Kirill Eremenko: This is episode number 381, with Digital Transformation Expert, Tony Saldanha.
Kirill Eremenko: Welcome to the SuperDataScience podcast. My name is Kirill Eremenko, Data Science Coach and Lifestyle Entrepreneur. And each week we bring you inspiring people and ideas to help you build your successful career in data science. Thanks for being here today, and now let’s make the complex simple.
Kirill Eremenko: Welcome back to the SuperDataScience podcast everybody. Super pumped to have you back here on the show. Today’s episode is epic. I just got off the Zoom call with Tony Saldanha and we spoke about digital transformation. I got to tell you, I learned so much. Regardless of your level, regardless of your intentions, or career aspirations in the data science field, this podcast’s going to be super valuable for you to understand digital transformation, but especially if you’re a CEO, CIO, or if you’re on a board of directors of a company that is about to undergo digital transformation, or you are undergoing digital transformation right now.
Kirill Eremenko: In this podcast, you will find out what the Fourth Industrial Revolution is and what the previous three have been, the definition of digital transformation, what COVID-19 is doing to the world right now in terms of digital transformation, three areas of a company or a nation state that are involved in digital transformation, two main reasons why 70% of digital transformations fail, change management, the difference between disruption and digital transformation, and the one top tip for the executives and the CIO’s and board of director members, in order to help you get through a digital transformation.
Kirill Eremenko: I personally loved this podcast. This conversation was fantastic, I learned a lot, and I can’t wait for you to also experience the insights that Tony was sharing today. So without further ado, I bring to you, digital transformation expert, Tony Saldanha.
Kirill Eremenko: Welcome back to the SuperDataScience podcast everybody, super pumped to have you back here on the show. And today, we’ve got Tony Saldanha calling in from Cincinnati. Tony, how are you going today?
Tony Saldanha: Very well. Great to be on this show, Kirill.
Kirill Eremenko: Fantastic. Very, very good to have you too, and I appreciate the time, I know you’re a busy man. And first of all, congratulations on your book, that’s exciting. Number one on Amazon in new releases in several categories, as I understand, in the Amazon’s Hot New Release category for Organizational Change, Why Digital Transformations Fail. How do you feel?
Tony Saldanha: Well, I have to say it’s a very nice surprise, I wasn’t expecting anything like that. As you know, I’m not an author by profession, I’m a practitioner having led IT in global business services at Procter & Gamble. So this was a little bit of a dream and you never know how it’s going to work out. But fortunately, there was obviously enough there to pique the interest of people. So, so far so good. It’s been nice, very nice.
Kirill Eremenko: Very, very interesting. How was the experience writing a book? I’ve heard from many people that writing a book is actually a very challenging thing. You don’t set out thinking how challenging it’s going to be.
Tony Saldanha: Yes, that is true. I think there are some challenges that you anticipate. You know you’re going to have to write so many thousand words and you’re prepared for that. So that I knew was going to take enough time, and it took me about a year of basically working, and writing mostly on the weekends to do this. But there are other challenges that you don’t anticipate, which is that the real work actually starts after you finish writing the book, cleaning it up, getting the right references, shopping around to get a new publisher. And then even after the book is published, all of the work that you have to do to support the book. So those were very, very good experiences. I probably didn’t anticipate about two thirds of that work, but it was all fun. It was a good experience.
Kirill Eremenko: That’s good that you went through it. And the title is very intriguing, Why Digital Transformations Fail. What prompted you to write that book?
Tony Saldanha: So it basically came off my own experiences. As I mentioned, I worked with Procter & Gamble for about 27 years, and about 35 years in the industry, basically running operations, IT and global business services, or shared services. And GBS, or global business services, is basically the back office operations that most large companies have, of everything from finance, and HR, and IT, and supply chain, and so on and so forth. You run those operations out of off shore center, or outsourced, or that kind of stuff.
Tony Saldanha: But in the process, you get a lot of experience on transforming the business, everything from implementing new technology, or changing the way you process orders, or coming out with a platform for online selling. Or in my case, when I had the opportunity of essentially integrating an entire company into Procter & Gamble, in 2005, when P&G acquired the Gillette company, I was sent to Boston as interim CIO, to bring in all of their systems and people into Procter & Gamble. So these are transformations of significantly large nature.
Tony Saldanha: And so, what happens is, you’ll have your own experiences on these transformations, some of them succeed, others don’t. In my case, what struck me was the parallel between project management and transformation management, and other industries that are more operational in nature. I have an interest in the airline industry, and so I’m very familiar with the pre-flight pilot checklist and some of the others. And it was like, “Well, wait a minute.”
Tony Saldanha: In the IT industry, digital transformation is now a two trillion dollar industry. And based on studies from IDG and others, 70% of digital transformations fail in the sense that they don’t meet their objectives, and any other industry would be horrified with such a statistic. The airline industry has gone from having, during the early days, World War One, some shaky reliability, to now becoming the byword in reliability. And so, it kind of got me thinking about why do we have all of these failures and what can we do to address it, which is eventually what led me to writing the book.
