Joe Galvin of Vistage: SMBs Satisfied with Digital Transition Miss Out on Potential Big Payoff from Digital Transformation

Last year I caught up with my buddy Joe Galvin. Galvin serves as Chief Research Officer of Vistage. The business advisory and executive coaching organization’s membership includes more than 22,000 business owners and executive leaders. Recently I caught up with him again. And we talked about a phrase that continues to get a lot of attention. That phrase is digital transformation. And it has generated a lot of focus and discussion. But Joe sees digital transition taking place at small businesses instead. Now, digital transition definitely creates a positive impact on business operations. But Joe says it doesn’t come close to the potential impact modern tech can have. It comes down to whether you give it the chance.

Check out the edited transcript of our conversation. Or watch the full interview on video. You’ll find it at the top of this page. Or click on the embedded SoundCloud player below.

Definitions of Digital Transition and Transformation

Small Business Trends: Tell me what your definition of digital transition is. And your definition of what digital transformation is.

Joe Galvin: This goes back to my time when I was at Gartner. As I was running worldwide sales operations. As we transitioned from a paper-based system into spreadsheets. And to Word documents and basic contact managers. Then we launched a website. And then we deployed one of those first generation client server-based sales force automation applications. We beat our brains out trying to adapt this technology to how we worked in paper. And the concept is that what we have experienced as a community is a digital transition. I mean, we’ve transitioned to paper. 1980s, paper-based human analog processes and workflows. And we force-fit those into technologies like Excel, like databases. Like CRM, like ERP. And tried to bend those technologies to how we worked as humans.

Changing the Way Your Business Works

Digital transformation is to change how you work. To let the technology dictate to you what are the best practices. What are the optimal workflows. Based on what technology can do? So, especially as a small business, to go through the trial and error of figuring out what works best is a long and painful process, versus embracing the technologies which are built around workflows that have been designed based upon our vendors working with hundreds and thousands of customers to optimize what’s the best workflow for a marketing automation, for CRM, for ERP, for human capital management? And adapting our workflows and our processes to let the technology drive what we do versus trying to bend and adapt and customize it and waste money, time, and effort to get the technology to work the way we worked in 1980.

Becoming More Efficient with Technology

Small Business Trends: I’m going to just say what I see out there, and I’m going to focus it on the SMB level. When it comes to all this talk about digital transformation, about 90% of it is more digital transition like you’re talking about. Folks who are looking to technology to help them be more efficient with the things that they already know that they have to do, versus this new technology and allowing the new technology to do what it does, which is go beyond just transitioning to actually transforming and creating business models and more innovative thought and design opportunities.

Joe Galvin: Exactly. It’s so hard to develop best practices, and especially in small businesses, your workflows are dominantly built around the people that work for you. So, if you’ve got 20 employees and you lose employee number five, your workflow breaks down because it was based upon what Steve or Becky could do, right? Then you hire someone new and eventually you refarkle it, versus we’ve got a workflow that’s been pioneered, it’s been stress-tested, and been proven to work based on this technology that we bought. Why don’t we take what these people have done, leverage their best practice, and let’s focus on our customers, let’s focus on our operations, let’s focus on growing our business, not trying to be process experts.

Looking at the New Digital Natives

Small Business Trends: It seems like these newer companies, these digital native kind of companies, they already have that transformational thought process in mind. How difficult do you think it is for more meat and potatoes, Main Street small businesses that have been around for a while, to actually think in transformation versus transition terms?

Joe Galvin: You know, Brent, it’s really hard for somebody who’s been running a business for 25 years and this is how they’ve done it and this is how their father did it, to completely reinvent themselves. Often what we see is a generational change, so the grandson steps up, or an outside leader comes in, and forces that change. Because we work the way we work, and the business is good, and the business is fine, but you and I both know the rate of change is only accelerating.

AI and Machine Learning will Transform Everything

The capabilities of what AI and machine learning are going to bring, let alone how 5G is going to transform everything, it’s only going to happen quicker, faster. And if you’re not on the edge, you’re just taking up space, and it’s the fast path to obsolescence. It’s also a way to gain a competitive advantage, excuse me, if you can process and execute more efficiently, more accurately, more productively, and leverage what this data can tell you, now you can focus on your customers. Now you can focus on your products, you can focus on your markets.

Most importantly, you can focus on your people, because the talent crunch is so extreme in small and mid-sized business today that you just can’t spend the time, I don’t believe, trying to do things the way you have done them when the world is just accelerating so quickly.

