CHANGE MANAGEMENT

Digital Transformation Is
Not About Technology
by Behnam Tabrizi, Ed Lam, Kirk Gerard and Vernon Irvin
MARCH 13, 2019

COLIN ANDERSON PRODUCTIONS PTY LTD/GETTY IMAGES

A recent survey of directors, CEOs, and senior executives found that digital transformation (DT) risk
is their #1 concern in 2019. Yet 70% of all DT initiatives do not reach their goals. Of the $1.3 trillion
that was spent on DT last year, it was estimated that $900 billion went to waste. Why do some DT
efforts succeed and others fail?

Fundamentally, it’s because most digital technologies provide possibilities for efficiency gains and
customer intimacy. But if people lack the right mindset to change and the current organizational

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 practices are flawed, DT will simply magnify those flaws. Five key lessons have helped us lead our
organizations through digital transformations that succeeded.

Lesson 1: Figure out your business strategy before you invest in anything. Leaders who aim to
enhance organizational performance through the use of digital technologies often have a specific tool
in mind. “Our organization needs a machine learning strategy,” perhaps. But digital transformation
should be guided by the broader business strategy.

At Li & Fung (where one of us works) leaders developed a three-year strategy for serving a
marketplace in which mobile apps were just as important as bricks-and-mortar stores. They chose to
focus their attention in three areas: speed, innovation, and digitalization. Specifically, Li & Fung
sought to reduce production lead times, increase speed-to-market, and improve the use of data in its
global supply chain. After concrete goals were established, the company decided on which digital
tools it would adopt. Just to take speed-to-market as an example, Li & Fung has embraced virtual
design technology and it has helped them to reduce time from design to sample by 50%. Li & Fung
also helped suppliers to install real-time data tracking management systems to increase production
efficiency and built Total Sourcing, a digital platform that integrates information from customers and
vendors. The finance department took a similar approach and ultimately reduced month-end closing
time by more than 30% and increased working capital efficiency by $200 million.

There is no single technology that will deliver “speed” or “innovation” as such. The best combination
of tools for a given organization will vary from one vision to another.

Lesson 2: Leverage insiders. Organizations that seek transformations (digital and otherwise)
frequently bring in an army of outside consultants who tend to apply one-size-fits-all solutions in the
name of “best practices.” Our approach to transforming our respective organizations is to rely instead
on insiders — staff who have intimate knowledge about what works and what doesn’t in their daily
operations.

Santa Clara County in California (where one of us works) provides an example. The Department of
Planning and Development was re-engineering work flows with the goal of improved efficiency and
customer experience. Initially, external consultants made recommendations for the permit-approval
process based on work they themselves had done for other jurisdictions, which tended to take a
decentralized approach. However, customer-facing staff members knew, based on interactions with
residents, that a more unified process would be better received. Therefore, Kirk Girard and his team
heavily adapted the recommended tools, processes, diagrams, and key elements of the core software
as they redesigned the work flow. As a result, permit processing time was cut by 33%. Often new
technologies can fail to improve organizational productivity not because of fundamental flaws in the
technology but because intimate insider knowledge has been overlooked.

Lesson 3: Design customer experience from the outside in. If the goal of DT is to improve customer
satisfaction and intimacy, then any effort must be preceded by a diagnostic phase with in-depth

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 input from customers. The staff of Santa Clara County’s Department of Planning and Development
conducted more than ninety individual interviews with customers in which they asked each
customer to describe the department’s strengths and weaknesses. In addition, the department held
focus groups during which they asked various stakeholders – including agents, developers, builders,
agriculturalists and crucial local institutions like Stanford University – to identify their needs,
establish their priorities, and grade the department’s performance. The department then built the
input into their transformation. To respond to customer requests for greater transparency about the
permit approval process, the department broke down the process into phases and altered the
customer portal; customers can now track the progress of their applications as they move from one
phase to the next. To shorten processing time, the department configured staff software so that it
would automatically identify stalled applications. To enable personalized help, the department gave
Permit Center staff dashboard control of the permit workflow. Leaders often expect that the
implementation of one single tool or app will enhance customer satisfaction on its own. However,
the department’s experience shows that the best way to maximize customer satisfaction is often to
make smaller-scale changes to different tools at different points of the service cycle. The only way to
know where to alter and how to alter is through obtaining extensive and in-depth input from the
customers.

