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DTW (Digital Transformation World)

Unlearning inertia to shift to digital culture (whatever that means)

If organizations know the importance of culture for digital disruption, why are many still failing to meaningfully shift towards digital culture?

01 May 2019

Unlearning inertia to shift to digital culture (whatever that means)

The author of this article, Bontle Senne, Director, Strategic (Agile) Development Practices Department Corporate Investment Banking - Deutsche Bank, will be at Digital Transformation World in Nice this month discussing how firms can shift their culture from traditional to digital.

With a new generation of employees entering the workforce en masse, culture is more important than ever. LinkedIn’s Workplace Culture Trends 2018 research found that 71% of professionals surveyed in the United States would take a pay cut to work for an organization that shares their personal mission and values. It also found that 47% of professionals cited working for a company with an inclusive culture as the reason why they felt proud to work for their organisation. The C-suite can see this shift in the relative importance of culture to employees but responding to it has proved difficult.

In a survey of 3,000 executives, McKinsey and Company found that 70% of all organisational transformations, digital or not, fail and 70% of those failures can be attributed to inertia of culture and mindsets. Historically dominant incumbents, who have struggled to digitally transform, have found themselves at the mercy of digital disruption and its very real economic consequences. McKinsey found that these incumbents have seen a 45% reduction in revenue growth and a 35% reduction in their earnings before interest and taxes (EBIT) as a result of digital disruption. For any company interested in generating profits, there is no greater incentive for change than that.
But if these organisations know that culture is a huge determinant of how well an institution can respond to digital disruption– why are many still consistently failing to meaningfully shift towards digital culture? Part of the challenge is one of poor definition and misunderstanding.

Defining digital culture


In the context of institutional identity and transformation, the term “digital culture” has come to mean so many things that it has become functionally meaningless. Everything from overhauling monolithic legacy systems, to embracing psychological safety and robotic process automation, can be classified as such. Given the empirical correlation between transformation and culture, for companies trying to shift to a digital culture, it is practical to have a more tangible definition of what digital culture is.

Having spent the better part of the last decade working on large-scale transformations I have my own way of thinking about the kind of culture that supports transformation. I think of two things: firstly, unlearning command and control to create a better place to work and, secondly, solving customer needs through modern engineering practices.
By this definition, digital culture is the unlearning of waterfall business objective execution, and of command and control managerial mindsets. Digital culture is making environments simpler and work more efficient and purposeful for all employees. Digital culture is adopting automation, data manipulation, design thinking, and iterative ways of working to address real customer needs. Importantly, it is less about the interaction between humans and technology, and much more about the interactions of humans and humans in a rapidly modernizing workplace.

Changing incentives


One place to start to shift is with a recognition that culture change requires a breakdown of the usual incentives that employers offer employees and a redefinition of the power dynamics throughout the organisation, from the top-down.

In most organisations, employees are rewarded more for their ability to create the perception of achievement of results than actual results. Think of a large IT project. Project managers are rewarded for the speed with which they are able to progress the project through a set of stage gates and milestones. The milestones are linked to steps towards completing a product or improving an application. They are rarely related to or reflective of the creation of actual business value. What is often more concerning is that the conversation about business or financial value often only starts once the project is live. The project has been a cost centre up to that point so, after release, the project manager is required to start clawing back the costs it incurred during development. That is not the same as being expected to generate revenue, and however subtle the distinction may appear to be, it is an important one and has implications for the shift to a digital culture.

The way that employees are rewarded in traditional organizations is also based on perceptions. This time, the perception is based on ideas of what constitutes job satisfaction and allows the organisation to retain talent. Often the assumption at the C-suite is that monetary compensation and the promise of job security would come out as the most important factors contributing to satisfaction and retention. Deloitte’s 2018 Millennial Survey of 12,299 people across 36 countries found that, for millennials, financial rewards came out as most important. This correlates with the views of most millennials (born between January 1983 and December 1994) that companies should work for society and “share their wealth” with the people who work to generate it. As such, the relative importance of compensation for millennials is more about fairness and equality than the pursuit of profit. For Generation Z employees (born between January 1995 and December 1999), workplace culture was rated as more important than compensation. Organisations should take this as a sign of things to come.
So how do organisations breakdown the incentives that sustain traditional culture? I suggest a start with the basics: Build teams that are free to get on with the work and build managers whose only job is making sure teams are free to get on with it. In more concrete teams, firstly, forget traditional siloes to form cross-functional teams that think for themselves and have end-to-end accountability for their business outcomes.

This is the most difficult step and often the one that the C-suite disregard altogether. Executives tend to want to adopt digital ways of working in an orderly fashion that does not disrupt ordinary business operations and maintains tradition centres of budget and power. This works for small to moderate improvement on the status quo. It does not work for any institution trying to achieve breakthrough change and outpace digital disruption.

Reporting lines do not necessarily have to change but employees do need to agree to treat them as administrative tools only. Information is shared freely through physical and digital information radiators like whiteboards or intranet sites. There is no such thing as data only meant for management. Everyone is involved from the start – not added to the conversation later on when they are needed to sign up on something that did not co-create.
Secondly, reward managers for their ability diminish their need to command and control their teams and empower their people to be accountable. Traditional, directive forms of management focus on activities, not outcomes, by necessity because the manager cannot be everywhere at all times and relies on status updates to control progress. Accountability removes that requirement for a central decision-maker and controller. Accountability comes from making employees responsible for the end-to-end delivery of value. This is only possible when you create teams that have the skills, processes, and authority to own that delivery.

None of this will be ground-breaking information to your employees. They are already living with the pain of a traditional system that is incompatible with how technology interacts with humans and humans interact with each other. Employees already know what they need to change to embrace digital culture – regardless of how your organisation chooses to define that. What they need is leaders brave enough to just let them do it.