Digital Leadership in Action, Part 1
Audio and transcript of my conversation with Wharton’s Anne Greenhalgh
I’m traveling this week in Vietnam (speaking to government and CEOs about DX in their own region), so I wanted to share a special interview that is not available on the web.
I was invited to speak on leadership in the digital era as part of the Wharton School’s “Leadership in Action” program on Sirius XM radio. I had a great, and wide-ranging conversation with Ann Greenhalgh.
Below is the first half of our conversation, both as audio, and in a written transcript (I will share the second half in another post this week).
Part 1: Summary
In this first half of the interview, Anne Greenhalgh and I discuss:
My definition of digital transformation as a continuous journey, not a project with a start and end date
The cautionary tale of CNN's failed digital effort (CNN+), and the need for leaders to approach transformation with humility, and a willingness to test and experiment
Why organizational complexity, more than company age, is the biggest barrier to change
Why even digital-native companies today are looking for new models of leadership, to manage continuous change and adaptation
Audio: Part 1
Transcript: Part 1
Narrator (00:00):
From the campus of the University of Pennsylvania Wharton School, this is Leadership in Action on Business Radio.
Anne Greenhalgh (00:07):
Welcome to Leadership in Action on SiriusXM Business Radio, powered by the Wharton School. I'm Anne Greenhalgh, and today I am flying solo. My dear colleagues and friends, Mike Useem and Jeff Klein are off this week.
(00:25):
Before we begin, I want to remind you that new episodes of our show premiere on Tuesdays at 5:00 PM Eastern Time, and you can always follow us on Twitter @SXMBusiness. Today I'm really delighted to have all to myself, author and academic, David Rogers is the world's leading expert on digital transformation, a member of the faculty at Columbia Business School and the author of five books. David, welcome to the show.
David Rogers (00:59):
Thanks so much, Anne. It's a real pleasure to have a chance to speak with you and to be a part of your show.
Anne Greenhalgh (01:04):
Well, thank you so much. You had a previous landmark bestseller called The Digital Transformation Playbook, and that book came out in 2016. It's distinguished by being the very first book on digital transformation. You put the topic on the map. The book was published in 13 languages and defined the discipline by arguing that digital transformation, DX, is not about technology. It's about strategy, leadership and new ways of thinking.
(01:42):
Now you have your newest book called The Digital Transformation Roadmap coming out right now, 2023. I'm really, really delighted, David, to have a chance to talk with you about your new book. Can we start with the definition of digital transformation? The teacher in me wants to start with the basics, so let's start there.
David Rogers (02:05):
Sure. I'm all in favor of that. I think it's great to sort of define your terms. I had a funny experience after that last book came out, and I was traveling a lot, of course talking to companies around the world. I was in Italy, and I was introduced to speak to a large group, and the gentleman who introduced me said, "We're so happy to have Professor David Rogers here to talk about digital transformation because it's a topic that everyone is thinking about these days. But I believe that digital transformation, it's like an empty suitcase." He paused for a second, and I looked at him wondering where this analogy or this metaphor was going, and he said, "Everyone is carrying it around, and no one knows what is inside it."
(02:56):
From that, I took the point that everyone wanted to hear about and was thinking about digital transformation, but most people were not exactly clear what that term really means. And I find even today in a given organization a lot of different points of view. I'm all in favor a definition. What I would offer is this, and I do in my new book. "Digital transformation is the transformation of an established business in order to thrive in an era of constant digital change."
(03:32):
There's sort of three points or three truths or ideas embedded in that definition I would point out. First, digital transformation is about your business. It's about your customers. It is not about technology. You will use technology of course in any strategy that you choose to implement. It's going to be part of your execution, but the transformation is about your business. How do you transform the business?
(04:01):
The second point is that this is about established organizations. That's kind of the inherent tension or the challenge here. It's not that you're a startup looking at the fast-moving digital world, the latest technology capabilities and searching for some unmet customer need that you can address with a repeatable, scalable business model, to borrow the phrase of my friend Steve Blank. It's you have a business model, you have customers, you have an organization and an org chart and distribution channels and people inside the organization. All these things are already in place, and you actually have to change them as you go, so it's a very different kind of challenge.
