Having had to issue a string of profit warnings between 2012 and 2020, education company Pearson has been busily reinventing itself in recent years, with some success. The purveyor of university textbooks has converted itself into a digital-first business.
In a trading update in March 2021, less than half a year into the turnaround, CEO Andy Bird noted: “We no longer buy CDs; we listen to Spotify. We no longer buy DVDs; we watch Netflix. How we learn is also changing, driven by technology and new consumer habits.”
Under the leadership of the former Disney executive, who joined in October 2020, Pearson has started to see digital sales growth and improved margins. A key factor in the FTSE 100 company’s recovery has been its ability to persuade key stakeholders to back its rejuvenation plan.
It was telling that the same trading update featured a contribution from Amazon CEO Andy Jassy, who at the time was in charge of Amazon Web Services, Pearson’s cloud partner.
“There are a lot of companies who talk about transformation, but not all of them succeed. Fortunately for us, Pearson really gets it,” he said, adding that the firm had “made a ton of progress”.
Pearson serves as an exemplar of what can be achieved when there’s a shared vision and full commitment to the process of realising it – in the full knowledge that patience will be required. Anyone who imagines that a transformation will be an overnight success is likely to be in for a big disappointment.
1. Don’t expect a rapid return on investment
The degree to which CEOs are willing to start digital transformations and persevere with them can be influenced by the large amount of capex these typically require and the knowledge that they’ll have to wait to see a financial return on the investment.
When FTI Consulting surveyed 600 business leaders in the UK, France and Germany at the start of 2023, it found that only a quarter of the 31% who’d reported completing a transformation deemed it a complete success. But they were expecting their businesses to grow organically by an average of 27% over the year, compared with the 18% mean growth rate forecast by those who’d yet to complete a transformation.
Some leaders may be finding the upfront costs and complexities of implementing a digital strategy too daunting to contemplate, given that there are no guarantees that a transformation – successful or otherwise – will deliver growth quickly. That’s the view of Jon Priestley, MD of FTI Consulting’s strategic communications business.
“A digital transformation can feel incredibly complex,” he says. “Do you start with the tech required, the finance you need or the people to execute it? Business leaders are under pressure on several fronts, so it can be all too easy to focus on more immediate challenges and put transformation to one side.”
2. Look beyond the costs of digital transformation
The cost-of-doing-business crisis is likely to have made firms even more wary of committing to big-ticket, long-term investments of any kind. It would be understandable for a struggling company to put transformation plans on the back burner while it focuses on cost control – perhaps even by cutting its IT budget – to ensure its short-term survival.
Paul Edwards is chief of technology evolution at transformation consultancy AND Digital. He argues that, while it “can be difficult to predict the commercial benefits” of a digital transformation, “business leaders need to move away from a cost-centred mentality and start looking at it as a value stream enabler.”
Only when a business is structured in a way that empowers teams will you see profound changes
Edwards believes that prioritising a transformation is likely to pay off in the medium to long term. He points to the potential gains to be made when a business is optimised to receive feedback faster, learn faster and see results faster.
“This step change allows businesses to tap new revenue streams that they may not have been aware of previously. It opens doors and creates possibilities,” Edwards says.
Clare Hickie, EMEA technology chief at software-as-a-service firm Workday, agrees. Her view is that any short-term pain experienced in a transformation project should be outweighed by lasting gains achieved through improvements in resilience, agility and decision-making.
“The capacity for scenario planning and what-if analysis, for instance, can offer business leaders a strategic playbook to handle future disruption,” Hickie suggests. “This then equips them with a data-led plan amid uncertainty.”
3. Ditch old ways of thinking
Edwards stresses that firms must first understand that a digital transformation isn’t simply about adopting new tech if they’re to stand any chance of maximising the return on investment over the medium to long term.
“This act will be meaningless if the business hasn’t set itself up in a way that makes best use of that technology,” he says.
Take the uptake of generative AI, for instance. It may be a powerful technology, but it will prove far less effective in the hands of an organisation that hasn’t jettisoned old-fashioned structures and attitudes, such as the silo mentality.
Edwards likens that situation to “sitting in a Ferrari in a traffic jam, thinking your vehicle of choice will get you to your destination faster”.
A digital transformation can feel incredibly complex. Do you start with the tech required, the finance you need or the people to execute it?
In a hierarchical structure, each employee has a clearly defined role, but there can often be a lack of communication between levels. As a business grows, the hierarchy can deepen, exacerbating the communication problem.
A particularly hierarchical structure makes it harder for leaders to rally support for a transformation project among the rank and file. Successful project management also requires quick decisions to be made. All this demands a flatter structure, which can open lines of communication and ensure that all employees are aware of all the goals of the exercise.
The right structure should foster a culture and ways of working that encourage learning and innovation. This should in turn ensure that the firm extracts the maximum possible bang for its technological buck, Edwards argues.
“Only when a business is structured in a way that empowers teams – with the right people, skills and tools – will you see profound changes that drive true value,” he says.
4. Be prepared to adapt constantly
Part of setting the right structure in place involves establishing a self-perpetuating positive feedback loop. This will inform the transformation constantly and push it in the direction it needs to go.
The FTI Consulting survey found that leaders who’d reported successful digital transformations were more than twice as likely as those who hadn’t to cite the use of employee feedback as a key success factor.
What’s more, while the cost of adopting systems such as machine learning may seem excessive to struggling firms, such automation promises to deliver efficiency savings by streamlining functions. Moreover, the insights that could be gleaned from this advanced tech could cut the cost of implementing digital solutions further down the line.
For any business thinking about deferring its digital transformation because of the high upfront costs and the relatively long payback period, Hickie offers these words of warning: “The world is evolving rapidly – and the cost of not transforming can be far greater, potentially leading to missed opportunities and decreased competitiveness.”
Having had to issue a string of profit warnings between 2012 and 2020, education company Pearson has been busily reinventing itself in recent years, with some success. The purveyor of university textbooks has converted itself into a digital-first business.
In a trading update in March 2021, less than half a year into the turnaround, CEO Andy Bird noted: “We no longer buy CDs; we listen to Spotify. We no longer buy DVDs; we watch Netflix. How we learn is also changing, driven by technology and new consumer habits.”
Under the leadership of the former Disney executive, who joined in October 2020, Pearson has started to see digital sales growth and improved margins. A key factor in the FTSE 100 company’s recovery has been its ability to persuade key stakeholders to back its rejuvenation plan.
