Why Digital Transformations Fail

Jim Marous:
Welcome to the show, Tony. It's great to have you on the show and to dig into some of the key factors around digital transformation success, as well as the reasons many organizations have a tough time moving from what I'll call desire to fulfillment. First off, many people have their own definitions of digital transformation. What is yours?

Tony Saldanha:
Firstly, thanks for having me on the show, Jim. I've been looking forward to this. Digital transformation indeed has a lot of definitions. I did, by the way, just as an aside, I did a survey of 100 different people and as you can imagine, I got 100 different answers all the way from, "Oh, don't worry about it. It's hype. I used to have a digital watch in the 1970s." All the way to the other end of the spectrum, which is, "Oh no, it's real. I mean it's all of those robots coming for us," but in any case, my definition is in the context of industrial revolutions, which I think is when in the midst of the fourth industrial revolution as defined by the World Economic Forum, where unlike the previous three, which were driven by mechanical, electrical and the internet technology, now you have digital technology, which is basically transforming every other industry, right? Everything from media, transportation to social networking, right? Finance and banking is absolutely in the crosshairs because a combination of these technologies, including the internet, digital capabilities, as well as things like blockchain, make this particularly vulnerable to change.

Jim Marous:
It's interesting because you come out of the retail industry and many people would say that the digitalization of an industry probably is the most advanced in the retail space, but you came out of a different part of the retail industry, the Procter & Gamble. Can you give me a little background on what your background is but also, how your book came about because it's interesting. Rather than taking an upbeat look, your book, Why Digital Transformations Fail, is a little bit of a, "Hey, here's what you have to avoid," so can you talk a little bit to give our listeners a little background of your background?

Tony Saldanha:
Yes, so I feel incredibly fortunate to have grown up with the IT industry. I spent 27 years with Procter & Gamble. Eventually having run P & G's global IT, information technology and global shared services, which is almost like a company within a company that runs everything, HR, finance, IT and other capabilities. It was about a $2 billion organization. I had the privilege of running this in every region of the world. It also gave me a lot of opportunities to understand digital transformation in the sense of how can we use digital capabilities to either rewire business models or drive digital products, ie, smart toothbrushes, right, or even completely new ways of operational efficiency.

Tony Saldanha:
That's basically what led me to one key insight, which is that the reason why 70% of all digital transformations fail and by the way, this is a 1.7 trillion with a T, dollar industry in 2019, right? 70% of these efforts fail for one simple reason, and that reason and that word is discipline, right? There are two parts to this discipline. One is clarity in defining what you mean by digital transformation. Going back to my earlier comment about 100 different definitions. Then the second is disciplined use of the right [inaudible 00:04:13] to execute this. In other words, most digital transformations are still run with IT project management methodology, which is fine except that it misses the complete reimagination of the world, as well as the organization will change elements because you're going to have to completely change the culture of these organizations themselves. What I ended up doing was kind of falling back on my other passion, which happens to be aircraft and flying or flying-related activities to essentially draw from there the checklist methodology and my own experience to come out with a book on what is the checklist which might help mitigate the 70% failure rate?

Jim Marous:
Well, in your book, it's interesting because it's really a textbook, almost textbook format. It's really broken down into bite-sized pieces as to geez, this is how you get from beginning to end or different stages of transformation success. You actually have a five stage model. Can you explain a little bit about your five stage model?

Tony Saldanha:
Yeah. Happy to do that, Jim. Look, here's the problem with defining digital transformation, right? The IT and consulting industry has pretty much jumped on the hype of digital transformation being the number one priority for most boards of directors. Therefore, you have everybody define digital transformation their own way, whatever suits their business. Rather than change the world, I figured the best way to address this would be to put this in the context of a five stage model. The first stage is what most people think is digital transformation but in reality, it is simple automation. You have your internal corporate, let's say in a financial accounting or reporting processes, then you're going to use whatever software SAP to automate it. That's really what most people think is digital transformation, but it's really not. It is automation of existing work, so that's stage one.

Tony Saldanha:
Stage two is what I call silo. This is where parts of an enterprise, it may be a country or it could be the CFO for the whole world decide, "Hey, there's something about this disruptive technology and new business models. Let's say the use of blockchain for intra-company transfers in finance." They say, "I'm going to change the way we work, not by five or 10%, but by 50% or 90%," and that's that silo change.

