Even though the digital transformation has been building up for over a decade, most businesses have yet to recognise it as a high priority. This is especially true of larger corporations with solid, apparently unassailable channels and markets.
It is true that some businesses will not be impacted by what IoT brings to the table. But are you truly confident, as you read these sentences, that your business is immune to the IoT revolution?
Many leaders may not see the threats to their business and are blinded by their current analog profitability. Our brain is ‘inherently lazy’ and will always ‘choose the most energy efficient path’ if we let it, writes Tara Swart, a senior lecturer at MIT, in her book Neuroscience for Leadership. “[The brain’s] need [to survive] focuses attention on the sources of danger and on trying to predict where the next threat will appear, on escape or full-frontal battle rather than on an innovative or creative solution, on avoiding risk rather than managing it towards a new suite of products, market or way of doing business,” Swart writes.
If leaders don’t see the threat and opportunities of the IoT and fail to understand how they can leverage that for their company’s benefit, then they are in danger of becoming yet another case study like Kodak, Nokia, and Polaroid.
On the other side of the coin, there are leaders who fully acknowledge that there are some risks and that those might be potentially deadly to their business. They struggle to raise the urgency of change and the associated orchestration among their employees. When properly tackled, digital transformation can ignite a sense of purpose among your teams, and more importantly raise the overall satisfaction and therefore increase buy in from them which often increases productivity. Studies show that when a clear digital strategy is being established and shared with employees, the satisfaction of those employees raises from 10% to nearly 90%.
The importance of leadership
John Kotter, professor of leadership, emeritus, at the Harvard Business School, author of numerous books on leadership, highlights this importance of leadership and the difference between leadership and management when dealing with change management:
- Management gets the regular work done well, reliably and efficiently, even in exceptionally large and complex systems
- Leadership sets the vision and the associate strategy. They have the capability to energise their troops to trigger innovation despite the recognised changing problems and opportunities.
Both are important when dealing with a digital transformation strategy in a complex environment and organisation. Leadership is a key success factor when dealing with market niche or in a world where opportunities and technological trends can change greatly. Good management is a key success factor in large organisations operating in protected markets and environments that changes little.
The importance of digital mine canaries
Another important aspect when dealing with people in a digital transformation environment is that there is often someone who will understand the necessary steps to digital transformation before the rest of the peers and thus challenge the status quo. Those within the corporation who recognise the need for change often face marginalisation from the minds of the ‘analog’ leaders and scepticism from peers.
Carl Yankowski joined Polaroid in 1988 as vice president in charge of the business imaging, US consumers and industrial marketing.
He quickly identified the necessity for Polaroid to embrace the digital transformation by acquiring electronic imaging technologies. Unfortunately, MacAllister Booth, his CEO, vetoed the plan and gave clear ‘analog’ feedback, “Anyone who says instant photography is dying has his head in the sand.” Even the next CEO, Gary DiCamillo, had a very similar analog approach. He stated in 2008 at a Yale interview that “People were betting on hard copy and media that was going to be pick-up-able, visible, see able, touchable, as a photograph would be.” A couple of years later he analysed the situation: “We knew we needed to change the fan belt, but we couldn’t stop the engine. And the reason we couldn’t stop the engine was that instant film was the core of the financial model of this company.” This is very similar to Fujifilm’s model; the major difference is that Fujifilm’s management made a clear strategic choice to cannibalise their own market in order to enable the transformation to happen and build a longer term success.
Such an environment unleashes the opportunity to get early warning detection systems for your business, much like a canary in a coal mine. So, keep in mind that the canaries are not the problem. Rather, it’s the way you, as a leader and as a company, leverage them to create value for your customers, your channels, your company and its employees and the shareholders.
Carl Yankowski was Polaroid’s canary, and unfortunately for them, he was ignored.