Lesson 4: Recognize employees’ fear of being replaced. When employees perceive that digital
transformation could threaten their jobs, they may consciously or unconsciously resist the changes.
If the digital transformation then turns out to be ineffective, management will eventually abandon
the effort and their jobs will be saved (or so the thinking goes). It is critical for leaders to recognize
those fears and to emphasize that the digital transformation process is an opportunity for employees
to upgrade their expertise to suit the marketplace of the future.

One of us (Behnam) has coached over twenty thousand employees from multiple organizations
through the digital transformation process (he has also consulted with the organizations mentioned
in this article). He often encounters participants who are skeptical of the entire operation from the
get-go. In response, he developed an “inside-out” process. All participants are asked to examine what
their unique contributions to the organizations are, and then to connect those strengths to
components of the digital transformation process — which they will then take charge of, if at all
possible. This gives employees control over how the digital transformation will unfold, and frames
new technologies as means for employees to become even better at what they were already great at
doing. At CenturyLink, where one of us works, the sales team had been considering adopting artificial
intelligence to increase their productivity. Yet, how AI should be deployed remained an open
question. Ultimately, the team customized an AI tool to optimize each salesperson’s effort by
suggesting which customers to call, when to call them and what to say during the call in any given
week. The tool also contained a gamification component, which made the selling process more
interesting. Vernon Irvin, who watched this process from the inside, observed that it made selling
more fun, which translated into an increase in customer satisfaction – and a 10% increase in sales.

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 Lesson 5: Bring Silicon Valley start-up culture inside. Silicon Valley start-ups are known for their
agile decision making, rapid prototyping and flat structures. The process of digital transformation is
inherently uncertain: changes need to be made provisionally and then adjusted; decisions need to be
made quickly; and groups from all over the organization need to get involved. As a result, traditional
hierarchies get in the way. It’s best to adopt a flat organizational structure that’s kept somewhat
separate from the rest of the organization.

This need for agility and prototyping is even more pronounced than it might be in other change-
management initiatives because so many digital technologies can be customized. Leaders have to
decide on what apps from which vendors to use, which area of business best benefit from switching
to that new technology, whether the transition should be rolled out in stages, and so on. Often,
picking the best solution requires extensive experimentation on interdependent parts. If each
decision has to go through multiple layers of management to move forward, mistakes cannot be
detected and corrected quickly. Furthermore, for certain digital technologies, the payoff only occurs
after a substantial portion of the business has switched to the new system. For example, a cloud
computing system designed to aggregate global customer demand can only generate useful analytics
when stores in different countries all collect the same type of data regularly. This requires ironing out
differences in existing organizational processes across different regions. If the details of how a new
technology will be used are chiefly developed by employees from one country, they might not be
aware of the potential incompatibilities.

Working with Li & Fung, Behnam helped to create six cross-functional teams, each staffed by
employees from different offices in Hong Kong, mainland China, Britain, Germany and the U.S. These
teams led different stages of the digital transformation. Since the structure of these teams was flat,
they were able to present ideas to and obtain input from Ed Lam (CFO) and heads of business units
quickly. This allowed the teams to experiment with new ideas about how innovative data structure,
analytics, and robotic processing could best be integrated. Furthermore, because new proposals were
vetted by employees from different country offices and different functions, these teams were able to
foresee problems with implementation and were able to address them before the entire organization
fully adopted the new technologies.

Digital transformation worked for these organizations because their leaders went back to the
fundamentals: they focused on changing the mindset of its members as well as the organizational
culture and processes before they decide what digital tools to use and how to use them. What the
members envision to be the future of the organization drove the technology, not the other way
around.

Behnam Tabrizi has been teaching transformational leadership at Stanford University’s Department of Management
Science and Engineering and executive programs for more than 20 years. A leading expert on organizational and
leadership transformation, he is managing director of Rapid Transformation, LLC. Behnam has written five books
including Rapid Transformation (HBR Press, 2007) for companies and The Inside-Out Effect (Evolve Publishing, 2013) for
leaders. Follow him on Twitter at @TabriziBehnam.

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 Ed Lam is CFO of Li & Fung Ltd.

Kirk Gerard is former Director of Planning and Development in Santa Clara County.

Vernon Irvin is president of Government, Education, and Mid & Small Business Division at CenturyLink.

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