(04:44):
Then the third point is that digital transformation is a continuous journey, it is not a project with a start and an end date. This is a common misconception that I see. Because the digital world is not done changing. The change is not slowing down. It's not the sort of, oh, everything went to the smartphone and now we got to kind of figure it all out and then we're set, we can start thinking about other things. We are seeing wave after wave of digital change accelerating uncertainty and opportunity in every business's environment, and so it's about becoming comfortable with and capable of continuously changing. That's the real challenge for organizations and that to me is the real challenge for leadership today.
Anne Greenhalgh (05:32):
David, I just so appreciate how you have unpacked the definition, and for our listeners, because I think it's really so good, I'm going to say it again. In fact on page five, you've almost written a haiku that was "transforming an established business to thrive in a world of constant digital change."
(05:55):
I think so important to underscore that this is not about technology. This is about business. It's also about changing the whole of an organization. Not the part, but the whole. Moreover, this project does not have a start and end date. It is a continuous process. So back full circle to your opening point, it is about business, about leadership and about strategy.
(06:28):
I know our listeners always appreciate a concrete example, and I'm going to go by way of the negative just to get us warmed up. Can you give us an example, and I know you can because I've read through your book, of a company that got it wrong on all three of those required parts of the definition?
David Rogers (06:52):
I mean, honestly, there's a lot of examples. The evidence is out there that most companies that are attempting a digital transformation are failing, are not achieving the results they set out for themselves or are not seeing any sort of sustained benefit from the money that they've spent, the resources they put into it.
(07:16):
One notable example which I look at in the book as kind of a cautionary tale for leaders is from CNN, and this to me is about kind of two lessons we need to take away. One is about humility and that this is a really under-addressed leadership skill I would say in the modern era. In an era of uncertainty and rapid change, leaders have to have the humility to recognize that they don't know where the world is headed. They don't know what the right solution to the problems that they're facing are. They don't know the right answer to the questions.
(07:59):
Their job is not to know all these things. Their job is to ask the most important questions, to identify the most important problems to be solved and to focus and enable others to really sort of continuously experiment and test and learn and find that way forward. That's sort of the second lesson is it's not about what we traditionally ran businesses around, which was planning. You decide the course of action and then you plan it out, you write a business case and you have a detailed operational plan, and then it's about execution. That approach does not work, again, in an environment of rapid change and high uncertainty where you can't look to a bunch of benchmarks and case studies and best practices of how 10 other companies in your same industry have all done this before because they haven't.
(08:52):
The story, CNN. Example here is the leadership of CNN looked at the burgeoning era of streaming, and had at this point shifted from just being the digital native companies like Netflix, but you had Warner Brothers, Disney, these legacy media companies had started to launch streaming services, and they were some of them growing quite fast. Disney is sort of a prime example. So the leadership of CNN decided, "We need to launch a streaming news app," a paid app where you pay to stream news through your phone.
(09:36):
Now, to be honest, this is an interesting idea. I think it's strategically relevant to CNN. I think it was a very good idea to test and explore and validate. If you go in with that mindset of humility and say, "We have no idea if this will work, and if it will work, we have no idea how it will really work." They did not take that approach. They took the typical sort of leadership, traditional leadership mindset playbook where you do a few things. The first thing is you gather a lot of third party data, study the problem. This is very different than actually experimenting and testing yourself.
(10:15):
They hired a large consulting firm, got lots of studies on what's going on in the world of media, looked at lots of data and said, "Ah, okay, we should pursue this," and then they created a business case, which is the second classic step. You sort of plan it out, analyze what would your course of action be. They forecasted with high confidence that they'd have, I think it was two million subscribers in the first year and 15 million subscribers within a couple of years after that as they started to go international.
(10:51):
Then they followed the classic leader playbook, which is who makes the decision? Well, the person at the top. This most senior executive makes a call. Are we going? Is a go or no-go? Or maybe if you've picked a couple different options, which one do we choose? It's all based on their supposed wisdom and experience. But again, we're dealing with a situation where that experience is not necessarily going to show you the future does not look like the past. So Jeff Zucker, who is the head of CNN at the time, and his boss Jason Kilar, were by all reports and their own public statements completely enthralled with this idea and convinced it was going to transform the news industry and be revolutionary for CNN. They just kind of felt it in their bones.
(11:38):
Based on that, they said, "Okay, we're moving forward." Then what do you do in the classic leaders' playbook? Well, if you want to ensure the success of a bold new initiative, the traditional thinking is you've got to focus on execution, and that means putting lots of resources behind it. So they spent $300 million on this new digital business model before it launched. This is before day one, just signing on big name marquee talent and hiring all the producers and the technologists and producing this whole slate of content and getting ready to start out of the gates with a big bang. $300 million spent, they launch on day one. Again, no testing, no experimentation.
