(2023-01-17) Denning In Digital Transformation The Hardest Part Is Discarding The Past

Steve Denning: In Digital Transformation, The Hardest Part Is Discarding The Past. The core problem for digital transformation is that it conflicts with the driving principle of big business for the last 50 years: the idea that the purpose of a firm is to maximize short-term shareholder value, and must be supported by generous stock compensation for executives to lock in that purpose (MSV).

Everything in industrial-age management flows from MSV. Because it is a principle that the staff doesn’t naturally support or consider worthwhile, tight top-down command and control becomes essential, along with bureaucracy, hierarchy, individuals reporting to bosses, strategy to protect the existing business, innovation to improve current products, HR as an instrument of control, budgeting as a battle for resources among the silos, measurement focused on efficiency and outputs, accounting principles that focus on short term profits, and so on.

Peter Drucker took a different view in 1954 and 1973, insisting that "there is only one valid purpose of a firm: to create a customer." (Drucker on The Purpose and Objectives of a Business)

Firms started to work backwards from the customer, and then see what needed to change. The list of main changes is long, as shown below in Figure 1. In this world, seemingly durable management truths could come unstuck. The core management principle of “getting it right the first time” became impracticable in a world of fickle and unpredictable customers

The shift to a customer-driven mindset, from “What’s in it for me” to “What’s in it for them,” becomes fundamental

The Steve Jobs case is indicative. When he took over Apple in 1997, he did not build on the past.

• He dismissed the entire cadre of some four thousand middle managers.
• He got rid of the entire R-and-D department

At Microsoft, CEO Satya Nadella was more selective, as there was more to build on.... he changed the goal of the firm.

• He changed the areas that Microsoft would compete in.
• He got rid of core businesses that had no future.