Enabling Digital Transformation: Three Requirements for the IoT Pioneers of Tomorrow

I just wrote a blog for Maciej Kranz (author of the book: Building the Internet of Things); here 

Guest post by Nicolas Windpassinger, Global Vice President of Schneider Electric’s EcoXpert? Partner Program.

Wouldn’t you want a crystal ball to see what the Internet of Things (IoT) will become and enable? In a complex world and despite all the data and analytics we have, predicting which services and products will conquer the hearts and minds of the customer is more complex than it seems. As the saying goes, “the future is rational only in hindsight.”

Companies such as Kodak and Polaroid have paid the cost of not recognizing opportunities and missing the changing demands of customers in a digital era. Their decisions may have seemed rational at the time, but the future proved them wrong.

So, how do you know what the customer will want and what will prove to work at scale amid uncertainty and accelerating change?

I believe the companies that pioneer the next phase of digital transformation will have three core characteristics, in addition to the technological and executional skills you would expect. They will need visionary leadership, the ability to evaluate vulnerabilities and take calculated risks, and they will need to pay special attention to middle management, which can make or break transformational change.

1. The Importance of Leadership

Senior leadership sponsorship and oversight are needed to digitally transform a customer experience and an existing portfolio. Leadership needs vision and the ability to make the organization digitally savvy.

A company’s leaders need to create the conditions for the hyper-awareness and innovation capabilities that are required in digital transformation. These visionary leaders can shape an environment where middle management is involved, the voice of the customer is heard, and early warning signs are not ignored.

As a leader, you can’t do everything. There is often someone who will understand the reasons and necessary steps to transform, innovate, and challenge the status quo before others do. Yet those who recognize the need for change often face marginalization and skepticism. A visionary leader will listen to those outlying voices—what I like to call the “digital mine canaries,” who provide an early warning when a company’s strategy or execution are going amiss. Which brings me to the second point.

2. The Importance of the Digital Coal Mine Canary

I introduced the term “digital coal mine canary” in my book, The Internet of Things: Digitize or Die, to explain that to be mature enough to embrace digital transformation, an organization must be willing to be challenged by its own members, and ready to listen to them.

That is precisely why Polaroid missed the boat; they were not digitally mature. Carl Yankoswki joined Polaroid in 1988 as vice president in charge of business imaging, U.S. consumers, and industrial marketing. He quickly identified realized that Polaroid needed to acquire electronic imaging technologies to transform. Unfortunately, two consecutive CEOs would not make room in their strategy for digital technology. A few years later one of them explained, “We knew we needed to change the fan belt, but we couldn’t stop the engine. And the reason we couldn’t stop the engine was that instant film was the core of the financial model of this company.”

In contrast, rival instant-film maker Fujifilm weathered the same digital disruption by making a clear strategic choice to cannibalize their own market in order to enable the transformation to happen and build a longer-term success.

Such an environment unleashes the opportunity to get early warning detection systems for your business, much like a canary in a coal mine. So, keep in mind that the canaries are not the problem. They offer an opportunity to evaluate vulnerabilities in changing market environments and take strategic risks. As a leader, you need to leverage these early warnings to create value for your customers, your channels, your company, your employees, and your shareholders.

3. The Importance of Middle Management

The Polaroid case clearly shows that even though they had performed thorough market research and could have acquired the technology, executive leadership did not realize the importance of middle management in digital transformation.

Middle management can play an important role in either stifling or accelerating digital transformation. Recent studies seem to show that when dealing with transformation and change in a social organization such as a company, people in the middle will have a tendency to follow the rules at the cost of creativity and innovation. It is the task of executive leadership to set a vision, give a sense to the vision, and create an environment in which employees can challenge the status quo.

Let’s have a look at another well-known company that underestimated the importance of middle management and because of that, nearly vanished: Nokia. This resilient giant has survived many major transformations since 1865, eventually becoming a leading manufacturer in mobile technologies, producing over 100,000,000 mobile phones in 1998. So, what happened?

In 2014, Quy Nguyen Huy, INSEAD Associate Professor of Strategy, and Timo Vuori, Assistant Professor of Strategic Management at Aalto University, interviewed Olli-Pekka Kallasvuo, former CEO of Nokia, on this subject. Their expert opinions were clear: “The problem of Nokia, after all, seems frustratingly similar to those of many large companies such as Microsoft or Sony who could not develop high-quality innovative products fast enough to match their rising competitors. As the companies grew larger and richer, each department became its own kingdom, each executive a little emperor and people were more concerned about their status and internal promotion than cooperating actively with other departments to produce innovative products rapidly… the overriding emotion felt by top managers and middle managers within the organization was one of fear. And yet, it wasn’t necessarily a fear of being fired which pervaded; it was more about fear of losing social status in the organization.”

Middle managers can be very valuable contributors to the execution and the realization of a digital transformation within the company. When they understand the goals and outcomes, as well as risks and threats, middle managers will be better able to embrace IoT to transform the customer experience and create customer and financial value.

Pioneering the next stage of digital transformation is a team sport. You need visionary leaders, digital mine canaries, empowered middle management, hyper-awareness regarding change and finally, ecosystems of innovation expertise in the extended enterprise.