Digital Transformation — Why It Matters

Narrator

The future of project management is changing fast. On Projectified with PMI, we'll help you stay ahead of the trends as we talk about what that means for the industry and for everyone involved.

Stephen W. Maye

I'm Stephen W. Maye for Projectified with PMI. For an easy way to stay up to date on Projectified with PMI, go to iTunes, Stitcher, Google Play Music and pmi.org/podcast. In this episode, we talk digital transformation with Anand Swaminathan, a senior partner at McKenzie. Anand explains what digital transformation means today, why it's important to almost every organization's future, the role of project management in realizing its benefits, the risk and challenges it introduces and the changes it can bring to your work culture, teams and customer experiences. Anand, I want to thank you for being here. I have been reading your latest book, Digital At Scale, enjoying it very much. I think you have a lot to say to the folks that listen to this podcast. We primarily talk to people that are involved in some way in meaningful project work and I think what you are saying around digital transformation is important to this community of people and that, and the fact that I'm personally interested, I really appreciate you being here.

Anand Swaminathan

Thank you very much for having me, Stephen. Really looking forward to the conversation.

Stephen W. Maye

When you say digital transformation, what does that really represent?

Anand Swaminathan

Absolutely. Digital transformation and the term digital in itself is, indeed, so common these days, I absolutely agree that we need to think about the definition. Well, with digital specifically we are talking about utilizing new sets of capabilities that are changing the way we work and we live. If we think about technology today and what it's doing in our lives, if we think about the way in which we work, it is all evolving because digital is, indeed, at the forefront. But transformation is perhaps the even more important word in that two word statement because organizations are trying to understand how they can take the capabilities that digital offers to fundamentally change the way they will operate in the future to better serve their customers, to better manage their employees and to really drive their organization into a more effective and successful organization in the future. Digital transformation is using those sets of capabilities that are now available to all of us and tying it together in a way that an organization can actually unlock the value. In the book, we talk about a number of elements of this, whether it's the changes in strategy that happen as part of the digital transformation, changes in culture, changes in the organization model and the operating model or changes in fundamental capabilities.

Stephen W. Maye

When I started out 20 plus years ago - I'm dating myself here - I was helping organizations to automate existing processes, so in many ways to digitize existing processes that were manual and often paper based. What's different today?

Anand Swaminathan

The fundamental difference is that the capabilities and technologies have changed since what we had a few decades back. Information is now so prevalent. If you think about the statistic that 90 percent of the world's data that's available today has been created in the last two years, that's a staggering statistic to understand. If we think about the statistic of the Fortune 500 over the last decade, more than half of them are no longer in the Fortune 500 because fundamental technology and capabilities have actually changed in the way we work and live today. One of the biggest changes with digital is the fact that there are new sets of capabilities, new devices even, whether it was Apple launching the iPhone a decade ago, creating new products, new services with new capability. That's what's changing the way people choose to interact with each other and organizations choose to interact with both their employees, as well as their customers. But here's one thing, Stephen, that I find quite interesting. When we talk about transformation, a lot of times it's misconstrued that transformation means the senior executives in the organization have to move a company in a particular way. It's actually much more about execution - how do we execute with this new capability and this new technology that we have access to now? - and this is where the managers, the project managers, the leaders within the organization who are such important members of the organization's ecosystem, this is where they come in because they are the execution muscle of the organization. How do they take the digital capabilities, how do they take the vision from their leadership and translate that into execution and become that execution muscle for their organization? Again, I think this is a change because our project managers and leaders in the organization are now empowered and have the capability to drive the execution.

Stephen W. Maye

This goes back to that fundamental difference between what is often described as strategy versus execution, the idea that you can have a great strategy but without effective execution it doesn't really go anywhere, and I hear you saying the same thing about this idea of digital transformation. We may have a compelling reason within the organization, we may even have a compelling vision, but it rides on whether or not we can execute.

