The People Equation
“Let me get this straight … ,” the chief HR officer said as she stared at me balefully across the table. “You’re saying that, to make our digital transformation work, much of what we did to ensure success over the last decade or so needs to be reversed? We need to do the opposite of what we’ve been doing? I’ll say this: You’ve got my attention.”
It wasn’t the first time we’d had this conversation, nor would it be the last. Discussing digital transformation with clients can be energizing but exhausting — this is an area that is continually testing all of us. There are no right answers, just an endless stream of ever more right questions.
And the fiendish thing is that so much of what organizations have done right over the last couple of decades now actually limits their success. It’s as if everyone built elaborate, gorgeous cruise ships, and tiny digital speedboats are now gleefully maneuvering around them.
In conversations with clients, we regularly hear the word “paralysis.” Indeed, the pace, complexity and difficulty of digital transformation has stopped even the savviest organization in their tracks. Yet while technology and process shifts are important, a wealth of research data tells us that people are the primary barrier preventing companies from leaping nimbly into a digital future.
The research also reveals that the ability of companies to address the people part of the equation through innovative HR practices and strategies is frequently a key differentiator between companies that make Human Resource Executive®’s Most Admired Companies for HR list, and those that don’t.
So what’s an HR organization to do?
Conventional wisdom would say to simply align with the company’s overarching business strategy around digital, and to methodically execute against the needed people capabilities. But the reality is far more complex. Even in this day and age, many organizations do not have a clear digital strategy, have a digital strategy that is not well understood, or keep changing their digital strategy as disruption abounds. Making the task even more challenging is the fact that responsibility for digital can be diffused through different parts of the organizations, even when there’s a single chief digital officer in place.
Without a clear playbook, HR’s task may seem daunting. But our latest research suggests that there is a core set of capabilities that organizations need to build in order to operate in a digitally sustainable manner.
Sustainability vs. Maturity
Digital sustainability, to be clear, is not the same as digital maturity. Any organization can scramble through a one-time transformation and get to a digitally mature state, with technology and processes seemingly in place. In contrast, digital sustainability means an organization can continually reinvent itself to compete going forward.
To understand the hallmarks of a digitally sustainable organization, we convened a working group of top digital thought leaders. They identified five capabilities that are critical to achieving that status: agility, connectivity, discipline and focus, empowerment and alignment, and openness and transparency. We then worked with a team of economists to understand — at company, industry and country level — what concretely drove each of these capabilities. For instance, you can measure a company’s agility by the the number of patents awarded per employee.
Then we examined 400 companies and 15 countries to understand how they performed on what we call the Digital Sustainability Index. The results were striking: a 10-point rise on the index correlates to a 1.5 percent increase in gross profit margin and a 44-percent rise in EBITDA.
In short, digital sustainability matters to business results.
So, to paraphrase the earlier question, what concrete actions can HR take to get there? Here are a few starting thoughts around each of the five capability areas:
Agility is certainly a common buzzword. Who wouldn’t want to operate faster and more nimbly? To build agility, HR needs to take a critical look at workforce composition. Is the workforce able to pivot quickly in response to changing digital imperatives?
Many organizations, for instance, have accrued large numbers of contingent workers. These workers may be an asset to agility when deployed in the right roles — or a liability if they are deployed (as many contingent workers in digital jobs are) in roles where organizations actually need to build permanent capability.
Agility can also be derived from allowing employees to “job craft” — take a job that’s defined at the 75 percent or 80 percent level, and determine what the rest of the role should entail, in response to shifting needs.
Finally, the right compensation model can be a key driver of agility, matching reward structures to the actual fast-paced and more nimble nature of digital work (rather than the traditional yearly cycle). This approach — which can also help attract and retain digital talent accustomed to less-traditional compensation models — is powerful, but can be challenging to implement. Many organizations have effectively created two-track compensation models (targeting digital and traditional talent with different approaches) as a short-term solution, but are now struggling to reconcile to a coherent overall framework.
Connectivity, in this context, refers to an organization’s ability to collaborate both within its own walls, and with the broader world. HR organizations can foster connectivity by aligning both performance management and rewards with more team-based ways of working that are common in the digital era. If the focus shifts from individual to team, the onus (and accordingly the tools) for performance management should shift, in some ways, into the team’s own hands. Similarly, rewards should be aligned to team performance, creating a need for measures such as collective production targets.
Fostering connectivity outside the organization may mean that HR builds efforts such as partnerships and pro-bono projects into leaders’ goals, rewarding them for hearing a more diverse array of voices.
