Change Management

Democratizing Transformation
by Marco Iansiti and Satya Nadella
From the Magazine (May–June 2022)

Núria Madrid

Summary. Many companies struggle to reap the benefits of investments in digital

transformation, while others see enormous gains. What do successful firms do
differently? This article describes the five stages of digital transformation, from the
traditional stage,... more
Over the past decade, Novartis has invested heavily in digital
transformation. As the Swiss pharmaceutical giant moved its
technology infrastructure to the cloud and invested in data
platforms and data integration, it recruited AI specialists and data
scientists to build machine-learning models and deploy them
throughout the firm. But even as the technical teams grew,
managers from across the business—sales, supply chain, HR,
finance, and marketing—weren’t embracing the newly available
information, nor were they thinking much about how data could
enhance their teams’ work. At the same time, the data scientists
had little visibility into the business units and could not easily
integrate data into day-to-day operations. As a result, the
investments resulted in only occasional successes (in some
aspects of the R&D process, for example) while many pilots and
projects sputtered.

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More recently, however, pilots targeting both R&D and marketing

personalization started showing business value and captured the
attention and imagination of some of Novartis’s more creative
business executives. They became increasingly excited about
opportunities to deploy AI in various parts of the company and
began to earnestly champion the efforts. (Disclosure: We have
both worked with Novartis and other companies mentioned in
this article in a variety of ways, including board membership,
research, and consulting.) They realized that technologists and
data scientists alone couldn’t bring about the kind of wholesale
innovation the business needed, so they began pairing data
scientists with business employees who had insight into where
improvements in efficiency and performance were needed.

Novartis also invested in training frontline business employees to

use data themselves to drive innovation. A growing number of
teams adopted agile methods to address all kinds of
opportunities. The intensity and impact of transformation thus
accelerated rapidly, driving a range of innovation initiatives,
including digitally enabling sales and sales forecasting,
reconceiving the order and replenishment system for health-care-
services customers, and revamping prescription-fulfillment
systems and processes.

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The progress in digital transformation became invaluable as the

company dealt with the initial chaos of the pandemic. Novartis
business teams partnered with data scientists to devise models to
manage supply-chain disruptions, predict shortages of critical
supplies, and enable quick changes to product mix and pricing
policies. They also developed analytics to identify patients who
were at risk because they were putting off doctor visits. As the
Covid crisis wore on, the value of AI became obvious to managers
companywide.

Before this wave of AI adoption, Novartis’s investments in

technology consisted almost entirely of packaged enterprise
applications, usually implemented by the IT department with the
guidance of external consultants, vendors, or systems integrators.
But to build companywide digital capability, under the leadership
of then chief digital officer Bertrand Bodson, Novartis not only
developed new capabilities in data science but also started to
democratize access to data and technology well outside
traditional tech silos. The company is now training employees at
all levels and in all functions to identify and capitalize on
opportunities for incorporating data and technology to improve
their work. In 2021, the Novartis yearly AI summit was attended
by thousands of employees.

The Elements of Tech Intensity

To enable transformation, companies must create

synergy in three key areas: Capabilities Organizational
culture Training ...

The potential for employee-driven digital innovation is

impossible to calculate, but according to the market research firm
IDC’s Worldwide IT Industry 2020 Predictions report, enterprises
across the global economy will need to create some 500 million
new digital solutions by 2023—more than the total number
created over the past 40 years. This cannot be accomplished by
small groups of technologists and data scientists walled off in
organizational silos. It will require much larger and more-diverse
groups of employees—executives, managers, and frontline
workers—coming together to rethink how every aspect of the
business should operate. Our research sheds light on how to do
that.

The Success Drivers

When we started our research, we wanted to understand why
many companies struggle to reap the benefits of investments in
digital transformation while others see enormous gains. What do
successful companies do differently?

We looked at 150 companies in manufacturing, health care,

consumer products, financial services, aerospace, and
pharma/biotech, including a representative sample of the largest
firms in each sector. Some were failing to move the needle, but
many had made dramatic progress. Perhaps surprisingly, we
found that outcomes did not depend on the relative size of IT
budgets. Nor were the success stories confined to “born digital”
organizations. Legacy giants such as Unilever, Fidelity, and
Starbucks (where one of us, Satya, is on the board)—not to
mention Novartis—had managed to create a digital innovation
mindset and culture.

Digital transformation requires that

executives, managers, and frontline
employees work together to rethink
how every aspect of the business
should operate.

Our research shows that to enable transformation at scale,

companies must create synergy in three areas:
Capabilities. Successful transformation efforts require that
companies develop digital and data skills in employees outside
traditional technology functions. These capabilities alone,
however, are not sufficient to deliver the full benefits of
transformation; organizations must also invest in developing
process agility and, more broadly, a culture that encourages
widespread, frequent experimentation.

Technology. Of course, investment in the right technologies is

important, especially in the elements of an AI stack: data platform
technology, data engineering, machine-learning algorithms, and
algorithm-deployment technology. Companies must ensure that
the technology deployed is easy to use and accessible to the many
nontechnical employees participating in innovation efforts.