Kirill Eremenko: Okay, very interesting. We’ll get to the failures in a second, I want to better understand the concept of digital transformation. So the way I see it … And it’s very interesting that you’ve had such a long career of Procter & Gamble, 27 years, that’s huge respect for that. That must have been a very interesting journey to see the company develop as the industries develop, as well.
Kirill Eremenko: So, as I imagine, digital transformation, if you could give us an overview of what it was 20 years ago? As I understand it, it was probably mostly linked to mergers and acquisitions, like the example you gave with Gillette. But how has digital transformation changed now, with all these technologies, exponential trends, blockchain, data science AI coming into the space? Has digital transformation, as a notion, changed over time?
Tony Saldanha: That’s a fantastic question, Kirill, and it’s actually a fantastic question for a very simple reason in that digital transformation means probably a thousand different things in today’s context. In fact, in the journey of writing the book, I set out to talk to a hundred different executives, startup founders, consultants, industry experts. And among the other questions, one of the questions I asked was, what does digital transformation mean to you? And I got a variety of answers, everything from people equating that to digital technology, like digital watches, all the way through Elon Musk type AI, which is going to replace us, that kind of stuff.
Tony Saldanha: So in fact, that’s one of the reasons I like your question, because it has forced me to put a stake in the sand on what digital transformation is. And I equate it, basically to the rewiring of enterprises and people, to succeed in the Fourth Industrial Revolution. Now, this particular period we know we’re in the midst of an industrial revolution where digital technology is changing every other technology. It’s changing physical technology, IOT, drones, all that kind of stuff. It’s changing, obviously, the way business is done. It’s changing biological technology with the human genome and stuff like that, and then also, social technology with social media.
Tony Saldanha: And that’s what industrial revolutions do, you have one technology that changes the way people and businesses operate. So what I have put a stake in the ground and said true digital transformation is the rewiring of business models, people, and processes, that may be successful in the Third Industrial Revolution, to be successful in the Fourth Industrial Revolution.
Tony Saldanha: Now, having said that, I’m realistic, I understand that people have different definitions, and so, I have come with a five stage framework whereby stage one, which is what I call foundation is automation. And sometimes people confuse that with digital transformation. If you’re implementing a new email system or a new auto management system, or even video conferencing system, you call that digital transformation. But really, it is automation of a certain work process.
Tony Saldanha: Stage two digital transformation is what I call silo, which is in a large company, or in any company, or a government of a country, you have obviously the early adopters that start to completely change their business model or technology. But it’s always silo.
Tony Saldanha: Third is partially synchronized where maybe the company or the country says, “We have to go digital.” So they start up with a corporate level strategy, but still, they haven’t finished the journey. This is an example of where General Electric, GE, was under Jeff Immelt, where if you remember several years ago they said, “We want to be a data company.” So there was a corporate strategy, but they didn’t completely execute it, so I call it partially synchronized, or stage three.
Tony Saldanha: Stage four is fully synchronized, where you actually convert the whole business model into the new world Fourth Industrial Revolution, but you’re still missing one piece, which is you haven’t really made the organization completely change their mindset.
Tony Saldanha: And that’s stage five, which is what I call living DNA, where you become like a Netflix or a Google. Netflix, as you know, reinvented itself, disrupted itself, three maybe four times in the last 20 years from mail and DVDs, to streaming content, to original programming, to international business models. So it takes a fair amount of discipline to say, “I know business is working well, but I’m going to disrupt myself, because if I don’t, then somebody else does it.” And you need people that are good enough to understand that that is rewarded and it’s a good thing.
Tony Saldanha: So I’ve provided this framework and a definition of digital transformation because I think that during times of industrial revolutions, normal innovation strategies are not enough, because your industry could be disrupted by a parallel industry. So you have to be very deliberate in understanding that you have to disrupt yourself, and therefore, the new definition.
Kirill Eremenko: Wow, that’s a very robust definition. Thank you. Thank you, for that.
Kirill Eremenko: Hey everybody, hope you’re enjoying this amazing episode. This is a quick announcement and we’ll get right back to it. We are hiring at SuperDataScience, and with the recent pandemic and the coronavirus, we all know how a lot of people have lost their jobs and their source of income. So hopefully this will be a breath of fresh air for some people out there. We are a 100% remote team. We all work online. We’re continuing to grow. I’ve just literally just published 10 new positions at SuperDataScience, which might be suitable to you.
Kirill Eremenko: And even if they’re not suitable to you, check them out. They’re at www.superdatascience.com/careers. Check them out and send them to somebody you know who may have been displaced by this pandemic and all the lock-downs, who may have lost their job and source of income. You could change their life. We are creating opportunities for people to do their best work, to contribute to create amazing products, and create amazing experiences for people studying data science.