Discipline and focus is a critical and often ignored component of the capabilities for digital sustainability. With a broad menu of technological options, many organizations have approached the digital journey in maximalist fashion, chasing every car down the street (metaphorically speaking). In contrast, an approach that emphasizes discipline and focus creates clear lines between what the organization is and is not seeking to do in the pursuit of a digital future.
From an HR perspective, this translates to a high level of selectivity about everything, from what digital talent is actually needed to what components go into a digital job. Over the last few years, organizations have often hired digital workers willy-nilly, and stuffed them into overloaded jobs. Our experience suggests that well-constructed digital jobs focus on a single aspect of being digital (for instance, shaping the customer journey via digital technology, or deploying analytics for better decision-making) — and that finding the right digital talent means being thoughtful about whether an organization is seeking digital experiences, the right mind-set for the digital journey, or a combination of the two in the same individual.
Empowerment and alignment, meanwhile, is the dimension most closely correlated with overall performance on the Digital Sustainability Index. It’s also the dimension we see organizations struggling to get their hands around. Consider what has made organizations successful in the past 10 to 15 years: an increasing systematization of work (often enabled by technology). To work better in an age of greater complexity, global reach and ever-greater risks, organizations were challenged to help their employees think less, and for more decisions to be made higher in the organization. Empowering individuals in the digital age, however, means dismantling these previously helpful systems — which can be a daunting task.
Creating true empowerment means addressing both structural impediments and leadership styles. On the structural side, a thoughtful “audit” can identify both formal structures and informal rituals that are mitigating against the empowerment of individuals (such as meetings where only a certain handful of senior leaders are expected to speak). On the leadership side, getting leaders out of “heroic leader” mode should be a high priority; teaching leaders not to solve all problems for their teams can seem counterproductive, but pays myriad dividends in the digital world.
Openness and transparency enables organizations to understand reactions to their strategic choices in real time — allowing them to make better decisions. For organizations in which openness and transparency are not natural ways of operating, one great starting place can be changing how the organization uses and surfaces data. For instance, when key decisions are made, while executives may not share all of the reasoning behind their choices, surfacing key data points for internal and external audiences can help facilitate a better dialogue.
Similarly, inviting employees into decision making by using big-data methods (such as crowdsourcing answers to key challenges) can also create a far more transparent atmosphere. HR has a critical role to play in this transition, helping to frame how data is shared and advocating for ways to ensure that the larger talent population is exposed to key information.
After understanding each of these five critical levers, HR organizations must approach digital sustainability with a strong point of view as to which gaps are most critical to address.
With limited resources and ever-present time pressures, HR leaders need to determine what first step is going to have the greatest impact on the business. Agility, for instance, may always seem to be a worthwhile goal. But for an organization desperately stretched in a million directions by a scattered approach to the digital journey, discipline and focus may actually be the difference-maker.
Ultimately, HR must have a vision of “what good looks like” considering their organization’s challenges and opportunities. Wildly changing the level of employee empowerment within an organization in a highly risky sub-sector, for example, may not be feasible in the short-term. To tackle this challenge, HR needs to determine which pockets of the organization would be best served by driving greater empowerment, and which ones should maintain their current state.
High aspirations do drive digital-age success, but operating sustainably means building digital capability that should be viewed as a marathon, not a sprint.
After all, we have seen organizations burn lots of energy in the last few years throwing tremendous amounts of money and resources at the human side of the digital journey — with mixed results. Expensive and highly capable digital leaders have been hired for overloaded and underpowered jobs, and digital talent has been infused en masse into organizations whose culture promptly sent them running for the exits.
At the same time, core talent at these same organizations has been underdeveloped for the digital era, and insufficient attention has been paid (beyond a consistent level of superficial media noise) to how the digital journey is really reshaping jobs and the workforce.
HR’s mandate, therefore, becomes more clear by the day: thoughtfully and consciously shape the capabilities that drive digital sustainability. This is not a trivial task, as the aforementioned CHRO previously pointed out. Weaving the fabric of an organization that can compete in the digital age also means unraveling the threads that were intended to make organizations successful before.
It’s a difficult and often emotional journey, but a tremendously valuable one. If an organization is truly digitally sustainable, the need for single-point transformations (and the associated change fatigue) diminishes tremendously. Constantly transforming reduces the threat of disruption. Indeed, it’s hard to get ahead of an organization that keeps reshaping itself.