Three things are necessary for any digital transformation system implementation: hardware, software, and human hearts and minds.
Two fundamentally different types of systems comprise digital transformations: digital-automation systems and decision-enhancement systems. Digital-automation systems primarily replace the person doing the work with a digital process that handles the repetitive tasks (e.g., accounts payable automation). Decision-enhancement systems provide information that enhances the performance of the person doing the work (e.g., new account targeting systems).
The change management process for digital-automation systems is relatively straightforward: primarily training personnel to use the system. The change management process for decision-enhancement systems, on the other hand, couldn’t be more different because the sales reps (and others) must have confidence in the information, they have to choose to do things differently from what has worked for them in the past, and they need “muscle memory” to internalize the new ways of doing things.
The most important success factor for digital-automation systems is software. The most important success factor for digital-enhancement systems is human hearts and minds. This article explains how to successfully manage the latter.
An unlikely, but successful, system transformation
For example, consider one of the most unlikely decision-enhancement system transformations possible. ITC, an Indian soybean processor, reorganized its procurement supply chain by providing PCs to illiterate Indian rural farmers who had no electricity.
For generations, these soybean farmers were in a very difficult situation. They planted their crops with little information on best practices, and sold their harvest with no information on market prices and trends. At harvest times, they loaded their soybeans on carts and brought them to government-sponsored auction yards. Because of the length of the trip, they had no choice but to take the price offered. ITC, in turn, purchased the soybeans from the auction yards.
ITC developed a surprisingly innovative way to transform this massively inefficient system. At the end of each day, farmers throughout rural India gather on the porch of a village head to relax and chat with their neighbors. ITC focused their digital transformation efforts on this natural gathering point.
ITC painstakingly contracted with the village heads throughout the region to represent the company. As a core part of the process, they gave a battery-powered PC to each village head and trained him in its use. They provided simple internet links and a website that contained all the information that the farmers needed to improve their crop production and sale, including planting and fertilizing best practice, local weather reports, and market prices and trends throughout the region.
As the farmers gathered at the end of each day, this vital information was made available, either by reading posted sheets or by asking the village head for an explanation. As part of the process, ITC set up buying centers throughout the region. The website showed the prices at the auction yards and at the ITC buying centers. Farmers had the option to choose either. ITC provided all of this information and guidance free to the farmers.
Through this process, the farmers grew to trust ITC. Their crop production improved enormously, and they often, but not always, chose to sell directly to the ITC buying centers. This created a win-win for the farmers and ITC. ITC also sold ancillary products like fertilizer and lamp oil both through the village heads and at their buying centers. They paid the village heads a fee for their role in the system, as well as a commission on the ancillary products they sold. In a stroke of insight, ITC also created a role in the process for the key workers in the auction yards, paying them to set up the systems in villages, train the village heads and distribute the ancillary products.
In essence, this is a decision-enhancement system: it greatly helped the farmers become more proficient at farming and selling their soybeans. It was successful because ITC created a new way to provide real value to everyone involved—farmers, village heads and even auction-yard workers. This value drew everyone to participate—generating demand for the system, winning their hearts and minds, and developing “muscle memory” from using the system every day.
This most unlikely digital transformation was successful not because of its hardware or software, but because the decision-enhancement system created real new value that was rooted in the sociology of age-old village processes, and won the allegiance and active participation of everyone involved.
The decision-enhancement system that cemented a merger
In a very different context, NYNEX (a major telephone company that is one of the core components of what is now Verizon) created a very successful decision-enhancement system and process that it used to merge New England Telephone with New York Telephone in order to form and manage the company.
When NYNEX was spun off from AT&T as one of the “Baby Bells,” it faced a huge problem: it had to merge two formerly independent companies while deregulation opened the door for large, aggressive competitors from outside the industry. These new competitors targeted the company’s highest-profit areas, while NYNEX had an obligation to serve its whole region. The company traditionally cross-subsidized money-losing rural regions with the higher-earning urban and suburban metropolitan areas that the new competitors were targeting. This seemed like a no-win situation.
In response, NYNEX divided the new company into five divisions: New York City business district (midtown and downtown), the rest of New York City, Boston, the suburbs of New York and Boston, and the rural areas plus smaller cities (e.g., Albany and Springfield). Top management appointed a group vice president to run each division, and each division had a full staff. (The company chose to organize geographically because its assets were aligned with its geography, the divisions’ businesses were very different from one another, and competitors were targeting the company on a geographic basis.)