Tony Saldanha:
Stage three is partially synchronized, which is essentially the partial conversion of the entire company. The best example of that is General Electric under a Jeff Immelt who set about with a vision and got the entire company kind of moving in that direction. The efforts are only partially synchronized because they were not able to execute across the whole company against that vision.

Tony Saldanha:
Stage four is what I called fully synchronized. That's when actually the entire company is able to do one time transformation of the business model into the fourth industrial revolution. A good example of that is something like MapQuest, which would still exist today, but they were incredibly disruptive in the early 2000s but today, thanks to GPS and directions being available on every smart phone, they're pretty much irrelevant, right? The issue with stage four is you may be able to transform to the latest business more than technologies one time, but the next disruption still catches you by surprise.

Tony Saldanha:
Which takes me to stage five, which is what I call living DNA. That's when the DNA of the organization becomes one of disrupting your own business model over and over again. The example of that is Netflix. They went from mailing DVDs to streaming media to what original content as in Game of Thrones and now the international content business models all within a space of 20 years. The ability to kind of disrupt yourself has got to be part of the organizational DNA. That's what I've tried to do, which is define these five stages so that as a leader when you're setting your goals in digital transformation, you're extremely clear about what you want to do.

Jim Marous:
You travel globally now working with organizations to try to move forward their number one, understand digital transformation, but also move them forward. Working with organizations globally, what stage are most organizations at the you meet, or maybe what is your perception as you look at the marketplace where most organizations are today?

Tony Saldanha:
Most organizations that have a digital transformation agenda, which by the way, it isn't a whole lot of companies.

Jim Marous:
Not universal by any means, yeah.

Tony Saldanha:
No, no, no. When they do, they're usually at stage two, which is siloed or stage three, which is partially synchronized. That's understandable in the sense that they're just grappling with the fact that they have to do something. Most of them do have a corporate strategy, which is the start of stage three and they are somewhere in trying to get a one-time conversion done. The biggest challenge that I see, and this is really where I feel I'm pushing boards and CEOs the most, is to understand that most organizations emphasize the digital part of digital transformation and not enough on the transformation, which is an organization change management HR process. That's really what's necessary for many of these companies to go past stage three into obviously stage four and then stage five.

Jim Marous:
Well, it's interesting because you give a stairstep approach, which is good because I think it shows, number one, you can't skip a step but number two, you really move from, as you mentioned, a committed ownership, which is the first stage, which as you and I both know is it's a step in and of itself. Then you get into a little bit more disruption empowerment and the change models you mentioned into more of organizational or cultural issues. What is required overall to get the digital transformation started? You mentioned the obviously, the committed leadership, but when you look at committed leadership, doesn't it also have to be like truly the leadership? In research that we've done, we've seen that it's very important. Organizations do much better if their CEO isn't in charge of that process. Is this what you've seen as well in your studies?

Tony Saldanha:
Oh, absolutely. There's no doubt about it. Clearly, you've been there, Jim. There is a big difference between leading and having skin in the game when it comes to digital transformation for CEOs. What tends to happen, partly driven by the confusion on what exactly digital transformation is, is that most CEOs will say, "Oh, we absolutely need to drive digital transformation, therefore I'm going to appoint a digital officer or transformation officer and they're going to drive all of the change." The problem I have with that is that's involvement, that's sponsorship, but that's not skin in the game commitment. I went back and forth on trying to figure out what word to use along with leadership here, and then I chose commitment and then ownership and not just leadership or empowerment.

Tony Saldanha:
I think that's the difference. I mean, that's the difference between let's say having a Jeff Bezos who bought the Washington Post. Rather than putting somebody to kind of transform it, he basically worked quite literally on a day-to-day basis with the technologists to drive platform changes in the company while at the same time, working also day-to-day with the content editors, but giving them carte blanche to say, "You guys know your business, you're going to do exactly what you think is right." That level of skin in the game is absolutely necessary when you're trying to rewire the entire company.