Kirill Eremenko: So here are some of the positions that have just been released, VP of marketing, product designer, general manager, VP of sales, junior media creator, sales representative, B2B event sales representative, event marketer, B2B sales representative, and marketing strategist. And those are just some of the initial positions that we have available right now. More will come soon, so keep an eye out at www.superdatascience.com/careers. Maybe we’ll even post a data scientist position in the near future.
Kirill Eremenko: But even if none of these are relevant to you specifically, if you know somebody who’s in marketing or in sales, or who’s a great general manager, who’s great at creating amazing products and education and learning experiences, or who’s great at running events, or somebody who is amazing at creating animated videos, if you know any of these people, any people with the right talents and skills, please send them this link, www.superdatascience.com/careers. This could change their life or career, especially in these difficult times. Thank you very much for your help and let’s get right back to it.
Kirill Eremenko: Just so that I make sure I’m on the same page, the four industrial revolutions, correct me if I’m wrong, the way I just developed my understanding by typing into Google, the first one was the Industrial Revolution itself. Second one was adding electric power to create mass production. The third was using electronics and information technology to automate production. And now we’re in the fourth, which is building on the third through digital technology.
Tony Saldanha: Yes. Thank you for clarifying. Yes, that’s exactly right.
Kirill Eremenko: All right. So your description of the four or really five stages of the process of a company or a nation going through digital transformation, could you give us an example, like a walkthrough example maybe, or some concrete example, or a case of a company taking on some digital technology? Any digital technology, just so we can get a feel for how it looks when a company or a nation is in each one of these five stages.
Tony Saldanha: Sure, absolutely. So let me do that stage by stage, or actually, let me change that a little bit. Let me give you concrete examples of companies and nation states that are undergoing this, because I think that might be more interesting. So let’s take the case of a country, let’s start with a country, of Estonia or even Latvia, where Estonia has decided to be a digital country.
Tony Saldanha: So every person has not just a digital identity, but they have changed the way you register records. So because your identity is known, if you say, “Hey, my name is Tony, I’m calling in because I just moved from this apartment to another apartment,” what you don’t have to do anymore is avoid the form filling and, “Can you give your name again?” And, “What’s your social security number and your bank account number?” Because all of that has been digitized by the government.
Tony Saldanha: And so, the amount of efficiency that not just other companies, so if you’re an Internet provider, you know exactly where to get the information, or even citizens, because you don’t have to keep repeating that same stuff or deal with bureaucracy, is incredible. And that’s a great example of when an entire country says, “We are going to become very, very proficient in the Fourth Industrial Revolution.” And what it takes is not just implementing digital technology. So it’s fascinating, I’ve had the opportunity to study Estonia.
Tony Saldanha: When Estonia was, I guess they gained their freedom from the USSR, they didn’t have too many other resources. So they decided, “Okay, let’s bank on our knowledge.” And so, they started with the mindset of, “We have to become the best at digital technology.” So what that means is not just the processes of registering births and deaths, but the training, the education of the people, creating the laws for all of the companies to follow the same thing. And that’s a huge undertaking, that’s an example of how you basically rewire processes and systems, and then also people, to succeed in the new industrial revolution.
Tony Saldanha: So that’s an example of a country, let me give you examples of companies. So let’s take my previous company, Procter & Gamble. It has been around for more than 180 years, and it has been around because it is very adaptive. So as the world has gone through three other industrial revolutions, this company has adapted. But this time around, it is going to have to do three things to adapt. One is, it is going to have to change the product. So where you used to have dumb toothbrushes, now you’ll have smart toothbrushes. So even as you’re brushing the teeth, there is an app that tells you, “Oh, did you know that you missed that particular spot,” if you want it, right?
Kirill Eremenko: Wow.
Tony Saldanha: Yes. These toothbrushes are going to get smarter and smarter, because they’re going to actually also be able to measure the condition, the health of your teeth and say, “Oh, I’m sorry, you’re going to have to go check up with the dentist.” So that’s an example of smart products, and you see that, smart cars, you see … But I just wanted to give you a mundane example of toothbrushes, so even smart toothbrushes. So that’s one thing, you change your products.
Tony Saldanha: The second thing you change is your go-to model or the business model, and that one you know, which is where you used to sell in large stores, retail, now you sell differently, you sell through Amazon and other stuff. So that’s the second way you have to change, which is you have to create new business models.
Tony Saldanha: And the third is actually internal operations. So this is what most people are familiar with, which is you use IT technology to digitize stuff. So where you used to essentially have an army of people processing forms off orders, now you basically have artificial intelligence robots that have the ability, to not just take down your order, but to also make decisions, like this order is not going to get fulfilled because our manufacturing is not keeping up, and so let’s offer another SKU, another product.
Tony Saldanha: And that’s really a combination of data, and analytics, and new technologies like blockchain, all coming together to change processes in the company. But all three of them together, smart products, new business models, and incredibly new models of efficient business operations, that’s what happens when you transform.