Anand Swaminathan

That's exactly right. I think there are a number of examples. In fact, we talk about one in the book in the early stages of a company we all know named Kodak. What was very interesting is there was an idea, there was a thought process back in the early '80s of should we think about capturing images digitally? Should we think about how to embrace that concept? And there was actually a concept developed back in the early '80s. However, what was interesting was the organization did not execute on that. The organization at Kodak and the leadership and the teams at Kodak believe they are a film company so they should focus on their core competency of film, and they didn't execute on how they should transition into the digital era. Perhaps theymay have created the first ever iPhone, as it were, if they had considered execution, so I think execution makes a difference in organizations that actually know how to adopt and adapt with the digital capability and technology that's available today.

Stephen W. Maye

You've made some statements about the breadth of relevance of digital transformation as a modern movement and a specific quote from your latest book says: 'Digitization is relevant for all industries. Only scale and speed will vary'. If we take as given relevant to all industries, I'm sure that that's not moving at the same pace and not affecting everyone at the same time, so where do we look today to see the most significant impacts, whether those are positive or negative? Where do we see the most significant impacts today from an industry perspective?

Anand Swaminathan

The industry alignment with digital has actually been quite a fascinating case study in itself because, if you think about it, certain industries like banking, telecoms or healthcare have actually been somewhat early adopters in the digital era. They already were digital to an extent - if you think about a bank, you have money that is constantly flowing across banks, there arecommerces already happening, credit cards have existed for over 50 years. With money and with finance, technology and digital has actually played a role for a long time. I remember back in 1999, when the Palm Pilot first came out and you were able to beam money to the person who has another Palm Pilot. You could actually beam money and you would point the infrared part with the other Palm Pilot and all of a sudden $10 would leave your account and enter the other person's account. This was 1999 and so the fact that in sectors like financial services or healthcare - so much data has already been thrown out in healthcare for decades - digital has already played a role for a long period of time. However, industries such as mining, heavy industries and industrial equipment companies, industries such as agriculture, these are ones where digital did not actually have a meaningful role decades before. These industries have now asked how they figure out how to become a digital native, how they bring that. As an example, you can take a company like GE, who we mention quite a bit in the book, a truly leading organization in the industrial space, which decided a few years ago to reimagine their entire business model with digital at the core and said, "We will no longer just be a product company, we will be a data and a services and a platform company." Or you think about John Deere and John Deere says, "Yes, we may make equipment, but what we actually want to do is provide more data to the farmers who use our equipment so that they are driving towards this concept of precision agriculture, better agriculture capabilities than they've ever had before," and the same thing is happening with mining companies as well now. So I think some industries are certainly already digital to the core to some extent so are able to embrace it and begin that transformation journey early. However, other industries are now realizing the power of digital and therefore the timing is now for them to embrace all of the capabilities.

Stephen W. Maye

Let me press on the John Deere example a little bit. I could take a version of that and say, "Well, ok, so John Deere has decided that they need to provide a new level of data availability to their customers. Isn't it possible that that's really more an enhancement of feature and function than it is digital transformation for John Deere?" Walk me through that. Where does that vision of John Deere saying, "Look, we can do a better job of helping farmers and others that use our equipment, buy our equipment be effective by adding a data component to this well established equipment business," but how does that result in digital transformation at John Deere?

Anand Swaminathan

What has had to happen at John Deere is you had individuals who are manufacturing individuals, employees who really understood the agriculture industry but what they were more focused on is developing and designing equipment in order to serve the customers. Now you need data scientists. Now you need people who understand machine learning. Now you need people who understand weather data in order to figure out the different sources of data that they need to go tap into in order to provide these new sets of services out to their customers? You also now need software engineers at John Deere who actually will create the platform to ingest, store, compute and enrich all of this data that they're bringing in. What's very interesting about John Deere is they've had to go through an entire reinvention of their business model and a transformation of the organization because they went from being a manufacturing led company to now a data science, to now a software engineering company and they've had to rethink the way they hire, the way they train their folks, what capabilities they need in the organization. They've had to go through that journey and that's quite a big move and quite a transformation. In addition, if you think about manufacturing, manufacturing is an assembly line process, it's a very linear process. When they're making their equipment for customers, there's a linear way of thinking. However, with digital, all of that is out the door and it is now all about agile thinking, it's about working in tribes, squads and a new way of having interdisciplinary teams that are now solving the problems. That has had to require a complete transformation inside of John Deere, because now they have a new set of capabilities and a new set of products and services they offer their customers.

