Coming of Age Digitally

In collaboration with RESEARCH REPORT FINDINGS FROM THE 2018 DIGITAL BUSINESS GLOBAL EXECUTIVE STUDY AND RESEARCH PROJECT Coming of Age Digitally Learning, Leadership, and Legacy By Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips, David Kiron, and Natasha Buckley SUMMER 2018 #DIGITALEVOLUTION REPRINT NUMBER 59480 R E S E A R C H R E P O R T C O M I N G O F A G E D I G I TA L LY AUTHORS GERALD C. KANE is the MIT Sloan Management Review guest editor for the Digital Business Initiative and a professor of information systems at the Carroll School of Management at Boston College. DAVID KIRON is the executive editor of MIT Sloan Management Review, which brings ideas from the world of thinkers to the executives and managers who use them. DOUG PALMER is a principal in the Digital Business NATASHA BUCKLEY is a senior manager within Deloitte Services LP, where she researches emerging topics in the business technology market. and Strategy practice of Deloitte Digital. ANH NGUYEN PHILLIPS is a senior manager within Deloitte Services LP, where she leads research on digital transformation and other strategic initiatives. CONTRIBUTORS Garth Andrus, Desiree Barry, Mark Cotteleer, Deb Gallagher, Swati Garg, Carolyn Ann Geason, Nidal Haddad, Paula Klein, Saurabh Rijhwani, Daniel Rimm, Lauren Rosano, and Allison Ryder. The research and analysis for this report was conducted under the direction of the authors as part of an MIT Sloan Management Review research initiative in collaboration with and sponsored by Deloitte Digital. To cite this report, please use: G.C. Kane, D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley, “Coming of Age Digitally” MIT Sloan Management Review and Deloitte Insights, June 2018. Copyright © MIT, 2018. All rights reserved. Get more on digital leadership from MIT Sloan Management Review: Read the report online at https://sloanreview.mit.edu/digital2018 Visit our site at https://sloanreview.mit.edu/big-ideas/digital-leadership Get the free digital leadership enewsletter at https://sloanreview.mit.edu/enews-digital Contact us to get permission to distribute or copy this report at smr-help@mit.edu or 877-727-7170 CONTENTS RESEARCH REPORT SUMMER 2018 3 / Executive Summary 5 / Introduction: Digital Transformation at John Hancock 6 / What Advancing Digital Maturity Means for Your Business 8 / How Is Digital Business Different? 10 / Organizational Learning Through Experimentation and Iteration 12 / Continuous Learning Is Critical for Individuals 13 / Developing — Not Just Having — Leaders Sets Digitally Maturing Companies Apart 15 / Creating a Culture of Distributed Leadership 17 / Coming of Age: Extending Your Legacy Into the Digital World 18 / Conclusion 20 / Acknowledgments 21 / Appendix: Survey Questions and Responses COMING OF AGE DIGITALLY • MIT SLOAN MANAGEMENT REVIEW 1 Coming of Age Digitally A Executive Summary dapting to increasingly digital market environments and taking advantage of digital technologies to improve operations and drive new customer value are important goals for nearly every contemporary business. The good news is that many companies are beginning to make the necessary changes to adapt their organization to a digital environment. Based on a global survey of more than 4,300 managers, executives, and analysts and 17 interviews with executives and thought leaders, MIT Sloan Management Review and Deloitte’s1 fourth annual study of digital business shows that the digital business environment is fundamentally different from the traditional one. Digitally maturing companies recognize the differences and are evolving how they learn and lead in order to adapt and succeed in a rapidly changing market. This year’s research provides some important insights into how companies are adapting to a digital business environment: • Organizations are beginning to make progress digitally. For the first time in four years, we’ve seen an uptick in how survey respondents evaluate their company’s digital maturity. Many established companies are beginning to take digital disruption more seriously and respond. If companies were waiting for competitors to act before responding, this shift suggests the time to act is now. • Developing — not just having — digital leaders sets digitally maturing companies apart. Simply having the right digital leaders is not the most important indicator of digital maturity — more than 50% of digitally maturing companies still report needing new leaders. Yet, these maturing companies were far more likely to report taking steps to develop the right leaders. The most digitally mature organizations are more than four times more likely to be developing needed digital leaders than the least digitally mature ones. Key traits of effective digital leadership are about enabling the organization: providing vision and purpose, creating conditions to experiment, empowering people to think differently, and getting