When Will More Mature Businesses Make the Move?

Small Business Trends: The impetus for these more mature business folks that have been around for a while … What’s going to make them make that move, that move to transformation versus transition? Is it losing customers, or is it not being able to bring in the kind of talent they need to help drive the business forward?

Joe Galvin: I think they’re going to feel two things: the slow deceleration of their growth, and the disintermediation of a competitor. So, excuse me, sorry. What we see is it’s hard to make the decision to go in and choose a new technology, right? It’s harder still to go through the integration of that application into your infrastructure and the other systems you may or may not have. But the real challenge these leaders face is the behavioral change management that’s required to get people to change how they work.

Bring in New Technologies to Improve Engagement

I was talking with one of our members a couple weeks ago, and they’ve gone through this transformation and brought in a variety of new technologies trying to revamp how they engage and connect with customers, how they manage workflow. And this guy had to fire two 20-year employees because they just couldn’t change, couldn’t or wouldn’t. I don’t know what the right answer is there, but we’re in this world of change.

Ignoring technology and failing to leverage it is a fast track to obsolescence. You can kind of have that circle of decay, and slowly try to hold the spiral or you can step up and make the change. But it’s truly a leadership challenge. We know the technologies work, because we see too many people taking advantage of some of the great stuff done by the vendors that you and I both know. It’s the leaders who can step up and embrace that change and drive that behavioral change that allow their companies a step forward. That’s where transformation happens.

Why Digital Transition Won’t Get You There

Transition, that’s the shortcut easy way out of saying, “Why, yes, we bought new systems. Yes, we invest in technology.” But all you’re doing is just you’re asking a horse to go faster, as opposed to investing in a car, right?

There’s a great photo. It was in some report where they showed a New York City street in 1901, and there was one car, and then they showed it in 1918, and there was one horse. That’s how quick that transformation happened, right? So, Henry Ford, if he asked his customer what they wanted, it would have been, “A faster horse.” It’s not a faster horse, you need a new means of transportation driven by this thing called internal combustion engine.

So How Do You Truly Transform Your Business?

Small Business Trends: As long as it comes in black. I think that’s the way he put it… CRM is one of those areas that companies seem to be investing in. But are companies looking at CRM as just another tool of transition when they don’t understand how a package like CRM can help transform the way that they engage customers and keep customers around longer?

Joe Galvin: Well, I think, and this is a point you and I made before, or that you made before, is that they look at it as a way that we can do what we do a little faster, a little bit easier, a little bit quicker. Or realize that, okay, so this can make us go from one mile an hour to five miles an hour, not recognizing that if they fully embrace what this technology has built into it, and how it revolutionizes how you connect with customers, how you share data, how you collaborate, how you leverage data and engage with customers, to engage with prospects, it’s like our cell phones, right? We use about 5% of what our cell phones can do, as opposed to exploring all the apps and all the capabilities.

Be Careful to Avoid Taking the Easy Way Out

I think it’s the easy way out. It also gives leaders the excuse to say, “Well, yeah, we invested in CRM,” as opposed to recognizing the power of what technology can do. We asked, again, we asked our community, this was in December, “Which business applications will you be investing in?” Not hardware, not people, not infrastructure, but, “What biz apps are you going to invest in?” And 45%, the leading choice was CRM, followed by accounting, followed by collaboration, HCM, ERP kind of stuff, independent upon the vertical, it’s different.

But overall, 78% of our members were planning to invest in business applications in 2019. So, if people are spending money, they’re reaching for the wallet. And as hard as that is to sign that big check, the work’s just started.

Small Business Trends: Right.

Getting Started with True Transformation

Joe Galvin: The work’s just started, because it is a people challenge. It’s getting those people that have maybe worked in, are happy in spreadsheets, or happy using a basic contact manager, to now embrace the full power that’s built into the best practices that our vendors create for our users.

Small Business Trends: So, are these folks who are going through transitions instead of transformation, are they happy about what they’re getting from the lens of transition, or are they thinking they’re going to get transformation, and they’re only focused on transition, and they become maybe frustrated?

Joe Galvin: Well, I think that they are happy because they are seeing that productivity uplift. Remember when you went from writing letters to email, when you went from having manual ledgers to spreadsheets? It’s like once you kind of got the hang of it, once you learn the first 20%, you’re like, “Wow, this is great.” Then somebody shows you a Pivot Table, and you’re like, “Oh, my goodness. You just broke my brain,” right?

