The failure rate for digital transformations range anywhere from 70% to as high 84%, depending on which global management consulting firm you believe. For an undertaking so vital to an enterprise’s long-term viability, and where failure shouldn’t even be an option, these figures are shockingly high. Digital transformation is widely regarded as an exercise in technologically rewiring systems and processes to increase operational efficiencies. Yet the primary reason organizations fail to successfully transition rarely has anything to do with technology.
To better understand the dynamics of all this, we turn to the man who wrote the book on the subject, literally. Tony Saldanha authored “Why Digital Transformations Fail” based on his experiences running a highly successful digital transformation at Procter & Gamble, the world’s biggest consumer goods company. In doing so, he not only guided P&G’s reimagining of how its Global Business Services division should operate, but he also developed a 5-stage framework that any company can follow to successfully navigate its own digital transformation. Tony shares many insights with us, including why the ultimate proof of an organization’s success at digital transformation is its cultural, not technical rewiring.
Guy Nadivi:Welcome everyone. My name is Guy Nadivi and I’m the host of Intelligent Automation Radio. Our guest on today’s episode is Tony Saldanha, former Vice President of Global Business Services for Procter & Gamble, widely known as the biggest consumer goods company in the world. Currently he’s the President of Transformant, a consulting firm focused on helping organizations accelerate their digital transformations.
Tony is also the author of a recently published book called “Why Digital Transformations Fail”, which outlines a framework for guiding organizations undertaking the challenge of transforming themselves digitally. The book is largely based on his real world experiences with a hugely successful digital transformation that he led at Procter & Gamble. Tony, welcome to Intelligent Automation Radio.
Tony Saldanha: Thank you, Guy. My pleasure. Thanks for having me.
Guy Nadivi: Tony, I found your book to be a surprisingly engrossing read, even for someone who may not even be involved with digital transformations. The reason I say that is because I particularly enjoyed the analogies you drew upon from the aviation, medical, and financial industries, which had historical perspectives and other aspects that were very relevant to an enterprise digital transformation. You also had some great case studies covering successes and failures ranging from organizational departments to entire companies, and even to a sovereign nation which underwent a famous digital transformation.
But I don’t want to steal your thunder. So, please tell our audience at a high level, first off, how you define a digital transformation, and second, why do digital transformations fail as much as 84%, according to your book?
Tony Saldanha: Yes, actually great questions, Guy. Firstly, how do you define digital transformation? This is actually one of the two reasons digital transformations fail. People really don’t know. Leaders don’t know how to define digital transformations. Just a little bit of background, when I was doing my final role at Procter & Gamble, which was to actually create an industrial level, disruptive ecosystem, including the top five IT services companies in the world, and hundreds of startups from the top 10 venture capitalists, I also did a fair amount of research, went around and talked to more than 100 different organizations and people from C-Suite executives to consultancies, to startups. I asked them, among other things, one common question. “How do you define digital transformation?” As you can imagine, I got 100 different answers, all the way from, “Oh, don’t worry about it, it’s all hype. We used to have digital watches in the 1970s,” all the way through to, “No, no, no. This is a real thing. This is the AI stuff that’s going to come for all of our jobs.” Now, I realize I’m paraphrasing, but only slightly. And that is the issue. When we talk about what digital transformation is, in my mind, there is only one definition that makes sense, right? That is the complete rewiring of an enterprise whether public or private sector, from whatever makes it successful in the 3rd industrial revolution, to what is needed to be successful in the 4th. Now, as background, we all know we’re in the midst of the fourth industrial revolution where technology is pretty much disrupting everything from the physical to the biological to even social, right? So, business models, the internal levels of operation, as well as products, whether smart or dumb, are changing as you go from the third to the fourth. So, real digital transformation isn’t a technology. It isn’t a project. It is basically the change in processes, technology, and organization skills, from whatever made people successful in the third, to whatever makes people successful in the fourth. That’s one reason why digital transformations fail. Leaders are stuck with, “What do I want to go after?” The second, interestingly enough, is that the processes, the approaches to executing digital transformation are still rooted in IT project management, and they completely miss two things. One is the creativity needed to completely rewire entire work processes. So for example, in a company, in the third industrial revolution you might say, “Let’s run expense reports as efficiently as possible.” In the fourth you might say, “Well, why do you actually need an expense report? Because the data needed to generate all of those is already there, so let’s get rid of it.” So you see what I’m saying about completely rewire processes, right? The methodology that’s needed to do that includes creativity, to ask those kind of questions, as well as the organization management to bring the entire organization along, and that’s one of the reasons why execution fails. Those are the two reasons people define digital transformation variously and incorrectly, and then secondly the execution methodology is very different.
