Study by MIT Shows the Growing Pains Businesses Face in Digital Transformation

We take it for granted that most – if not all – companies are knee-deep in the process of digital transformation, as if it’s simply a matter of purchasing and unboxing the right technology stack. Another common misconception is that the most moneyed legacy organizations have a leg-up in this process. 

A new report, 'Coming of Age Digitally,' by the MIT Sloan Management Review and Deloitte Insights highlights the challenges companies face adjusting to the faster pace of digital business. The most interesting finding? Digital transformation constitutes a culture and mindset change first – namely, an approach to experimentation, speedy decision-making and the overturning of top-down hierarchies. 

Sunsetting legacy systems and rethinking technology stacks happens further down the line, but not without culture as the primer for it. 

What does it mean to be a digitally mature company?

The biggest difference between a digitally mature and immature company is the pace of doing business. The digital business environment requires companies to act and respond faster than ever before, enforcing a new culture and mindset around creativity, learning and risk-taking. 

(Source: 'Coming of Age Digitally' by MIT Sloan Management Review)

Notice how the most important changes pertain to people – not technology stacks. A business can’t provide a great digital customer experience unless it uses data to personalize at scale, constantly tests and updates the user interface, and reacts quickly to competitors, among other things. 

Don’t fall into the “competency trap”

Large, established companies often have the most trouble adapting digitally. Ironically, one of their biggest hindrances is their past success, which creates a “safe” formulaic approach to doing business. Competency traps are “the mistaken beliefs that the factors that led to past success will also be associated with future success.” 

These traps may exist at the individual level as well, where employees with a more traditional mindset are apt to resist change and – wittingly or unwittingly – undermine the efforts of their colleagues, if not entire departments. This is especially true if they are in a senior position. 

Data from MIT shows that older companies are generally less digitally mature. General Electric, for instance, has developed a lean startup method created by business consultant Eric Ries, but is facing difficulties pushing the change throughout the entire organization. 

Read more: 4 Ways Prudential Uses Big Data to Be Customer-Centric

“It’s been harder in some parts of our business where they don’t have as much volatility or disruption yet,” Janice Semper, culture transformation lead at GE, is quoted in the report. “They don’t necessarily feel the same need as these parts of our business that are being disrupted or are in extremely challenging, volatile, ambiguous environments where this is really the only way to go forward and work.” 

A lack of experimentation will hold you back 

Respondents from the global survey of over 4,300 managers, executives and analysts reported that the biggest challenge their organization faces in terms of competing in a digital environment is a lack of experimentation. Here are some of the other challenges they reported:

Experimentation (getting people to take risks and work in a more agile way) (20%)

Ambiguity and constant change (13%)

Buying and implementing the right technology (12%)

Distributed decision-making (10%)

Transparency, democratization of information (9%)

Fluidity in organizational structures (8%)

Multigenerational workforce issues (8%)

Transient, rapidly changing team structures (5%) 

Workforce augmentation (eg: robotics, automation, artificial intelligence) (4%)

Segmentation of customer bases (4%)

Other/don’t know (7%)

Fear of failure might be baked into your company culture 

Too many companies approach experimentation and iteration as something to do on the side. They believe in the fallacy that opening an innovation lab in Silicon Valley equates to digital transformation while staff at company HQ maintain the status quo. 

Even if your company has an internal UX, innovation or service design team dedicated to research and experimentation, they can’t be a lone island in a sea of business-as-usual, or their work is futile.

Why? All the research they generate eventually needs to be implemented by various departments. If staff aren’t at least socialized – if not educated – in agile thinking, they’re highly unlikely to accept new research that requires them to change their workflow and ingrained habits. 

Read more: Want to Change Your Company Culture? Change Your Meetings 

Experimentation is at the heart of digital maturity. Facebook CEO Mark Zuckerberg estimates that 10,000 version of the social network are running at any given time as the company observes user behavior and looks to make small improvements. 

Large companies need to realize that throwing money at the problem is not the answer. In fact, bootstrapping may be an advantage. 

“It helps if you’re underfunded; it forces you to be scrappy. That’s a big part of the culture,” said Dr. John Halamka, chief information officer at Beth Israel Deaconess Medical Center. Although he works for a $5 billion healthcare system, the IT budget is only 1.9 percent of the organization, forcing Halamka to be “edgy and innovative.” 

Employees feel they don’t have the skills to compete in a digital environment

Surprise, surprise, there’s a gap between employees’ desire for professional development and the opportunities companies provide. Over 90 percent of respondents say they need to update their skills at least yearly to work effectively in a digital world, while 44 percent report they need to so “continually.”

Meanwhile, the data shows that organizations could do more to support employees’ perceived need to acquire new skills. Only 34% of employees in companies across the digital maturity spectrum indicated that they are satisfied with the professional development opportunities their company provides.