Your digital disruption strategy is only as good as your change leadership

The big challenge on digital disruption is not strategy or product creation. It is change management.

Netflix is often listed among the world’s most disruptive companies. They started by disrupting Blockbuster (as an aside, I still feel for Blockbuster’s CEO, who turned down the offer to buy Netflix for $50Million in 2000). For an encore, they disrupted their own mail-in DVD business with streaming video. And the cycle continues even today. Ever wonder what makes Netflix’s culture so accepting of constant change? If so, check out their famous culture slide deck on the internet. Once you’ve done that, ask yourself how you would drive even a fraction of Netflix’s level of disruption in your own organization. You will need to do that, if you lead digital disruption.

So if my company doesn’t really have a start-up culture, are we doomed?

No. Also, focusing on culture-change as a goal is a waste. As John Katzenbach pointed out in his excellent HBR article, company cultures change very slowly. An exercise to drive an about-face will be frustrating and a waste. To be clear, culture will evolve over time, but what you can change faster is business models. That makes the culture issue more manageable, because it focuses the issue on the acceptance of very specific digital use cases.

So, what’s the best change strategy for all my disruption projects?

Ah, that’s the rub. One size doesn’t fit all situations. The good news though is that there are clear guideposts on what approach to use in which situation. The urgency of change and the amount of disruptiveness drives the strategy to be adopted. If the change is huge and it is needed urgently, then the best strategy is extrinsic-driven change. The converse would suggest an organic change approach. We know that Private Equity firms use this approach at a corporate level, and it works equally well down at a project level.

The frozen middle

The most frequent cultural issue is dealing with the “frozen middle”. In most organizations it is relatively easy to excite the leadership as well as the newer employees about any given change. It is the layer in the middle which is hardest to crack. It is important to recognize that this layer of management is just doing what it is rewarded for i.e. to drive stability. Also, to be fair, it is extremely difficult for a given individual or group to operate at two speeds at the same time i.e. the slower stable speed of normal operations and the high iterative speed of an innovator. This is why recognizing and implementing the most appropriate strategy for change i.e. Extrinsic driven or Organic, is critical.

Extrinsically driven change

According to CIO magazine, the trend of acquiring start-up companies for talent such as analytics, mobile and social media is on the rise. Recent examples include Aetna, Capital One, Home Depot and Wal-Mart. For instance, according to a study by Accenture, 59 percent of companies are expected to buy digital startups in the next three years in the Insurance industry.

Another strategy is to hire key senior leadership positions. We see the trend in hiring for CTO, CDO and CISO positions.

A third strategy is to either create or partner with an external Black Ops type organization. Companies have used this strategy for years, with the most successful being X (previously Google X).

Driving Organic Change

Continuous Improvement programs are a given in most organizations. What we’re talking about is different – setting up targeted programs of turbo-charged organic change. That can include a combination of approaches e.g. declaring corporate programs (e.g. GE’s six sigma), bringing in consultants to drive specific projects, or even creating innovation outposts and a modest second-speed organization.

Where to start?

You need to be deliberate about your change strategy while driving digital disruption. Coming up with a digital disruption strategy is a fraction of the battle. Besides, a good start-up mindset pays long term dividends. The average growth rate for large companies is about 5%. The Big 5 tech giants – Apple, Google, Microsoft, Amazon and Facebook which have giant market capitalizations -  steadily deliver double digit growth. That’s the magic of a startup culture.

What do you think? Agree? Disagree?