The People Equation

Digital sustainability means an organization can continually reinvent itself to compete going forward. Are you prepared for digital-age success?
By: | December 11, 2017 • 9 min read
digital sustainability - people

“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.

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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.

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