Why the biggest risk in digital transformations is often the C-Suite itself

While ‘digital transformation’ has been one of the biggest business buzzwords of recent years, and many companies have attempted it, the reality is that most digital transformations have fallen short of expectations. . What inspired the digital transformation was the unprecedented financial success of the digital giants — Alphabet, Amazon, Apple, Microsoft and Tesla — who are now worth more than $ 12 trillion — equivalent to nearly 60% of GDP. American, and all of them continue to grow rapidly. .

There are of course many factors that have combined to make most digital transformations fail. But a key risk is the tendency of the C suite to continue to operate with an industrial-age top-down mindset when what is needed is agile digital-age leadership across the enterprise. . The risk that materialized was not to recognize that the digital economy is not just a change in the rules of a familiar game: it is an entirely new game.

A change of game, not a rule change

I recently spoke about the issue of corporate risk with General Stan McChrystal about his insightful new book, Risk: User Guide (Portfolio, October 2021)

Steve denning: In your discussion of the Iraq war, I was struck by your conclusion that the enemy had not just changed the rules, by adopting new technology. They were playing a different game, with unprecedented adaptability and adjustment. And you had the wisdom to see that it was a different game and you also decided to play a different game.

What I’m wondering is if in business we don’t have some sort of situation where the 20th century bureaucracy no longer works. Some companies that have understood this and have acted radically differently, such as Apple, Amazon, and Google. And yet, a lot of companies didn’t realize that this was an entirely new game. It’s not just something that needs an adjustment here, or a correction there. The risk is they are playing the wrong game

Stan mcchrystal: This is exactly what we find. And we ask, “Why would you do this? It is illogical. It is not illogical, if they are still profitable. There is an absolute risk for the leader who says, “OK, we’re going to move away from something that is moving forward, maybe not very well, and into something different. So there is a temptation to keep moving in the same direction at the same speed, even if everything is sort of falling all around them. Health care is the most obvious case. The healthcare industry knows the system is broken. He’s having a hard time figuring out what to do about it. But in many cases, they are surfing on something that will eventually drown.

The risk of having the wrong people in charge

Denning: And there is another risk: the risk of having the wrong people in charge of the game at hand. When you have financial types at the head of design offices, you have to ask yourself if the risk is not a particular system or approach. It’s having the wrong people in charge. What do you do when faced with this kind of risk?

McChrystal: First of all, you have to recognize that you have that kind of risk. This is absolutely true. In Ford’s history, when Ford went from engineers to financiers, it coincided with when they began to die in the 1960s.

So what do you do about it? There can be a lot of emotions associated with a particular leader. They are comfortable and they have succeeded where they were before. It takes a lot of courage on the part of boards of directors to change. Because they are not sure if they will get a different result. It’s like a baseball coach replacing pitchers in the seventh inning. There is always the risk that if you bring in another person, they will do even worse.

And that’s what’s hitting our businesses now. We do not seek enough to analyze our leaders. We develop subjective opinions about them. But if we did a very thorough analysis of their performance, the quality of their decisions, almost doing a blind test, forgetting who the particular leader is and just looking at the numbers, that would be instructive.

Denning: But who would do this analysis? Are the leaders themselves going to be the ones to launch this kind of harsh analysis?

McChrystal: It has to be the boards of directors or the market forces that are saying: If a company wants its stock price to stay high, it needs to show potential buyers of shares that that company’s management is in good shape. And how many times do we find, after the fact, that management was absolutely bankrupt, either morally or in terms of efficiency? In hindsight, this may seem ridiculous. The question then is: who knew?

Denning: This is an interesting question because, like you, I lead workshops with executives from large companies, often with the middle or upper middle part of the organization. And at first, they can be quite shy. But as things open up, in a surprising number of cases, these people know and can describe in detail. what is wrong at the top. It is therefore not an unknown risk. It is a risk that is experienced by many people in the organization.

McChrystal: It’s very common, although it’s not like the Enron case where people did something dishonest. Rather, they are leaders who have failed to build a team to operate effectively. And if you speak inside the organization, people will tell you.

And if you do an analysis, like our firm does, and do business diagnostics, you find all kinds of things that can be fixed that are not that hard to fix. But they require concentration. In some cases, you find leaders who are just not effective for that organization. But again, this is not a really bad person where you can fix the problem by removing the cancer. More often than not there is a culture and a set of processes that empower that person. To face this risk, we have to change culture.

The The thing I really believe about risk is that there isn’t a single thing you can do to contain risk. The whole idea of ​​my book is that most of what can be done about risk is that it’s up to us to do it.

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