Simon Terry

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A Simple Visual History of Digital Transformation

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Since the Mosaic Browser helped introduce the internet to the world, we have experienced a digital transformation of business. We had digital activities in our organisations before. We had already spend almost 50 years computerising processes. However, the digital connectivity of the internet began more radical change. Here’s an overly simple graphical reminder of elements of that journey.

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We began by creating digital channels to connect our organisations to their customers.  The website began with simple digital brochures and basic contact information. Very quickly our websites became richer and more valuable.  Innovation began outside the organisation that showed the way for all subsequent phases of digital transformation.

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We added processes to support the customer interactions. In many cases these processes were new, partial and designed solely to support the new digital channels.

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We saw potential in these digital processes and started to apply them more widely. These processes worked in the midst of our legacy process and often in unconnected ways.

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As the breadth of our digital channels expanded and we needed to manage new social and mobile channel needs, we needed a dedicated digital team to manage the expanding offering and to help integrate the core digital processes and infrastructure required to support growing digital ambitions.

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With a digital team to advocate and lead the way on growing digital opportunities, we saw digital interaction takeover much of the electronic communication in the organisation and new integrated digital processes develop in supply chains, shareholder & community management and other forms of stakeholder engagement. APIs began to standardise digital communication formats in an increasing way for organisations. Organisations could leverage vast amounts of data on interactions and increasingly on activity across the organisation. 

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With digital interactions dominating & pressure to focus on core business activities, organisations began to become more aware that they operated in digital networks, connected to customers, suppliers and other stakeholders. Importantly, it became increasingly obvious that these networks connected all stakeholders reducing transaction costs and increasing transparency. Most dangerously these networks & data flows gave competitive advantage to those most able to leverage digital technologies in disruptive ways.

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Seeing potential in connectivity, new and existing organisations saw the ability to focus on platforms that connected system players, creating new value and disrupting the traditional business of intermediaries. These platforms were increasingly agnostic of whether they ran on a computer, a phone or another device, giving them greater geographic and temporal reach.  We began to connect all processes & devices into networks to leverage the power of information. Concepts like employee, contractor, supplier and customer had less secure meaning in a networked world as chains of connectivity ran in all directions & right through the organisation.

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With platforms and networks running through and beyond the organisation, people began to explore the opportunities in new ways of working using digital. The boundaries of organisations no longer constrained the boundaries of work.  Seeking to retain talent, leverage information more effectively and create greater agility, organisations experimented with new digital ways of working and organising work.

This digital transformation has only just begun. There are many more phases ahead. The innovations and experiments of organisations will take us even further into exploring the potential of globally connected digital networks.

The Internet of Humanity

An extraordinary technological opportunity confronts your business. Global communication networks have unprecedented reach and mobility. These networks can connect highly capable autonomous intelligent agents called humans. The potential of this technology could change your business, and even human society, in disruptive ways. 

Even more incredible the capabilities of these intelligent agents are not fixed. Equipped with a full range of sensors, motion and agile communication capabilities they are highly adaptive. They have been known to survive all environments on this planet and even near space. They learn from each other and can even collaborate without APIs to decide novel approaches to the challenges & opportunities in their environment. These agents are self-powering, purpose driven, upgrade automatically and operate entirely autonomously. 

Imagine the ability to discover, to explore and to make sense of the entire globe. Imagine the opportunities in global advocacy, creativity and collaboration. Imagine what your business could do if it connected humans. Just think of the novel products, the extraordinary experiences and the economic and social value you could create with the Internet of humans. 

We have the ability to leverage an Internet of humanity. We just need to better understand how they work.

Change Itself is Changing – Keynote at CMIDisrupt in Sydney on 11 November 2015

Change Management Institute – CMI Disrupt Conference 11-12 November

The following Q&A was prepared for the CMI Disrupt Conference in Sydney and London on 11-12 November

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Conference Speaker – Simon Terry disrupts

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What does the future of change look like?

The power of digital disruption is in its power to leverage learning at scale and speed. If we consider our stakeholders as individuals, who we work with and learn from, things change radically. We need to start to apply these new ways of working throughout our organisations.

Are we being replaced by robots?

Automation and mechanisation have been disruptive throughout human history. But in the past, people were only considered inputs to production. But now we have real alternatives. Enabled by digital tools, we can focus on creativity to realise human potential. That’s shifting the game, from one of simple mechanical efficiency to human effectiveness.

How do we change our approach?

Start small. Start now. Start at the edges, with change agents, positive deviants inside and outside the organisation. Look out for rapid and dynamic influences which force change. Adapt and be accountable. Work with and through your people.

JOIN the conversation on Twitter #cmidisrupt

How are you going to throw disruption & delight into your work today?

Your work is ready for you to light the fuse. The obstacles are the work. Your purpose is in the work. Start.

Image credit: Banksy

What’s your minimum scale?

What’s your minimum scale of operation? Disruption means businesses often have to survive declines in revenue as they change business model. Are you able to adapt to the future disruptions or will your business model be a barrier to change? Remember that the capabilities of your people will be a key element of any transformation.

Focusing on Minimum Scale of Operations

Clay Shirky wrote a telling account of the challenges facing printed media in the NY Times The insight is that inherent in any business model is a minimum scale of operations.  We are used to thinking of overhead.  However, Shirky points out that falling volumes can turn the infrastructure of operations into overhead. At a given scale, there’s no point continuing. The need to operate above that scale becomes a barrier to responsiveness and even survival in times of disruptive change.

We don’t pay much attention to the minimum scale when we are growing. We look for investments to make to grow the business. Our myopia only becomes an issue when we need to make changes to our business models.

