Intro
A recent study by McKinsey sees that digital technology will continue driving and forcing organisations to transform. Their survey found that 89% of the respondents had launched some digital transformation. Unfortunately, they only captured 31% of the expected revenue lift and realised just 25% of the total expected cost savings. Transformation of socio-technical enterprise is challenging and becomes increasingly challenging according to Mustafa Suleyman and Michael Bhaskar or Simon Johnson and Daron Acemoglu .
Introducing new technical opportunities, migrating legacy content in new processes and knowledgebases, introducing new ways of working, providing people with new competencies and career paths, providing new value to customers, and opening potential markets to grow is not easy to orchestrate over months and years while most of the old structure, operational costs expenditure, laggards among personnel, habituated customers, and sub-optimised shareholders are setting obstacles on the transformation paths.
This essay studies nine approaches to transformation from a personal experience perspective, aiming to summarise their feasibility to a challenge: Project portfolio, Engineered swimming lanes, Capability portfolio, Digital transformation, Linear change management, Organisational transformation, Culture driven transformation, Operational performance optimization and co-designed social change.
Figure 1: Nine ways to approach transformation
1. Project Portfolio
The first approach, and sometimes the simplest, is a project portfolio. The portfolio analyses the current situation (AS-IS). It defines where the enterprise needs to be in the end state (TO-BE). These two positions represent the end of the transformation roadmap. The number of projects (Temporary endeavours intended to create a specific unique outcome) is established to provide one tangible step after another to take the enterprise towards its visioned end state, as illustrated in Figure 2.
Figure 2: A classical project portfolio approach in transformation
Naturally, the portfolio will include interdependent projects, so their timing and scope need to be well adhered to proceed with firm steps. Unfortunately, as always with a human endeavour, there are typical pitfalls that need mitigation:
- Original project plans cannot consider all variants in the future and, therefore, need adjustment to the portfolio's situation before launch.
- Outer forces always affect the transformation, so minor and more extensive amendments are needed to keep paths clear and steady.
- Measuring only projects' achievements does not drive the transformation, so leading and lagging indicators are required to keep a steady pace at the transformation level.
- Project management may be in everyone's comfort zone, so natural tendency may focus on project-level doings while deviating from the end state and achieving milestones on the way.
The project portfolio is feasible in shorter transformations where migration or change does not fit the current organisational structure but requires temporary ways to arrange people to deliver the outcome. The portfolio may be actionable in cases where technology needs modernising and end-user training.
2. Engineered Swimming Lanes
A slightly more structured approach compared to the project portfolio is the engineered or designed swimming lanes way to arrange projects in the portfolio. For example, the swimming lanes may be defined in a military way (DOTMLPFII or TEPIDOIL ) or architectural way (facilities, technology, information, processes, competencies, business value streams, products ). The swimming lanes are sometimes divided into phases, such as the COBIT plan, build, and run, to align life cycles between each project and make procurement easier to manage, as illustrated in Figure 3.
The swimming lane approach is feasible in engineering and specification-led transformations, e.g., large ERP or C5ISTAR implementations. Naturally, there will be challenges like:
- Focusing only on each lane but forgetting the impact in other lanes, like producing doctrines (D) or tactics, techniques and procedures (TTP) without implementing them in the information systems (I) or training them to operators (T).
- When several projects must achieve the RUN phase simultaneously to enable some significant change, individual project-level delays may ruin the entire plan. Hence, intermediate solutions or alternative projects need to be in place to ensure reliability.
- Focusing on lanes will not deliver the transformation. Hence, clear leading and lagging drivers must keep up the pace on roads towards TO-BE.
3. Capability Portfolio
Stepping more strategically, larger enterprises, especially the military, need to manage the life cycle of their core capabilities and assess their impact in the market or area of operation against their adversary or competitor capabilities. For example, in military affairs, some capabilities are based on platforms (e.g., main battle tank) with several decades' long life cycles. Maintaining their applicability and reliability with mid-life updates (MLU) is cost-effective if the adversary is not aiming to disrupt with faster evolution (arms race ). Capability may comprise life cycle lengths varying from 30+ years to 24 hours, as illustrated in Figure 4.