Kirill Eremenko: Wow, thank you very much. I had the impression it was only to do with internal operations, but as you described, it’s product, business model, internal operations. What I’m curious about is, so according to your definition a company can change all those three things, not overnight, maybe over the course of a month or so, develop smart products, change their business model, enhance their internal operations, but they can still be sitting at the stage one of the digital transformation definition that you provided, simply because they’ve done all those things, but they still don’t have the early adopters jumping on board. So those are kind of separate things, what you do and actually the flow and effect of what happens inside the organization. Am I understanding this right?
Tony Saldanha: Yeah, you’re exactly right. So in reality, stage one is more about automation, which is you’re changing technologies. So I can give you an example. Most companies have expense reports, right? So you’ll travel, you’ll spend money on your corporate card, you’ll come back home, you create a travel expense report, so on and so forth. Now, that is Third Industrial Revolution work process in today’s world, and you know this because you’re a master in data science.
Tony Saldanha: There’s absolutely no reason why you should still force your employees to go create expense reports, because you could manage this differently, as Google and Adobe and others do, which is you have a corporate credit card, you have all of the transactions of the employees that you can get from Am Ex or whatever it is. And you can use AI and all of the data connectivity to essentially draft an expense report for the employee.
Tony Saldanha: But best of all, as Google does, instead of managing by transaction, you can manage by objective. So if Kirill is going to go from Sydney, Australia, to Heathrow, you basically say, “Kirill, for your particular trip, your budget based on our data off historical travel in our company is 10,000 Australian dollars. Now you are now free. You don’t have to use the corporate travel agency to book your ticket, you can book on Google. You’re managing by dollars.”
Tony Saldanha: And I tried that at Procter & Gamble, and we proved that if you manage by budgets rather than by transactions, people make the right decisions and they will underspend their budgets by 15% to 35%. And then you could say, “You can give the remaining difference to your favorite charity,” or you can gain share it with the employee, or so on and so forth. That’s an example of real transformation, not just automating their expense report, but completely re-imagining the purpose of expense reports.
Tony Saldanha: So the difference between stage one and stage two, three and four, is you start to reimagine. Stage two is you reimagine in silos. Stage three is you reimagine across the company, but you’re not completely done yet. Stage four is you are done, but you haven’t really changed the mindset of the people to be self disruptive and that’s what stage five is.
Kirill Eremenko: Awesome. Just one more question I still have on digital transformation. Does digital transformation, based on your definition, relate to let’s say, one project, or one part of a company, for example, expense reports are undergoing digital transformation at our company and they’re gone through five stages? Or is it a definition that relates to the whole company, that if we’re going through digital transformation, then everything we do should go through the digital transformation?
Tony Saldanha: Yeah, so real digital transformation, true digital transformation, has to be company wide or country wide, because that’s what it takes for entities, government or a private company to survive and thrive in an industrial revolution. Now, of course, execution then becomes very specific. So within in the company, then you have to take a work process like travel and expense report, and then you have to change it completely. Then all of the people that go along with it, changing their mindsets and all of the adoption. So that’s more a consequence.
Kirill Eremenko: Got you. Thank you very much. Well, with that kind of laid out, that foundation, I’m very excited about this. I learned something really cool today. Can you tell us, the title of your book, Why Digital Transformations Fail, and as you mentioned 70% of them fail, why does that happen? What has your investigation concluded?
Tony Saldanha: So it’s actually for two reasons and I use the analogy, if you will, humor me, of Alice in Wonderland to make this point. So I’m sure you remember the specific part of Alice in Wonderland, where Alice is out there and asks the Cheshire Cat, “Which way should I go?” And the Cheshire Cat said, “Oh, it depends on where you want to go.” She says, “I don’t care where I go.” And then the Cheshire Cat says, “Well, in that case, it doesn’t matter which way you go.” So that is essentially a good framework for, in a funny way, thinking about what happens in most companies around digital transformation and why they fail.
Tony Saldanha: So the first part of why they fail, is clarity in goal setting. So the Alice in Wonderland story, which is, if you own a company and if you’re not clear that real digital transformation is all the things you need to do to survive and thrive in the Fourth Industrial Revolution, so your stock price or your continued business viability depends on it, then you set a certain set of goals. However, if you get taken in by the sales pitch of a technology vendor who says blockchain is the new big thing or AI is the new big thing, then you set different goals and then you fail, because you’re going after something tactical. So that’s the first reason, it’s very simple, definition and understanding of what digital transformation is.
Tony Saldanha: The second reason why digital transformations fail is execution. So most companies use the wrong execution methodology. They use project execution methodology, typical IT, PMI certified project management, which is I’m going to implement a completely new model of let’s say, a travel and expense report, so strong project management, all that kind of stuff. However, it ignores two things, one is it ignores change management. Real digital transformation is 90% organization change and 10% technology change. So it ignores that methodology.