Stephen W. Maye

Yes, that's fascinating. You've described new roles, new platforms, new business model, really this transformation, for lack of a better word, into, as you described it, a data science company, something very, very different from what they used to be. I know you have recently talked and written about the connection to culture, and we'll come back to that later, but I imagine that precipitated a significant culture shift within John Deere.

Anand Swaminathan

I think culture is underestimated, Stephen, in most organizations when it comes to the topic of digital. Organizations believe that they can shift from where they are today to where they need to be for tomorrow without undergoing the proper cultural transformation in the organization. It's not just about having a strategy, it's not just about bringing in and hiring the right people, it's not just about bringing in the right technology. There is a fundamental shift in the culture and mindset of an organization and as we explore this further I can give you examples of how CEOs that I've spoken with and line managers who I've spoken with have talked about what that migration and culture shift is that has to happen in an organization when you have digital now taking the core capabilities.

Stephen W. Maye

I want to come back to culture in a few minutes, but when I think about the project professional's role, the project manager and others that are playing key roles in shaping and driving projects forward every day, one of the things that I believe is a shared responsibility, regardless of how your role is described, is the identification and escalation of risk, those things that can get in the way, those things that can in some way damage our progress toward our objectives. What are those big risks or those big red flags that we need to be thinking about as we're moving into digital transformation initiatives?

Anand Swaminathan

Some of the traditional project management capabilities and mindsets don't get thrown out when you think about digital transformation. One of the ones that always comes up for me is I had a manager once tell me a long time ago, "Anand, figure out how to plan the work and then work the plan." This advice is actually still completely relevant in organizations today when you think about digital transformation. You need to plan the work and then you need to work that plan, because what happens a lot of times with digital is, "Oh, we're moving at the speed of digital now, so we don't have to do the planning, we don't have to do the estimating, we don't have to do what has to happen in order to measures and metrics along the way." No, you don't remove those elements. Those fundamental elements of project management and program management have to be there because digital is a program. At the end of the day, you need to figure out when it starts and when it finishes, you need to figure out budgets, you need to figure out the actual work plans and interdependencies, you need to figure out what teams you need and when you need them, you need to figure out which measures and metrics to actually have in place to see if you're on track. One of the biggest risks is always forgetting to plan the work and then working the plan. Another key risk we've seen with digital is the wrong talent in the right environment. As an example, trying to think that we can say we don't need any new people to go do this, we will just have our existing engineers or our existing project managers think about now the new sets of capabilities. That's a big risk in organizations. What instead needs to be asked is how you take the existing teams and combine them and infuse the right digital mindset and talent into that team. Do you bring the select, agile coaches and scrum masters into the teams because now we have a new way of operating a new way of thinking? We still have project managers, we still have folks who will drive that, but let's blend in the right digital capabilities and the digital folks that we need all throughout that value chain. Perhaps a third and final risk area that I usually notice is around this concept of understanding how to serve the customer. A lot of times with projects, one of the things that would happen is you'd get very insular with your project mindset - you're solving something because you've been asked to solve it or you've been told you need to change the way something works. With digital, it is so customer led and it can be in a B to B organization or a B to C organization, it doesn't matter. It's all about that customer and how we're serving that customer and every change, everything we do has to be tied back to that customer. A big risk usually happens when we depart from that understanding of what the customer really needs and we start building something that's actually not aligned with what they might want. These are some of the risks that we really keep an eye out for when we're thinking about digital transformation.

Stephen W. Maye

I love that. You talked about these risk areas really being in this area of failing to do the fundamentals, failing to do what we already know, things like effective planning, managing and maintaining those plans, being clear about measures and metrics, not only being clear about them but being clear about those that represent real success for something that may be very new for us, having effective ways of tracking those, of managing those, of maintaining a sense of prognosis. You talked about this idea of talent and I love this. It's not about throwing out the talent that's there and it's not about excluding the talent you may need, it's about finding effective ways to combine that native knowledge, that native expertise and bringing in often new levels of expertise and new types of expertise, particularly in the digital space. Then finally this piece, this focus on customer, I've seen this go awry and I don't mean I've seen people focus too much, I've seen people let themselves off the hook, organizations let themselves off the hook from real customer focus by saying things like or repeating to each other this mantra, "Well, we need to balance. We need to balance the focus on the customer with..." and then they've got this much longer list of internal concerns. For me, a red flag always goes up and I'm interested in your reaction to this. When I hear that constant, "Well, we've got to balance it," then what I usually hear is you have not effectively designed that transformation and you have not effectively designed that future if you're having to water down your focus on the customer.