(12:25):
The question would be how many people are going to sign up? If you pose this business idea to me, the first question, and I think any experienced entrepreneur or somebody who's built new ventures would say, "Well, one of the key questions is you already have an established audience." This is a known brand, "So what percent of the established audience is going to sign up?" You'd want to know that. Maybe you can get customers from other places, maybe people who'd never watched CNN is who you're going to attract, but right off the bat, what percent of them are going to sign up?
(13:01):
Well, I don't know what they imagined it was going to be, but they didn't run a test, and the numbers were terrible. They had less than 10,000 people viewing them per day in the first month that they launched. That's about 1% of the television viewership. It was a catastrophe, nothing like they expected, and they just dropped the whole thing. They shut the entire venture down, CNN+, within a month after launching it. Again, this was an interesting idea, a new digital business model. That's the kind of thing companies should be thinking about and looking at, but you cannot pursue them. You cannot reinvent your company, your business for this rapidly changing digital future with this kind of old leadership mindset.
Anne Greenhalgh (13:52):
David, great, great example. Let me just remind our listeners that you are listening to Leadership in Action on SiriusXM Business Radio powered by the Wharton School. I am Anne Greenhalgh, and today I have the great pleasure of speaking with David Rogers about his brand new book, his newest book called The Digital Transformation Roadmap.
(14:14):
David, you've given a great example of CNN and how the company fell short in really addressing the challenge of the digital transformation. So a couple tips come to mind for me. One is to not get focused on the technology, but keep in mind the business. It's the whole business so setting a separate entity to deal with this issue isn't going to work. Again, that planning. What we are taught to do, identify the issue, analyze it, provide the solution, plan and execute is not going to work. So if we just take one moment to have a moment of sympathy for companies, this isn't an easy challenge.
David Rogers (15:07):
It's not.
Anne Greenhalgh (15:08):
I know for one, looking through your book, for example, a large company is not simple. We're talking about headcount, we're talking about divisions, we're talking about lines of services or products. What else makes it difficult for companies and leadership to embrace the digital transformation?
David Rogers (15:30):
This was a key insight that led to this book for me was I spent the last seven years since my last book came out really addressing this topic of digital transformation, helping a wide range of companies, advising leaders in many different industries around the world, and also just continuing to track and research and watch what other companies their experience was. It was fascinating to me to see how even when the leadership, when the business recognized they really needed to transform, and even when they were able to really get past some of their legacy thinking in terms of their strategy, what business are you in? What are your customer's needs? Who are your competitors today? How do you think about the value of data? All these kind of strategic questions and really start to identify, "Okay, we could or we might really change this company or really grow this company by moving in certain new directions."
(16:28):
What I was fascinated to see was how hard it was to actually move the organization. Even the companies who shifted that kind of mindset around their strategy found it so hard to change. What I saw through experience was the more complex the organization is, the harder it is to change. It's not exactly the same thing as how old the company is. What I found was I think the three biggest drivers in terms of organizational complexity is one, you mentioned headcount. Simply how many employees you have. The second I saw was lines of business. So companies who have more than one line of business that are serving different types of customers who have different needs. The third is geography because there's always additional complexities as you're operating in multiple different locations around the world. Much of that today actually comes from regulation as much as challenges around things like supply chain and talent and time zones.
(17:32):
That really was kind of a wake-up call for me. If you're a relatively small business, I know smaller businesses always feel that transforming, keeping up with digital change is harder for them because they don't have as much money to spend on new technology. What I've learned is it's actually, it's not easy for anyone, but it's less hard for them. If you have 300 employees, a single line of business, you're operating in a single geography and you figure out you really need to change your strategy and your product portfolio and maybe shift from a product or service, a different go-to-market strategy, I mean, that's hard, but it is possible if you're really clear about what you're trying to do. I've seen companies do it relatively quickly.
(18:15):
But if you're a company with 50,000 employees and you're in 2, 3, 4 different lines of business and you're operating in 20 different countries, even if you recognize the change you need to make it is incredibly hard to get over this kind of organizational inertia to really make change happen. So that's what really drove me on the thinking behind this book is to figure out why is this organizational change piece so hard and how can we learn from the companies who are doing it? Again, there are lots of companies who have struggled with digital transformation, but there are many others who have really seen tremendous and impressive change. That was my goal. What do they have in common? What are the lessons we can learn? Pulling that together is what became again, what I call The Digital Transformation Roadmap.