Tony Saldanha: And the second thing it ignores is that when you’re doing disruptive innovation, you have to follow a venture capitalist-like approach of, “I’m going to try 10 different ideas and nine of them may fail, but one of them that’s successful is going to be a billion dollar idea.” And normal PMI project management doesn’t allow for that type of failure, if it fails, it fails. But VC portfolio approaches, they allow for that. So that methodology has also got to be woven in.
Tony Saldanha: So just to kind of summarize, goal setting, understanding what real digital transformation is, and execution, which is not just executing the project, but then the portfolio approach and the change management approach put together, that’s important.
Kirill Eremenko: Okay, very interesting. Thank you. So clarity in goal setting, execution, typical project management doesn’t cut it, it ignores change management and ignores VC portfolio approaches. Could you please tell me a bit more about this VC portfolio approaches? How do you see companies, especially established enterprises with thousands of employees, who have been around for decades, how do you see them adopting this VC methodology in terms of digital transformation? I just can’t quite picture it. Do they do like 10 digital transformations parallel, and they pick the best one? What exactly does this mean to adopt this mentality?
Tony Saldanha: So a lot of this methodology’s out there and I shamelessly stole and learned from the best out there. But the example which most people are familiar with that I can give you is Google, Alphabet now. So Google, or Alphabet, has three parts of their strategy, they call it 70, 20, 10. So 70% of their capacity is focused on day to day running, 20% is on continuous improvement, and 10% on disrupt yourself. And Google X, which you’re familiar with, the organization that does driverless cars, balloon Internet is a good example of that 10X, VC portfolio approach.
Tony Saldanha: So the people that do the 70%, they’re running Gmail, you don’t want them to experiment with crazy technology, you want them to just continue to run it with perfection and use continuous improvement to improve it. But then you also have mechanisms of Google X, these I call disruptive innovation or edge organizations that are sorting through all kinds of new ideas. Google X has looked into teleportation as a way of traveling people, or space elevators, actually create a physical elevator that goes to space, it’s just rockets. And they have to look at all of those crazy ideas, because if you do high risk stuff and you do it well, then one out of 10 will have a high return and then you create a driverless car.
Tony Saldanha: So you don’t need your entire organization to have 10 digital disruption projects, you need a specific organization that’s focused on sorting through all of these ideas, and testing and learning, and being very disciplined with the financial success criteria to very quickly kill the unviable projects, and then to promote the ones that become viable, like the driverless car. So that’s how you do it.
Kirill Eremenko: So that’s like an internal … Create an environment, kind of like a startup environment inside your organization that is not subject to all the bureaucracy and red tape that usually they would be and just let them try stuff, experiment?
Tony Saldanha: You’ve got it exactly. That’s absolutely true. You also mentioned something very important which is that organization can not be subject to the usual bureaucracy, because if Google X were trying to create a driverless car and the IT organization of Google said, “Ooh wait a minute, no. You have to follow information security guidelines and the standard technology of only Microsoft to do this,” they would never do it. So you have to give those guys freedom to go crazy.
Kirill Eremenko: Absolutely. Absolutely. Yeah, it’s a whole different mentality. I remember, I might be mistaken, but I remember reading that Gmail actually came out of Google X, it was one of the products they were experimenting with.
Tony Saldanha: That is actually true.
Kirill Eremenko: And now the whole world uses Gmail, right?
Tony Saldanha: That is exactly true. So in Google, they also have this mechanism of everybody gets 20% time to do innovation. Even if you’re doing operations of data center, you’re given some time as part of your employment contract to experiment with stuff. And apparently, some people started experimenting with better ways of emailing, and Gmail became an internal tool for them, and then eventually they recognized that, “Hey, we have a product that we could market externally,” and then you got Gmail. So absolutely.
Tony Saldanha: These types of … I mean, Alphabet at Google is just one example. I think there are so many companies all over the world that do this. Virgin, the Virgin crew, is a great example of a company that fosters intrepreneurship, so just like entrepreneurship, getting that mindset of innovation internally, intrepreneurship, they do a good job of that. And again, there are hundreds of companies that do that extremely well.
Kirill Eremenko: And I think you mentioned a very important thing that it’s not just about innovating product, it might sound like … Space elevators, driverless cars, Gmail, and so on, they’re like companies innovating product. But as you pointed out previously, digital transformation has three major components to it, changing your product, changing your business model, and changing internal operations.
Kirill Eremenko: So as I understand this mentality, so one of the solutions that you proposed in execution, which is this mentality of venture capitalists, portfolio approaches, that that’s going to help, not just with changing your product and applying digital transformation there, but it also can help with the business model and internal operations. And that’s how, for instance, Gmail started, as you pointed out. It started as an internal thing. Do you have any other examples just to help cement this point in of where this venture capitalist mentality can help, or has helped organizations to undertake digital transformations in areas apart from product?
