Those in charge of digital governance want to believe they’re 21st-century innovators, but our extensive work on digital transformation reveals a dirty little secret: they’re more likely to be trapped in ancient laws of inertia. Despite plenty of success in developing powerful new capabilities, they fail to achieve the transformative impact described in their vision. The result is a false sense of forward motion, even as the enterprise continues to stagnate.
Let’s take digital marketing as an example of a business area where new digital capabilities are often developed. Companies hatch new digital marketing programs in their innovation departments or centers of excellence. But even when these are tested and proven effective, they often never quite become business-as-usual. Why is that? Chances are there are two reasons. The first is that the department was never set up to handle day-to-day implementation. The second is that they get shoved into a legacy department that incentivizes established ways of working, and the new skills languish and die.
Enter the Capability Maturity Matrix
The lesson here is that building any new capability is only half the job. Just as important is bringing the capability into the larger organization, and making sure it’s housed in the right place. We suggest making this decision based on two dimensions. (Look, if you didn’t want a 2×2, you shouldn’t have come to a management consultancy). The first determines whether the capability is core or not core to the business today, and the second dimension describes whether the skill is new or established.
QUADRANT 1: THE LAB
If a capability is new and not yet core to the business, it’s an experiment and belongs in a lab. Augmented reality, for example, isn’t essential to most businesses yet. But it has many potential applications. In B2C, retailers are using it enrich shopping, letting people play with new paint colors or reposition living-room couches. In B2B, companies are trying to reduce assembly line errors by overlaying the relevant task steps to factory workers in their field of vision.
QUADRANT 2: THE INCUBATOR
If a capability is new but well on its way to becoming core, shaping it in an incubator works best. For instance, many companies incubate agile marketing and content marketing. Yes, they’ll be considered business-as-usual soon. But right now, companies still need help understanding how they’ll add value and developing standards for doing the work consistently across the enterprise.
QUADRANT 3: BUSINESS AS USUAL
This is the trickiest dimension. Once standards are in place, and value is proven, managers need to shift responsibility for them into the company’s broader function. To do that requires changes in job specs, trainings, and incentives. However, it’s vital to do it so that you can free incubator staff to concentrate on building standards on the next new thing, which is what they do best.
QUADRANT 4: SHARED SERVICES
For established capabilities that are no longer core to the strategy, the less attention it needs. Smart companies recognize that these become commoditized, consolidating them into lower cost solutions. They may outsource them, for instance, or insource them to an optimization-focused center of excellence. The work is still valuable, but the goal is parity within the industry at the lowest cost possible.
What should you do?
All this calls for the ability to see digital capabilities as part of a constantly moving pipeline, a capability lifecycle that must always remain in motion.
It demands consciously iterative decision-making because without it, inertia reigns. Marketing tech stacks sprawl into incomprehensible landscape diagrams. Well-nurtured new capabilities never get the chance to leap into the full organization. And marketing people slog away on chores that are less relevant by the day.
Regardless of who’s in charge, digital capability governance requires a cross-functional set of leaders to review what exists and assess relative maturity of new capabilities. And given the pace of change today, these reviews are worth doing at least twice a year. It takes active experimentation, customer engagement and steady measurement to make applied innovation become business as usual.
New capabilities emerge and mature quickly, so proactively managing them is essential. Just as programmatic ad buying sprang up fast, so is buying driven by AI. What about social and voice commerce? Augmented reality? While it’s impossible to say how quickly these mature and wane, we know one thing: Companies that understand the value of these innovations and industrialize solutions fastest will come out ahead. Speed wins the day.