What About Digital Governance?

Any family, any organization, any given enterprise takes multiple decisions every day. There are many questions to be asked around decision making. Who takes the decision? When and why? What are the criteria? Who will be informed about the decision? What kind of impact will the decision have? How can we avoid wrong decisions? How can we make sure, we take the best possible decision? And many more…

During digital transformation journeys, organizations enter uncharted territories. New lands. Remember Columbus or Magellan or James Cook? They did not have the maps of the worlds; they did not have satellites or GPS systems or radar or sonar. Today we don’t have very clear maps of the universe, although we know much more than those discoverers knew during their times.

Who, how and when should discover your new digital lands? Who shall take the main decisions? Why and how? MIT Sloan compiled a quite comprehensive list of principles, published in MIT Sloan Management Review.

We complemented the article with some additional views from our experience, organized by the same principles. The examples provided are from the original article.

Digital Governance Principle 1

Centralize information about digital initiatives rather than the initiatives themselves.

Very often executives in charge and at the center / the top of the organization tend to dominate and regulate everything. Depending on the overall corporate culture, we see a tendency towards centralization. As you know, this leads to “the ivory tower” phenomenon. Usually this is not very helpful in terms of motivation, ownership, involvement and progress. People feel dictated, watched over their shoulders and they will not take responsibility, they will not freely contribute, they definitely will not innovate or do anything beyond the basics.

With this amount of motivation and energy, digital transformation programs will not succeed. Columbus would have not been able to discover the “new world” if he had clerks on the ships, but rather “controlled” pirates, so they would be able to take their own decisions in accordance to the leader, to the overall mission, supporting the shared goal.

Fred Herren, senior vice president, digital and innovation at SGS, the world’s largest provider of inspection, testing, and certification services, understood that applying a top-down approach to rules rarely works in decentralized cultures. He noted, “I think it’s necessary to walk the talk rather than give instructions. I’ve managed to get a lot of information because I’m not telling employees to stop [their activities]. I walk around and ask people what’s new and I always react positively.”

Digital Governance Principle 2

Move from centralized to decentralized governance of digital initiatives as digital maturity grows.

Digital maturity is a very important indicator. If measured correctly, it shows the overall maturity of an organization in terms of transforming to digital, as a whole. Digitopia’s “digital maturity index” is one of the most comprehensive measures in the market.

As the organization matures over time, the governance rules and policies settle and mature as well. This means the organization learns and understands how decisions are taken, why they are taken and how to act upon those decisions.

Digital transformation is about decentralization, in general. Every part of the organization becomes more connected, smarter, faster, better designed, and therefore, better managed. As this happens over time and with growing maturity, one can leave decision making to the very front and very remote edges of the organization, because they will be based on data, they will be aligned with the vision and objectives, they will be openly and honestly communicated to the rest of the organization.

To the contrary, central decision making tends to become a bottleneck, decisions feel distant from the people being affected, situational empathy level perceived rather limited, and the people taking central decisions get more removed from operational and personal realities with every decision. Not good for the organization, and also sad for the people.

“I think the end goal is that everybody in the company is a CDO,” said Mark Klein, chief digital officer of Germany’s Ergo Group. “As soon as everybody is acknowledging the value of digital transformation, embracing it, and making it happen, I’m not needed anymore.”

Digital Governance Principle 3

Decentralize ideation but centralize idea evaluation and prioritization.

Creating new ideas should be natural habit of the corporate culture. Innovation can’t be done just by a few people and just if they receive an inspiration. All available resources should be leveraged for solving a problem, creating new services or products, thinking of new ways of working and such. Even the outside could be integrated thru open innovation initiatives.

Having said that, you may not be able to pursue all ideas, due to theory of constraints, lack of resources, lack of knowledge, lack of budget, lack of time, not aligned with vision or business objectives. Therefore, somebody needs to take some difficult decisions. Usually this is called prioritization. Ideas need to be evaluated and then the final ones, the best suiting ones need to be pursued.