Tony Saldanha: Oh yeah, no, absolutely. Certainly. There are several examples I could give you of internal processes. I mean, we talked a little bit about travel and expenses, but I’ll give you another example that we worked on at Procter & Gamble. So you know that in supply chains and in manufacturing, transport, warehousing, that entire area, the world still uses a methodology called MRP II.
Kirill Eremenko: I don’t know, sorry.
Tony Saldanha: Okay. So MRP II, or manufacturing resource planning, or SAP and all of these companies, they provide that software. It’s all about digitizing the running of the factories, the running of the warehouses, and anticipating what the demand is, so forecasting how many items of toothbrushes do you need to sell and manufacture. So all of that is critical to any industry that’s in the product business. However, what’s fascinating is that that entire process was designed in the 1960s when IT technology had computing capacity constraint. So you could only run a demand forecast and when that job was complete, then you could take that demand and translate that into manufacturing plans, and then take that output and then do a logistics plan, so on and so forth.
Tony Saldanha: So these were sequential siloed approaches, but today technology has changed as you know very well. LinkedIn, Amazon, others, they have almost unlimited computing power. So if you and I basically get connected on LinkedIn, there are algorithms that can recompute what information needs to go to each of our networks independently, and you have algorithms that rank where this news should show up and stuff like that.
Tony Saldanha: So they’re really planning the enterprise of LinkedIn in real time, whereas in the manufacturing world, large companies like SAP and others are still doing this in batched, siloed operational processes. So that’s a good example of if you’re going to have to live in the Fourth Industrial Revolution, you’re going to have to get much more real time. You’re going to have to change the processes of how you optimize your operations much, much better, and that’s a great example of, I think, how you’re going to have to change how you operate internally.
Kirill Eremenko: Perfect. Thank you. Thank you very much. Everything’s very clear. So after your time with Procter & Gamble, now you’ve started a strategy consulting firm of your own called Transformant.io. And tell us please, how do you help, or what have you noticed helping companies with digital transformations? I’m more curious, what do you do? You go into a company and they have these problems, “our digital transformation failed, Tony please help us out”. What are your first steps? How does somebody think about that, because I think this can be very valuable for people to avoid the mistakes others have made?
Tony Saldanha: Yes. So I should mention one thing first, which is the book is called Why Digital Transformations Fail, but the book is actually not about forensics on why things fail. It’s actually more of a checklist, almost like an airplane pilot checklist on how to be successful.
Tony Saldanha: So what I do at Transformant is I help companies create successful digital transformation strategies. So more often than not, when I get contacted, somebody’s trying to create a digital transformation strategy. It could be a new CEO, or a board of directors, or a new CIO. And they understand that the business has got to change in the Fourth Industrial Revolution, and they’re trying to essentially translate that into, “So what do I do?” By now everybody knows that digital is disrupting everything, and so they have to do something, but the question always is, “What’s the first step I can take? The seconds step? The third step?”
Tony Saldanha: So what I go in and do is, first of all, link that into business goals and outcomes, so what I call the Wall Street Metrics, which is what is your business strategy? What do you want to do? What are you in the business of doing? And then I help them create strategies on, okay, so in order to do that, this is how you’re going to have to use digital. So don’t just rely on creating new digital processes, like I’m going to automate everything using SAP. But have you thought about smart products? Have you thought about completely new business models of selling? And then don’t just rely on technologies for internal processes, change the way, question why these processes should be run the way they are.
Tony Saldanha: And so that’s what I … The assessment and then the creation of the strategy. And then of course, the implementation, because as I talked earlier, most of the failures happen because of execution. And so, I also provide them a roadmap and also handholding in execution.
Kirill Eremenko: Okay, fantastic. Thank you. And what would you say for a CIO, a CEO, maybe somebody on a board of directors sitting, listening to this and they know that their company needs to go through a digital transformation, they’re gearing up for one, what would you say is your one or maybe two top tips that you can give right now? Something that you’ve advised dozens of CEOs maybe on, that has helped in most cases. Something like a very fast, easy tip that will be very useful to these people.
Tony Saldanha: Sure. The most important one is understand digital transformation is not about technology, it is actually about business outcomes and people outcomes. So don’t fall for technology sales pitches. Understand that this is about business strategy, which means that you can not over delegate this to technical people, you have to own this as a business leader. You have to set the strategy, you have to set the execution, you have to have skin in the game. So that’s probably the number one tip I would give them, which is don’t create a digital transformation plan, create or update your business strategy using digital technology, how are you going to do your business differently.
Kirill Eremenko: Wow.
Tony Saldanha: And that’s just not a nuance, that’s actually a pretty big paradigm shift for most people.
Kirill Eremenko: That’s very deep. I’m realizing that now, that don’t create … It should be a quote. Don’t create a digital transformation plan, update your business strategy and how you’re going to use digital technology. Let’s talk a bit more about change management. As you mentioned it’s 90% change management, 10% technology change. What does that mean? What are the most common roadblocks with change management that you encounter with the companies that you assist?
