It takes two to tango: How legacy and digital teams must collaborate to drive digital transformation

A CEO sets up a separate unit with the goal of building a digital mindset that is not constrained by the organization’s existing culture. The biggest challenge in this turns out to be operating this new digital unit with a digital mindset but from within a traditional organization. Eighteen months later, the writing was on the wall. Digital product releases are delayed, and market share and customer base significantly falls short of aspirations.

This turn of events is neither inexplicable nor uncommon. Several CEOs have bet the future of their enterprises on digital and rightly so. But they often blindly try to replicate a model – setting up a new office with a digital native and Agile structure – one that is kept away from the traditional physical organization’s influence. In effect, most of the business and IT leaders are kept out of the loop. This creates a chasm, with the traditional physical business and the IT organization on one side, and the new digital unit on the other. 

The reason why this copy-paste of a plan does not work is because the digital units of traditional enterprises differ from digitally born companies that never had products or markets in the offline world. In contrast, enterprises like banks, retailers and insurers have spent years building expertise and competitive advantage centered on product development, process excellence, logistics and supply chain, manufacturing and distribution. 

When an organization suggests a digital business will operate unencumbered from a legacy world, as an unintended consequence, the digital unit often does not leverage the competitive advantages of the core business. Successful digital efforts for traditional enterprises rest on the business and technical capability of the entire enterprise. Modern digital units must leverage the parent organization’s existing core strengths to introduce responsiveness. In other words, digital and legacy teams must tango together, leveraging each other’s strengths.

Below are a few suggestions for organizations that are building a digital business:

  1. Take along the physical and digital together. The physical business has core strengths that have enabled it to create a strong position in the market. Successful businesses have a loyal customer base that were developed over time thanks to investments in product, brand, and distribution. While these are capabilities that organizations want to carry into the digital business, the organization tends to be slow and not agile enough. The approach of keeping digital units separate from the physical business does not allow them to leverage each other’s strengths. Combining the core strengths of the physical business and the agility of the digital unit into a powerful combination requires them to work together more closely.
  1. Invest in modernizing existing systems and technology infrastructure and not just digital technology. Mobile apps take your products and services to clients. Customer experience is crucial on this channel. However, apps are dependent on existing technology systems and infrastructure, which was designed for a different world. When the organization launches digital products and platforms, the existing set up struggles to cope. It not only results in business loss but also leaves an impression that the digital products have not been well designed. However, most CEOs view modernizing technology infrastructure as a cost, while funding digital technologies is perceived as an investment for growth. When the reality is; enterprise infrastructure is the backbone of a digital business. Investing in existing technology enables apps to transform customer experience. 
  1. Digital transformation is a change program. While technology is a critical driver of transformation, people are equally important as companies with failed transformations identify employee resistance as a major barrier. When a large business is trying to pivot, senior executives from legacy businesses often feel insecure. This is a big challenge as the bulk of an organization’s revenue is still generated by its legacy business. Obviously, digital transformation requires a change in mindset of the key executives. Involving internal leaders in the transformation journey and finding among them ‘advocates of change’ is what companies successful in transforming have done well.
  1. Use the right metrics to measure the digital business. Digital transformation brings in new ways of working. The new lexicon of metrics includes terms like velocity, conversion rates and release times as against the traditional metrics like revenue, and sales growth. While financial numbers are critical, product delivery and engineering metrics are equally important to a digital business. It is important that the leadership agrees on a framework to measure progress and a governance model to review the metrics frequently. A digital business typically grows and evolves faster than the traditional organization is used to, hence it is important to have a model for higher frequency of measurement and review. 

A common theme that comes up in conversations with executive leaders across organizations is the struggle to arrive at the right model for digital initiatives. There are no easy answers for this, and neither is there a one size fits all solution. It is important to take a first principles approach that guides the business and its leadership to make critical decisions regarding the digital business while the operating model itself continuously evolves. As long as the leaders (of legacy and digital) are aligned with the principles and the probability of creating dissonance in the system is low, leaders will increase their chances of success.

The article has been written by Deepak Bhatia, Head of Demand for Thoughtworks in India

Leave a Reply

Your email address will not be published. Required fields are marked *