This is the final article 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.
The second article introduced 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, in this 3rd article, we 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.
When Digital Transformation & an Organization's RPPs Collide
As we discussed in the first section, Digital Transformation can affect numerous aspects of a business including product development, business operations, finance and accounting, customer interactions, and even fundamental business models. Each one of those core business capabilities likely involves many people operating with Processes and Priorities that are aligned with the historical core business. If the Digital Transformation initiative requires them to adjust or modify those processes or priorities, they will likely become incremental points of friction for the new initiative, that cumulatively can doom the effort to failure.
Because the basic enablers of Digital Transformation are rooted in digital connectivity, data, and software, most companies, regardless of their traditional industry orientation, may need to start thinking and acting a lot more like a software or Internet service company. For many companies, doing so will likely require capabilities that are not part of the Processes and Priorities that have evolved to support their core business. While financial and human Resources can be directly allocated in support of a company's Digital Transformation initiatives, the misalignment between the processes, priorities and embedded culture will, at best, blunt the impact of those initiatives if not addressed. At worst, they could ultimately cause the initiatives to fail completely, resulting in wasted investment and a painful impact that the organizational memory will not soon forget, making future attempts that much more challenging.
RPP Alignment in Digital Transformation Decisions
Digital Transformation initiatives almost always fall into the category of exploration work and are thus likely to be challenged by RPP misalignments and should not be undertaken without considering those implications and employing appropriate mitigation strategies as part of the initiative. Unfortunately, identification of RPP alignment gaps can be difficult. Big decisions tend to be focused on Resources, not implications to and from Processes and Priorities embedded in the organizational culture. Sometimes decisions will cover synergies with or leverage of existing capabilities, or there may be a general intuitive sense of the RPP misalignment, and the initiative is set up as a separate group or with a special reporting structure. However, an imprecise assessment of the misalignments will result in mitigations are essentially a gamble that either won't address the real gaps or may go too far and don't sufficiently leverage potential synergies.
Filtering vs. Planning
One interpretation of these cautions could be to do RPP alignment assessment and filter out or not pursue opportunities that are misaligned. That's an oversimplification which could leave substantial value on the table since transformational projects can often have the greatest relative business impact. From our experience, an RPP alignment assessment should not be applied as a filter, but as a means of identifying a different class of execution risks and appropriate mitigations as part of the execution plan, which can then be factored into the overall ROI of the proposal. In some cases, the implications of required mitigations could be enough to sink the proposal, but it's better to identify these situations up front. More likely though, understanding potential RPP alignment challenges and factoring mitigations into the implementation plan will dramatically improve the probability of success.
Predicting and Detecting RPP Misalignments
Identifying RPP alignment challenges is difficult for many reasons. First, they exist at multiple levels within an organization. There may be processes and priorities that are global to a company but depending on the size and age of the company, there will be differences in processes and locally optimized priorities in different groups with their own micro-cultures. Secondly, a company's processes and priorities are not typically documented, are not accessible in one place, or are not specific down to the group micro-culture level. Finally, since by definition a Digital Transformation initiative represents something substantially new (it wouldn't be referred to as a "transformation" if it wasn't), it's difficult to predict what processes and priorities are needed for success and therefore which are aligned with the core business or not.
There are some simple tools that can be used to do some basic triage of potential alignment gaps which should absolutely be used, but they will not catch everything. So, even when an initial assessment is done, and steps are taken to address them in your execution plans, we also advise experimenting at a smaller scale first, before investing or committing to full-scale deployments. Doing so can help flush out hidden alignment issues, as well as tune the previously identified mitigations to make sure they are not under-leveraging synergies or over constraining the new business.
Addressing RPP Mismatches
We spent many years searching for the ultimate solution for RPP Mismatches within Intel Corporation. After joining many cross-industry innovation groups and interviewing dozens of heads of corporate innovation programs, we concluded that there is no one size fits all solution.
We explored ambidextrous organizations, separate legal entities, lean startup methods, human-centric design, spin-alongs, separate brands, etc. to address the fundamental problems of RPP Mismatch. While these practices have their merits, the results largely depend on the corporate culture, how ingrained the corporate RPPs are, and most importantly how far away from the core corporate competencies the new venture is exploring.
We stopped looking for one solution and instead set up a process to efficiently deal with RPP Mismatches. We started to design our ventures with RPPs in mind.
When we started out on a new venture, we reviewed all the places the new venture would likely come into conflict with existing RPPs. RPPs were bucketed into four categories:
- RPPs that we had to live with,
- RPPs that should be modified for the entire company,
- RPPs that should be managed by exception, and finally,
- RPPs that required so much autonomy that a different governance model was required.
At every milestone, a decision was made to determine if the RPPs were aligned well enough to proceed with the venture or not. We ran across a lot of great business ideas that just were not a good fit for the company’s RPPs. The trick is realizing when the RPP Mismatch is too high and then quickly terminating the venture, even despite its business value, if sufficient mitigations can’t be implemented.
The next step is to set up an RPP design team with representatives from each of the functional groups that are empowered and incentivized to (1) make the RPP categorizations and (2) make changes to RPPs when aligned with the corporate growth strategy. For more information on how to setup up an RPP design team contact us.
Conclusion
Companies that head down the Digital Transformation path will not only be exposed to new technology challenges but will need to identify and carefully address RPP Mismatches as part of the design of the transformation.
RPPs are constantly changing and evolving with the core business, so it is critical that they are reviewed as part of each major venture milestone.
Will you use Digital Transformation to defend, differentiate or disrupt? How will you design your RPPs for this new challenge?
Works Cited:
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[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.
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