To address this difficult situation, NYNEX’s top management developed a monthly training/planning program centered on a decision-enhancement system that enabled managers to analyze and maximize the profitability of each division. Each division’s officers and staff met separately for a day each month. Over a six-month period, they divided their division into a set of about a dozen “building blocks,” which could be a particular set of suburban towns, a set of rural counties or a metropolitan business district.
Month-by-month, each division constructed an income statement for each division, projected likely competitive incursions and determined potential market development initiatives in response. They modeled each projection on each building block’s financials to see the profit and ROI impact. Toward the end of the process, working with this decision-enhancement system, each division looked across its building blocks, prioritized its initiatives and gauged the necessary resources. The company’s top managers compiled these projections, compared them to the company’s overall needs and, together with the division managers, set the company’s plans and budgets.
At the end of the process, managers across the company had a deep understanding of this detailed planning process, the commitment to continue it and the muscle memory to excel. Several managers commented that when they read the newspaper in the morning and saw a competitor’s initiative or a market change, they all immediately understood the likely financial consequences and the best way to respond—as if they were reading each other’s mind.
At the heart of NYNEX’s planning process was the financial modeling system, which in essence was a decision-enhancement system. By embedding it in a comprehensive planning process, the company’s top managers achieved their two critical goals: to develop an effective, grounded set of plans for responding to deregulation, and to tightly integrate the two merged companies (by winning the hearts and minds of the managers throughout the company).
An effective sales reorganization
LoJack, the stolen car recovery company, also successfully developed and implemented a powerful decision-enhancement system that identified the actual, all-in profitability of each of its customers, services and regions.
The company discovered that most of its high-profit customers were in dealer clusters (e.g., the “Automile” in the Boston area). Their sales reps, however, were prioritizing customers based on their purchase volume regardless of location and potential.
LoJack’s top managers realized that the reps’ revenue-based prioritization was flawed because it failed to take the installers’ travel time and the account’s potential into consideration. It became clear that the reps should focus on the dealer clusters, and that most clusters had underpenetrated, high-potential dealers that were not doing business with LoJack. This strategy provided high leverage because it focused the reps on specific high-potential target accounts, and it greatly reduced the company’s installation costs.
At the heart of this reorganization process was the company’s account-targeting decision-enhancement system. The company developed a very effective four-step training program.
First, the top managers required each regional manager to use the profit information to identify five large, underpenetrated dealers in the manager’s region, and to personally engage and penetrate these prospects.
Second, the regional managers trained their local sales managers in the process, and required each local manager to personally identify, engage and penetrate five prospects. This was important because it ensured that each local manager was proficient enough to train reps.
Third, each local sales manager trained his/her top producing reps in the process, and required each rep to identify, engage and develop five high-potential prospects. These top reps were given promotional funds and quota relief, plus a bonus for each account that reached a penetration threshold.
Fourth, the local managers trained each field rep in the process, and required each rep to penetrate five high-potential, underpenetrated prospects. Again, they gave each rep promotional funds and quota relief, plus a bonus for each account that reached a penetration threshold. A very important key to success was that all the reps could see the top reps’ demonstrated ability to use the new system and process to make more money. This generated tremendous demand for the new system.
This system and the related process were extremely successful. LoJack’s stock price more than doubled. In fact, it was so effective that many reps asked for more penetration prospects. Wisely, the sales managers told them that only when they fully penetrated one prospect, could they pursue another.
This process had three critical success factors: (1) the company used its decision-enhancement system to identify and target its high-profit prospects, (2) the system roll-out process enabled the local managers and top reps to demonstrate the system’s effectiveness, generating demand for the new system and winning the hearts and minds of the local reps, and (3) giving each sales rep quota relief and targeted bonuses, and limiting each rep to five high-potential penetration accounts at a time ensured that each rep would develop the skills and muscle memory required for long-term success.
Frame your digital transformation for success
The success of all three companies in implementing their respective decision-enhancement systems demonstrates the critical importance of embedding the system implementation in a process that generates demand for the new system, wins the hearts and minds of everyone involved, and enables them to develop the muscle memory needed to be successful over time.
As companies roll-out their digital transformations, one of the most critical success factors is to recognize that decision-enhancement systems are fundamentally different from the more common digital-automation systems—and that the key to success in implementing a decision-enhancement system is not the hardware or software, but rather, generating demand for the new system, winning the hearts and minds, and developing the muscle memory of those involved.
Effective managers understand the fundamental difference between their digital-automation systems and their decision-enhancement systems, and frame their digital transformation implementation process to manage each for success.