Guy Nadivi: Now, you wrote in the book that, “Successful transformation during an industrial revolution is good, but sustainable market leaders need to go a step further. They need to sustain the business model. The transformation is incomplete if the new business model cannot be built with an eye toward perpetual evolution.” That lead me to an observation I wanted to ask you. It’s often the case that the founders of successful startups are not the best choices to lead the company to its next stage of growth once the business model is established. So, with that in mind, do you think the managers who successfully digitally transform a company are the ones best suited to sustain that new digital business model post-transition?
Tony Saldanha: That’s another very interesting question, Guy. I think that if we define digital transformation correctly, and in the book I lay out 5 stages with stage five essentially being perpetual disruption, or perpetual transformation. The best example there which you’re aware of, is Netflix, that’s arguably disrupted itself, maybe four times, or at least three times, from mail and DVDs to streaming media to original content, Game Of Thrones kind of stuff, to obviously international business models, right?
If we define successful digital transformations correctly, which is stage five, it becomes the living DNA of the organization. The leader that gets it is in a good position to continue to do that, right? But you make a really good point, because most leaders that are put in charge or actually sponsor digital transformations view digital transformation as a one-time redo of products and processes and sometimes even people. That’s insufficient as we know. I have a really interesting anecdote during my book launch in Cincinnati a month ago. One of the people in the audience said, “Hey, do you remember MapQuest?” I said, “Yes.” He said, “MapQuest disrupted obviously the entire book map industry in the early 2000s.” He said, “I went to the MapQuest website today and it’s horrible. It just doesn’t compare to pulling up your cellphone and saying, ‘Hey, get me directions online’ to Siri or something like that,” right? That’s a great example. One time is fine, ongoing is necessary. The people that actually get that obviously are able to do that. Your point around the leaders of startups are also not great people to actually run startups has been absolutely documented and is well known, because the people that are required to ideate and get things going are usually incapable of driving the kind of structure and scale. It actually goes against the grain, because they’re entrepreneurs. That’s one of the issues why digital transformations fail, because people view digital transformation as incubation, as starting up a project. But they are not seeing digital transformation for what it is. It is scale change. That’s the context in which I would say if you see digital transformation as almost like a startup, then you fail. Because real digital transformation is rewiring the entire company.
Guy Nadivi: You also talk about the resistance to change, characterized by, I love this term, a corporate immune system in place to keep the organization healthy. Specifically, you state that, “It is the middle management layer that’s on the critical path and has the potential to slow down or even block change.” You then talk about the effort that must be put into enroll middle managers in the digital transformation effort, including if need be, creating reward systems that incentivize them to get onboard. However, you point out that in some worst case scenarios, even that fails, and if so, it’s best to quickly kill the project. Tony, I’m curious, why not take it one step further before invoking that nuclear option, by having the CEO or some other C-Suite executive explicitly order the middle manager or managers to get onboard, or risk serious career-limiting alternatives? Especially when digital transformation is so vital to an organization’s future success these days.
Tony Saldanha: Oh, wow. Yeah, that’s a fantastic question. I think the point about having the overall leader of the company be very clear about, “Hey, this is transform or bust” is absolutely valid. You’re right, Guy. That is essential. In fact, what I have found is that if that kind of a serious tone is not set from the top, then the digital transformation has very little chance of being successful. You’re absolutely right in the sense that there is an interim step out there where the leader basically says, “Hey, this is either an existential threat, or an opportunity of historic proportions, so we need everybody to row in the right direction,” right? That’s absolutely essential. Now, what happens is very often even if the leader does say that, the fact of the matter is that the immune system in most companies exists because that is partly responsible for most companies continuing to run stable operations, right? Companies like Procter & Gamble for which I used to work have existed for more than 180 years because of that stability that drives the company, that let’s take some risks, but not crazy risks, right? Whereas with digital transformation, what you’re telling people is, “No, we’re going to have to take some crazy risks.” Some of that is actually not necessarily bad, right? Now, what happens with immune systems is that they’re driven by rewards and recognitions. So, the first thing you do, as you correctly point out, is you change the reward system. You have the leader basically say, “No, you absolutely have to do that.” But there are times when even that fails, right? When that fails, then I think you have to go into completely different options, including looking at other ways in which to drive the transformation, including by the way, things like acquisitions or other inorganic change. The Walmart acquisition of Jet.com is a great example, because they tried a few times to actually go online but couldn’t really drive the organization there, and then the next best option is to just go make an inorganic acquisition.
