According to Statista, $1.5T was spent on digital transformation initiatives globally in 2021, and that number is only continuing to grow. Yet research from BCG shows that 70% of digital initiatives fail, which translates to more than a trillion dollars in failure.
Why are digital transformation initiatives failing at such a high rate, and how do we set our companies up for success?
For an episode of the Tech Whisperers podcast, I had a chance to explore these questions in depth with John Hill, chief digital information officer at MSC Industrial Supply; Susan Nakashima, a recently retired IT executive and now adjunct professor at Pepperdine University; and Michael Seals, chief digital officer and SVP of strategy at Hussmann. Each of these leaders recently completed doctorate degrees and conducted research related to these challenges.
After the show, we spent some more time unpacking their research and leadership philosophies, focusing on the changing role of CIOs and the opportunity they have to lead, guide, and facilitate a new discussion at the digital C-suite table. What follows is that conversation, edited for length and clarity.
All were quick to emphasize, as Seals said, “gratitude and appreciation for the people reading this and listening to the podcast, because so many contributed to our knowledge. It was a team effort.” Hill observed that more than 160 CIOs contributed to his research, while Nakashima’s work was supported by the contributions of 400 survey participants, including 92 team leaders and their employees, representing three industries (utilities, entertainment, and nonprofit) across four regions of the country.
Dan Roberts: John, through your research, you created the term organizational digital agility (ODA), which includes three components: slack, alignment, and speed. In the podcast we talked about slack. How do you define alignment, and why is it important?
John Hill: Alignment reflects that organization’s ability to understand the relative importance of every initiative and operation against the others. Those that possess more effective methods of prioritizing initiatives across the organization have a lot of advantages over those that do not. Most importantly, they can resolve conflicts that come up when there are competing initiatives.
A lot of organizations will prioritize by saying, for example, here are our top five initiatives. Oftentimes, though, those aren’t in ordinal order. Associates can be assigned to those initiatives and a number of other projects and operations. If they don’t have that alignment process, when a conflict comes up, they might be working on the wrong thing. As a result, a more important initiative might fall behind.
A second issue that happens is that, when there are changes in assumptions in initiatives midyear, organizations that have that alignment process in place can reassess all the impacts and reprioritize everything. They’re able to be much more nimble during the year. That relates a third dynamic, which is when new initiatives are proposed midyear, the organization knows how they fit within the current portfolio. And more importantly, they can provide clarity to the entire organization. Organizations that don’t do it well tend to just add it and then there’s lack of clarity as to what needs to be done when. If leaders have clarity on prioritizing organizational initiatives, it really allows that organization to react with a much higher level of speed and precision.
Roberts: Can you elaborate on the role of the CIO and how it relates to alignment?
Hill: The CIO is an orchestrator. They’re at the center, because there aren’t many initiatives that don’t require some form of technology, so if the CIO understands the importance of alignment, they have ability to orchestrate that.
There are a few things they can do. First, make sure they have an ordinal ranking. It can’t be, ‘This is my top.’ It’s got to be one, two down to 50, 60, whatever the number is. Second, they need to understand true capacity in the organization. There are lots of tools out there, but probably the simplest is an enterprise Kanban board. Third, they can look to reduce the use of shared resources as much as possible. Smaller companies are going to have a challenge on that, but larger companies can try to create end-to-end teams that are made up of everything that a product owner needs to prioritize what they need to get done.
Roberts: Mike, can you talk about the changing role of the CIO and the shift from working to get a seat at the table to having responsibility for getting the C-suite to the digital table?
Michael Seals: In my mind it’s not a digital table; it’s a digital restaurant. Digital conversations are occurring simultaneously, so the CIO has to be able to network across the organization. I recently changed my role to be more strategically focused and brought in a new CIO, Erin Williams, who has been a very powerful voice and addition to the Hussmann leadership team.
However, it’s a big job and can’t just be the CIO. There are a lot of technology leaders across the organization. To this end, we created a role for a digital architect to help us define the future state of our digital environment, drive our data initiatives and, most importantly, ensure all these initiatives integrate. Without this digital “manifold,” we would not be able to capture the real value of our digital initiatives. To fill this role, we elevated Kesava Annadorai, one of our bright, innovative thinkers.
Quite frankly, IT is not the sole place for digital strategies anymore. They’re popping up across the organization. So, for the C-suite, it’s about, how do we bring all these things together and create that alignment across the organization that John talked about. That’s why it was it was so important for us to develop an enterprise governance model to help coordinate all these different digital activities.
When it comes to the digital table, I think the C-suite is fully engaged now. They see the threats, and they’re gaining awareness about the technology opportunity related to it. They’re also realizing that their strategies are so dependent upon technology that you can’t separate the two. The top-level leadership team must be part of that conversation.
Roberts: I’ve observed that the best leaders embody what I call the 7Cs of great leaders: They have the Customer at the center, they build great Culture, they Cultivate their people, they lead with Courage, they don’t manage Change but bring people along the journey, and they’re Collaborators and Communicators. Susan, can you speak to this and what stands out for you?