Jim Marous:
Isn't the whole process of digital transformation more difficult during times like these where there's times of success? Because I know that you worked in the Gillette division and at times P & G, invariably struggles in certain divisions versus others. Is it easier to have that motivation to change when things aren't going well? I mean, right now in the banking industry, basically almost every financial institution's making money, they've done well since the big disruption in 2008, but everybody's talking a good game, but at the end of the day, you got to want to change. Changing during times of prosperity is tough, isn't it?

Tony Saldanha:
It is. Absolutely. It is so true that when there is a burning platform for the industry, nothing focuses the mind like an existential threat. You're right, in the financial and banking industry, there is clear awareness of potential disruption, but there isn't that existential platform. By the way, I think the same is true in the medical industry and a large part of this is these industries are feeling somewhat protected, unfortunately, by illegal and other policy influence that they have in governments to say, "No, I think we'll be able to at least prolong the ride," and that's a problem. I contrast what happened to different industries during the 2008 global economic crisis to make this point.

Tony Saldanha:
During the global economic crisis in 2008, banking was hit very, very hard and they made a lot of really good changes there to essentially recover. They recovered very quickly, two or three years. Let me contrast that with consumer packaged goods, CPG. CPG by definition, isn't hurt as much by global economic crisis, so although CPG changed, it didn't change enough. The next eight to 10 years in CPG were really tough because we didn't change enough. Now CPG has changed significantly and now Procter & Gamble and others are starting to really take off, but that's a problem and that's why you need visionary leaders who set this goal of disrupting themselves and disrupting themselves when they have the bandwidth to be able to drive that change.

Jim Marous:
Well, similar to financial institutions, an organization like P & G doesn't necessarily price all their products, and the margins that you work with are enormously low. When you work with grocery stores or an Amazon and things like this, there's so much competition. The price points, that differentiation is difficult and it becomes more difficult when you don't control necessarily all the elements when there's digital channels involved and that movement to a digital channel. Did you see and have you seen it, you've mixed with other organizations that overall the distribution structure and the legacy organization that's used to support that just recent structure fights you all the way along the way? I'm thinking of banking with the whole area of branches, but now you see this in the medical industry. I don't know about Cincinnati, but I can tell you that in Cleveland, every corner there's a new medical facility that's owned by the primary financial or the primary medical organization in the area and you go, "Geez, are they just building branches," when overall, what we're looking at is not the quick access to hospitalization. Is it's more than the prevention model or even the fact that my hospital may be in my wrist soon.

Tony Saldanha:
Yes, no, exactly. I think, you're absolutely correct. What's starting to happen in the financial industry and you're right about something similar in retail and medical as well, is that while real disruption is coming to the consumers, so people like you and me in the retail industry that now have the ability to just buy stuff directly from retail and have it delivered in two hours like Amazon. Potentially, in the medical industry where your doctor may be on your smartwatch or in finance banking, where real internet-driven banks at least on the consumer banking front, are providing incredible disruptive breakthrough. Whereas the mainstream companies in these areas seem to be somewhat more focused on what they consider to be customer service, which is creating physical mechanisms to get closer to the customers.

Tony Saldanha:
Look, I don't think it's a question of either or. I think there's probably a transition period somewhere in between before when these large institutions can fully kind of take over the digital watches or the retail banking on the internet directly electronic. What's happening in the interim is that these companies are trying to get what they consider to be customer-focused by getting closer to the customer. The only watch out that I have is that in many cases, this is driven by the point you made earlier, which is resistance to change. We have all of these employees or we have all of these assets, how do we use them to get closer to the customer? That's a little bit like what the hospitality industry, the Marriotts and the Hiltons did in early 2000s because they got focused on, "Well, we have all of these properties and we have check-in desks. How about we put in a kiosk to help people check-in directly with a kiosk instead of at the desk?"

Tony Saldanha:
Whereas you had Airbnb who said, "Why do I need a kiosk? Why do I need a check-in process? Why do I even need a room, a physical room to be owned by me?" I think that's the watch out. That's why I think banks that are actually creating separate entities for direct digital processes as opposed to physical and digital processes, are going to grow much faster than the others.

Jim Marous:
Well, and when you look at a digital organization, and we miss this a lot of times, you talked about the kiosk, which I will say is digital transformation theater. It makes you feel like you're digital, but in the past, I remember how people went and were really resistant to moving from checking in and working with a travel agent and getting the paperwork to going in and doing it themselves. They've taken control and at a company like P & G, one of the things that your organization had been known for, is still known for is the fact that the masses of amount of data that you have available, how does data and the ability to look at every single consumer that you can possibly serve, what role does data play in the digital transformation process?

