Culture is key to organizational transformation

Dec. 3, 2018
Align your organization’s culture to accelerate digital innovation.

By Paul Studebaker, Control editor in chief

Companies are racing to take advantage of the efficiencies offered by increased use of digital technologies, some to gain a competitive advantage, some simply because their customers demand it. But too often, companies fail to make a successful transformation. “A recent survey shows that nine out of 10 digital transformation efforts did not meet business objectives,” said Suzanne Burns, global industrial and digital practices, Spencer Stuart, at Smart Industry 2018. “It comes down to leadership’s ability to recognize the role of culture, and build it to meet those objectives.”

Spencer Stuart's Suzanne Burns

The best laid plans have often been brought down by people who don’t appreciate their value and importance—Peter Drucker famously observed that “Culture eats strategy for breakfast.” Yet, it’s even more rare for an organization to succeed without a plan, so it’s often been said that, “No culture, however strong, can overcome poor choices.” So, who’s right?

“Both are correct, but culture is at the center of success,” said Burns. “Poor choices can get in the way, but good underlying culture can overcome them.

“Lou Gerstner, chairman and CEO of IBM from 1992 to 2003, once said, ‘Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success—along with vision, strategy, marketing, financials and the like… I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game.’ He and other significant figures point to culture as key to long-term success.”

Roots and rewards

Today’s culture for digitalization has roots all the way back to the dawn of the technology. In the late 1990s, digital talent was primarily sought for start-up companies. By the mid-2000s, heads of digital were reporting to the chief marketing officer (CMO). In 2007-2010, the focus shifted to finding CMOs with digital experience, and then we saw growing demand for governance around digital expertise, as “IoT was seen as a new revenue stream,” Burns said. “Now, digital has become integrated across the organization.”

But a culture that does digital well differs from the culture of most industrial organizations. “A ‘digital edge’ exists where digital information and physical resources combine in new ways to create value and revenue,” Burns said. “Enterprises seeking a digital edge transform processes, business models and the customer experience by exploiting the pervasive digital connections between systems, people, places and things.”

Digital edges used to be a marketing phenomenon, but now they can and must be found in all areas of operations. “In 2016, we partnered with MAPI on a survey of how companies are dealing with digitalization, and it was mainly in marketing and IoT,” Burns said. “Now, it’s becoming more granular, in marketing but also telematics, cloud-based solutions, predictive diagnostics, 3D printing, robotics and more.”

What the efforts have in common is, “Centering on customer experience, to reach more customers, with better distribution,” Burns said. Opportunities are being found where companies can:

• Expand customer reach and segmentation

• Deliver a consistent customer experience

• Enhance product distribution

• Develop a new revenue stream

• Improve a brand

• Provide data security

The opportunities are significant—McKinsey estimates the value added by IoT will be $4-11 trillion by 2025.

Close the gap

Spencer Stuart prepares companies for future leadership needs. “What have we learned?” Burns asked.

First, digitalization is snowballing. The study by Spencer Stuart and MAPI asked, “When did your company start focusing on digital transformation?” In 2016, only 21% of respondents had kicked off digital projects in the past 36 months. In 2017, that rose to 36%.

Second, digitalization is still early on the maturity curve so it’s not too late to gain an edge. “Many companies rated digitalization high in strategic importance, but many are just beginning,” Burns said, with 84% stating they are at a low level of maturity, while 83% acknowledge high strategic importance.

“So, there is a gap. Why is that?” Burns said. Companies are having trouble getting started, and more trouble succeeding. Burns attributes at least part of the problem to culture.

One definition of “culture” is, “A shared set of assumptions that drive action—the unspoken rules,” Burns said. “Getting it right—the right people, right structure and actual networks—is how work gets done. Leadership’s role is to select what’s right.”

Different industries have different priorities that lead to different cultures. “There is no one correct culture, it depends on your purpose and environment,” Burns said. But regardless of sector, the first two priorities are results and caring. The order of the rest vary according to the industry. In the industrial sector, values in order of importance are results, caring, order, earning, purpose, safety, authority, and enjoyment

Other industries reflect different priorities, so their people will be accustomed to different paradigms. When talent is brought in to industry from, for example, consumer products or IT/telecom, there are cultural disconnects. For example, cultures strong in independence tend to make fast, rules-driven decisions, while cultures that foster interdependence will make slower, more cooperative decisions.

A successful culture for digital transformation will inspire learning agility to overcome the gap between importance and action, and people will embrace diversity of thought, Burns said. “You need individuals able to inspire learning agility, and you need to change to let them be successful.”

The structure will help align matrixed processes. “The best digital leaders are good at navigating the corporate matrix, to bring the right teams together to make changes happen,” Burns added. For example, the traditional approach to industrial strategic planning is a three- to five-year plan, updated annually. “Now it needs a more dynamic, real-time approach,” Burns said, “And the same for new product development, etc.”

Structure for success

The need to build new structures has led to the emergence of new roles, such as vice president, digital excellence, to be filled by a different kind of worker. “Where do you find those people?” Burns asked. “We look for individuals with vision and the ability to communicate the potential of IIoT. The rest of the organization needs convincing—they must articulate the value, and how it will bring that value to the company.”

Other qualities are willingness to accept risk; persistence to get resources; facility with data analytics, IT and security; and orientation toward customers. “Listen to the voice of the customer,” Burns said. “Get out there and listen.” Every project with digital in its name must have a defined ROI.

“If we need to find people outside the industry—in analytics, consumer products, wearables—we go to Silicon Valley, defense and consumer industries,” Burns said.

In conclusion, Burns identified a short list of “lessons learned” in digital transformation:

• Articulate a digital strategy that positions digital capabilities as a differentiator.

• Structure for speed and agility. Challenge the org

chart and standard processes.

• Lead from the front: The CEO and senior team must

champion change.

• Inject change-makers and digital influencers throughout the organization.

• Create a company culture that nurtures innovation.

• Accept that transformation is an on-going process.

“An organization’s ability to learn and transfer that learning into rapid action is the ultimate competitive advantage,” Burns said. But, “It’s not going to happen overnight—it’s a new way of life.”