INSIGHT 2 – Cost Reduction masquerading as Innovation

Many Digital Transformations are not instilling entrepreneurial spirit; they’re simply focused on “cleaning-up” and “catching-up”.

“You can’t shrink your way to greatness”, Tom Peters

When you scratch the surface of a standard Digital Transformation brochure espousing a step-change in ‘speed to market’, ‘customer experience’, ‘ways of working’ and ‘operational efficiency’ you’ll find a fascinating set of sub-realities. Whilst most of these transformation initiatives present a vision that pays homage to each of the above elements, when the gun goes off these programs often assume very different identities.

The sub-type that draws the most interesting and consistent reaction from Executives, Managers, Change Agents and other Consultants is the type I’ve labelled “Cost Reduction Masquerading as Innovation”. Picture a wry grin and closed eyes followed by a slow shake of the head.

This type of transformation is not really a transformation at all.

It may drive significant and disruptive change into an organisation, however that change is often a short-term band-aid, a sugar rush for the market and a regressive step for the organisation. These programs can be degenerative and seriously impede the longer-term transformational needs.

Transformational Leadership

Digital transformations like any other business transformation requires a revisiting of the organisation’s purpose and values.  Hence it requires visionary leadership.  Comparatively, cost reduction programs attract a more missionary style leadership. You may recognise some of the observed behaviours outlined below;

Visionaries: Those who understand the drivers and fundamental necessity of the change and the context of the organisation; “the Why”.

These leaders acknowledge and accept the lack of certainty of a multi-faceted transformational journey and embrace the challenge regardless.

They are conscious of the many head winds that will challenge them along the way, and the need for deep alignment in the people. They know that only once they appreciate “the Why” can the objectives of “the What” be crafted.

They appreciate that the transformational “What” can only partially be defined from the top-down, and that success will come from empowered and aligned people cascading the top down ‘What’ into bottom up granularity. Only then can the journey “the How” be shaped into a ‘success plan’ outlining key results across short to medium term horizons, aligned to a value driven structure (another subject for another day).

Finally, and most importantly, the visionary leader of a transformation accepts that they do not know all of the answers and creates an environment where the people can experiment and learn as a collective.

Missionaries: Whilst often masquerading as a Visionary, the missionary is single focused in their pursuit of cost reduction above all else. 

Their fixation is often focused on redressing a financial ill-health evident in the P&L or the share price.  On the surface, “the What” may be presented as well rounded, paying homage to a cohesive set of objectives spanning market performance, customer satisfaction, cost and efficiency, innovation and people.

Under the covers and behind closed doors the leaders of these set and pursue tangible and aggressive financial targets. The communications that emanate from these programs may present a rosy story of transformational kumbaya accompanied by images of ‘showcased tech’, ‘post it notes’ and smiles.

However, these spreadsheet driven initiatives drive hard targets focused on things like head count reduction targets, operational budget reduction targets, product and systems simplification targets. The true agendas of these initiatives become very evident through public announcements about staff reduction and the series of “redundancy” waves and reorganisations. It is somewhat bemusing to hear senior executives subsequently reflect on how well the transformation effort is progressing.

Some of the key differences between truly transformative programs and cost reduction initiatives include;

Transformation Cost Reduction
Visionary leaders Leaders on a mission
Broad and balanced scope Narrow scope
Drives multi-horizon value Short-term benefits focus
Urgency agenda Crisis agenda
Done with the people Done to the people
Collaborative and inclusive Top down, dictatorial
Innovate and learn mindset Cut and measure mindset
Culture building & shaping Cultural erosion as a consequence

The survival and long-term success of Australian organisations is dependent upon their ability to innovate at speed in a time of great disruption.  Unfortunately, we are starting from a low base, and need to change the game with a sense of urgency. 

The Global Innovation Index 2018 co-authored by Cornell University, INSEAD and the World Intellectual Property Organisation (WIPO), identified;

“Australia’s innovation linkages, university and industry research collaboration, research talent in business enterprises, patents, and high-tech and ICT services export levels as weaknesses”


“Australia’s business sophistication and knowledge and technology output levels fell short compared to other countries, acting as a drag on its performance.”

Innovation is a discipline.

Embedding innovation into the DNA of an organisation is the essence of a truly digital organisation and must be a primary objective of every ‘Digital Transformation’. The end state must be an ‘Agile Operation’, that predicts, innovates and adapts organically.

It’s time to take innovation and the leadership it requires seriously.

Coming Up Next:

Insight 3:  Avoiding the ’Lipstick on a Pig’ approach to meaningless innovation

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