Turning Growth Investments into Overheads

Often the investments in growth we make on the way up are the overheads we struggle with as we change the business model to respond to disruption:

  • Need national sales offices or store network to grow? It will be overhead as you shrink. Ask any bank about the challenges of keeping branches economic as transactions, sales and advice move elsewhere. 
  • Need a custom built IT system? It will be overhead when competitors adopt agile solutions in the cloud. 
  • Need a warehousing, distribution or manufacturing operation to cater to growth? It will determine the minimum number of units your need to sell. 
  • Need a fancy office for your growing workforce? At least you can probably sublet this overhead as your workforce shrinks or works from home.

The business cases for each of these investments would be based on steady business volumes and predictable growth. These assumption mean that the business has ruled out the ability to handle exponential growth or any significant decline in activity. Few investment plans consider the need for agility or the impact of the investment on future changes in business model. Requiring greater consideration of optionality in an organisations approach to growth would change the business model to a more responsive one at the outset.

Investing in the Agility of People 

Many organisations respond to their failure to create a responsive business model by aggressively cutting their personnel costs. Undoubtedly, disruptive change will mean a loss of jobs as business models change. In this process organisations need to take care that they don’t lose the human capital critical to the potential to respond to change.

People can be cut far more quickly than writing off one of the growth investments above. Announcing a personnel cut, often has a far more acceptable hit to the profit and loss statement for the share market. Cutting personnel can become a substitute for a strategy to respond to change in the market.

To avoid this outcome organisations need to consider on the way up that talented people can be redeployed more easily than an investment in infrastructure. Instead of investing to deskill people with infrastructure that become overhead in times of disruption, we can invest in agility and the capability of our people. Organisations also need to chose their activities to maximise the value that their people create. People can learn, adapt and create new ways to work and create value for customers. A responsive business will have at its heart a team of people working both in the business and on the business model, constantly learning new ways to be more effective, to respond to customers and to grow.

Struggling to maintain their growth, businesses facing disruption can face surprising new challenges in their scale of operations. Organisations need to plan for optionality as they develop a more responsive business model. They also need to consider the role of our employees as the engine of responsiveness. 

Share the Rules, Not the Outcome, & Realise Potential

One of the remarkable discoveries of the field of study called complex systems is how order, or what physicists call a lack of entropy, can be created out of seeming randomness by individuals or agents following a small number of very simple local rules. Such systems are said to be self-organising or self-assembling, and often have so-called emergent properties that were not part of any of the rules. The study of these emergent properties teaches us that it is the local rules themselves, not the finished product, that natural selection or some other selective products sculpted to make the finished product. – Mark Paget, Wired for Culture

Management loves order.  That desire for order translates to efforts to plan and specify all the outcomes in the system. Instead, we need to leverage the potential of our organisations by allowing autonomy with simple rules.

The Deadly Entropy of Specifications

Specifying everything in a complex system calcifies the ability of the system to adapt to change. This is when management becomes bureaucracy. If there is only one predetermined process and one predetermined outcome, then individual employees are just cogs in a machine of work to achieve that outcome. However, we rarely find the expected efficiency in that machine. To start, the complexity of the machine prevents us from specifying our outcomes as clearly as we would like. 

In addition, people are not machines and the world is not static or predictable. People can do more. They want to help and they want to respond to their environment. They learn more, change things, interpret, and reorganise things locally. However, our fixed system of outcomes won’t allow it. We find other people and a changing environment rarely enable us to execute the outcomes as simply as we believed.

All our effort to impose order accelerate chaos. Disconnected employees, disconnected processes, silos, poor design and mismatches to the environment accelerate entropy. Our system is not broken. It is working exactly as we intended it just doesn’t prove to be effective enough for a changing competitive environment.

The chaos of disruption is just the force of our environment selecting another organisation that is more effective. The chaos of decay sets in as our predetermined outcomes fall short of the require effectiveness of those who make the selection decisions: 

  • our employees who can work elsewhere
  • our customers who can buy elsewhere
  • our communities who can support other businesses (with infrastructure, regulation, licenses to operate and valuable reputation); and 
  • our investors who can seek better returns elsewhere.

An Alternative: Share Simple Rules & More Potential

Most managers use a few simple pragmatic rules (or heuristics) to do their job. The challenge in organisations is that these heuristic rules aren’t discussed. Manager’s rules are all slightly different in their effectiveness. Some of these rules will survive by promotion and be shared by role modelling, but many won’t surface, simply becoming the mystery of high performance. If nobody shares their rules, there is little ability to learn from more effective rules.

Managers should focus on fostering discussion around these simple rules and encouraging people to adopt the more effective ones.  Working out loud is a great vehicle to foster these discussions as it surfaces the how of work in progress.  More formally, organisations are experimenting with approaches like holocracy that force the organisation to surface these conversations about the effectiveness of rules, responsibilities and approaches.  In time, as these experiments continue we will discover better ways to work and to manage.

Allowing people to operate within the bounds of simple rules enables them to exercise their potential, their local information and the judgment to make the organisation more effective. Simple rules tested for effectiveness are a great bureaucracy killer. For years, Nordstrom had an enviable reputation for customer service by having the simple guideline of “Use your good judgement in all situations.” 

Importantly, focusing on simple local rules allows each part of a system to play its role as it sees fit without needing to align to a fixed objective or a higher set of instructions. Employees are challenged to bring their best potential and to be more human, not cogs in a machine.

The focus of this approach is to create enduring effectiveness and a competitive advantage in the organisation based in some simple expectations of the local rules of behaviour. Culture like that represents a critical competitive advantage.