Leadership Transformation: Establishing Legitimacy and Ensuring Your Business is Best Positioned For A Long Term Success

Abstract

Given the unique responsibilities of executive teams, it's clear that they require specific skills and approaches to be effective. Yet only some have unlocked the key to building and sustaining such effectiveness. To have a lasting impact on a company's performance, culture, and adaptability, they must fulfil three critical and highly interdependent roles. Leadership teams often perform one or two of these roles well but fail to integrate all three. The good news is that with persistence, highly engaged leadership teams can deliver on all three roles and stand out from many teams that try to settle for much less. It's this persistence that separates the best from the rest.

Strategy in an Era of Abundant Expertise

AI is fundamentally changing the cost and availability of expertise and how businesses organize and compete. At the most basic level, OEMs can be viewed as bundles of differentiated expertise organized to accomplish specific tasks. Expertise (a combination of deep theoretical knowledge and practical know-how in a particular field) can take many forms within an organization.

We have spent a century building efficient organizations. We have created large corporations that transformed economies and created wealth. Dozens of companies are now more critical than entire nations' economies. Optimization and intelligent management have transformed products initially considered novelties, such as cars, phones, and personal computers, into giants. The essence of this progress is a focus on convenience and efficiency - a predictable and manageable approach to stability and profitability.  

But polishing yesterday's accomplishments is not helpful when the world is changing. If we focus on increasing the effectiveness of our current plans, we will inevitably miss the opportunity to develop new strategies in response to new circumstances. At its height, Yahoo could have easily acquired Google, a search engine that took a different approach to the Internet. Instead, the company put its funds into further development for Yahoo Kids. Long before that, Western Union had the opportunity to buy the Bell telephone system but invested in making telegrams easier to use and cheaper to produce.  

These are just two examples of “strategic myopia,” prioritizing what is urgent, proven, and easily measurable. It inspires us to execute credible plans rather than exploit opportunities. This myopia is partly due to our expectations of new strategies. A strategy is not a plan. A plan may come with a guarantee: "If we do this, we will win," whereas an approach, on the other hand, comes with the motto: "This might not work," and we will not be able to achieve the change we strive for.  

If our boss demands a strategy with certainty and evidence, we will likely be satisfied with a collection of tasks, tasks, and tactics, which is different from an elegant and robust strategy. To execute a strategy properly, we must be open to possibilities.  

It is easy to fall prey to strategic myopia, especially in today's fast-paced technological change.

Ongoing research into strategy implementation repeatedly finds that executives spend less than one day per month developing and discussing their company's strategy. Possible reasons: It's easier to focus on planning and performance instead. Strategy feels soft, even though "real work" needs to be done now.  

But as many other strategy experts have warned for years, it doesn't matter how fast you go if you're going in the wrong direction.

Aligning the C-Suite around a business-led roadmap

Many issues that impede program success stem from inadequate planning and coordination when assessing stalled digital and AI transformations. Executive misunderstandings during the strategic planning stage inevitably lead to disorganized implementation of corporate transformation. Because digital and AI transformations impact so many parts of the business, investing the time required to make the transformation successful will pay off big dividends regarding clarity and unified action.  

Top performing OEMs, on the other hand, focus their efforts on the key business areas, such as production processes or customer journeys, and transform them from start to finish. Up to 80% of stalled digital and AI transformation interventions rely on rescoping to stimulate coordinated efforts in a few clearly defined areas. Make a commitment to senior management. To be effective, realignment requires the company to tie the results of the transformation of each business area to concrete improvements in operational KPIs, such as reducing customer churn or improving process yield. The team develops a roadmap to align the digital solutions underlying these KPI improvements to deliver significant value in the near term (e.g., 12-18 months) and transformative value in the mid-term (e.g., 3-5 years). The plan explicitly takes into account the expansion of the company's capabilities. Hiring digital talent or modernizing data architecture. Executive leadership is committed to improving these KPIs, and the expected benefits are integrated into business goals. A solid digital roadmap should improve EBIT by 20% or more.  

The digital transformation flywheel starts moving when business leaders define an ambitious, realistic technology-enabled business transformation. The resulting digital roadmap is their trademark and effectively serves as a delivery contract.

Adopting a new operating model that can scale

Most companies have been successful in creating a few cross-functional agile teams. However, scaling to hundreds or even thousands of teams working in the same way as a refocused company is a daunting challenge. Developing the right operating model to align business, technology, and operations tightly is the most complex aspect of digital and AI transformation because it is at the core of how organizations and people work. Three main models have emerged:

1. Digital factory.
2. Product and Platform.
3. Enterprise-wide agility.

These models are based on two central ideas:

• First, small, multidisciplinary, agile teams or pods are the most effective and efficient way to develop software.  
• Second, pods work together most effectively when some are focused on directly improving the customer or user experience (commonly called product pods, but sometimes called experience pods or journey pods), and others are focused on creating reusable pods (centralized services to speed up work across all pods, called platform pods).

Adopting a new operating model is one of the most important pivots a company can make to become a refocused company. There are two critical steps to getting this right:

1. Choose an operating model that supports your strategy: A digital factory is an independent organizational unit where people work together to develop digital solutions for business units or departments that fund the digital factory. Companies often choose the digital factory model initially because it is a self-contained operational unit and can be implemented relatively quickly (it typically takes 12-18 months to be fully operational but can be launched within weeks). For example, BHP and Scotiabank have implemented this model.
   
   The product and platform model is an advanced version of the digital factory. While a digital factory may contain 20-50 pods, the product and platform model typically consist of hundreds of pods and sometimes thousands of pods in large companies. When a company moves to a product and platform model, it makes a critical decision in realigning large parts of the organization to better leverage technology in its core business. Amazon, Google, Itaú Unibanco, and JPMorgan Chase have all adopted this model.
   
   Ultimately, a company-wide agile model builds on the product and platform model, extending the benefits of an agile approach to the entire company, not just technology-intensive areas. For example, sales to large accounts and research and development can also benefit from working in small, cross-functional teams. Companies adopt this model when they see customer focus, collaboration, and flexible resource delivery as key performance differentiators across the organization.
2. Professional product management: A key difference between technology companies and companies in other industries is the extent to which they have embedded product management capabilities into their operating models. This capability is critical to implementing new operating models. In a McKinsey survey, nearly 75% of business leaders said their companies have yet to adopt product management best practices, that product management is a nascent function within their organizations, or that product management does not exist. This is a problem. Hiring great product managers is also tricky because understanding the context of the industry and company is important. Most companies retrain this scarce talent and create new career paths for them, but achieving positive results requires significant investment.
   ‍
   The transition to a new operating model is a critical step for CEOs as they restructure their companies; they are the only ones who can initiate such a comprehensive organizational transformation.

Conclusion

The ability to realize the full economic potential of digital innovation is a key differentiator between digital leaders and digital laggards. Building this capability is the hallmark of business and functional leaders. The Skills for Successful Digital Transformation provides a comprehensive guide. You may be wondering where to start with your transformation. Why not start where we began in this article? Get your top team together and reflect on the journey so far.  

Digital transformation is ultimately an exercise in continuous development and improvement. Accepting this premise changes your perspective on how you approach this significant challenge.