Transformation is managed through the life cycle, calling platforms to the assembly line for MLU, which is typical for the main battle tank, fighter attacker, or frigate. Migration and replacement projects are typical for information technology hardware, whose life span seldom lasts five years. Software updates and patches are more frequent and require continuous integration (CI) processes run by existing development and operation organisations.
The capability portfolio also manages personnel, training, facilities, and other elements. Common mistakes observed using this approach:
- Not understanding which elements have the shortest life span or are more sensitive to warehousing environment changes. Some armaments may run on old operating systems, creating a significant vulnerability when connected to other effectors. Rocket engines, integrated circuits, and electricity require stable warehousing conditions.
- Retiring a long-served platform or arm also retires all trained reservists, gravely impacting the war-time order of battle.
- Not following the technical life cycle but extending hardware or software life span for cost-saving reasons may lead to higher replacement costs (Year 2000 bug) or dependency on rare technical competencies (legacy software ).
- Not following adversary (or competitors') intentions, deploying higher-performing sensors and effectors, and keeping old equipment stocks may lead to strategic surprises during the first engagement days.
4. Digital Transformation
Digital transformation is developing organisational and technology-based capabilities that allow an organisation to continuously improve its impact against adversaries in operation, lower its operation costs, and, over time, gain and sustain operational or strategic advantage over adversaries. Projects cannot deliver digital transformation, which requires changes at all layers of the enterprise: technology, information, processes, and affairs, as illustrated in Figure 5.
The continuous transformation cycle needs a technical foundation where information is digitised using platforms. The platforms enable organisations to digitalise their processes, improve cost-efficiency, create new products, or provide new value. Based on digitised information and digitalised processes, organisations may seek significant changes in their business, making sense of areas of interest (network-enabled capabilities ) or deploying effectors (Mosaic Warfare ).
Digital transformation requires to build a culture and operation model for an enterprise and hence vulnerable, for example:
- Political or owner's agenda changes resources or mission. Swedish Defence Force was building Nätverksbaserade Försvaret in early 2000 to transform their capabilities and address the future Russian threats when a political decision cut their resources and changed their mission.
- Focusing on technology roll-out but forgetting to transfer human behaviour
- Focusing on process performance and productivity indicators to gain cost-savings but not using opportunities to find new ways for affairs.
5. Linear Change Management
The classical change management models of Kanter (1992) and Kotter (1996) explain several sequential steps to take in managing organisational change. The first step usually includes defining the organisation's position, why change is required, and the situation's urgency or "burning platform". Then, there is a need for strong leadership and a capable team to define and communicate the vision. Communication spurs action, and leader enables it by empowering and removing obstacles. On the road to change, a leader celebrates achievements and anchors them in the organisation's structure. Finally, there is no way to return, and the organisation may only mature and achieve a new equilibrium, as illustrated in Figure 6.
Figure 6: Linear steps in the transformation path
Naturally, the sequence of steps does not address the change because it was initially defined from common mistakes made by studied organisational changes. Nevertheless, change management approaches transforming affairs/business as a complex socio-technical system. It puts human and working society at the centre of the transformation.
Change management may fail in numerous ways:
- Communication is the leverage for action, but humans usually need to hear WHY and what is there for me, our team, and the higher good. Purpose enhances motivation, which accelerates action. Many transformations claim that communication mistakes cause failures in change.
- Suppose the vision and communication do not visualise a new or better purpose after the transformation. In that case, the legacy culture eats many good ideas for breakfast.
- Even after successful communication, there will be friction on the journey and pure opposition to change. An average of 30% of personnel will oppose or be passive when facing the change.
- Suppose the strong leader is not walking the change talk. In that case, the vision and journey remain distant and threatening to personnel. They do not hop on the transformation train.