Tony Saldanha:
A huge, huge role. I think, I do, back to my early G reference, I do give Jeff Immelt credit for essentially having recognized that every company is going to be a data company eventually. He may have driven change too early, too fast or we talked [inaudible 00:21:33], but I think he was right that every company is a data company. Yes, companies like Procter & Gamble do have massive amounts of data. As we can see, from the way Wall Street is recognizing data companies, I mean, Amazon just became again, a trillion dollars type of a market valuation company. That companies that own data, clearly are being recognized for having these assets. I think when it comes to digital transformation,

Tony Saldanha:
I define digital transformation in business outcome terms, which is you're either creating completely new business models, so sell online instead of just brick and mortar, or you basically have disruptive business process capabilities. You do electronic real time closing of books instead of having a mass of people to do that. Then the third is then digital products. Smart toothbrushes or smart cars, not just physical cars. In each of these, data is the common ingredient because you need to understand data to be able to do smart toothbrushes. Because what you're doing, is you're using data about how the user is running their toothbrush to say, "Oh, you missed that part of your mouth," and you're doing that real time. You need data to be able to connect the way books are closed in the company or you need data to be able to go electronic selling. Therefore, I think it's a commodity that is absolutely invaluable to transformation.

Jim Marous:
Let's say an organization has got the leadership, got the commitment, let's say they're in the middle stages of your five stage process, let's say partially synchronized or maybe even fully synchronized. At that point, some organizations, I wouldn't say stop the process, but in some ways feel like they've reached the promised land.

Tony Saldanha:
Yes, they declare victory.

Jim Marous:
Why do digital transformations fail in what I'll call that middle zone of completeness?

Tony Saldanha:
Actually, you got it exactly there. I think there are a lot of organizations that take their foot off the pedal because even if they don't completely stop all work, I mean they do declare victory. I think part of this is the reward mechanism of Wall Street and others that basically are more focused on short-term financial results change as opposed to long-term systemic organization culture change. Amazon declared, when was this, I think three or four months ago, that they were going to invest, I think they said $700 million to digitally retrain their staff. I read that and I almost fell off my chair because I consider Amazon to be one of the most tech savvy companies in the world. They were like setting aside three quarters of $1 billion to train their employees on digital. That would be very hard for most companies. If Walmart had made that same reserve, they would be hit really, really hard in their stock price. That's the challenge. I think the difference between the middle stages of digital transformation and the living DNA is essentially organization culture change. That's an investment that's really, really hard to quantify for many companies.

Jim Marous:
Well, it's interesting because my son is in this last year of university and he's going to be ... He's a digital analytics and business analytics and I told him, I said, "Man, you got it man. You're hitting the iron rather the iron is hot because you're such a demand." I was thinking about the same thing that Amazon, they already are aware that trying to find the right people for their growing organization is going to get harder and harder. In fact, they can't find them. I mean, the number that they need don't exist in the marketplace.

Jim Marous:
If you took all the people in the marketplace, because the challenges, even at university level, digital transformation, coding, all these courses that used to be taught pretty easily, you can't even find the professors now because they'd gone to private industry because of the amount of money they can make there. Amazon is responding by saying, "We're going to train our own, even if we lose some, we're going to do better than if we went on the marketplace and paid retail and plus and not finding the right people." How do organizations, in your opinion, how do they find the right talent or what do you expect organizations to do internally to create the right talent?

Tony Saldanha:
That is a really, really good question, Jim. It's actually one that's getting a lot, by the way, it's getting a lot of thought and a lot of air time I happen to be on MIT's Future of Work Task Force. One of the things that we're trying to figure out is how do we sustainably source this talent? I think it's basically a combination strategy. I think first and foremost, every organization does need to have a digital literacy and a digital change HR plan. Most organizations try and look at their technologists or digital officers to essentially own that strategy. I think there's equal claim for it to be driven out of HR, because it's a culture change. I think that's one.

