How to incentivize a digital transformation
There's now no longer any time for executives to put off their digital transformation until next quarter.
With the market disruption of Covid-19, and the looming threat of industry disruptors in the form of innovative startup companies, risk-taking is now necessary for established companies in order to maintain their relevance in a changing consumer landscape.
While companies of this size and stature have had the means and resources to digitally transform prior to 2020, the incentives to take risks have not materialized. Without goals that encourage risk, and the permission to take risks, companies that say they want a digital transformation are actually incentivizing their leaders to proceed with business-as-usual.
Consider this: For many organizations, goals (such as OKRs or similar) are based on financial objectives. Executives are incentivized (through financial rewards, contract extensions, or otherwise) to do what they think is necessary to increase profit.
This is usually not a digital transformation in the short term. Because of this, companies must establish other means of measuring success in order to ensure their digital transformation is prioritized appropriately. Without the right environment where taking risks is rewarded, your digital transformation is not going to happen.
If objectives are financially based, it is not possible for executives to prioritize a digital transformation.
Recently, we republished Forrester’s report Retailers: Assess Your Digital Business Maturity (available for download here) which outlines 20 points of assessment for retailers undergoing a digital transformation. One of the most notable measures is, “We take measured risks to support entrepreneurial experimentation and faster innovation, such as launching minimum viable products and then enhancing them based on feedback”.
It’s crucial to note that this point of assessment falls under Culture, not Technology. It’s the culture of your company that allows executives to take risks in order to make digital transformation a reality, and foster innovation in their dotted-line report teams.
Recently, an article in Forbes reported (quoting a recent study from PriceWaterhouseCoopers), “More than four in five of the risk-savvy executives, 83%, report they are ‘ahead or on track with their digital roadmaps’ versus 57% of their more nervous counterparts, PwC finds. In addition, 72% of the risk-savvy enterprises are also ‘meeting or exceeding their expectations of improved customer experience,’ versus only 45% of those less able to handle risks.”
To create the conditions for the right kinds of risks, the enterprise goals should be impossible to accomplish in the absence of a digital transformation. It is a risk to say that in order for our company to succeed, we have to do what we’ve never done before. As long as the enterprise objectives are able to be accomplished in the absence of a digital transformation, executives will be incentivised to carry on with business as usual. There must be measurable outcomes outside of profit to ensure that the digital transformation is not only a success, but an actual priority for executives in the organization.
The enterprise goals should be impossible to accomplish in the absence of a digital transformation.
To understand how this works in action, take the example of Courtney Kissler and her team at Nordstrom. Several years ago, Nordstrom was stuck in their digital transformation journey. In 2016, the executive team decided to integrate digital transformation goals into their bonus structures. In order to receive bonuses for that year, the IT and business leaders were tasked with coming together to create a customer-facing improvement, and demonstrate that they could reduce lead time by 20%. This concrete, measurable goal is a perfect template for creating digital transformation-centered goals in enterprise organizations.
The success of the digital transformation is predicated on at least a certain amount of top-down authority in decision-making. But leaders taking risks at the C-level also allows those in people management and team management roles to take risks that support the digital transformation, too. Again, the organizational goals need to be set such that the digital transformation is a part of the organizational strategy, not a bolt-on solution. As an enterprise-wide goal, there is a better change that the departmental and team goals will be formed to support the digital transformation. In order to achieve this, self-organizing teams need to be established, with managers mitigating the risks, actively supporting the changing company culture, understanding the digital transformation, and empowered by the business to drive towards transformation goals.
The full Forrester report is available for a limited time.