MIT Sloan Management Review
Brian Eastwood
Apr 4, 2022
Many of today’s business challenges revolve around two core topics: navigating digital transformation and retaining talent.
The latest insights from MIT Sloan Management Review focus on looking past common misconceptions about digital initiatives, setting the right KPIs for digital transformation success, and changing corporate culture and business operations so employees are more likely to stay.
Rethink 4 common assumptions about digital transformation
Just as today’s business leaders should rethink common assumptions about the world of work and re-examine customer expectations, they may also need a new mindset about driving change.
MIT Sloan senior lecturer George Westerman identifies four managerial assumptions about digital transformation that prevent enterprises from reaching their true potential.
- It’s a technical challenge
- It needs a separate group independent from IT
- Regulators or unions will say “No.”
- We must be first — or we must wait and watch.
It’s a technical challenge. This emphasizes digital but not transformation — the more difficult (and more important) element to address. Leaders must prepare to drive organizational change, which they can accomplish by regarding change not as a series of one-off projects but as a capacity for continuous transformation.
It needs a separate group independent from IT. This suggests that IT won’t be able to keep up with the pace of change that the digital group will demand. Instead, leaders should identify potential sources of friction between the two business units and remove the tension to encourage collaboration.
Regulators or unions will say “No.” The pandemic showed that regulators and unions are willing to explore transformation (especially in slow-moving markets such as health care and education) when the alternative is going out of business. To avoid surprises, enterprises should proactively communicate with these entities rather than spring changes on then.
We must be first — or we must wait and watch. This assumes that enterprises must move immediately or not at all. The experience of e-commerce giants shows the value of moving at your own pace: Amazon succeeded as an early mover, but Walmart succeeded while taking its time. Meanwhile, GE invested too much too soon.
Read: The questions leaders should ask in the new era of digital transformation
4 steps to define the right KPIs for digital transformation
Digital transformation should emphasize the business value that’s created, not the new technology that’s put into place.
Many enterprises struggle to measure this value because they treat key performance indicators as reporting mechanisms instead of drivers of strategic decision making.
Digital transformation should emphasize the business value that’s created, not the new technology that’s put into place. Many enterprises struggle to measure this value …
To address this shortcoming, Michael Schrage, a visiting fellow at the MIT Initiative on the Digital Economy, and his coauthors from Deloitte outline a four-part process to define strategic KPIs to lead digital initiatives.
- Create a strategic portfolio of KPIs
- Commit to using data as a digital asset
- Orchestrate data flows to make KPIs more visible
- Commit to continuous KPI improvements.
Create a strategic portfolio of KPIs. Transformational KPIs represent where leadership expects the enterprise to go. As these kinds of strategic objectives can be broad, leadership teams will have to drill down to the specific actions that enable a goal, along with the right metrics for measuring each action.
Commit to using data as a digital asset. Most digital transformation falls short due to incomplete or inadequate enterprise data sets. Leaders should push product and process owners to answer two questions: What data sets are most valuable — and what would make them even more valuable?
Orchestrate data flows to make KPIs more visible. Calculating a single performance metric defining a KPI (such as Net Promoter Score or time-to-order fulfillment) requires access to several datasets, some of them external. Enterprises need new data governance policies that align with how data must flow through the organization to inform metrics tied to strategic objectives.
Commit to continuous KPI improvements. Digital transformation is a means to an end, not the end itself. To continue driving value creation, KPIs need to continuously evolve. This works best when additional data sources, coupled with advanced analytics, can enhance existing KPIs or influence the definition of new KPIs.
Understanding the non-monetary benefits of AI
In the past, enterprises struggled to generate value from investments in artificial intelligence. That trend seems to be shifting.
One survey found that
- 92% of firms are now achieving ROI from data and AI investments, with
- 26% saying they have AI in widespread production.
Another survey found that
- 56% of companies use AI in at least one business function,
- with more companies attributing a greater share of their earnings to AI as well.
In the past, enterprises struggled to generate value from investments in artificial intelligence. That trend seems to be shifting.
However, success depends in large part on AI and machine learning models transitioning from research to production.