Polaroid could have been a pioneer in digital photography if the leaders had embraced original ideas and set a vision that included the understanding that failing fast, protecting teams that challenge the status quo, embracing culture change can create the conditions for successful digital transformation. Unfortunately, Polaroid failed in those areas mainly because they did not have the conditions for its employees to embrace change and accelerate the needed digital transformation. This example highlights the importance of the people side of digital transformation and in particular the role of middle management when dealing with change and adaptation of organisations.
The importance of middle management
When dealing with digital transformation, leadership must first set a vision and clearly state and envision the result of the changes that are necessary. But vision and leadership is not enough. The Polaroid case clearly shows that even though they had performed thorough market research, even though they could have acquired the technology and even though they had leaders that had perceived the opportunity behind the risk, they did not realise the importance of middle management in digital transformation.
George Caspar Homans was an American sociologist (August 11 1910 – May 29 1989), founder of behavioural sociology and the Social Exchange Theory. He expressed in his different publications the importance of middle status of individuals in social organisations as well as their capabilities to absorb and drive creativity.
He considers that any hierarchical social organisation is constituted of:
- ‘Low status individuals’: individuals do not fear status loss as they feel that they do not have anything to lose. Status can be defined as respect, honour, influence on other groups with the associate benefits such as credit, control, attention, influence as well as material benefits.
- ‘High status individuals’: interestingly high-status individuals have a very similar reaction to their social status in that they are not afraid of losing social esteem, but not because of the same reasons. The consequence of being at the top of the social pyramid are the associate advantages such as ego satisfaction, financial freedom and well-being which in turn gives those individuals a lot of freedom in their everyday life and decisions.
- ‘Middle status individuals’: Those individuals are on the opposite side, when talking about fear of losing status, of both the low and high-status individuals. The threat of status loss is the highest in this category of individuals as they are respected and can influence the low status individuals while at the same time dealing with the high-status individuals that are more respected and influential to the whole group.
If you apply those categories to a standard medium size company, you could categorise the groups as follows:
- ‘Low-status individuals’: skilled or semiskilled workers, administrative personnel, transversal function with low influential power, etc.
- ‘High-status individuals’: executive teams and their associate N-1. Transversal functions with influential power.
- ‘Middle-status individuals’: middle management that refer to high status individuals to seek for approval and or final decisions, etc.
Middle management and innovation
Recent studies seem to show that when dealing with innovation and transformation and change in a social organisation such as a company, the middle status individuals will be more concerned than other groups to follow the rules at the cost of creativity and innovation. From an innovation point of view (organisational, R&D, process and so forth), being criticised and negatively evaluated for suggesting creative ideas may be particularly salient to middle status individuals. Middle status individuals tend to be less creative than those with high or low status but on the other side they can boost the group’s performance by focusing on productive tasks and filtering out irrelevant information.
High status individuals seem to have more willingness to risk the expression of creative ideas due to the fact that they are well established as high status individuals and do not fear losing the position. Interestingly Michelle M. Duguid and Jack Goncalo in their article “Squeezed in the Middle: The Middle Status Trade Creativity for Focus” seem also to show that, even if the high-status individuals’ creative ideas are objectively not more creative than ideas from the middle or low status individuals, their status and associate confidence makes them more confident to persuade the rest of the group.
In the Polaroid case, middle management didn’t embrace the high-status individuals’ beliefs and because of that they were pushed to the side. This caused major issues with innovation, digital transformation, cohesion and keeping digital talents in the company.
Analog company leaders willing to embrace the IoT should help the company’s middle management to understand the goals and outcomes, as well as the risks and threats to the existing business.
Setting a vision and giving a sense to the mission is not only about defining what needs to be done but also about creating the environment in which employees can challenge the status quo such as the business model, processes, products and services and to the corporation itself and creating enhancements to those.
Explaining the ‘why’ to middle management and more importantly enabling innovative action in the edge of the ‘mothership’ creates the environment for change and adds a sense of urgency and accountability amongst the middle status individuals.
Editor's note: This is an extract from Digitze or Die, by Nicolas Windpassinger. You can find out more about Digitize or Die and purchase it here. All benefits from the book will be donated to the Alzheimer’s Association and Fondation de France.