Guy Nadivi: In one of your chapters, Tony, you discuss the choices an organization has between hiring consultants and personnel to lead the digital transformation efforts, or reskilling the entire workforce, including the leadership at the top. And you justify this by stating that, “A stage five digital transformation involves embedding digital capabilities into the very fiber of the enterprise.” Now, as a lot of the listeners know, it can be very, very expensive to do all this retraining for so many people. How do you persuade an organization to invest in such an enormous commitment, and should the employees be expected to make a commitment themselves to stay at the organization for some minimum time period following the retraining in order for the company to realize a payback on that investment?
Tony Saldanha: That is something that actually is a very topical question. I happen to be part of MIT’s Future of Work, and this question of how much should you basically grow capability organically and should you then expect people to stay with the company is being debated as we speak. Now, here’s the way I look at this particular issue. I think that depending on the amount of change that you’re asking, and the time that is available to you, you might actually use different strategies. If time is running out and you really have very little appetite for change and capability for change, then you really have to bring the cavalry in from the outside, and try and drive a lot of the change, right? So the Walmart Jet.com example is a good one, right? But everything else remaining the same, it’s always better to drive the change internally, because of the topic that we talked earlier, which is real stage five transformation is an ongoing change of DNA. You really need your organization to become the drivers of change, not just one time, but again and again and again. The idea of bringing in somebody from the outside to constantly evolve yourself is just not such a hot idea. Now, once you basically commit to that, then what you have to do is figure out which of your people are going to be able to make it, because not everybody’s going to be able to make it, and how do you actually keep your organization going? Retrain again and again. This is where you start to see examples like Amazon which has actually recently announced that it’s going to spend $700 million to retrain their own organization. When I first read that, I was surprised because arguably Amazon is one of the most tech savvy companies around, and they’re investing $700 million for constant retraining. But that’s basically what’s necessary. Now, your other question which is having made that investment, is it right to expect people to stay on with the company? I think that basically goes to a little more of the values and principles of the company. I think most companies, and I endorse this, believe in an open market system which is, “Hey, we will train you. What we expect you to do is use that either to be successful inside the company or outside.” That’s part of the do I retain people or is it okay for people to leave? Because you may not want everybody that you train to stay with the company.
Guy Nadivi: Interesting point. By the way, the reason that I brought that up is because I remember that when I got out of college, I interviewed with a consulting firm that used to be well known called EDS that was started by Ross Perot, former presidential candidate. They didn’t pay a lot of money for people that started out with them, but one of the things that they touted was how much they were going to train you and that they were going to spend 18 months, or two years, I forget exactly, training you in all kinds of skills that you would need to be a successful consultant for them. I thought about that and thought, “Well, that’s kind of an interesting part of the offer.” Then they also added, “Oh, by the way, if you don’t stay with us for some period of time after the training is complete, you’ve got to pay us back $9,000” which was, I think believe it or not, half of the salary they were paying at the time. Because like I said, they didn’t pay a lot back then. It was the first time that I’d ever heard of a company requiring you to pay for your training if you didn’t stick around. At the time as a poor, broke college graduate, that wasn’t very appealing. In retrospect, now with the benefit of hindsight and experience, I see that it does kind of make sense. They’re investing in you and they want to get a return on investment, that’s just standard business practice. That’s why I was curious about that.
Tony Saldanha: Yeah. You make a really good point about this from a business standpoint, and I know there are companies there that try and enforce these bonds. I also know that some states basically consider these bonds to be invalid or illegal. It’s obviously a somewhat complicated topic there. As I said, one that’s starting to be talked a lot as companies have to face these decisions of making investments in their own people. So I suspect this is going to be a topical question that’s going to continue to be debated.
Guy Nadivi: Tony, one of the most intriguing recommendations you make in your book is about how you leveraged a small group of Procter & Gamble personnel to disrupt an entire industry by creating an ecosystem effect. Can you please talk a bit about what you meant by an ecosystem effect, and whether you think that approach is viable for companies smaller than giants like P&G.