Susan Nakashima: I absolutely agree with the 7 Cs. The job is getting more complex, but I also believe it’s becoming an even more exciting time to be a leader in IT. We talk about the three-legged stool — people, process, and technology — and while I believe all three are critical, my heart’s really focused on the people component.
I think it’s important to get to know each member of our team, personally and professionally, understand what motivates them, and channel that energy for their success as well as the organization’s. I believe leveraging employees’ abilities and preparing them for the next step up the career ladder is really a privilege and something I find intrinsically rewarding.
Roberts: Turning to metrics, Mike, performance management is a key component of your framework. What are successful digital leaders measuring that others are not, and what’s the result?
Seals: Digital transformation is unique compared to other major enterprise-level initiatives like TQM and Lean Management. In those previous waves of management theory, there was always a single kind of purpose around them. Digital transformation is contextual. It’s tied to customer value and competitive advantage. Like a fingerprint, it’s unique to each organization. I spent a lot of time talking to a lot of really smart people on this topic, and nobody can say there is a single measure digital transformation success.
My research settled on a two-part measurement: One, is it making the company stronger versus the competition — that’s your competitive advantage — and secondly, are we creating more customer value? Those are the two outcome variables that were built into my research. Ultimately, though, each organization is going to have a different metric that they measure. What’s most important, from what my research identified, is that the organization is measuring it and articulating it. Then the organization can rally behind it.
Roberts: John, let’s talk about metrics in terms of speed, which is another component of your ODA framework. Why is speed so hard to measure and what can leaders do to get their arms around it?
Hill: Given the rate of innovation and change in technology, speed is so important for organizations to be able to get that competitive advantage faster than their peers. Yet finding a proxy for organizational speed is difficult. In my research, I couldn’t really find it. Still, we intuitively know that the longer a project takes, the more chances it’s going to go off the rails. To study this phenomenon a little better, I used the size of project as a proxy.
What I found is, the organizations that are better at chunking down their projects into smaller pieces have a better likelihood of beating any environmental factors that might impact their execution. Leaders will then ask me, ‘Well, what can I do besides Agile?’ One, put processes in place that will address the speed at which decisions need to be made on issues that affect digitization efforts. Two, track the time it takes to make decisions. If a team says they have to go through three steering committees in order to get something resolved, that’s probably not the definition of speed. Third, going back to my other point about alignment, there are inevitably going to still be conflicts that come up that aren’t resolved in terms of just a pure alignment. My suggestion is to put in an organization-wide cross-functional steering committee that is set up to resolve those conflicts immediately.
Roberts: Susan, your research focused on psychological safety and its impact on winning the hearts and minds of our teams. What is the definition of psychological safety and how does that contribute to driving speed and agility in our teams?
Nakashima: Amy Edmondson, who developed the concept of team psychological safety, described it as a shared belief by team members that the team is safe for interpersonal risk-taking. She went on to say that when individual contributors are selected to be team leaders based on their technical proficiency, they may not have the interpersonal skills they need to foster these open dialogues that are just so important.
That’s certainly what I’ve seen and continue to see, which is first-level technical leaders struggling with the human side of their leadership role. What I found is that, without establishing a psychological safety net, leaders are creating environments where employees are unwilling or afraid to share their ideas and expertise. Certainly, that’s what came about as part of my research. But with effective transformational leadership training, leaders are creating a safe environment, allowing their staff to truly bring forth their best thinking in our fast-paced and competitive industry.
Robert: How are each of you leveraging your dissertation research in your day jobs?
Hill: At MSC, my peers and I took our list of strategic projects and made an ordinal list so we could give clarity to associates. Within the teams, we’re trying to drive people to understand that portfolio-based approach to sprints — you can’t compare a new feature against other things. That then helps drive the slack conversation. It’s much easier for me to get people to think about that portfolio and the assigning different pieces to sprints versus saying, reserve time for slack.
The last thing is trying to create those end-to-end pods for the product teams. I’ve got a number of product teams directly in my organization, so we’re incubating it there first. Those teams will have everything they need to deliver — from business analyst, engineers, data analysts, data engineers, QA — so ultimately, there’s not a multi-step approach where we’re ready to go but the data team or the security team is not ready to go. These pods will have everything they need to be able to execute at a speed we expect.
Nakashima: I was privileged to be asked to present my research to the members of Innovate at UCLA at the fall CXO Exchange in December. Teaching a digital innovation class at Pepperdine University has also been an honor, as well as mentoring some of my students. I’m also pursuing opportunities to share my research as part of technical leadership training programs, so it’s a very exciting time.
Seals: To me, the research is interesting, but the real value for the audience is in the discussion about intellectual curiosity and intentional learning. The success of the CIO role is as much about understanding organizational theory as it is about technology. You have said it many times — the CIO role is unique in that it has a complete view of the enterprise. Understanding how organizations work is necessary; understanding why they work in the way they do is a differentiator for a CIO. That is the common theme across all our research — trying to understand the ‘why.’
Tune in to the Tech Whisperers podcast for more insights from these technology executives and takeaways from their doctoral research.
Digital Transformation, IT Leadership