Architecture. Investment in organizational and technical

architecture is necessary to ensure that human capabilities and
technology can work in synergy to drive innovation. That requires
an architecture—for both technology and the organization—that
supports the sharing, integration, and normalization of data (for
example, making data definitions and characteristics consistent)
across traditionally isolated silos. This is the only real, scalable
way to assemble the necessary technological and data assets so
that they are available to a distributed workforce.

Many large companies are making headway in each of these areas.

But even leading companies tend to underestimate the
importance of getting employees to pull transformation into their
functions and their work rather than having central technology
groups and consultants push the changes out to the business. As
Eric von Hippel of MIT has advocated for many years, frontline
users, who are closest to the use cases and best positioned to
develop solutions that fit their needs, must take a central role,
joining agile teams that dynamically coalesce and dissolve on the
basis of business needs.

Building Tech Intensity

Our research unpacks how capabilities, technology, and
architecture work together to build what we call tech intensity.
Derived from the economics concept of intensive margin—how
much a resource is utilized or applied—tech intensity refers to the
extent to which employees put technology to use to drive digital
innovation and achieve business outcomes. Our research found
that companies that made good investments in technology and
made tools accessible to a broad community of data- and tech-
skilled employees achieved higher tech intensity—and superior
performance. Companies that failed to develop tech- and data-
related capabilities in their employees and offered only limited
access to technology were left behind.

See more HBR charts in Data & Visuals 

We ranked the tech intensity of the 150 firms in our study and
found that the top quartile of the sample grew their revenues
more than twice as fast as the bottom quartile. (See the exhibit
“Digital Transformation Pays Off.” To score your firm’s tech
intensity, go to www.keystone.ai/techintensity.) We also found
that technology, capability, and architecture indices correlated
with other measures of performance, from productivity and
profits to growth in enterprise value. Using an econometric
technique known as instrumental variables, we also found
evidence that the relationship between tech intensity and
performance was causal: That is, greater intensity (especially
investments in technical and organizational architecture)
powered higher revenue growth.

Staging the Transformation

Our analysis confirms that just spending money on technology
does not result in more growth or better performance; in fact, in
some cases it can actually damage the business if it accentuates
divisions and inconsistencies across groups. Instead, it is the
architectural, managerial, and organizational approaches to
transformation that best explain the substantial and enduring
differences among firms. We found that companies typically
progress through five stages on their transformation journey.

See more HBR charts in Data & Visuals

Traditional model. Not surprisingly, many companies fit what we

consider to be the traditional model of digital innovation,
whereby digital and technology investments are the province of
the IT department (or other technical specialist groups) and
impact is scattered across groups, mostly in inconsistent ways. IT
works with business units to fund projects and manage
implementation—say, for the deployment of an enterprise
application or a data platform technology. The projects and their
implementations are customized to the specific requirements of
the individual silos, business units, or functions. The result is that
over time, the technology and data infrastructure reflect the
quirks of individual groups, without any consistency and
connectivity. This sort of disjointed approach makes it virtually
impossible to share, scale, or distribute innovation efforts across
the organization.

Many businesses in the traditional model still spend a great deal

of money on information technology. Consider a financial
services firm we studied, whose tech and analytics budget is
among the top in its industry, in both absolute and relative terms.
The company has spent heavily on state-of-the-art data-platform
technology and hired thousands of IT specialists and data
scientists, who sit isolated in a separate IT group, while few (if
any) employees on the business side are involved in the
organization’s digital innovation efforts. The company thus lacks
the architecture and capabilities required to foster any intensity
in tech adoption. Not surprisingly, the firm’s IT and data sciences
efforts have stalled, and business impact has been minimal.
Núria Madrid

A telltale sign that a company is in the traditional stage is that

perceptions of impact among technology and business employees
are dramatically different. The former perceive impact to be high
(as measured by the effort they put into their work), while the
latter measure it as much lower (according to how their everyday
activities have benefited).
Bridge model. To break free of the traditional constraints of silos
—organizational and infrastructural—companies typically start
by launching pilots that bridge previously separate groups and
developing shareable data and technology assets to enable new
innovations. They might first focus on specific functional
opportunities such as optimizing advertising, manufacturing, or
supply-chain capabilities. These companies are piloting not only
technology but also a fundamentally different model of
innovation in which executives, managers, and frontline workers
from the business side work in collaboration with IT and data
scientists. Victor Bulto, Novartis’s head of U.S. pharmaceuticals,
was instrumental in launching early pilots (focusing, for example,
on identifying at-risk patients) and served as a champion for
many initiatives as the organization moved through the bridge
stage. Lori Beer, JPMorgan Chase’s global CIO, likes to talk about
the demonstrated impact of piloting AI to simplify expense
reporting and approval—a process-improvement pilot that won
over many employees.