Tony Saldanha: One of the most interesting findings that I had about building this ecosystem is how that idea is applicable to all companies, regardless of size. But to get to the first part of the question, what is an ecosystem? Look, it doesn’t matter if you’re Procter & Gamble and you have a lot of money and a lot of really, really good people. The fact of the matter is that 99.999% of all of the wealth and all of the brainpower in the world lies outside the company, so you’re better off trying to figure out how to tap into that as well. Procter & Gamble’s done that very successfully in the past, on product R&D, including a program called Connect and Develop that has been well published, written up in Harvard Business Review, and so on and so forth, where instead of having all research being done in the company, you basically write up a problem statement and throw it out to the entire world saying, “Hey, anybody out there that’s already solved this?” That’s basically almost like the predecessor to crowdsourcing. So, the ecosystem essentially is a way to use the energy and resources of the world, relevant resources of the world to actually get some of your work done. The way I actually built that at Procter & Gamble is I went to the top five companies, IT services companies, most of which already did business at P&G, and said, “Hey, what I’m going to do is take the mundane day-to-day business operations processes, payroll and accounting and so on and so forth, and I’m going to try and find 10x, 10 times the effectiveness of existing market practices. I’m going to use P&G as a playing ground to do that. Are you in? Would you like to pay to play?” They said, “Oh, absolutely, we’re in.” Because P&G’s global business, service and IT, is known to be best in class, and so the opportunity to come up with something 10 times better than that at Procter & Gamble is worth some money for them, right? And then I went to the venture capitalist community and said, “Hey, I don’t want your money, but I want access to your startups. In fact, what I’m going to do is give you guys problem statements and potentially business for your startups. Are you guys in?” They said, “Yes, of course.” The way this ecosystem worked was we took an idea, let’s say why should you do travel expenses in today’s world where the data around all expenses is there? We will tell the idea to the startups, and some of them would say, “Oh yeah, we’ve got a solution for this but it’s not scaled for enterprise.” Then, we would go to the big companies, IT companies and say, “Hey, can you scale it up? If you do, at no cost to Procter & Gamble, and if you’re successful, I will give you the intellectual property and the software to sell to anybody you want.” That’s worth billions of dollars to these companies, and so this is really how you make the whole ecosystem work. And then as you do that, obviously, you tap into a much, much bigger pool of resources that’s out there than anything that you could come up with.
Guy Nadivi: In your book, many of the case studies that you cited referred to large enterprises. But I’m curious about the mid-sized organizations, particularly the ones that have been in business for decades and have accumulated multiple strata of legacy systems, processes, and cultural norms. Given their lack of resources compared with larger companies like Procter & Gamble, what are their prospects for undertaking a successful digital transformation?
Tony Saldanha: Oh, I mentioned earlier that the surprising thing for me was how this concept is applicable, regardless of size, and that is absolutely true. Because here’s the way I think about it. In my consulting work, I do a lot of work with both medium and small sized companies in addition to the Fortune 100. Regardless of your size, you already have a supplier ecosystem that you work with, right? I mean, it doesn’t have to be an IBM or an HP-type IT organization. It may be a smaller set of people that you work with, but you do have suppliers that work with you, right? And then you have the open ecosystem, it doesn’t again, have to be the venture capitalists, although the VCs are also willing to work with medium-sized companies. Because all they’re looking for is one or two or three successful users of case studies for their startups before they can take the startups to the next level, right? But you also have the broader ecosystem of for example, analytics. You can go to Kaggle. Or, you can basically tap into companies that are actually offering the equivalent of X prize, which is, “Hey, you throw in a prize and we will throw your problem out to universities and different companies” and you maybe pay them $10,000 or some small amount for the organization that solves your problems, right? That’s basically what I find. The ecosystem’s always there. It is a little different depending on the size, but it’s your creativity on creating the business models that allow you to tap into it.
Guy Nadivi: I think it will be very encouraging for our listeners to know that when it comes to digital transformations, size doesn’t necessarily matter, and regardless of how big your organization is, there is a known path to success if you’re willing to take that journey.
Tony Saldanha: It is comforting, and actually, in many of the talks that I do for the SME, small and medium enterprises, I make one additional point, which is the small and medium enterprises are most likely going to be the disruptors, not the disrupted, right? Because they have, in addition to everything else, quick decision making that goes in their favor. They don’t have matrix structures and complex decision making and a lot of things to lose. So, if they are able to combine the agility of decision making, and the tapping into a broader ecosystem, there’s very little that stands in their way of being the disruptor.
Guy Nadivi: Alright. On that high note, it looks like that’s all the time we have for on this episode of Intelligent Automation Radio. Tony, I know you’re a very busy man, but you were generous enough with your time today to fit our show into your busy schedule. I want to thank you for that, as well as writing this outstanding book which does a beautiful job of synthesizing a lot of interdisciplinary concepts into a roadmap for succeeding at digital transformation. We’ve really enjoyed having you on our show today.
Tony Saldanha: Thank you very much, Guy. It’s been a real pleasure chatting with you and again, thanks for having me and I wish you all the best.
Guy Nadivi: Tony Saldanha, former Vice President of Global Business Services for Procter & Gamble, current President of Transformant, and the author of “Why Digital Transformations Fail”, available from Amazon and other book retailers. Thank you for listening everyone, and remember, don’t hesitate, automate.