How Digital Changes the Role of Leaders

For most companies, digital transformation begins as an outside-in process: Leaders identify a fundamental change in the competitive environment and move to counter a potential disruption or, better yet, gain an advantage by seizing on new opportunities before competitors do.

But as this week’s guest explains, even the most forward-looking transformation strategies are bound to fall flat if they don’t focus as much on the inside of the organization as the outside.

When thinking about designing a company for the digital age, too many leaders choose to focus on strategy rather than on the nitty-gritties of execution, explains Jeanne Ross of MIT’s Center for Information Systems Research and coauthor of Designed for Digital: How to Architect Your Business for Sustained Success. That approach sets their companies up for failure.

Ross says that successful digital organizations focus as much on how they will get things done as they do on what they are trying to accomplish. They must carefully design a new digital workplace that transforms processes, technologies, and the ways people work.

In a high-functioning digital organization, work happens in ways that are foreign to our traditional understanding or organizational operations. Once siloed processes are interconnected by smart technologies, more and more decisions can be made without human involvement. We are evolving toward an organizational seamlessness that we’ve never experienced before.

That drive toward seamlessness, argues Ross, must begin with leadership at the very top. It is a senior management responsibility, and the only person who can ultimately really design the organization is the CEO, she says. And as they lead their companies toward this reimagined state, leaders themselves must evolve — and in some pretty dramatic ways.

“The thing about these changes is that they are horribly uncomfortable for anyone who has risen to the top of the organization by being the smartest person in the room,” Ross says. “Constantly evolving your strategy actually becomes the new senior management responsibility.”

And as they adapt to an environment of continual change, leaders can no longer rely on hierarchical org charts to be effective. They now have to empower people throughout their organizations to understand and identify what customers want. “Empowering is really, really hard,” she notes. “Leaders have to stop trying to be the smartest person in the room and try to be the person in the room who can help all the best ideas come out.”

In this week’s episode, Ross leads us toward these three big points:

1. Business strategy can no longer be set in stone.
2. Forget those outdated ideas about traditional organizational structure.
3. Let go.

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Transcript:

Jeanne Ross: Digital technologies are fundamentally changing what’s possible. And what that means is that every company in every industry has to be inspired by what digital makes possible.

This involves establishing a vision but recognizing that we don’t know exactly where that vision is going to take us. So this is a Christopher Columbus thing. You start heading west to the Indies, but when you end up in the Bahamas, you go, “Oh, OK, well, this is good too.”

The thing about these changes is that they are horribly uncomfortable for anyone who has risen to the top of the organization by being the smartest person in the room.

Paul Michelman: I’m Paul Michelman, and this is MIT Sloan Management Review’s Three Big Points. Each episode, we take on one topic that leaders need to be on top of right now and leave you with three key takeaways for you and your organization.

When thinking about designing a company for the digital age, many leaders choose to focus on strategy rather than the nitty-gritties of execution. That, says today’s guest, could be a fatal error.

Jeanne Ross: We’re going to have to make sure that the technology, the process, the people all fit together very tightly. And there’s no way that’s going to happen by accident. Senior executives are going to own it, or it won’t happen. And if it doesn’t happen, they will not be able to execute any strategy in the digital economy.

Paul Michelman: That’s Jeanne Ross, from MIT’s Center for Information Systems Research. She’s coauthor of the new book Designed for Digital: How to Architect Your Business for Sustained Success. Ross says that successful digital organizations focus as much on how they will get things done as what they are trying to accomplish. They must carefully design new digital workplaces by transforming processes, technologies, and the ways people work.

Jeanne Ross: The idea is to make sure that when a person does something that affects another person or a process happens automatically, that other parts of the organization that need to know or are affected are aware. So we have a seamlessness about the organization that has long been desired but has tended not to be true of organizations.

Paul Michelman: That drive toward seamlessness, argues Ross, must begin with top leadership. The very top.

Jeanne Ross: The only person who can ultimately really design the entire organization is, in fact, the CEO. This is a senior management responsibility.

Paul Michelman: But at the same time, everyone plays a role in our increasingly flat, less-hierarchical organizations.