Hubs. As more and more pilots demonstrate the success of the

new approach, organizations form data and capability hubs and
gradually develop the capacity to link and engage additional
functions and business units in pursuit of opportunities for
transformation. As they progress down this path, leaders begin to
realize that the bottleneck in innovation has shifted from
investments in technology to investments in the workforce. The
limiting factor at this stage is the number of business employees
with the capability—the know-how and the access—to drive
digital innovation. Companies thus need to invest in coaching
and training a much larger community of employees.
 See more HBR charts in Data & Visuals 

Fidelity strives to develop what it calls digital athletes. It began to

build hubs by creating centralized data assets (a companywide
data lake, for example); now it is scaling up training for thousands
of business employees, giving them the capacity to deploy
digitally enabled solutions across the entire business. Digitally
savvy investment specialists and tax experts, for example, are
working closely with data scientists and technologists to create
innovative solutions with a special focus on personalization and
tailored customer impact. They’ve also created an app aimed at
onboarding and engaging younger investors and another app for
delivering AI-powered recommendations to Fidelity financial
advisers, to name just a few examples.

Starbucks, too, is focused not only on technology and architecture

but also on developing broad-based, agile innovation skills in its
employees to power its hubs. CEO Kevin Johnson explains,
“We’ve gone from large teams working in silos to smaller, cross-
functional teams [everywhere], and from evaluating every idea as
pass-fail to rapid iteration.” Starbucks is now a digital innovation
powerhouse, with sophisticated customer apps enabling remote
ordering, loyalty programs, and payment systems along with
internal systems enabling AI-based labor allocation and inventory
management.
Platform model. As companies enter the platform stage, data
hubs merge into a comprehensive software foundation that
enables the rapid deployment of AI-based applications. Firms
focus on building sophisticated data-engineering capabilities and
encouraging the reuse and integration of machine-learning
models. Analytics-based prediction models are applied across the
business, with an increasing focus on the automation of basic
operational tasks. Organizations begin to function a bit more like
software companies, developing comprehensive capabilities that
enable product and program management and rapid
experimentation.

Over the past five years, Microsoft has gone through almost every
stage of this journey. Years ago, we were just as siloed as most
companies, with each product-based organization segregating its
own data, software, and capabilities. As we connected and
normalized data from different functions and product groups, we
were able to deploy integrated solutions in areas ranging from
customer service to supply-chain management.
We integrated all our data in a companywide data lake, and we
built what we call a business process platform, which provides
software and analytics components that teams use to enable
innovation in areas ranging from Xbox manufacturing to
managing advertising spend. We also invested in training
programs for nontechnical employees, cultivating data-centric
and machine-learning capabilities throughout the organization.
Native model. The most successful companies among the 150 in
our study have deployed an entirely different type of operating
architecture, centered on integrated data assets and software
libraries and designed to deploy AI at scale across a huge,
distributed spectrum of applications. Its hallmarks are a core of
experts; broadly accessible, easy-to-use tools; and investment in
training and capability-building among large groups of
businesspeople. These companies are approaching the capacity of
digital natives such as Airbnb and Uber, which were purpose-built
to scale companywide analytics and software-based innovation.
Airbnb and Uber are certainly not perfect, but they come close to
the native ideal.

At Microsoft, we still have a lot to learn, but in some parts of the

organization we are starting to approach the native model. As is
common in any enterprise, the progress has not been uniform.
Different groups have achieved different levels of capability, but
the results overall are encouraging, as we see increasingly
innovative solutions to internal and customer-facing problems.
Most critically, our companywide approach to understanding,
protecting, and working with data has progressed by light years.

The Imperative for Leaders

The mandate for digital transformation creates a leadership
imperative: Embrace transformation, and work to sustain it.
Articulate a clear strategy and communicate it relentlessly.
Establish an organizational architecture to evolve into as you
make the myriad daily decisions that define your technology
strategy. Deploy a real governance process to track the many
technology projects underway, and coordinate and integrate them
whenever possible. Champion agility in all business initiatives
you touch and influence. And finally, break free of tradition. Train
and coach your employees to understand the potential of
technology and data, and release the innovators within your
workforce.

This mandate extends to technology providers. Despite much

investment, technologies are still too complex and are often too
hard to use and deploy. We need tools and technology that make
driving transformation intuitive for frontline workers while
keeping data secure. Let’s not forget that until recently many of us
were relying on specialists in Fortran and Cobol to model business
problems and even to perform basic mathematical operations.
Spreadsheets brought about a revolution in mathematical
modeling; we need technology providers to bring the same
revolution to AI and make using a machine-learning application
as easy as creating a pivot table.

Momentum is growing. But we must sustain the efforts to ensure

that companies of all stripes make it across the digital divide.
ABusiness
version Review.
of this article appeared in the May–June 2022 issue of Harvard

Marco Iansiti is the David Sarnoff Professor of

Business Administration at Harvard Business
School, where he heads the Technology and
Operations Management Unit and the Digital
Initiative. He has advised many companies in
the technology sector, including Microsoft,
Facebook, and Amazon. He is a coauthor (with
Karim Lakhani) of the book Competing in the
Age of AI (Harvard Business Review Press,
2020).
 Satya Nadella is the chairman and CEO of
Microsoft.

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