Incremental end-to-end Change

Summary

Digitalization reshapes business models and value chains, requiring a continuous and coherent flow of organizational and technological optimizations to remain ahead of the curve.

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Rationally, every executive, manager and employee understands that the company they work for has to remain in touch with market realities and act accordingly. The constant stream of companies struggling with strategic, earnings, liquidity or even a “Chapter 11” crisis is therefore counter intuitive at first sight.

However, even at personal level, something similar can be observed. The more ordinary the skill set of the employee, the more likely the job can be automated. Despite the widespread public attention for this trend, many employees still lack a sense of urgency. It is part of human nature to think bad things only happen to others (I). Market and technology shifts don’t affect them or the company they work for.

Until, eventually, the pink slip arrives. Then the need to change is no longer an abstraction.

When a company or individual hits the proverbial wall, radical change is required. This type of change is infrequent, disruptive, forced and of strategic importance.

When the company or individual remains aligned with its external environment, change can be incremental. Incremental change is continuous, focused on improvements, bottom-up and emergent.

The second key ingredient to surf the digital wave instead of being drowned by it is adopting an end-to-end approach. Numerous companies, including retail giant Walmart, initially underestimated the impact of the internet and mobile on their business model. It is more than adding a web shop module to the existing website.

In other words, incremental change should not be confused with isolated point initiatives. This important point is covered in the McKinsey article ‘Modernizing IT for a digital era’.

“Historically, companies have favored an incremental approach to modernizing IT—that is, addressing the most immediate points of pain and then subsequent issues as they occur. However, the threat of digital disruption is creating an urgent need for companies to modernize IT systems end to end, with the big picture in mind.

End-to-end modernization, or a holistic approach to tackling system upgrades, completely redefines how a company thinks about IT. Under this approach, the technology organization is no longer just a shared service; IT becomes a critical part of the company’s DNA, and IT leaders become trusted partners, not just service providers.”

However, the article still treats the business and IT as two separate domains, whereby IT leaders are responsible for technology. In reality, the business and IT domains increasingly converge or even fuse, reflected by the skill set and leadership style of the executives. No longer ‘we’ and ‘them’.

Companies are quickly learning that digitalization requires the business and IT to adopt a joint end-to-end change program. The McKinsey article touches upon the point by calling IT a critical part of the company’s DNA, but comes short of identifying the true key success factor of strategic change in a digital era: recognizing and acting on the interdependence between business and IT.

 

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Notes and references

(I) This behavior is known as optimism bias, unrealistic optimism or comparative optimism.

(II) Please note that one person may perceive a specific change as incremental while the same change is perceived as radical by another.