Organizational Network Analysis: The Missing Piece of Digital Transformation

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Since 2000, more than half of Fortune 500 companies have “gone bankrupt, been acquired, or ceased to exist as a result of digital disruption”, according to Harvard Business Review. In the same article, it is estimated that three-quarters of today’s S&P 500 will be replaced in 10 years-time, largely as a result of digital disruption. And no industry will be an exception.

Sounds scary.

On the bright side, rewards from successful digital transformation are plentiful. For example, one study showed that the companies who have successfully digitally transformed themselves achieve a 16 percentage points higher margin than their industry average.

So we have both “the stick” and “the carrot” to make our companies digital. But the degree to which digitization drives sectors and firms, according to the McKinsey Global Institute’s Industry Digitization Index, shows us that only very few companies actually went far with their digital transformations. For example, the United States operates on only 18 percent of its digital potential, and Europe on an even lower level of 12 percent.

So, why aren’t there many more organizations making greater digital progress?

Before we dig any deeper, it is important to define what digital transformation actually is. My personal favorite comes from Brian Solis, the LinkedIn influencer who’s famous for his 6 stages of digital transformation. Solis defines digital transformation as “the realignment of, or new investment in, technology, business models, and processes to drive new value for customers and employees and more effectively compete in an ever-changing digital economy.”

Although robust, this definition covers all the ingredients: new technology, new business models and processes, and new values for customers and employees. All with the purpose to make organizations excel in a constantly changing digital economy.

How Hard Is Digital Transformation?

Deloitte’s Global Human Capital Trends 2016 found that 92% of senior executives and HR leaders believe their companies are not well organized. Yet, only 14% believe their companies are ready to reorganize effectively. They just might be right, since business transformations have only a 30% chance to succeed. That percentage is known for more than 20 years, and today, according to Forbes, the odds are shrinking even further.

But that’s not the worst part.

The worst part is that the much-desired digital transformation has the smallest chance to succeed. Instead of the already daunting 30% success rate for business transformation overall, digital transformation, again according to Forbes, has only a 16% chance to succeed. With so many resources pouring into it (over $1.1 trillion estimated just for this year), and with digital transformation being a top priority for so many companies, every CEO should ponder: is it acceptable for me to have only a 16% chance to succeed?

The answer obviously is “No!”.

But what should they do to increase these absurd odds?

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An interesting study comes from two professors from Harvard Business School, Marco Iansiti and Karim Lakhani, who joined forces with digital transformation expert Robert Bock. In their research on 344 companies coming from various industries such as manufacturing, consumer packaged goods, financial services, and retail, they found significant differences between the top 25% and the bottom 25% of digitally transformed companies.

The differences were clear in all four pillars of digital operations they observed: (1) Customer Interaction and Relationship Management, (2) Manufacturing, Product, and Service Delivery, (3) Product Creation and Delivery, and the (4) Human Capital Management and Employee Productivity.

Having those four pillars transformed, the top 25% companies got much better gross margins, earnings, and net income, than the bottom 25% companies. And the difference in their technology budgets? There wasn’t any. But something was stopping all the other companies from producing this kind of results.

The Biggest Obstacle

Biggest obstacle to digital transformation

On LinkedIn, every single minute a post is written on digital transformation. But is this vast network of practitioners and academics of all kinds close to the solution on how to best address this pressing issue?

It seems not.

You’ll usually see some great partial solutions. Proposals that are based on different views of how to approach digital transformation, from needed skills to AI. For example, Gartner provides a great skills driven approach, which focuses on how a CIO can foster the development of digital dexterity in his/hers company. The approach to building-up skills is detailed. Yet I think it might be questionable whether it will really transform the employees’ mindset, or just make them “tick the boxes”, as they follow the steps.

As for the AI, the most promising software to accelerate digital transformation came to light just last month. Laszlo Bock, former CHRO of Google, presented his company Humu’s flagship product – the nudge engine. This software seems to be the closest way humans can get to AI’s abilities in terms of reacting on time with appropriate behavior, because the nudge engine reminds all employees to act in a desirable/prescribed way in real-time (e.g. to thank a co-worker for doing a good job, or ask a quieter team member about his/her opinion during a meeting).

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But this method, like any other, will encounter its challenges if it “pushes” employees into behaviors that they aren’t fond of, or are actually against. Sure, the employees might do what nudge engine suggests to please their managers, but on a deeper level, if their beliefs and values don’t change, real transformation won’t happen. Tomayto – tomahto? Some employees will bypass what they don’t believe in whenever they can because they are humans and “no AI is going to tell them how to behave.”

Aware of possible obstacles of any kind of digital transformation approach, Marcus Blosch, Gartner’s research vice president, warns about 6 barriers to become a digital business. He lists various factors, pointing out as the first barrier the same thing all the other authors highlight when they comprehensively investigate this topic. There are different names for it (mostly organizational culture), but with all fingers pointing in the same direction, the biggest obstacle seems to really be – the human aspect.

Although other barriers must not be disregarded, the famous quote attributed to Peter Drucker: “The culture eats strategy for breakfast” rings true. How people perceive change is decisive since they are the ones who have to work in a new way. So, making Drucker’s claim more actionable, we could say the main reason companies fail at digital transformation is because they don’t get the buy-in from most of their employees.