Anne Greenhalgh (19:09):
Great. David, I'm a little curious to learn why age is not necessarily a barrier. I ask you that because I am assuming that with age comes a more embedded culture and a culture that might be resistant to change. Could you just say a little bit more about your findings on the relationship between age and change?
David Rogers (19:36):
Sure. I think there is truth to that in that I would say if there is a factor that's sort of hard about age, does age add an additional barrier? I would say that when it does, it is yes, it is mostly about a well-established culture. Cultures actually get established pretty quickly. You'd be surprised. You don't have to be 100-year-old culture, 100-year-old business to have sort of a very fixed way of thinking about what kind of business you are in.
(20:10):
What I was really surprised after my last book was I would be teaching in one of my executive programs at Columbia, for example, where we'll bring together multiple different companies in the same room. Of course you'd have legacy ... I wouldn't be surprised ... You'd have legacy companies from financial services, from retail, from automotive, other sectors, and there'd be some nonprofits or more likely public sector, Federal Reserve Bank of Indonesia or other government sectors in there ... But then I was always a little surprised at first that every time I'd have a program like that, 10% or more of the people who were in there were digital native companies. They were people in businesses that had started after the web, after the internet became a commercial platform. Yet, as we looked at all the key challenges of digital transformation, they would say, "Yeah, that's what we're struggling with too."
(21:13):
What I realized is is as soon as you have an established business, as soon as you have a business that already has a certain core business model, it's already a core set of products or services, you've got customers you're serving, you start to face this tension, between a balancing act, if you will, between maintaining and growing that core business and pursuing new opportunities, between managing your current cash flow and bottom line and investing in future growth, which is going to have maybe a longer term payoff.
(21:49):
We see this — I was commenting on it in the news last week for the Financial Times about Walt Disney — in the latest statements from their leadership from Bob Iger, and it's the same tension we see others, you've got an existing business model. For them this was their reporting on their traditional linear television, and you've got a digital business model, that's their streaming content. The traditional business model is in pretty rapid decline, but it's still profitable. Then you've got this new business model that's in rapid growth, but it's still losing money. So it's a tension to manage those two at the same time to, in that case, milk the cash cow I would argue, get as much, capture as much value as you can out of the declining business and then steer that rapidly growing, that little rocket ship of new growth, steer it towards profitability as fast as you can. You've got to sort of do these two—you've got to be able to walk and chew gum at the same time.
(22:50):
What I learned is I started meeting companies, they're 15, they're 20 years old, they're already in that position because the digital area is moving so quickly. They started a business, they've grown it, they've got customers, but guess what? They're already seeing a tension between their existing business and their next new opportunity. That really opened my eyes that this is more structural about the way organizations are built.
Anne Greenhalgh (23:14):
David, your conversation about the inertia that companies can feel when it's so complex. You're reminding me of a conversation I had not long ago with a colleague of ours, a faculty member at Kellogg School. Maybe you know him, David Schonthal, who's written a new book that you might be interested in. It's called The Human Element, and he talks about the friction, those forces that keep organizations from changing. The very first one he names is inertia. He also talks about the enormous effort that it takes to change, and he speaks as well about the negative emotions that people have, the anxiety or the fear that's cultivated. Finally, and I know you're going to love this one, the resistance that organizations face when a new idea is not their idea. It's someone else's idea.
(24:15):
There are many, many barriers to change and yet also illustrations of success. You've mentioned the Walt Disney Company. But I think what I'd like to do now, because we're getting close to the break, I'm going to take a soft break, but when we come back, I'd love for you to talk about another example of success. You mention quite a few in your book, and they come from diverse industries, manufacturing as well as the restaurant industry. So how about when we come back, let's talk about another example of success?
David Rogers (24:52):
Terrific. I’d be happy to.
Anne Greenhalgh (24:53):
You are listening to Leadership in Action on SiriusXM Business Radio powered by the Wharton School. I'm Anne Greenhalgh, and I am joined today with David Rogers, the author of a brand new book called The Digital Transformation Roadmap. We will be back in just a few minutes.
After the break…
Part two of this interview can be found here: in my next post. Enjoy!
“THE DIGITAL TRANSFORMATION ROADMAP:
Rebuild Your Organization for Continuous Change”
Great advice and excellent explanation.