people to collaborate across boundaries. The most digitally mature organizations are more than four times more likely to be developing needed digital leaders than the least digitally mature ones. COMING OF AGE DIGITALLY • MIT SLOAN MANAGEMENT REVIEW 3 R E S E A R C H R E P O R T C O M I N G O F A G E D I G I TA L LY ABOUT THE RESEARCH spondents say the pace of business; culture and mindset; and a flexible, distributed workplace are among the biggest differences between digital and traditional business. Such findings mean many companies should change how they operate in order to compete. Respondents also report that the biggest challenges are the need to experiment and take risks, dealing with ambiguity and constant change, buying and implementing the right technology, and distributed decision-making. To understand the challenges and opportunities associated with the use of social and digital business, MIT Sloan Management Review, in collaboration with Deloitte, conducted its seventh annual survey of more than 4,300 business executives, managers, and analysts from organizations around the world. The survey, conducted in the fall of 2017, captured insights from individuals in 123 countries and 28 industries, from organizations of various sizes. More than two-thirds of the respondents were from outside of the United States. The sample was drawn from a number of sources, including MIT Sloan Management Review readers, Deloitte Dbriefs webcast subscribers, and other interested parties. In addition to our survey results, we interviewed business executives and experts from a number of industries and academia to understand the practical issues facing organizations today. Their insights contributed to a richer understanding of the data. • Digitally maturing organizations are more likely to experiment and iterate. Experimentation and iteration are key ways companies respond to digital disruption. They alone, however, are not enough. Companies should use the results of those experiments — successes and failures — to drive change across the organization. Companies with abundant resources may be tempted to just “throw money at the problem” of digital disruption, but that doesn’t generally lead to continuous and actionable learning in the way that experimentation does. Instead, established companies should figure out how to experiment to compete in the future while also maintaining the core business so that it can perform in the present. • Individuals report needing to continually develop their skills but say they get little to no support from their organization to do so. Some 90% of respondents indicate that they need to update their skills at least yearly, with nearly half of them reporting the need to update skills continuously on an ongoing basis. Yet, only 34% of respondents say they are satisfied with the degree to which their organization supports ongoing skill development. Many organizations continue to rely on formal training for developing these skills, but cultivating an environment that allows on-the-job learning may be more effective. Many employees are also willing to do it themselves, given the right support. Of those surveyed, 90% indicate they want to use data analytics from their organization to help them improve their own performance. Digital maturity was measured in this year’s study similar to how it was measured in prior years. We asked respondents to “imagine an ideal organization utilizing digital technologies and capabilities to improve processes, engage talent across the organization, and drive new valuegenerating business models.” We then asked respondents to rate their company against that ideal on a scale of 1 to 10. Three maturity groups were observed: early (1-3), developing (4-6), and maturing (7-10). • Digitally maturing companies push decisionmaking further down into the organization. At the same time, there appears to be a disconnect between the C-suite and middle managers regarding this. While 59% of CEOs believe they are pushing decision-making down, only around 33% of vice president and director-level respondents report that it is happening. While one may be tempted to conclude that leaders are unwilling to surrender their authority to others, some of our evidence suggests that employees may be reluctant to step up and assume their roles as digital leaders. • Digital business is faster, more flexible and distributed, and has a different culture and mindset than traditional business. Survey re- 4 MIT SLOAN MANAGEMENT REVIEW • DELOITTE INSIGHTS Introduction: Digital Transformation at John Hancock John Hancock Financial Services Inc. is a well-established Boston, Massachusetts-based business with a 150-year history and 3.5 million policyholders. However, about two years ago, the company’s leadership realized that the business and organization needed to be refreshed for the 21st century and to better compete in a digital world. The first step was to