But how do you get people to buy digital transformation?

Find and Motivate the Influencers

Influencers are necessary for digital transformation

As we all know from personal experience, some people are more influential than others. The good thing about this is – as was proven a couple of decades ago already – that you can actually measure someone’s influential reach in an organization. The method used for this is called Organizational Network Analysis (ONA).

This scientific methodology has been rigorously tested in the business environment by many researchers and practitioners for more than a quarter of a century. One of them, Michael J. Arena, General Motors’ Chief Talent Officer, played a critical role in transforming GM. Based on this and other experiences, he published a book this summer about how GM and other companies are transforming themselves from traditional to agile organizations using ONA. The book is based on more than a decade-long research that included dozens of major companies. The companies ranged all the way from automotive, aerospace, health-care, and high-tech firms to consumer goods and financial services companies.

ONA can be used in different ways. While Michael J. Arena mostly uses it for creating so-called adaptive space, there are other ways to apply it. For example, while some companies just appoint their change agents, with all the challenges that come with that (e.g not knowing their actual reach, not being transparent, even causing bad blood, etc.), other companies identify them transparently in a scientifically and business proved way.

And that makes all the difference.

For example, Maven7, an ONA company co-founded by one of the world’s greatest network scientists, Albert-Laszlo Barabasi, has been helping companies to successfully transform their businesses using Organizational Network Analysis. Among other discoveries, they found out that, on average, with just 4% of influencers identified by ONA you can effectively reach about 70% of employees. And as Harvard Business Review emphasizes, more than 50% of influencers are typically unknown to the management. This gives you the scope of how much you miss by appointing change agents without using ONA. The real magic happens when you add influencers to the number of employees they reach. Including them, management can have three-quarters of employees on their side. Sometimes even more. That’s enough to seriously accelerate digital transformation.

Organizational Network Analysis enables management to see, plan and harness the power of the company’s informal networks, making teams closer than they ever were. Bersin by Deloitte also focuses on ONA as the tool to help make the Network of Teams, which is the main management leverage for the most advanced companies today. With Network of Teams champions being companies like Google, Facebook and Amazon, using Organizational Network Analysis seems to be the natural path to follow to create a digitally mature culture.

The evolution of management thinking

Also, Josh Bersin envisions the earlier mentioned nudge engine as a great tool to combine with ONA. Although being thrilled with its huge potential, he points out that the nudge engine will prove its worth over time, while Organizational Network Analysis has firm business foundations already.

ONA – The Human Slide for Transformation

The human slide of digital transformation

People, generally speaking, don’t like change. Especially in an organizational setting. They worry about their salaries, their formal or informal status, job security, being able to cope with the change etc. So they are more likely to be defensive than cheerful when they hear the term “digital transformation”.

They have to be convinced that it’s good for them. And who can better convince them than the colleagues they already trust? That’s where Organizational Network Analysis jumps in. ONA tells you who are the most trusted employees in your organization who can reach three-quarters of your employees, themselves included.

There are different ways to do ONA, from short surveys to tracking the technological aspect of communication in the company (e-mails, e-calendars, phone records etc.). If you do this right, you’ll get a motivated group of employees eager to work with you, who can positively influence most of the other employees to accept digital transformation.

Gather them, lay out your strategy to them and listen carefully to their feedback. Many of them will come from the front lines of your business and know exactly where challenges may arise for them, for other employees and for customers. The great thing about influencers is that you can use their feedback at any point of digital transformation.

Therefore, I believe Organizational Network Analysis is the missing piece of the digital transformation puzzle. It helps you move the barriers Gartner mentions, from employee resistance through increased inter-departmental collaboration, to closing the talent gap, all of which accelerate the change.

ONA Slide Model

If we envision digital transformation as a steep downhill walk (which is a good metaphor given the risks!), ONA could serve you as the slide, accelerating your progress in a controlled way. Allowing your influencers to help set up a strategy would be like setting up at the top of the slide. They could see some details you missed, and clear your path by motivating other employees to move obstacles ahead of you.

By doing so, they’ll make you go faster and not run into something (e.g. employee resistance). If at some point you run into some challenges and slow down, they’ll help you align the strategy, and accelerate again. And if you already fell, they’ll suggest the next steps to get up and going again.

Working alongside other employees, these opinion makers will amplify your messages. They are credible and they will reach the hearts and minds of other employees in a way you never could. That’s what they do naturally every day. They’ll extend your reach and help steer the conversion process on the field, giving you real-time feedback you can act upon. They are the best help you could ever have. And those “consultants“ are right there – in your company – waiting for you to consult with them.

The Conclusion

Bock, Iansiti and Larkhani concluded their paper on digital transformation with a sentence: „To do this well, leading companies invest not only in technology but also in developing (…) network-centric capabilities and mindset to put that technology to the best use.“

Those top 25% companies we mentioned may or may not be using Organizational Network Analysis. But ONA surely helps to empower employees, connect them and help build network-centric capabilities and mindset. The Harvard Business Review article from the beginning of this text concludes that digitally transformed companies “are companies that have embraced transformation as a way of life (…).”

It’s important to keep this in mind because like any other growth, digital transformation is a path, not a destination. And only if the majority of your employees accept digital transformation as a way of life, your digital transformation will succeed.

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