Tony Saldanha:
The second thing is, in terms of very specific skills like data science. The better strategy for most companies is a part buy and a part grow your own talent. The reason for that's simple. What Amazon, and by the way, they're not alone, AT&T's declared a few years ago that they going to spend $1 billion. Loblaws, the Canadian retailer is spending a quarter of a billion dollars. What they're doing is they're recognizing that it is applied data science that's most valuable. When you have somebody that knows how your warehouses run and they also happen to know data science, AI programming, then you've hit the jackpot because they're going to know exactly how to disrupt warehousing using AI.

Tony Saldanha:
I think there is a case to be made for getting very, very long-term people development-oriented in this space. Then obviously, that's not going to meet all the needs. Then you do have to have a strategy of buying at retail price as you said.

Jim Marous:
We talked about at the very beginning that while we talk about digital transformation, where it's happening, how good it's going, the reality is many organizations haven't gotten unstuck. They're in a very low stage of your five stage process. Where do you think organizations have to start? What is the one thing they need to commit to that you know when you meet with the organizations, you can make an impact? Because it's hard to say, "Oh, we need leadership thinking or we need a different culture," but how do we get to point one?

Tony Saldanha:
Yes. In my mind, point one is for the owners, by the way, which could be the the CEO/board of directors or if it's a privately-owned company, it could be the owner herself or himself or as is the case with some of the governments that I work with. I mean, it could be whatever the appropriate government authority is. The first step is for them to acknowledge that we're in the midst of the fourth industrial revolution and that there is a need for a different set of strategies than what's worked in the past. Because I think, this was a whole learning that we got from, I have to mention Clay Christensen who passed away a few weeks ago, and his contribution to the management industry, which is the whole idea of disruptive innovation. I think that would be the first point, which is understanding that they do need to have a disruptive innovation plan and a strategy. Then in my book, I talk about 10 different disciplines and how to go about this one by one, but that's really where I would start.

Jim Marous:
Tony, we've run out of time, unfortunately. I know this conversation gets ... We're on the same wavelength of our passion for digital transformation, but if people want to carry the conversation further themselves, how do they get ahold of you?

Tony Saldanha:
I'm available online. My organization is called Transformant.io, so that's the word transform and the insect ant, mushed together in one word and .io, India, Oscar or also www.tonysaldanha.com or I'm a very, very interactive guy. I'd even offer my email, [email protected].

Jim Marous:
Tony, thank you very much. It was a pleasure reading your book. I'm only about four and a quarter, four and a half hours as the crow flies from you, and I get down to Cincinnati every once in a while. We're going to have to sit down and have lunch sometime, so thank you very much for being on the show today.

Tony Saldanha:
Well, thank you very much, and I'd love the opportunity to get together with you.

REFLECTION:

Speaker 1:
So here's some thoughts around Tony's interview today. Number one, that interview could've gone on forever, the dialogue, Tony's perspective on things. It's always easy when somebody kind of agrees with where you're thinking certainly on something like a podcast, but I think a couple of major takeaways from the discussion with Tony. Number one, Tony's book, Why Digital Transformation Fails, is an important book because it really talks about the staging of the process, going from point a where it's simply the organization or the leadership buying in to partial transformation to full transformation to changing the culture and then actually having an agile culture. So I think the step process is really easy to visualize and to actually implement. Number two, Tony makes it very clear as we continue to try it and reinforce this during our podcast that if you haven't gotten the buy in of the very top of the organization, it's not going to work.

Speaker 1:
Number one, you're going to have a hard time to get a buy in unless the CEO is in charge of the digital transformation process and believes it needs to happen and is willing to do something about it. Secondly, this goes to a lot of the solution providers in the marketplace right now. If you're talking to the middle market and they actually purchase something for digital transformation, the reality is it probably will not work optimally because you haven't been able to move it forward and do not have the top management support to actually have it breath and take life. My interview with IBM a few weeks ago emphasized this as well, that the onboarding process at IBM kind of makes sure that the stuff that's being sold is actually being implemented the way it's supposed to be because the last thing you want is for digital transformation to fail.

Speaker 1:
And finally, I think the other takeaway is that if there's not a pain, there won't be motion or action. I'd say that 70% of organizations are at the very first stage, if that. You need to move forward. You need to understand that the pain, if you're not feeling it now, you're going to feel it later. Again, one of these great podcasts I really like doing, but hope you enjoyed it as well.