This article is the second in a three-part series discussing the forces driving companies to pursue Digital Transformation strategies, as well as the unique challenges that such endeavors will likely create and approaches to mitigate them.
In the first article, we discussed Digital Transformation; What it is, what's motivating companies to pursue Digital Transformation strategies, and why it's happening now.
This second article will introduce and define the concept of a business's "RPPs" (Resources, Processes, and Priorities) as a means of assessing the relative alignment of a new strategy or business with a company's core business, and why RPP alignment gaps are the biggest killer of innovation in large businesses.
Finally, the 3rd article will describe why Digital Transformation Strategies are very likely to create RPP alignment challenges for many, if not most, businesses as well as some approaches to mitigating the risks those challenges pose to the Digital Transformation process.
Introduction to RPP’s
The number one killer of business model innovation, and thus Digital Transformation, is trying to innovate with the same resources, priorities, and processes that govern and protect the efficiency of your core business. In this section, we will introduce the concept of RPP Mismatches, and how they can stifle innovation.
The concept of RPPs was first developed by Clayton Christensen and is well explained in the HBR article “Assessing Your Company’s Capabilities: Resources, Processes and Priorities” [6]. Through a collaboration, the concepts were informed by work within Intel’s New Business Initiatives. We advanced the work between 2015-2017, when we ran operations for NBI, by focusing on methods to deal with RPP Mismatches, and continue now working across multiple company’s innovation programs as BRI, LLC.
RPPs Defined
Simply put, RPPs are the Resources, Priorities, and Procedures that your company uses to get work done.
Resources
Includes people, equipment, technology, product designs, brands, information, cash, and relationships with suppliers, distributors, and customers. These are comparatively easy to re-align and tend to be the focus of big decisions.
Processes
The patterns of interaction, coordination, communication, and decision making through which they accomplish these transformations are processes. Processes include the ways that products are developed and made and the methods by which procurement, market research, budgeting, employee development, and resource allocation are accomplished.
Priorities
The priorities that the entire organization understands based on its core business model and the basis for individual and group incentives. Senior executives decide to fund certain proposals to invest in new products, services, and processes, and not to fund others. Salespeople decide which customers they will call on, which products to push with those customers, and which products not to emphasize. When an engineer makes a design choice, or a production scheduler puts one order ahead of another, it is a prioritization decision.
Processes and Priorities become embedded in the culture of an organization and are very difficult and unlikely to change or re-align. They represent the tiny points of friction that cumulatively can kill business model innovation.
RPPs in Practice
Examples of RPPs can be found throughout every organization. Examples include: a marketing department may have a process for reviewing all press releases prior to release, the sales channel may only allow distributors and not direct sales, the finance department may work on a standardized yearly budgeting cycle, the purchasing department might have a process for approving a new vendor, the priority of the legal department may be to protect core assets.
These RPPs evolve organically within a growing business and are in place for good reason, to increase functional efficiency, and keep things running smoothly. They are a good thing. The problem arises when corporations try to utilize the RPPs designed for sustaining the company’s core business model for exploration of new business models, resulting in an RPP Mismatch. (see Figure - Exploration vs. Sustaining)
For example, when a corporation’s budgeting cycle is set up based on a yearly cadence and incrementally based on last year’s performance it can be very difficult for a new venture, with very little financial data, to get funding. Not to mention the inappropriateness of utilizing a yearly budget cadence for a new venture, that may need to pivot quarterly, when milestones-based funding approach should be used.
Another common friction point between sustaining and exploration work often arises when a company directs all customer interactions through a commission-based central sales team. When a new venture team, wishing to introduce a not well understood new product concept, tries to meet customers the sales team will often push back, not wanting to introduce anything risky to “their” customers. In addition, there is often a misalignment of commission incentives that don’t compensate the sales team for new emerging products.
In both examples, the RPPs that were perfectly aligned to the sustaining work were a mismatch for the exploration work. Worse yet, a new small venture team will face friction with almost every functional team within a corporation, the effects are cumulative and often end in missed opportunities, bad PR or worse.
RPP Mismatches are very hard for companies to address because they are a “death by a thousand cuts” problem. The very executives that are empowered to address RPP Mismatches don’t experience them due to their positional authority, often leaving executives frustrated with the lack of innovation and no apparent root causes.
In the next and final post in this series, we'll discuss why Digital Transformation initiatives are especially prone to RPP alignment risks and some approaches to mitigating those risks.
Part 3: When Digital Transformation Collides with Operational Norms = Part 3 of 3 (Mitigating RPP Misalignment Risks)
Works Cited
[1] The Enterprisers Project, "What is Digital Transformation?," The Enterprisers Project, [Online]. Available: https://enterprisersproject.com/what-is-digital-transformation#q1.
[2] H. Messe, "Optimizing Assets, Operations, and Workforce with Smart Manufacturing," Intel, 2016. [Online]. Available: https://www.intel.com/content/dam/www/public/us/en/documents/brief/optimization-with-smart-manufacturing-brief.pdf.
[3] D. Faggella, "Machine Learning in Human Resources - Applications and Trends," Techemergence, [Online]. Available: https://www.techemergence.com/machine-learning-in-human-resources/.
[4] P. O. M. S. B. W. Erica Volini, "Digital HR: Platforms, people, and work," Deloitte Insights, 28 2 2017. [Online]. Available: https://www2.deloitte.com/insights/us/en/focus/human-capital-trends/2017/digital-transformation-in-hr.html#endnote-8.
[5] J. Emigh, "10 top Digital Transformation trends for 2018," SDTimes, 4 1 2018. [Online]. Available: https://sdtimes.com/digx/10-top-digital-transformation-trends-2018.
[6] C. M. Christensen and S. P. Kaugman, "Assessing Your Organization's Capabilities: Resources, Processes, and Priorities," Harvard Business Review, 13 September 2006. [Online]. Available: https://hbr.org/product/assessing-your-organization-s-capabilities-resources-processes-and-priorities/607014-PDF-ENG.
[7] R. Miller, "The Path To Successful Digital Transformation Starts With Pockets Of Innovation," Techcrunch, 7 11 2014. [Online]. Available: https://techcrunch.com/2014/11/07/the-path-to-successful-digital-transformation-starts-with-pockets-of-innovation/.
[8] i-scoop, "Digital Transformation: online guide to digital business transformation," i-scoop, [Online]. Available: https://www.i-scoop.eu/digital-transformation/#Digital_business_transformation_8211_a_holistic_approach.
[9] B. Schmarzo, "What is Digital Transformation?," CIO From IDG, 31 5 2017. [Online]. Available: https://www.cio.com/article/3199030/analytics/what-is-digital-transformation.html.