Tony Saldanha: The most important roadblocks is that there are three things that companies have self-imposed constraints that get in the way of successful digital transformation. One is their current rewards systems. Most companies reward their employees for stable running of operations and incremental change, improvement, not for disruption. So that has to change.
Tony Saldanha: The second thing is people capabilities and skills. You can not have one small team decide what’s going to change in the whole company, everybody has got to be upgraded in terms of their ability to understand digital and digital capability. You’ve seen this in the context of the current pandemic. Certainly, everybody has taught themselves, whether you are a grandmother or a five year old to use Zoom to do video conferencing, and that’s a people education capability that you have to upgrade.
Tony Saldanha: The third thing that has to change is obviously the actual strategy of the company. So if you have to say, “I’m no longer in the horse carriage business, I’m more in the transportation business,” then your entire business strategy itself has to change.
Tony Saldanha: So unless these three things happen, what is going to happen is that you’re going to have smart innovation people that come in with an idea who say, “I have got this mechanical horse that can eliminate horses.” And you say, “Ooh, no. I have a whole bunch of people, a factory that creates carriages, how are they going to use this steam engine?” It just doesn’t work, right? And so you have to reimagine. That’s why I love the analogy of the Industrial Revolution. You really have to reimagine the people, the strategy, as well as the reward systems in the company.
Kirill Eremenko: How significant is the psychological aspect of change? I can see how a CEO or CIO can put rewards, people education capabilities, and business strategy in place, however, people are generally resistant to change. Have you ever seen companies or digital transformations change simply because they couldn’t get people on board because of values or because they weren’t explaining it properly?
Tony Saldanha: Yes, almost always when there is a failure it is because of what you just said. Let me reiterate, it is a very real issue, this issue of whether you call it immune system’s response or fighting change, it is very, very real. Now, the first thing that a leader has to do, is they have to figure out how they are going to bring the army of people along with them, because you can’t just blame your organization saying, “You guys are a bunch of resistant people. You never listen to what I say.” That’s not true, people’s psychology, they all want to do the right thing. They are looking for signals from their leaders on what is going to get rewarded.
Tony Saldanha: So don’t get me wrong, it is really important to have stability of operations in the company. Companies like P&G have existed for almost 200 years because we are able to almost guarantee stability. Stability in terms of Wall Street returns, stability of employment, all that kind of stuff. So you can not just say, “Okay, everything’s up for grabs,” suddenly, right?
Tony Saldanha: So it is your job as a leader to understand what kind of reward systems are you giving people when you say, “Run that travel and expense process very, very stably, but then at the same time, disrupt it.” That’s very confusing to people. So then you have to come up with these frameworks, like 70, 20, 10, or things like that that say, “Okay you, your job is going to be doing this, but then when this other organization comes up with a disruptive idea, your job is to bring that and to change it, and you will get rewarded for that.” So it is these very, very specific types of tactics that are necessary.
Tony Saldanha: So in general, it’s very easy when you have a burning platform issue, like this pandemic. We can not travel anymore, Zoom is necessary, everybody adopts it, there’s no change management issue, right? On the other hand, if this was like normal world, we were doing great, companies are doing extremely well, they’re very successful, they have a lot of money, and then you come in and say, “Everybody use video conferencing technology,” you have a change management issue. So it is your job, as a leader, to figure out how to create that same crisis-like energy in your organization when times are good, and that’s what change management is about.
Kirill Eremenko: Wow, sounds very complex. Sounds like it requires …
Tony Saldanha: It is abviously a hard topic, yes.
Kirill Eremenko: Yeah, absolutely. Okay, I have an interesting question. By the way, I loved how you called it the immune system response. I think that was beautiful, I’m going to keep that quote for later use. Question, you mentioned disruption, and we’ve heard disruption many times, or we hear it more and more and more often. And I absolutely agree that it’s better if disruption comes from within the organization than without, because if it comes from externally, then you might be out of business, so it’s important to disrupt yourself. What’s the difference between disruption and digital transformation?
Tony Saldanha: So it’s very simple, it’s cause and effect. Disruption is basically the negative impact of digital technology in this particular case. Previously it was steam engine technology, or mechanical, or electricity technology. In this case it is digital technology on your current business operations, business models, and your learning capabilities. Digital transformation is what you do to essentially change yourself in the face of that disruption, so it is cause and your response to that.
Tony Saldanha: So digital transformation is you’re going to change your products, or your people, or your business models as a result of that transformation. So if you were in the retail industry and you see a lot of retailers failing because of digital technology, that’s digital disruption. But when you have a retailer say, “I am, therefore, now going to come up with completely new business models, where I have a physical store, but you can order online and I will come to the parking lot and put the products in your car,” that’s transformation to fight the disruption.