For the sake of efficiency, for the sake of transparency, and for the sake of being close to upper management and getting their approval / blessings, this evaluation and prioritization can and should be done in a central manner.

Nestlé launched the “InGenius” program in 2014 to leverage the creativity of its approximately 300,000 employees worldwide. Employees can pitch their ideas on a software ideation platform and get feedback and votes from other Nestlé employees. Eberhard Ruess, former head of Nestlé’s CIO office, explained that the basic goal for the program was “to reduce the distance between the person who has an idea and the ones who can make it happen, and bring the innovation process closer to more employees.”

Bart Leurs, chief digital transformation officer of Rabobank elaborates: “We set up an innovation board led by the global head of innovation. Every business line has an innovation lead that is also part of this board. Together, they manage the innovation funnel … creating the same chance for projects to succeed, fail, or to be stopped quickly.”

Digital Governance Principle 4

Make sure that KPIs measure the real impact you want to achieve with each initiative.

In some organizations targets define the culture, the behavior, the priorities. Sometimes this is desirable, sometimes it may hurt. Therefore, the balanced scorecard approach is very valuable. Balanced means an equal importance of financials, customer, operations and learning aspects.

You become what you measure over time. If you focus on quality only, everybody gets obsessed with quality issues. If you focus on sales only, everybody becomes a salesperson and you may lose some of quality concerns, humane aspects, and other.

During digital transformation programs one has to make sure, that the vision and corporate objectives get not out of sight, out of mind. Digital and the transformation program are the means to an end, and the goal is to succeed, to grow, to improve the company.

According to Edouard Zuber, former CDO of AXA Hong Kong, leaders can struggle to determine business impact of new initiatives, saying, “One of the drawbacks of transformation is that if you are not watching carefully enough, after a couple of years, you’ve spent a couple million dollars and you are not completely sure about the return.”

Digital Governance Principle 5

Avoid siloed solutions by ensuring data compatibility, technical consistency, and continuous integration of new initiatives with existing systems.

What we see very often is the lack of an architectural approach. If you don’t have an overall architectural plan at hand, you buy or build systems, quite different and isolated from each other. And over time you end up with an unstructured, difficult to integrate, difficult to manage, almost impossible to upgrade environment. This is not desirable.

Data formats, integration standards, architectural guidelines, an overview of what’s going on, more talking to each other, early review of projects and requests, will help to govern the environment, make better decisions, secure your investments.

The best metaphor to visualize this in your mind is “city planning”. Imagine you are the head of city planning and report to the mayor of this city, you have to have a city map on your wall in your office. Once there is a new project, a construction site, an infrastructure project, a new road, a new bridge, a new school, a new hotel, a new park, or what so ever, you know and see, where it will fit, what is impacted in the environment, what kind of longer-term considerations you must think of, like parking, sewage, electricity, communications, etc.

The same is true for digital systems and projects in organizations. The technology infrastructure and its architecture are like the city map of the city you have to govern. From our experience this is the best explanation everybody is able to relate to, since we are all living in some sort of cities, bigger or smaller, better organized or worse. You have the choice.

Ikea’s CDO Barbara Martin Coppola told us, “Through data standardization, we can see that if something has worked well in Italy, [and] leverage it for the good of Ikea globally. That allows for transparency, visibility, and accountability.” This approach to data gives Ikea the ability to see what products and processes are working globally, and which are not.

Digital Governance Principle 6

Implement a “fit-for-purpose” mapping system that recognizes value potential and degree of feasibility for each initiative.

  1. Value potential
  2. Degree of feasibility

“Four Types of Digital Initiatives”

Quadrant 1 is referred to as Quick Wins. These are high-feasibility initiatives that have relatively low value — for example, applying a simple digital tool to a known business challenge in a specific area of the business. These initiatives bring immediate gains but rarely make a lasting impact.

Quadrant 2 comprises initiatives that are difficult to implement and have low value potential. They are in the Kill Zone. Despite their low attractiveness, we unfortunately see many initiatives that fit this description.

