aware culture in, those can go a long way to allowing you to do more great things with less risk.

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This podcast summary has been edited for brevity and clarity. Please see the full transcript below or listen to the full audio podcast on Spotify, Apple, Stitcher, or Google for more.

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digital transformation
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