Anand Swaminathan

That's exactly right. I think that far too often, Stephen, transformation programs are set up and designed because an organization decides they want to do it - "Oh, we must go digital, so let's go digital and let's start making the changes" - instead of taking that step back and saying, "Wait, what is it that my customers actually want and need and therefore how do I design my transformation to be aligned with the experiences that I want to offer them and how do I think through that?" Too many organizations just fundamentally miss that; and by the way, just back to the point around the team and making sure that with digital transformation it means you're infusing talent not replacing necessarily talent or wiping out the old. I always look at this as a puzzle. Every organization is a puzzle and if you think about a thousand piece puzzle or a 10,000 piece puzzle, at the end of the day what's happening with digital is you're changing select pieces inside that puzzle. You're not rewriting the puzzle, you're not actually saying, "Oh, this is no longer a 10,000 piece puzzle and this is no longer the way, we don't have edges and borders in the puzzle." No. What you're doing is saying, "Hang on, how can I add and subtract a couple of select pieces in that puzzle so that we are now arriving at a new destination? Our puzzle might actually look a little different but it's still a puzzle that we've just put together." I think it's really important to bring all of that together.

Stephen W. Maye

Yes, yes. I love that, I love the puzzle analogy and that goes back to the level of thinking and planning that really should be the early stages of this kind of work. Let me go back to the planning piece. You talked some about that a moment ago. What's different, if anything, about planning a major digital transformation program versus, say, planning a large technology implementation that perhaps does not have a specific transformation component?

Anand Swaminathan

It's a great question. A lot of times, people think digital equals technology so a digital transformation is the same as a technology transformation. Unfortunately, that's not the case. When we go back to the late '80s into the '90s, one of the biggest technology transformations that was going on was the ERP system. Everybody had to put in a new SAP ERP or had to put in anOracle finance ERP. That was a technology transformation era where it was a fundamental shift in the core technology that an organization would actually utilize. But what that never actually changed was the way in which the company worked and it didn't change how you served your customers. Just because you put in an SAP or Oracle finance system, it didn't change the way your customers were actually touched or served at all. What's happening now with digital is it's much more than technology. Yes, digital transformation does have some components in which you're going to introduce technology and software capabilities in order to support your transformation journey, but you are now designing a fundamentally new set of experiences, products and services for your customers. That is one of the core elements of a digital transformation. It is a brand new design of the experiences, products and services for your customers. The second part of a digital transformation is actually the culture. You have to move the way in which your organization actually works now. You're no longer going to have a waterfall, a linear, a manufacturing mindset or approach. You are going to have scrum masters, agile developers, agile team members because you now have to work in an entirely different way. The team construct is different. There's no more silos in the organization because you don't need those. You are actually going to have cross discipline teams that are together in there. Another change that really happens between a digital transformation and a technology transformation, with a digital transformation you're also actually changing your experiences for your own people. They become empowered. Your project managers, your leaders in the organization are actually now empowered to make the changes that are going to be better outcomes for customers as well as for themselves as employees. When we've thought about technology transformation, frankly some of the experiences would change but the employees would have to follow suit in terms of what that piece of technology would do. Now, employees and organizations are reinventing the way they can actually work. Employees and project managers are reinventing it because they've got news sets of capabilities now at their disposal. So I think all of these changes are actually quite different because we're looking at the organization and the customer journey far more holistically than just saying, "I'm going to bolt in a new system."

Stephen W. Maye

Thanks to Anand for a fresh view into digital transformation and what organizations need to consider to realize its benefits. In our next conversation, we're going to dive more deeply into the role of teams in digital transformation and the culture challenges that must be addressed. Thanks for listening and stay tuned. For an easy way to stay up to date on Projectified with PMI, go to iTunes, Stitcher, Google Play Music and pmi.org/podcast.