That isn’t happening as quickly, as a third survey suggests that half of AI models aren’t yet deployed in production environments.
For organizations where this is an obstacle, it may help to point to some of the non-monetary benefits to AI, suggest Thomas Davenport, a visiting scholar at the MIT Initiative on the Digital Economy, and Randy Bean, CEO of NewVantage Partners.
However, success depends in large part on AI and machine learning models transitioning from research to production. … half of AI models aren’t yet deployed in production environments.
According to a survey from Boston Consulting Group and MIT Sloan Management Review, AI enhances corporate culture in three ways:
- improved efficiency and decision making,
- better collaboration within teams, and
- an increased perception that AI offers a competitive advantage.
This positive impact can easily translate into economic value — for example, by identifying opportunities to capture market share in adjacent industries.
The key is to position AI as a strategic lever for the organization, not just as a tool for process improvement or cost-cutting.
… AI enhances corporate culture in three ways: (1) improved efficiency and decision making, (2) better collaboration within teams, and (3) an increased perception that AI offers a competitive advantage.
The 4 principles of creating better jobs in a tight market for talent
Prior to the pandemic, more than 46 million employees in industries such as retail, hospitality, health care, and education earned less than $15 an hour.
In addition to low pay, these workers today tend to face unpredictable schedules, fragile job security, unsafe working conditions, and limited opportunities for advancement.
This combination of low wages and career instability leaves workers stressed and unable to perform their best on the job.
This also adversely impacts managers, who spend so much time addressing day-to-day issues that they cannot focus on hiring the right people or improving operations.
Many executives are unaware of this reality but don’t do anything about it.
To get out of this “vicious cycle” and avoid the worst of the Great Resignation, MIT Sloan professor of the practice Zeynep Ton encourages companies to embrace the Good Jobs System.
This consists of four core principles for investing in employees, reducing turnover, and increasing sales.
- Simplification
- Empowerment.
- Cross-training
- Slack
- Simplification. Companies that have a clear understanding of what they do and do not offer customers can use that focus to simplify their operations and improve productivity.
- Empowerment. Creating standard business processes and management practices can empower employees to quickly take action in a given scenario.
- Cross-training. Employees trained to complete multiple tasks can better respond to customer needs or apply their skills in different areas of the business.
- Slack. Staffing labor units with more that the bare minimum of personnel not only reduces employee stress but improves the customer experience.
4 interim steps to boost employee retention while fixing toxic culture
More than half of American workers are planning to look for a new job, according to an analysis from Qualtrics; the figure is even higher for department managers (62%) and managers of multiple departments (72%).
Attrition is hitting both blue-collar industries (retail and fast food) and white-collar roles (management consulting and enterprise software).
Much discussion about the Great Resignation focuses on dissatisfaction with wages, but an analysis of 34 million employee profiles and 1.4 million Glassdoor reviews found that toxic corporate culture is by far the biggest predictor of employee attrition.
The biggest contributors to toxic culture include lack of diversity, disrespect, and unethical behavior.
From this analysis, MIT Sloan senior lecturer Donald Sull, with co-authors Charles Sull and Ben Zweig, propose four short-term steps to increase retention.
- Provide opportunities for lateral job moves that offer new challenges without the additional responsibilities (and stress) of a promotion.
- Support remote work — especially if competitors already have policies in place.
- Hold corporate social events to strengthen personal connections among team members.
- Create more predictable schedules for front-line employees, as this reduces stress and improves work-life balance.
The authors note that a broader examination of what’s causing employees to disengage and leave — and what’s contributing to a toxic culture — will be necessary to improve employee retention in the long run.
Structure of the publication
- Introduction
- Rethink 4 common assumptions about digital transformation
- 4 steps to define the right KPIs for digital transformation
- Understanding the non-monetary benefits of AI
- The 4 principles of creating better jobs in a tight market for talent
- 4 interim steps to boost employee retention while fixing toxic culture
About the author
Brian Eastwood (he/him)
Writer, Editor, Researcher, and Speaker — Healthcare, Enterprise Tech, and Higher Ed
Zach Church
Editorial & Digital Media Director
Originally published at https://mitsloan.mit.edu on April 28, 2022.
