COLUMN

Digital Success Requires

Breaking Rules
Jeanne Ross  •  
July 25, 2019

READING TIME: 6 MIN 

In an earlier column, I discussed how digital

technologies (social, mobile, analytics, cloud, internet
of things, artificial intelligence, blockchain, and many
more) are instigating two different transformations at
established companies: one to become digitized (for
operational excellence), the other to become digital
(for rapid innovation). Both transformations are
essential to sustained business success, but the
technologies are the only thing that digitization and
digital transformations have in common.

Companies need to continue to run much of their

business with the top-down, disciplined approaches
and accountabilities that are essential for digitization
— but which don’t work for digital. There’s an inherent
dilemma in this: Management needs to implement
strict standardized processes, while also hoping the
company will be agile and constantly able to change.
These are basically opposites.

Our research at the MIT Center for Information

Systems Research has found that companies cannot
scale new digital business models if they have not
digitized. In other words, they need core systems,
processes, and data that provide operational
excellence. That may not seem surprising. But this
digitization embeds management approaches that
won’t work for digital innovation. Specifically, carrying
over the business rules that lead to operational
excellence — process optimization, business case
development, performance metrics — actually
impedes execution of digital business models.

Developing and adopting new rules for the digital age

is proving uncomfortable for people at every
organizational level. Much of the discomfort arises
from the speed at which digital business demands
organization change. In particular, the need for speed
requires redesigning accountabilities. That’s because
while digitization requires top-down leadership
principles with centralized accountabilities, digital
business success requires local empowerment with
distributed accountabilities. It’s easy to get caught in
the middle of these dueling requirements.

If you want to digitize and become digital — and I

would argue that, in the long run, you have no choice
— you’ll need to address the challenge of redesigning
accountabilities. There are three things you can do to
get started:

1. Distinguish digitization from digital initiatives.

2. Give digital business leaders space to invent new

rules and metrics.

3. Identify and train new leaders.

Distinguishing Digitized
From Digital
Using digital technologies for digitization is simply an
extension of enterprise improvement initiatives that
started with enterprise resource planning and
customer relationship management implementations.
Digital technologies — internet of things, data
analytics, robotics, and artificial intelligence — are
raising the bar on operational excellence. These
technologies have helped extend visibility into a
company’s operations all the way to customers’
mobile devices. Verizon, for example, must have
seamless operations that enable a customer to open
an account, pay for service, change service plans, and
view charges — and customers expect those tasks to
be easy to do while sitting on the subway with only a
smartphone.

Digitization involves disciplined adoption of

appropriate standardized business processes to
ensure reliability, predictability, security, and visibility
into customer interactions. Although input can come
from all parts of the organization, digitization is
ultimately a top-down effort. To ensure standard
processes are implemented across geographies or
business verticals, senior-level process owners dictate
process and data standards and oversee their
implementation. Everyone else is responsible for
implementing the standards. Individual discretion is
bounded by tight decision rules. Although people
throughout the organization might be held
accountable for implementing standards, process
owners are ultimately accountable for the impacts of
process standards. Their performance can be
measured in cost savings and customer service
ratings. Investments can be guided by traditional
business cases.

It is important to consistently enhance core

operations, but it is also important not to let
digitization efforts be the sole application of digital
technologies. Digital companies find success by
delivering new information-enriched customer value
propositions. They create new customer solutions
(that is, digital offerings) that introduce new sources
of revenue.

But identifying viable digital offerings — solutions that

customers will be willing to pay for — requires
experimentation. The people at the top of the
company may have a vision of what’s possible in the
digital economy, but because digital offerings were
not part of prior value propositions, they cannot know
exactly what they can deliver that will excite
customers. Top-down management, reliance on
traditional business cases, metrics focused on cost
cutting or near-term profitability, and other traditional
management practices will derail a digital
transformation by limiting the experimentation it
depends on.

Because the management requirements for digitizing

and becoming digital are so different, it is important to
clarify who is responsible for what throughout the
company. People who think they are responsible for
digital innovation but must prepare traditional
business cases to justify their efforts face perpetual
frustration. People expected to sell new digital
offerings but whose performance evaluation depends
on traditional metrics are receiving mixed messages.

Thus, it’s important to isolate your digital business

people from the rest of the company. Put only a small
number of clearly designated people on the task of
experimenting with new digital offerings. Then give
them the autonomy and freedom to learn how to
succeed digitally.

Giving Digital Leaders

Space
As we’ve studied digital initiatives at companies such
as Schneider Electric, Philips, Toyota, Ferrovial, and
DBS Bank, we’ve found that much of the challenge in
delivering digitally inspired customer value
propositions lies in acquiring new business
competencies. To develop and sell digital offerings,
these companies have had to relax some of the
management practices that support digitization and
historical business success.

We know of no company that feels it has nailed the

challenge of developing new rules and metrics. We do
know that people within these companies who are
experiencing some success invariably tell us they had
to break some rules. They “cheat” on performance
evaluations of salespeople (to preserve
commissions); they subvert traditional budget
processes (to secure needed resources); they ignore
usual price lists (to experiment with value
propositions); they circumvent established customer
relationship management approaches (to cocreate
offerings); they ravage traditional product
development methods (to apply agile, iterative
development approaches).

What makes all this rule-breaking palatable is that it

starts to generate new revenues, as well as gradually
revealing how the business will succeed in the future.
The digital leaders who meet with success note that
scaling up digital business takes time, because it
takes time to learn what works. They note that their
actions can be disconcerting to business
“traditionalists.” They need the support — and patient
understanding — of senior leaders.

Identifying and Training

New Leaders
Many people who have successfully led traditional
businesses are not well suited for digital business
leadership. In fact, they may find the idea of breaking
rules to identify what works terribly unnerving — even
when they have been encouraged to experiment. For
some, there will be a fear of failure; for others, an
inability to function in such an uncertain environment.

Digital leaders are driven to identify what needs to be

done to solve problems or cash in on new
opportunities. They possess creativity, focus, and a
lack of fear. It is not clear that companies can develop
such characteristics. It is clear, however, that
companies can unleash pent-up creativity and
problem-solving talent, where it already exists.
Companies can certainly try to recruit such digital
talent from digital startups, but companies like
CarMax, Philips, and Northwestern Mutual are finding
they have lots of people already on board who are
anxious and able to make the shift.

In addition to identifying creative problem solvers,

leaders should also supplement the skills of their
digital employees. DBS Bank offers employees over
200 courses on customer journeys, agile
methodologies, data analytics, and related “digital”
capabilities. Although this training adds value to both
digitization and digital efforts, some of the training is
particularly valuable for people who are responsible
for applying data and digital technologies to deliver
creative customer solutions.

As business leaders recognize that what made their

companies successful in the past will not make them
successful in the future, they should start to identify
the rules that limit their company’s ability to deliver
new digital offerings. They will find that the rules for
digital success are not clear. Start now to break a few
rules and experiment with new ones.

Topics

Managing Technology Strategy Developing Strategy

Quality & Service

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ABOUT THE AUTHOR

Jeanne Ross is principal research scientist for MIT’s Center for
Information Systems Research. Follow CISR on Twitter
@mit_cisr.

TAGS:
Agile, Digital Leadership, Experimentation