Quadrant 3 includes initiatives that have low feasibility but high value potential. These are Moonshots. Initiatives of this type seek to explore radically new, trending, and potentially disruptive innovations and technologies.

Quadrant 4, the most attractive quadrant, comprises initiatives that have both high feasibility and high value potential. We have divided this quadrant into two parts based on how they are implemented. The first part is referred to as Enterprise Anchors. These initiatives seek to create change to the current business at scale. An example might be a new digital platform to transform B2B customer service and sales. These initiatives typically require significant cross-enterprise collaboration. The second part of Quadrant 4 is Ventures. The goal of this initiative type is to leverage digital technologies or business models outside the existing organization. Ventures often use new channels and partners, and rarely function well within the current structure of the organization.

Heineken Case

Heineken, an independent global brewer with presence in over 180 countries, illustrates how a company can manage multiple governance structures for different digital projects.

For initiatives focused on digitizing their routes to market, Heineken first developed a centralized transformation approach and road map. Next, the company launched pilot tests in selected markets and empowered local teams to identify key customer needs. The initial pilots were scaled to additional markets only after a local minimum viable product solution had been validated. In parallel, Heineken built centralized capabilities to roll out the digital solutions globally. This is an example of how Heineken built a digital initiative into an Enterprise Anchor.

But Heineken took a very different approach for Beerwulf, its direct-to-consumer e-commerce platform for craft beers. Hans Böhm, managing director of Beerwulf, realized that “designing a new direct-to-consumer business model would require a fundamentally different approach.” For Beerwulf, it didn’t make sense to run the initiative in a centralized, corporate way. Instead, Böhm noted, adopting an agile mindset, the company used customer feedback to refine its proposition, and was willing to “test, learn, and fail” as it determined what worked and what didn’t.

Therefore, Heineken elected to launch Beerwulf as a separate startup venture, outside of the regular business structure. This approach released Beerwulf from constraints on reporting and resource-allocation processes that would have applied if they were merely a project inside the regular business. As a result, the fledgling venture was also able to set up a separate but compatible IT architecture, which was key to achieving the flexibility and speed it required.

Digital Governance Principle 7

Evaluate different scenarios to proactively steward digital initiatives toward full-scale impact.

Doing scenario planning is not very common. Therefore, you must think of your assumptions and the possible varying parameters. Everybody knows that the future is unpredictable, but everybody has a sort of idea of what may happen over the course of the next few months and years. How come? Is this vision aligned with everybody? Does everybody share the same sort of idea about the future? You could and should write down this vision, and maybe everybody, so you can get agreement or alignment around these ideas.

Once you have these various scenarios, you could evaluate their probabilities, bet on the more likely ones. Based on these scenarios, you now can evaluate your digital activities and decide accordingly, which one best fits and contributes the most value.

First, digital leaders should proactively work to remove potential obstacles; that is, make sure there are no organizational or technological barriers that could limit an initiative’s growth.

Diego de Coen, former CDO of JTI, stressed the importance of parallel work for scaling digital initiatives. He explained that at JTI, once the value of a new initiative is clear, the parallel processes for execution begin across such teams as IT, security, legal, and other key stakeholders. Relying on this parallel work avoids any bottlenecks along the critical path that may prevent the speedy scaling of initiatives.

Second, instead of trying hard to push new initiatives out into the organization, digital leaders should focus on creating a pull effect from the organization.

Chetan Tolia, head of digital business transformation of the Swiss bank UBS, stressed the importance for companies here: “If you scale an initiative by pushing it out [into the company], you will always need to do so, preventing organic growth.”

Sven Meier, director of digital transformation at EnBW, describes how he worked closely with only a small number of business units to create such a pull effect, focusing on generating first results and demonstrating the value of the initiative: “Real results were generated. From that moment on, word spread quickly, and we had a hard time responding to the pull from the rest of the firm.”

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