hire some new people with the necessary skills to lead the digital transformation efforts. The company first recruited Barbara Goose in October of 2016, who became senior vice president and chief marketing officer. She brought a background of more than 20 years of experience in digital marketing, most recently as global chief marketing officer of a financial technology company in the mortgage and real estate industries. Goose then assembled her team to lead the digital renewal, including Lindsay Sutton, who was recruited from a marketing technology agency to become assistant vice president and digital strategy lead. Goose wanted the company to become more innovative, more entrepreneurial, faster moving, more empowered, and more collaborative. The company needed to change the way it worked, with whom it was working, and how employees thought about their work. To make these types of fundamental changes, Goose first needed to give the people tasked with the changes the freedom to work outside the traditional bureaucratic structures that define many legacy companies. Innovation teams needed to be isolated and protected, “to be freed from the corporate shackles in some ways to be able to innovate and progress faster,” says Goose. A key initiative under this approach has been the development and launch of a new mobile advisory investment app called Twine. The San Francisco, California-based cross-functional group responsible for the app “functions just like a startup,” Sutton notes. “It’s having people at the table together but not losing any steam by having too many powers-that-be in those conversations.” Goose adds, “When you put cross-functional employees on a dedicated team, they’re baked into those teams, so they understand what the team is doing. They understand the mission and the urgency, so decisions are made differently.” They also communicate the lessons learned from experiments across the organization to make sure other teams can benefit. “If we win or have built something, it’s about packaging it up to be able to share so that other people can see how it’s been done,” Sutton says. “I’ve already noticed that we’ve been able to use a lot of the learnings we’ve had just getting to the launch stage for Twine in other pockets around the organization.” Yet, innovation teams, incubators, and the successful release of mobile apps aren’t sufficient to drive the type of change John Hancock is seeking. Goose’s task is bigger: “To be successful in scaling, we realized that we need to integrate this process into our core.” Digital transformation can’t just be a top-down mandate to change. Instead, it involves creating the conditions under which existing employees start thinking and working differently, and driving change from the bottom up as well. “At the end of the day, so much is about talent. Talent is two-pronged, by skill set and by attitude,” Sutton notes. “That’s what you need to drive an organization forward into an era they are primed to be a part of. Attitude is the one thing we sometimes forget.” With the right attitude, people can and will begin to develop the skills they need to work and learn in the fast-moving and ambiguous conditions that are at the heart of digital business. “People with that mentality are everywhere,” she adds. “Some of them need to just be reminded that they can be that person.” Executives at John Hancock see the competitive landscape shifting and are trying to create new competencies for competing in a digital world and reshape how their employees work, think, and learn. Yet, driving the need for change can be difficult COMING OF AGE DIGITALLY • MIT SLOAN MANAGEMENT REVIEW 5 R E S E A R C H R E P O R T C O M I N G O F A G E D I G I TA L LY when established companies are performing well. “It’s hard to drive change when people feel that the company has been successful doing everything the way it always has,” Goose says. “In looking toward the future, they can see that the world and customer needs are changing. We need to evolve and experience a revolution to get to a very different place as fast as we can, but it’s hard to do that quickly in such a big company.” THE IMPORTANCE OF A GROWTH MINDSET FOR DIGITAL TRANSFORMATION Research psychologist Carol Dweck contrasts two types of individual mindsets: a growth mindset and a fixed mindset.i Her research reveals that mindset plays a much bigger role than innate talent when it comes to success. People with a fixed mindset believe that intelligence (along with talent, personality, and other traits and capabilities) is static: You either have it or you don’t, and there is little you can do to change it. Having a growth mindset begins with the fundamental belief that intelligence (or talent or other personality or capabilities) can be developed — that it is not static or predetermined. A growth mindset is key to digital transformation. Many people don’t innately possess the skills necessary to