Kirill Eremenko: Fantastic. I understand. It’s all coming together in my mind. So an organization creates internal intrepreneurs and internal environments to experiment. That results in different projects, many of them fail, one or so succeed. That causes disruption, and that’s kind of the kick start to your four or really five stages of digital transformation. So once that disruption happens, whether internally or externally, you need to pick up on it, and then go through automation, the silos, partially synchronized, fully synchronized, and living DNA. So the disruption is like the spark in the engine.
Tony Saldanha: That’s a great summary Kirill.
Kirill Eremenko: Thank you. I have a great teacher today.
Tony Saldanha: [crosstalk 00:53:21] right. Yes, that’s true.
Kirill Eremenko: Thank you, Tony. Tony, that slowly brings us to the end of our podcast. It’s been a fantastic conversation. To wrap up, I would like to get your perspective on the future. With so much experience, with your background in leading in Procter & Gamble, and all the digital transformations, and also, with the work that you’re doing with Transformant.io right now, what do you think the future looks like in the next let’s say five or maybe even 10 years? Can you make any predictions? How will the future of this Fourth Industrial Revolution, what will it take us to?
Tony Saldanha: So first and foremost, and I think most urgently, the nature of industrial revolutions is that they are irreversible. So we’re in the midst of an industrial revolution, it will continue. So what it’s going to mean is that more and more companies are going to rely on digital transformation as a way for them to be more productive and to survive the industrial revolution. By the way, it’s not just companies, as I said, governments as well, and even individuals in terms of our learning. We’re going to get much more digitally literate, that it is important.
Tony Saldanha: I mean, every industry, every industry today is under the threat of digital disruption and that will continue. However, secondly, and most urgently and importantly, what COVID-19 has done is that it has essentially accelerated that journey. So there are many companies that were already shaky in their foundation, and now those companies suddenly find that they’re going out of business, either because they were too reliant on physical models, not digital models. And now that people can’t operate the same way, they’re starting to break apart.
Tony Saldanha: So when Satya Nadella, the CEO of Microsoft said, “Many of my clients have seen two years of digital transformation done in two months,” that’s absolutely true. So you’re going to actually see the acceleration of digital transformation. You’re going to see companies that were structurally weak start to fail faster than they thought they would, as a result of the pandemic. You’re going to see much less money available for CIOs to do this transformation because companies have less money. So they’re going to have to get more creative with the money that they have to do faster digital transformation with less money.
Tony Saldanha: But again, that’s the nature of change management, stuff happens around you, you use creativity and common sense to do things, better, faster, cheaper. So we’re going to see that in the next, I would say, two to three years of course. And then by five years, you would have seen some pretty dramatic changes in the landscape of entire industries, financial industry, obviously banking. Media’s already been transformed in a dramatic way. You’re going to see many more industries undergo that.
Kirill Eremenko: Wow, thank you very much Tony, for that short-term and long-term, or mid-term, long-term outlook. Very interesting, especially how the current situation’s impacting it. On that note, Tony, thank you so much for coming. Before I let you go, I’d love to ask you where can our listeners get in touch with you, follow you, ask any questions? What are some of the best places to find you online?
Tony Saldanha: Sure, thank you. So the website is transformant.io. Or you can also type in www.tonysaldanha.com, and that’ll take you to the same link. The book is called Why Digital Transformations Fail. It’s available online, on Amazon, and every other retailer in the world, so that’s also a good lead. But please continue to use the change that we see around us as an opportunity, because every change is an issue, but every change is also a positive opportunity, and it’s a plus to grab a hold of that opportunity.
Kirill Eremenko: Fantastic. Thank you so much, Tony. It’s been a pleasure having you on this show.
Tony Saldanha: Oh my pleasure entirely, Kirill. Thank you.
Kirill Eremenko: So there you have it everybody, hope you enjoyed this podcast as much as I did. For me, the best moment was when everything clicked in my mind, from disruption, to the four stages, or actually five stages of digital transformation in this definition, to the elements of a company or a nation state that are involved in digital transformation. When it all came together, this whole picture of what Tony discusses with his clients and brings to the table with companies that he works with, it made a lot of sense in my mind, and I am extremely grateful for that. I have a much better understanding of what digital transformation is and what companies and nations go through when this happens. And it’s very relevant, because right now, as Tony mentioned, companies have seen two years growth of digital transformation in two months, because of the situation with COVID-19.
Kirill Eremenko: So there we go, I hope you got some amazing insights from this podcast. As usual, you can find all the show notes at www.superdatascience.com/381. That’s www.superdatascience.com/381. There you will find all the materials mentioned, or links to these materials, and a link to Tony’s LinkedIn, make sure to connect, as well as Tony’s website in case you’re interested in contacting him for some advice for your company. And finally, if you enjoyed this episode, make sure to send it somebody who you think will benefit from learning about digital transformation. Very easy to share this episode, superdatasceinece.com/381. Just send them that link and they’ll have access to everything, to all the insights that Tony shared toady.
Kirill Eremenko: So there you go, hope you enjoyed this episode, and I look forward to seeing you back here next time. Until then, happy analyzing.
