Transformation with Tony: Why Transformations Fail [COLUMN]

A monthly column for the AI & Intelligent Automation Network by Tony Saldanha



Tony Saldanha
10/01/2018

I’m a glass half-full kind of a guy.

Or maybe I have too much faith in humankind’s ability to keep moving upward and forward. I bought General Electric (GE) stock for $25 per share in October 2014 when CEO Jeffrey Immelt boldly declared his plans for GE to be a digital industrial company.

"If you went to bed last night as an industrial company, you're going to wake up today as a software and analytics company," he said at GE's third annual Minds + Machines conference in New York. For a while, Immelt’s strategy and my investment prowess seemed unassailable as GE’s stock hit $33 in July 2016.

Alas, that assessment proved to be premature. Immelt declared his intention of retiring in October 2017 and I sold my GE stock soon after, at $24. It wasn’t my finest investment decision, although it could have been much worse, as GE’s stock languishes around half that price today. Had Immelt been wrong all along on the importance of digital transformation?

Nope, GE hadn’t been mistaken on the need for digital transformation, it failed in its execution. Unfortunately, GE isn’t alone in struggling through digital transformation. It’s a vexing topic for most executives. They are convinced of the urgency of the Fourth Industrial Revolution driven by digital technologies. They have invested time, money and personal credibility in leading their organizations in that direction. However, the outcomes are patchy at best. What’s missing?

“Disciplined market leaders who understand the importance of executional excellence still appear to falter on the discipline of structured, methodical digital transformation execution.”

I firmly believe that Immelt got the direction correct. GE could have been a digital industrial company. Unfortunately, the disciplined approach needed for sustainable transformation was missing. It neither defined the end goal of the digital transformation with sufficient specificity, not adopted a disciplined methodology to take the entire company there.

GE Digital, the unit created to help GE transform, was never set up for success. GE Digital was given conflicting goals. Its priority was to meet the IT software needs of all the other GE Divisions. Developing a new industrial software platform for the world takes external focus, a start-up culture, and freedom to invest in the early years – all of which were at odds with the structure of a corporate division with immediate profit and loss responsibilities.

Secondly, GE allocated its capital poorly, making bad investment decisions that took away their ability to invest in becoming a digital company. It is extremely difficult to sustain a transformation if you lose the ability to fund it.

“Executives already know that digital disruption is an existential threat.”

GE’s experience highlights another interesting point. It is that disciplined market leaders who understand the importance of executional excellence still appear to falter on the discipline of structured, methodical digital transformation execution. To understand this divide between cognitive understanding and action, it’s important to appreciate in depth the pressure and chaos around digital transformation decision-making in the enterprise.

Executives already know that digital disruption is an existential threat. They know that half the S&P 500 will turn over in the next decade. They are aware that the World Economic Forum has declared that we are at the start of the Fourth Industrial Revolution, given the disruptive power of technologies like Machine Learning and the Internet of Things. This revolution has already begun in the music, tax, taxi, newspaper, job recruiting, travel and hospitality industries, among others.

“In the ensuing chaos, the discipline of defining the end-goal of digital transformation is often lost, as is the methodical execution necessary for sustainable transformation.”

Organization leaders are acutely aware of the power of digital capabilities and of Moore’s law, which states that price-performance of digital capabilities doubles roughly every eighteen months. As computing capability grows exponentially, this implies the availability of the computing power of an entire human brain for a thousand dollars in the early 2020s! If that isn’t mind blowing enough, the same exponential trend will deliver computing capability of the entire world’s population for a thousand dollars by the 2040s. This is both exciting and a bit scary.

This is the reality of what we leaders are experiencing. It’s a constant bombardment of the astonishing prowess of digital technologies. It reinforces the existential threat to the enterprise from digital disruption. And what would we expect a typical business owner, board member, CEO or organization leader to do with all these stimuli?

“It becomes apparent that the mad, chaotic rush into action is a dangerous play. It leads to “Ready-Fire-Fire”

They act! Swiftly and decisively. They jump directly into what they believe to be digital transformation. This is akin to a panicked herd syndrome. The existential threat has been recognized. And it causes a mindless rush to action. In the ensuing chaos, the discipline of defining the end-goal of digital transformation is often lost, as is the methodical execution necessary for sustainable transformation. Given this, is it any surprise that 70% of the resulting digital transformation efforts would fail? Or that even if the transformation is successful, it is not sustainable?

When viewed in perspective, it becomes apparent that the mad, chaotic rush into action is a dangerous play. It leads to “Ready-Fire-Fire” instead of “Ready-Aim-Fire”. The lesson here is that successful digital transformation takes discipline. The discipline to target the correct end state (a sustained state of competitive advantage fueled by digital) and the discipline to execute the transformation with step-by-step rigor and discipline.

So, did I make the same mistake as GE when I bought their stock without due diligence? Maybe, except that I pivoted on my failure, and it was only one of many investments in my portfolio, which is overall healthy. Which are the other two disciplines needed for successful digital transformation.

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