succeed in a digital world, but they must develop them as they adapt to the new challenges wrought by digital disruption. Organizations can develop a growth mindset, too. Much of what Barbara Goose, senior vice president and chief marketing officer at John Hancock Financial Services, is trying to accomplish is to get the company to realize that it, too, can develop the processes and capabilities to compete more effectively in a digital environment. Both individuals and organizations need a growth mindset to learn how to adapt to the ongoing changes posed by digital disruption. Digital disruption is, in fact, many little disruptions that unfold over time and interact in unexpected ways. The best way to respond is to likewise be continually sensing and adapting to these environmental changes wrought by digital technologies in small, manageable ways instead of in a singular, massive organizational overhaul. What Advancing Digital Maturity Means For Your Business These are the themes around learning and leadership we’re seeing play out across companies and industries in our 2018 MIT Sloan Management Review and Deloitte annual report on digital business. For the past four years, we have studied how companies are responding to changes in the business environment resulting from advances in digital technologies. Consistent with research in past years, we explored the organizational aspects of digital transformation. We examined how organizations adapt their business strategy, their organizational structure and culture, and their talent and leadership models to better compete in a digital world. Extending this ongoing research theme, this year we explored how leadership and learning at digitally maturing organizations are transformed at both the organizational and individual level. (See “The Importance of a Growth Mindset for Digital Transformation.”) Our research is focused on the concept of digital maturity, which represents the degree to which organizations have adapted themselves to a digital business environment. The distribution of digital maturity was relatively consistent in our sample over the past few years, suggesting that companies weren’t making significant progress. This year is different. For the first time, we observed a meaningful uptick in digital maturity. (See Figure 1, page 7.) The percentage of respondents who report their company as being in the early stage of digital disruption has dropped nearly 9 points from last year, and the percentage of those reporting their company is either in the developing or maturing stage has gone up approximately 3 and 5 points, respectively. These shifts suggest that companies are beginning to take digital disruption more seriously and make meaningful changes in how they work. Such shifts persist even when controlling for company age and 6 MIT SLOAN MANAGEMENT REVIEW • DELOITTE INSIGHTS FIGURE 1: We asked respondents to “imagine an ideal organization 01 other organizational characteristics, and may anticipate even greater changes in the years to come. It is possible that many companies have not responded to digital disruption sooner because their competitors weren’t responding, either. Now that some companies have started to move more aggressively to adapt their organization to a digital world, it may mean that others may soon follow in response. As we saw in the John Hancock example, companies may be reluctant to adapt while they are successful. If your company is not making meaningful steps to become more digitally mature, our data suggests that now may be the time to start to take action. utilizing digital technologies and capabilities to improve processes, engage talent across the organization, and drive new value-generating business models.” We then asked respondents to rate their company against that ideal on a scale of 1 to 10. Three maturity groups were observed: early (1-3), developing (4-6), and maturing (7-10). Current digital maturity Digital maturity improvement Percentage of all 2018 study survey respondents 17% 14% 13% 14% 2018 vs. 2017 15% Early 8% 8% 3% 1 2 3 4 5 6 7 8 4% 3% 9 10 Early Developing Maturing 25% 44% 30% Organization’s digital maturity level 2017 2018 34% 25% 41% Developing Maturing 44% 25% 30% 2017 data sourced from G.C. Kane, D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley, “Achieving Digital Maturity” MIT Sloan Management Review and Deloitte University Press, July 2017. 2018 maturity percentages do not total 100 due to rounding. We might be wary of overinterpreting these trends if they weren’t backed up by anecdotal data from our interviews. We’ve interviewed several other established companies in recent years — such as Walmart Inc., General Electric Co., and Cisco Systems Inc. — all of which are taking significant steps toward becoming digitally mature businesses. Competency Traps: What Got You Here Won’t Get You There Just be …
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