It’s too soon to tell if enterprises — industrial age or otherwise — can, in fact, pivot. To have a chance, however, they must understand that pivoting will demand nothing less than a wholesale shake-up of the organizational structures and cultural norms that have brought them to this point.
If you’ve heard me give a keynote over the last several years, you’ve heard me talk about the fact that we are in the midst of a fundamental transition as we exit the industrial age and enter what I call the digital era.
There is an idea implicit in all this talk about the end of the industrial age, the disruption of industrial age enterprises, and the need for them to digitally transform themselves to remain competitive in this new era. The idea is that these massive, often generations-old enterprises can, in fact, pivot.
The entire crux of digital transformation is that industrial age organizations, laden with employees, organizational inertia, and entrenched cultures, can somehow reshape and remake themselves quickly enough to compete and thrive in this new era — one that looks very different from the one into which they were born.
The question is: can they?
The Pivot Problem
Industry pundits, consultants, and technology vendors go on and on about how this technology or that technology is the magic elixir that makes digital transformation possible. Enterprise executives willfully go along for the ride because the truth of digital transformation is a much harder pill to swallow.
Authentic digital transformation is not about implementing some new technology. Instead, it’s about a fundamental shift away from creating value through operational optimization and towards the customer experience as the chief driver of business value. Achieving this transition demands that organizations re-envision their business models, operating models, and the nature of work.
In short, it demands that they pivot the organization to a new way of working.
Pivoting, however, is no easy task when you’re talking about a massive organization with tens or hundreds of thousands of employees, often with different cultural foundations, working in multiple business units strewn across the globe.
There is, therefore, a direct negative correlation between an organization’s size and its ability to pivot and execute transformational activities. The larger and more diverse an organization, the more difficult its transformation, and the harder it must work to achieve it.
It is this connection between size and difficulty in pivoting that explains why large technology companies and even so-called digital native companies become subject to threats from small startups as they grow. Organizational inertia spares no one.
The Industrial Age Tax
While even the most digitally-savvy tech companies will be subject to the pivot problem as they grow and age, industrial age enterprises have a special burden. Call it the industrial age tax.
One of the defining cultural characteristics of digital era enterprises is their willingness to experiment, move quickly, and continually challenge and thus change their business and operating models.
Born into an era in which there was relatively little capital cost to such experimentation and continuous pivots, the cultural foundations of these organizations — their organizational structures and cultural norms — formed around these characteristics.
Industrial age enterprises, however, formed their organizational structures and cultural norms around a fundamentally different way of working and creating value.
In the industrial age, organizations created value through optimization. Create greater efficiency, consistency, and reliability in your business and operating model, and you incurred fewer costs and risks. That was the formula.
And almost everything about the industrial age enterprise was built around such optimization.
The problem is that these organizational structures and cultural models, which are rigid by design, now hang like albatrosses around enterprises’ necks as they inhibit them from doing the thing they most desperately must: pivot.
Getting Your Eye on the Ball
While there are indeed examples of large enterprises that have, in pockets, been able to innovate and transform themselves, I don’t know that I can point to any industrial age organization that has been able to fully pivot who they are and how they operate on an organizational level.
Some of the most high-profile and oft-lauded examples of industrial age companies reshaping themselves into shining illustrations of the ability of this generation of companies to pivot have faltered of late, leaving open the question if these industrial age companies can do enough to survive this period of disruption.
If they are to do so, however, they will need to focus on the right things.
Pivoting in order to succeed in the digital era will require overcoming the industrial age tax — which means a radical transformation of the organizational structures and cultural norms to retrofit them for this new age.
This retrofitting should take place in three primary areas:
- Business & Operating Models: Industrial age enterprises built their business models around delivering a mass product or service to a mass market, and then built their operating models to execute those business models as efficiently as possible. To successfully pivot, these enterprises must now reimagine their business and operating models to make them experientially-focused and deliver individualized and customized micro-experiences throughout the customer journey.
- Performance Measurement: Industrial age enterprises have relentlessly measured their performance across a large number of dimensions from production output to financial results. While these traditional measures will remain essential, they fail to capture the changing nature of how organizations create business value in the experience-driven digital era. To successfully pivot and drive the organizational and behavioral change such a pivot demands, enterprises must evolve the way they measure their performance.
- Organization: Industrial age enterprises created value through optimization. As a result, they organized and managed work in a command-and-control, hierarchical fashion. In the digital era, as organizations now create value through speed, agility, and by creating exceptional experiences, these traditional organizational and management models hinder, rather than promote, value creation. To successfully pivot, enterprises must, therefore, adopt new ways of organizing and managing work, such as self-organizing models, to meet the demands of this new era.
It’s too soon to tell if large enterprises will be able to put themselves into a continual state of transformation as it seems the market demands. Or will we instead see a constant recurrence of new upstarts growing ever-more-quickly and replacing the old guard, which will, in turn, become younger with each cycle?
If you’re an enterprise executive, however, you must believe that a pivot is possible and do whatever it takes to make it so.
The first step in this process will be to recognize that digital transformation is about making this pivot. It is not about technology, and it’s not about making some small, nuanced set of changes.
The act of pivoting demands nothing less than a wholesale shake-up of the organizational structures and cultural norms that have brought the organization to this point.
Such transformation is a scary proposition, and its undertaking demands that organizations retrofit their organizational structures and cultural norms to build what I’ll call the enterprise pivot capability.
Building this capability, and executing the organizational transformation that it entails, may be the most critical activity facing every enterprise executive. It’s time to get started.
Founder & Institute Fellow
Charles Araujo is a technology analyst and internationally recognized authority on the Digital Enterprise, the Digital Experience, and the Future of Work. Researching Digital Transformation for over 10 years, he is now focused on helping leaders transform their organizations around the digital experience and to reimagine the future of work. Publisher and principal analyst of The Digital Experience Report, founder of The Institute for Digital Transformation, co-founder of The MAPS Institute, and author of three books, he is a sought-after keynote speaker and advisor to technology companies and enterprise leaders.