AWS Cloud Enterprise Strategy Blog
Digital Transformation: The Why, Who, How, and What – Part 2, “The Who”
Although still challenging and important, technology is often the easier part of digital transformation. As it turns out, the people part is the most critical and is often overlooked and under-appreciated. In an earlier blog post—‘The Why’—we discussed the goal of digital transformation and several critical attributes successful digitally-transformed organizations have in common. Many of these attributes are related to people, organization, and culture. Digital transformation is not a technology; it is a new way of thinking and operating that disrupts an industry. You must reconsider traditional organizational structures, cultures, and approaches to talent for transformation to succeed.
What Got You Here Will Not Get You There
In his 2020 book “No Rules Rules: Netflix and the Culture of Reinvention”, Reed Hastings, CEO of Netflix, said, “The Industrial Revolution has powered most of the world’s successful economies for the past 300 years… management paradigms from high-volume, low-error manufacturing have come to dominate business organizational practices.” But there is plenty of evidence that previous best practices on organizational design and empowerment are now incompatible with today’s dynamic environment.
Earlier best practices were optimized for control, efficiency, and consistency rather than enabling the autonomy, innovation, and agility necessary to succeed in today’s digitally transformed businesses. They often relied on the “HiPPO” (highest paid person’s opinion) to manage corporate strategy and execution with tightly implemented command and control. The organization’s most important decisions were made at the top and pushed down with good intentions but with little feedback until the solution was finally delivered to the customer.
Traditional organizations ratify their decisions through multiple layers of management, hoping to increase certainty through planning, discussion, and oversight. In contrast, digital-transformation organizations flip the model, making and acting on decisions as close to customers as possible by empowering their employees and expecting them to take responsibility for the outcomes of their work. New lessons learned can be quickly incorporated into the next round of changes because of continuous feedback obtained through rapid experimentation.
Transformational Organization Framework
The ‘who’ in a successful digital transformation is not a single person or a particular type of employee who can lead you to success. Rather, it is a combination of broad organizational, cultural, and people changes focused on four key areas:
- An empowered organization model
- A broad learning culture
- A culture of innovation
- An inclusive and motivated workforce
Empowered Organization Model – Two-Pizza Teams
At Amazon, we believe the best way to organize for digital transformation is to create teams that can operate and innovate with speed, agility, and efficiency by reducing friction, handoffs, and other non-value-added work. These teams have several unique and important characteristics: First, they are as self-contained and autonomous as possible. Second, they have end-to-end responsibility (from idea through design, development, testing, release, and operation) for a specific, finite business function and are expected to take a long-term ownership view for their specific area, often referred to as a “product.” Third, they have the ownership and accountability for generating business value within their assigned area and are also empowered to determine how best to achieve that value. Fourth, they operate close to the customer (internal or external) to drive understanding and accountability. Fifth, teams are between eight and twelve people—small enough that you can feed them two pizzas or less.
These teams receive continuous feedback and act to quickly incorporate new ideas and innovations into the next round of changes. Their self-contained, autonomous nature allows them to operate in a faster, more agile way due to the limited need to communicate, align, and coordinate with other teams to deliver value.
This model is what works for us at Amazon. It is also what we see the highest-performing organizations adopting. But like many things, it is essential to consider this model through the lens of your organization, your culture, and goals to determine whether it is appropriate.
You should not try to change your whole organization upfront. Instead, start with teams that fit nicely into this model and that have clear business outcomes that can be described in one sentence. If you have skeptics, find willing participants to prove to them that this model works. Lastly, as you change your organizational structure into these product-based, two-pizza teams, start by segmenting your customers, then your product lines for those customers, then the products within those lines, and finally, the features for those products. It is possible for a two-pizza team to support more than one product, provided they can remain within the eight-to-twelve-person size. This works for both internal and external customers.
Build a Learning Culture
The skill gap is real, and we often tell people that, generally, you have the employees you need to take on your transformation, but you need to train them in a new way of working with new technologies. Broadly, the goal should be to teach everyone to fill the skill gap. The pace of change in the digital world is rapid, and it is not expected to slow down anytime soon. Employees must be able to operate cross functionally to succeed, and they need access to resources and platforms that will empower them to continue to grow their skills and learn new proficiencies, allowing them to remain relevant, up-to-date, and secure in their careers. Ensure you have a comprehensive learning strategy that values, rewards, and connects career progression to continual learning built upon access to training opportunities, hands-on learning, and certification.
We often encounter organizations that believe that instead of training their existing workforce, they need to hire experts who can lead them. These experts will indeed help, but they are scarce, and they typically lack the critical business, process, and customer knowledge to succeed. Be careful to become independent of partners and outsource what differentiates you from your competition. Bringing in partners to help establish capabilities, launch a quick proof of concept or supplement your teams is a solid approach, but do not rely on these partners to drive your digital transformation strategy or how it gets implemented. That needs to be managed and owned by your employees.
Build a Culture of Innovation
In addition to helping employees obtain new skills, the organization’s leadership team—starting from the top—must instill and maintain a culture of innovation. As mentioned in the blog post ‘The Why’, experimentation, and failure are keys to innovation. A leader’s job is to build a culture of innovation that minimizes the impact of failed experiments while empowering employees to conduct more experiments. At Amazon, we believe you do not add innovation to an organization; you enable it and get out of its way. Enabling innovation is done by establishing clear accountability and empowerment, well-defined principles that focus on what you as an organization value, and repeatable mechanisms that eliminate undifferentiated work and put the focus on the customer.
An Inclusive and Motivated Workforce – Help Your Employees Understand What Is in It for Them
We have all heard the famous quote “culture eats strategy for breakfast” from management consultant and writer Peter Drucker, which is true. In the end, culture is undefeated. You need to get your culture right to struggle to be able to handle your transformation. Most traditional companies have developed strong norms and cultural mores over time that have become the very identity of the organization. Leaders and employees closely identify with how things are done and will often resist, even unconsciously, any deviation from the norm.
Most employees in these traditional companies have become skilled at their jobs, mastering their current methods over many years. But now, with digital transformation, they are faced with the need to learn new technical, organizational, and behavioral skills that will challenge them in new and significant ways. Employees may consciously or unconsciously resist changes when they perceive that digital transformation could threaten their jobs.
It is critical for leaders to recognize those fears and to emphasize that the digital transformation process is an opportunity for employees to upgrade their expertise to suit the marketplace of the future. Be transparent with your employees and explain their role in this new digitally transformed organization and how you will support them with the training and time necessary to succeed.
You need to involve your employees early in the project. This will not only remove fear, uncertainty, and doubt (FUD) but also provide insights from the ground, allowing you to adapt your strategy to ensure success. Employees know what works and what does not and can advise the organization about potential improvements as part of the transformation. On the other hand, a strategy that is crafted with a top-down approach may not be able to meet the needs of the organization and can lead to failure and unnecessary churn.
Anti-Pattern: The Innovation Team
We often encounter organizations that plan to have an innovation team or an innovation laboratory to focus on new digital transformation activities. This model is suboptimal because the team or lab is often too far removed from either the problem being solved or having to support the product once released. This type of team can be an excellent place to start as you scale up and learn more about digital transformation, but we find this model to be less effective in the long term.
The 3rd blog in this series focuses on ‘The How’ and brings to light the process changes necessary to support Digital Transformation.