Jeanne Ross: So much of the input on strategy, on what will work, on how resources should be allocated, has to actually bubble up from the lowest levels of the organization. So we’re looking for people throughout the company to own accountability for identifying what customers will buy, what technology makes possible, what strategy even makes sense.

Paul Michelman: People throughout the organization need to be free to come up with new ideas. And as we know, that can take a lot of trial and error. Leaders must not only accept this but embrace it.

Jeanne Ross: Our great challenge here is being inspired by technology — what can it do? That takes a lot of iteration. We have a great idea, but it doesn’t quite resonate with the customers. Take for example, the connected toothbrush. There were a number of companies who thought this was going to be the coolest thing ever. But customers are kind of going, “Why do I want my toothbrush to be connected?” Right? So there’s things we can do, and then there’s things customers will pay for. And we have to iterate and iterate and iterate until we kind of zero in on what’s possible that they’ll pay for.

Paul Michelman: One company Ross cites as having succeeded on this front, with leaders adapting to the new environment: DBS bank in Singapore, which is one of the most digital financial services companies out there. She argues that they were successful because leaders accepted that their strategy was always going to be in flux.

Jeanne Ross: DBS’s vision has evolved over time. At one point it was making banking joyful. At another point it was making banking invisible. And senior executives are shifting as they recognize how they want to direct the experiments in their company, how they want to experiment, what they want to experiment on. And this ability to evolve the strategy relates back to recognizing that we didn’t quite get it right or what was right before is not quite right now. This isn’t about “We want growth in certain markets” or “We want an improvement in our profitability.” This is about reestablishing a direction and then allowing people to experiment according to that direction.

Paul Michelman: In short, a digital company has to experiment, has to have employees who are empowered to experiment, and has to have leaders ready to adapt and — this is really important — to relinquish control.

Jeanne Ross: They want to take charge of an emerging strategy. And this involves establishing a vision but recognizing that we don’t know exactly where that vision is going to take us. So this is a Christopher Columbus thing. You start heading west to the Indies, but when you end up in the Bahamas, you go, “Oh, OK, well, this is good too.” And that kind of adaptability is the new strategy. And I think this is going to feel very different.

Paul Michelman: These changes are not — I repeat not — easy for everyone. Or anyone.

Jeanne Ross: The thing about these changes is that they are horribly uncomfortable for anyone who has risen to the top of the organization by being the smartest person in the room. And what we have to do as senior executives adapting to digital is to become comfortable outside our comfort zone. Constantly evolving your strategy actually becomes your new senior management responsibility. They can no longer just structure that company, establish that hierarchical organizational chart. They now have to empower people throughout the organization to understand and test what customers will want. And empowering is really, really hard. They have to coach their people. They have to stop trying to be the smartest person in the room and try to be the person in the room who can help all the best ideas come out.

Paul Michelman: Oh, and one more thing — that phrase digital company? It applies to all companies. Whether you’ve realized it yet or not, your company is a digital company.

Jeanne Ross: One thing that’s true about the competitive landscape right now is that digital technologies are fundamentally changing what’s possible. And what that means is that every company in every industry has to be inspired by what digital makes possible.

Paul Michelman: So if you think you’re safe from these changes, you are sorely mistaken, my friend. And with that — three big points to remember about running successful digital companies, from MIT Sloan’s Jeanne Ross.

Number one: Business strategy can no longer be set in stone or probably even clay.

Jeanne Ross: Senior executives want to embrace a strategy that will evolve. This involves establishing a vision that will direct your experiments in which you learn what strategies can actually succeed.

Paul Michelman: Number two: Forget those outdated ideas about traditional organizational structure.

Jeanne Ross: Design, not structure, your company. Structure stabilizes; design coordinates people, process, and technology.

Paul Michelman: And number three: Let go.

Jeanne Ross: You need to empower your people. The way you will learn whether your vision is achievable, and what specific strategies will lead you there, and what digital offerings will be possible, is by empowering your people to establish experiments.

Paul Michelman: That’s this week’s Three Big Points. You can find us on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and wherever fine podcasts are streamed. We will be forever in your debt if you would take a moment to rate our program or post a review on Apple Podcasts. Three Big Points is produced by Mary Dooe. Music by Matt Reed. Marketing and audience development by Desiree Barry. Our coordinating producer is Mackenzie Wise. Thanks for listening.