6. Organisational Migration
Firmly established institutions with a long history cannot change because the culture, heritage and values of organisations and people are fixed. Radical transformations of affairs, business or operations require smaller units outside the parent organisation to experiment and grow in new ways. Some experimentations may fail, but some may scale fast in new ways of doing things. The parent enterprise arranges promising subsidiaries under a new viable enterprise model to meet the future. As illustrated in Figure 7, the old structure and operation methods will be terminated.
Figure 7: Organisational transformation through migration
Military Forces launch these probing organisations as Future Force Units, experimenting first in exercises, then limited level in operations before launching more comprehensive force generation and deployment. Commercial organisations may acquire and merge small entrepreneurs with new technology products or extend markets to keep up with their competitors. Other companies innovate new ways of doing business, products, and operations with their partners, within governmental innovation incubators, or in cooperation with universities.
Since transformation aims after the radical restructuring of affairs or disruption of social structure, mergers, acquisitions, innovation networks, or consortiums face many confronts, for example:
- Leaders proceed without ruthless modelling and simulations with unrealistic expectations of new ways. Eventually, they do not realise the imagined value, meet the political risk appetite, or survive on the battlefield as expected.
- Integrating smaller, agile, more entrepreneurial cultures under the established institutional culture fails because of culture clashes, organisational misfits or power structure.
- "military organisations are societies built around and upon the prevailing concepts of war. A challenge to an established concept is a challenge to the organisation's social structure." Institute and culture eat experimenting subsidies for breakfast.
7. Culture-driven
Organisational culture can be perceived as consistent, observable behaviour patterns in organisations. Incentives powerfully shape culture. Culture defines the process of "sense-making" in organisations. Therefore, culture cannot be bypassed if transformation aims to change profound ways in the organisation. The culture-driven transformation starts with leadership, whose sense-making, behaviour and incentives must be changed first. Based on visible changes in leadership, their stories of different purposes towards a better future have more credibility to spread among personnel, creating further stories of new purposes and values. Storytelling empowers people to behave differently, seek new ways, and acquire new competencies. The shared journey towards the vision establishes new connections among people, binds new links and incubates new ideas. The different transparency and open communication provide leadership with better information, improving organisational sense and decision-making. A positive cycle of continuous cultural transformation, illustrated in Figure 8, transfers people's behaviour, migrates information towards new flows, and acquires new technology.
Figure 8: Culture-drive transformation
No cohesive culture exists in any enterprise , so culture-driven transformation is not straightforward. For example:
- If the storytelling does not emphasise strategic goals and value creation, the subcultures hang on to better legacy stories. The fighter pilot stories of the Air Force culture do not quickly transfer to heroic stories of remote controllers or successful missions of unmanned aerial vehicles (UAV).
- Central Transformation Office cannot monitor cultural-level powers since they are not visible in project or enterprise resource management systems. The cultural transformation indicators can only come from the business leaders and commanders.
- Influencers (individuals in the business unit who have large, informal social networks and are trusted and respected by others for their transparency, institutional knowledge, and ability to make sense of change) and those responsible (for initiatives, their implementation and new ways of value creation) approaches may differ in units and forces. Their alignment is essential in creating stories that empower personnel towards the journey.
- Each unit may have different role models for virtuous behaviour. Units use different concepts and terminology for understanding and conviction. Formal reinforcement mechanisms are different for each Service . Self-confidence, teamwork, and skill building differ between Navy and Land Forces or Sales and Manufacturing. These foundational cultural differences require different stories, echoed by influencers in proximity and expected from their commanders or managers.
8. Operational performance-driven
Affairs or business-level transformation may focus only on improving a process or operational performance. Performance improvement may be compliance, quality, productivity or maturity-oriented, as illustrated in Figure 9. All the above are feasible if the process or operation is at least the maturity level "defined". Below that maturity, other means are better. The quality approach improves, for example, process reliability, standardisation or best practice, and product or service quality. There are also quality frameworks for the entire enterprise.
