Innovation Isn’t Free

And apparently, another note based on a recent tweet.  The McKinsey article, “A CEO guide for avoiding the ten traps that derail digital transformations“, outlines traps that an organization has when doing a digital transformation.  And, like yesterday, I want to focus in on a specific problem that I believe most, if not all organizations, fail to understand. And what is the problem?

Transformation requires money.  Innovation is not free.

There is the idea that digital transformation can be absorbed by an existing budget, that innovation is merely redirecting funds from an existing budget to an “innovation space”.  While focused on private sector companies, McKinsey talks about the funding required:

We have a rule of thumb that a successful scaled-up digital initiative at a company with more than $5 billion in revenues needs funding to the tune of $10 million to $30 million per year, and a major digital transformation across multiple business units at a global company might cost as much $100 million.

Notice the number of zeros in that number.  Digital transformation is not cheap.  Innovation, changing from a “traditional” firm into a digital organization is not cheap.  And yet companies habitually underestimate the cost of any such transformation.  They squeeze money from other budgets causing those areas to suffer.  They underfund, create unrealistic expectations, and then complain when the company has progressed towards a digital future.

Governments, in particular, need to understand the cost of a digital transformation.  The Government of Canada radically underestimated the cost of a transformation in content management, not just in terms of cost, but time.  It needs to be funded, like any other project and it needs executive commitment.

Go slower so you don’t need as much funding?  Governments have tried that for years and now they are drowning in technical debt.  They either need to dig themselves out of the hole or be innovative, create new solutions to existing problems.  Digital transformation can help.  Innovation can help.  McKinsey has a solution that many people have used

The most effective businesses ingrain speed by making agile a way of life. They use short development cycles to address specific needs, try out rough-and-ready fixes repeatedly with customers, and produce “good enough” solutions.

Agile development, paying for innovation and transformation, are all coming together in an effort to resolve problems and create the next generation of business.  If you’re not funding, if you’re not being agile, if you’re not automating, then step out of the way because the world is moving at a breakneck speed and you’re just in the way.

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