The announcement by Amazon that it would budget for $700 million to train its staff on digital capabilities is hugely significant. For a company that has arguably some of the best technical capabilities in the world to want to further upgrade its talent would seem puzzling at first blush.
However, it isn’t alone in making this decision. Canadian retailer Loblaws recently announced that it would spend $250 million on digital literacy, which is the term used to describe fluency in digital skills. A few years ago, AT&T made the commitment to spend $1 billion to retrain 100,000 employees on digital capabilities.
These moves, along with a growing trend to “acqui-hire” (i.e., acquire new companies just for their digital technology talent) are indicative of a new reality that boards and CEOs cannot afford to ignore -- that the real competitive advantage in the digital era doesn’t come just from technology but from digital skills. And, that for sustainable competitive advantage, you also need ongoing digital capability building.
The World Economic Forum has declared that we’re in the midst of the Fourth Industrial Revolution, where digital capabilities are disrupting the physical, biological and social worlds. No industry is immune, and the pace of change continues to accelerate.
The retail industry is an example. 2018 was termed the year of retail bankruptcies and supposed to be tough, but in the first half of 2019, there had already been more bankruptcies than all of 2018. Understandably, there’s been a rush to invest in digital technologies. This ranges from creating new digital business models (e.g. selling online vs. just physical stores), new smart products (e.g. making “smart” products ranging from cars to doorbells smarter), to dramatically improved internal business operations (e.g. fast-fashion retailers like Zara go from design of clothes to in-store selling in only two weeks).
What’s often missed is that real digital transformation, which is the creation of the afore-mentioned new digital business models, smart products or disruptive internal business operations, is 90% about organization change and only 10% about new technologies. That’s why forward-thinking companies like Amazon, AT&T and Loblaws invest big in digital capability building.
Here’s what leaders can do to help their organizations take off and stay ahead in the new digital skills race.
1. Reinvent your IT organization
Over the past four decades, as companies grew and used productivity as a strategy to maintain an edge over competition, their most effective tool became information technology. Their respective IT organizations drove standardization, scale and automation of processes relentlessly.
That worked brilliantly in the past, but the problem is the Fourth Industrial Revolution isn’t about doing things more productively, it’s about completely new digital business models and disruptive products and operations. Being good engineers isn’t enough for complete imagination of business.
More importantly, the gate-keeping and central-control role needed for standardization suddenly becomes a bottleneck in an era where every employee in the company must creatively reinvent their role. The IT organization needs to be re-chartered at best and rebuilt at worst to meet the new needs.
2. Drive digital literacy as a core strategy
Projections of 40-50% of jobs in the manufacturing or transportation industry being potentially done by robots in the next 15 years are accurate, but they don’t consider that most new employment opportunities at the time will be in job categories that don’t exist today. After all, jobs like ethical hacker or data scientist didn’t exist until recently.
In the workforce of the future, the warehouse operator will likely not just direct operations, but also manage algorithms that run the robots. The accountant and call center agent will be freed of the drudgery of data entry and physical paperwork by robots, and take over the higher-order decision-making that the robots cannot do.
The upshot is that working with technology is becoming commonplace in every function in the enterprise. The distinction between technology “developers” and “users” is becoming increasingly blurred. Technology such as “low-code” and “no-code” software development allows employee profiles that may have been thought of as “users” of systems to also be “developers” of software.
The challenge for leaders is how to transition from a legacy workforce with understandably basic digital literacy to one that’s dramatically proficient. The first step is to realize that developing digital literacy isn’t a responsibility that only the IT function bears. This is now a corporate leadership and HR challenge on behalf of the whole company. Every organization needs a digital literacy plan.
3. Address digital literacy gaps at the board and company leadership levels
As technology evolves beyond being just the domain of the IT function, it raises the question of the top leadership being capable enough to set digitally enabled strategy. Much technology spending already comes from budgets outside of IT.
Delegating the entire work of creating new disruptive business models to the CIO will never be as good as turning every executive in your organization into a passable digital leader. Every business function leader and every business unit leader needs to make and own the choices about how they will digitize their part of the enterprise.
Unfortunately, the lack of digital literacy becomes even more pronounced the higher you go up the chain. Ultimately, the board of directors must be accountable for understanding digital trends and guiding the company appropriately.
The largest companies in the world have great presence of what is starting to be known as “digital directors” including previous CEOs of Microsoft, Intel, Xerox and IBM. However, this isn’t the norm. The consulting firm McKinsey & Company estimates that less than 20% of corporate boards have the digital literacy required for today’s world and that less than 5% of the companies in North America have a technology committee. Many boards are therefore thoroughly underprepared.
Nominating committees for boards must react quickly. In addition, board members need to get up to speed rapidly. As with the need for digital literacy at the leadership level, the board needs to understand the possibilities of digital technologies. Board members must spend a larger percentage of their time on digital strategy beyond the defensive cybersecurity agendas. This level of digital sponsorship is not just appropriate; it is the distinguishing factor between companies that will thrive in the Fourth Industrial Revolution and those that will get left behind
As we face up to the digital technology-driven Fourth Industrial Revolution, it’s critical to understand that far more important than the choices of what technology to invest in (e.g. artificial intelligence or blockchain) are the choices on how to reinvent the IT department and to drive digital literacy in the organization and up the chain to the board level.
If there’s one thing the previous three industrial revolutions have taught us, it is this: The winners in an industrial revolution are the ones who are most open to change and who are most diligent about making the new technologies work or them. That’s not a technology challenge, it’s an organizational development one.
Tony Saldanha is CEO of Transformant, a consulting firm that provides advice to boards and CEOs in Fortune 500 companies on digital transformation, especially on internal business operations. During a 27-year career at Procter & Gamble, he ran IT and global business services in every region of the world, helping create a multibillion dollar best-in-class operation. He is the author of "Why Digital Transformations Fail" (Berrett-Koehler).