Continuous improvement of operations (LEAN or Toyota approach) is part of the organisational culture that brings problems upfront, eliminates all waste (muda) in continuous effort (kaizen), and uses the pull principle to avoid overproduction and storing along the value stream.
Capability maturity improvement is the third approach in this category. Starting from US DOD requirements for software development quality, the CMMI models have expanded to help organisations understand their capability and performance. They offer a guide to optimise business results using good practices, performance measuring, reliability and life-cycle costs analysis, and sustainability estimations.
Figure 9: Operational or process performance-driven transformation
Operational optimisation improves the quality of service, output and cost-efficiency, but implementing it may face the following challenges:
- Even a CMMI 5-level software developer fails if the definition of the requirements is unclear, the required effort is underestimated, or the outcome is expected within the unrealistic deadline.
- Performance is evaluated, and certifications are granted for an organisation, never being established at behavioural or cultural levels.
- LEAN transformation is a strategy that cannot be delivered as a project. Continuous improvement requires continuous measurement and ridding of evident waste. The understanding and need for action should be written in policies and adapted to the culture.
- LEAN is a holistic transformation involving the entire enterprise. It takes years to accomplish and requires involvement from all personnel, not only the early adaptors.
- None of the quality management applications are successful if the management does not support them, there is no connection to financial performance, and process performance goals are not established or measured.
9. Social, Co-design driven
A broader social change requires better tools than projects, programs, portfolios or implementations of strategies. One approach for social change is co-design, which uses design thinking methodology but in a more cooperative nature. Design thinking is a method teams use to understand users, challenge assumptions, redefine problems, and create innovative solutions for prototypes and tests. Design thinking includes the phases of
- empathise with the society or user group,
- defining their challenges and possible solutions.
- cycles of prototyping and testing will provide a solution that everyone can agree on
- deployment may begin.
There are three approaches societies or enterprises may use to free people to solve problems in Figure 10. Emancipation delegates authority to new teams to seek and test solutions, establish a unit, and merge back into society or affairs after maturation. Liberation empowers personnel to innovate and improve (Google's 20%-time policy) anything they are passionate about. Abolition is a method to reform existing behaviour by banning constraints or freeing people from current legislative or social codes to find more suitable codes of conduct as a society. In the enterprise, this may be implemented by establishing subsidiary companies outside of the parent company's institutional management and letting the subsidiary find the best ways of production and engage with their customers with a more entrepreneurial culture.
Degrees of freedom, delegation, and understanding of outcome may vary in the three levels of co-design. So do the challenges in using this method for transformation, for example:
- Co-design is an iterative and collaborative process, which can make it difficult to predict outcomes. Institutes may perceive this lack of predictability as high-risk and hesitate to invest.
- Attempts to innovate new behaviour and value fail because long-term plans are missing, lack of innovation or entrepreneurial mindset, fear of failing, lacking means to engage competent people, or lack of budget.
- According to the statistics from the US, about 45% of new companies fail within the first five years. The reasons for failures may include not understanding the market, establishing the business processes, not having enough starting capital, or expanding too fast.
REFERENCES:
Lamarre, Eric; Smaje, Kate; Zemmel, Rodney. Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI (p. 1). Wiley. Kindle Edition.
Suleyman, Mustafa; Bhaskar, Michael (2023): The Coming Wave - Technology, Power, and the Twenty-First Century's Greatest Dilemma
Johnson, Simon; Acemoglu, Daron (2023): Power and Progress - Our Thousand-Year Struggle Over Technology and Prosperity
https://en.wikipedia.org/wiki/Capability_management
https://guides.visual-paradigm.com/understanding-the-architecture-content-framework-in-togaf-a-comprehensive-overview/
https://en.wikipedia.org/wiki/Enterprise_resource_planning
https://www.redcom.com/what-is-c5isr/
https://www.intrafocus.com/lead-and-lag-indicators/