Failing to Reach Your Business’s Full Potential

So, they see that uplift and they feel good about it, but because they don’t intellectualize and internalize the full potential, nor do they necessarily have the courage to reach for that, I think they’re missing out on it. And again, the comparison is those that do really see an advantage.

So, a story, an innovation story of one of our members was in the countertop business, right? Custom countertops, right? You redid the kitchen in the last, what, five, six years, right? You want those new countertops and you want the … Well, there was not an online app for this, because nobody thought you could buy custom countertops online. So, this guy went out and he created an online app where you can design and develop your own countertops. His business exploded.

Start Now to Get the First Mover Advantage

Now everybody’s copying him, of course. But he had that first-to-market mover advantage. And you would think that, again, because you and I are in technology a fair amount, “Well, why didn’t that happen before?” But that’s an example of true transformation. How can I innovate to create a new capability to access new markets? So now I’m not just selling to people within 50 miles of my showroom, I’m selling to people across the country, around the world, because I can take in their orders. We can bend and shape, configure and ship. It totally broke … It blew this guy’s business up. That’s an example of someone who saw an opportunity and skipped transition and went straight to transformation.

Because you could’ve taken that application and talked to someone on the phone and do it yourself, versus put it out there in an eCommerce play, and let people go to it. We feature that story in our upcoming innovation report. I’ll send that to you when we’re done here.

Transition Offers Short-term Happiness

Small Business Trends: Absolutely. Cool. So, folks who are focused on transition, maybe they’re happy with transition, is that a short-term happiness, or is this something that gets them on the path to thinking about transformation, once that initial transition takes place?

Joe Galvin: You know, Brent, I like to say that they think that this is step one of two, but we both know that phase two rarely happens in a project. It’s so hard to get phase one up and running. It always costs more. It always takes longer, requires more pain. You use more human political capital to get it done, and then you get it up, and you’re kind of running again, and you’re feeling better about it, and you just don’t have the courage to go forward, as opposed to taking that leapfrog and saying, “We’re going to go all in.”

Adopting Technology Should NOT be Done Halfway

If you’re going to spend the money, then spend the money. Then go for it. Again, I believe with some of the emerging technologies coming, we’re starting to see it. It’s just a fragment right now, but AI is starting to raise its head in a lot of places, in small and mid-sized businesses.

I mentioned earlier, 5G’s going to change everything, right? It’s going to turn … You have zero latency. We’re already seeing some of the manufacturing people think about how that’s going to impact their ability to manage the throughput in their machines. Again, things are only going to accelerate, so the degree to which you struggle to keep up, you’ll never catch up and then you’re just in that death spiral.

Digital Transformation Offers New Opportunities

Small Business Trends: Is that the sales pitch, the up-sell to folks who are saying, “We need transition. We need to transition.” Do you upsell those folks to transformation by the scare tactics of, “If you don’t do it now, you’re going to miss out,” or do you present a picture of opportunity? Which one do you think works best?

Joe Galvin: Well, you know, it depends on who you’re talking to, because for some people, they want to see the opportunity. You talk about, “This is how you’ll achieve your goals. You’ll get a market advantage. You’ll be perceived as a leader,” versus, “If you don’t do it, you’re going to lose customers. You’re going to lose market share. You’re going to lose value.”

You Must Decide What’s Right for Your Business

Only you can decide, Brent. Only you can decide what’s right for your business. You’re a big boy. You’re running a business. You make that decision, but let me show you examples of people who have embraced this and what it’s led to them. It takes courage. It takes real courage. Again, choosing a vendor, that’s hard. Writing the check, that’s a little bit harder, right? You want to make it work?

Small Business Trends: That’s hard.

Joe Galvin: Well, now, put on your big boy pants and big girl pants, because that’s the challenge. And if you can break through, the opportunities for growth, and more importantly, I think, the ability to set your business up for the future is critical.

What Are You Doing to Prepare Your Business for Change?

I was just at one of our events in Houston and I sat in on our manufacturing breakout. They were talking about, in this session, talking about, “What are you doing to prepare your business for the changes you see coming?” And universally, the answer was, “Technology.” Whether it was a manufacturing ERP kind of thing, a CRM customer kind of thing, even the human resources thing, this is all stuff that people have to get focused on.