How Culture Drives Digital Transformation

To successfully adopt cutting-edge technologies, companies should first address the underlying cultural and organizational issues, say the authors of ‘The Technology Fallacy.’

The difference between a company that harnesses cutting-edge technologies to establish competitive advantage and one that commits “random acts of digital” isn’t the selection of the technology. Nor is it the implementation.

Culture, as it turns out, can advance or inhibit digital transformation. If companies can lay the groundwork by building a culture that is more adaptable to change, then implementing new technology and business processes can proceed more smoothly. Those are among the conclusions of The Technology Fallacy: How People are the Real Key to Digital Transformation (MIT Press, April 2019), whose authors include Garth R. Andrus, principal, Human Capital Practice; and Anh Nguyen Phillips, research lead, Deloitte CIO Program, both of Deloitte Consulting LLP. The authors’ findings draw on four years of surveying executives about how technology changes the way companies operate. The study, conducted by Deloitte Consulting LLP in collaboration with MIT Sloan Management Review, gathered responses from more than 16,000 people from 157 countries and 28 industries. The authors also conducted 75 interviews with C-suite members, other executives, and subject matter experts.

Achieving powerful results requires companies to coordinate their cultures, people, structure, and tasks, and to keep them in alignment as technology evolves. Marketing executives can play a leading role in remaking the culture to facilitate digital transformation and thereby advance the company’s “digital maturity”-the extent to which it can exploit the opportunities enabled by digital transformation.

Respondents recognize what’s at stake. An overwhelming majority (87%) said that digital technologies will disrupt their industries to either a great or moderate extent. Yet, only 44% believe that their companies are adequately preparing to respond effectively. The substantial gap suggests that while most organizations may be talking about digital transformation, most may not be taking the right steps to address it.

Those steps are foundational and may require companies to consider changing how they do business. This can include finding ways to respond more quickly to ongoing technology shifts and developing institutional and individual skills, as well as leadership styles, to suit the new environment. Because a company’s culture can make all the difference in its overall digital maturity, organizations need to create environments where digital transformation can unfold. In the study, nearly 60% of respondents from digitally maturing companies noted that their companies drive digital adoption and engagement by cultivating such values as risk-taking, collaboration, agility, and continuous learning.

Making Minimal Viable Changes

Communicating the goal is critical to creating that innovative environment. Managers can motivate employees by relaying a clear picture of how they expect the changed business model to function: which customers will be served (and how), what new value proposition will result from different cost and efficiency advantages, and-of course-how technology might support the new model. In the Deloitte/MIT SMR survey, 80% of respondents who identified their companies as “digitally maturing” credited their organizations with having a clear and coherent strategy. Among companies that considered themselves “least mature,” only 15% could match that claim.

When it comes to acting on the plan, the authors suggest that companies start on the digital path by making minimum viable changes. Such iterative implementations may be as straightforward as endowing managers with decision rights to manage non-employees, such as contractors and contingent workers.

Barriers to Culture Change

With each digital initiative, organizations have the opportunity to learn more about the new and unfamiliar landscape. Managers and employees witness firsthand how the addition of a single digital tool can percolate throughout the business, affecting activities from product development to distribution to resource allocation. And the result of doing one thing differently, then another, builds up the culture’s agility muscle, as individuals accommodate and absorb each change.

As they anticipate the dramatic impact of digital technology, companies gain a rare opportunity to restart the business-and its culture-from scratch. They can re-evaluate how the business creates and captures value, and make fundamental organizational shifts. Some barriers can make it difficult for companies to adjust their cultures to accommodate digital transformation, including:

Model Leadership for Digital Dominance

  • The competency trap: For some companies, especially well-established ones, past success can blind them to the need for urgent change. They fail to see how drastically technology is changing their competitive landscape, and why their processes and mindsets, if unchanged, could open an opportunity for other players.
  • The speed trap: In some cases, C-suite executives may underestimate how quickly a rival with a digital infrastructure can pose a competitive threat. Their tendency is to wait until evidence of disruption drops to the bottom line-which may be too late. They may also overestimate the speed at which they can catch up.
  • The structure trap. When it comes to driving adoption of digital tools, the top-down approach is often ineffective. For companies with command-and-control structures, that means providing time and support for employees to receive training and figure out how to integrate the tools into their work. Again, it’s more effective to cultivate the right conditions for acceptance than to mandate digital adoption.
  • The “enemy within” trap. The Deloitte/MIT SMR study asked respondents to write a few words about the biggest threats facing their companies as a result of digital trends. The biggest category of threats related to internal organizational issues was lack of agility, complacency, and inflexible culture. Respondents clearly lacked confidence in their companies’ ability to withstand necessary changes.

The need for organizational self-assurance helps explain why effective leadership plays a critical role in creating the culture necessary for digital transformation. In the Deloitte/MIT SMR study, 80% of respondents from digitally maturing companies expressed confidence that their organization’s leaders have the skills and experience to direct digital strategy. By contrast, 20% to 30% of early-stage companies communicated such conviction. Still, as disorienting as the digital revolution may be, the essence of what constitutes effective leadership has not changed drastically.

In the past, organizations may have defined a strong leader as one who had all the answers. In a transforming environment, however, leadership is about framing powerful and inspiring questions. To keep their organizations at the digital forefront, CMOs and other leaders will need to model continuous learning, as well as other essential capabilities. In the survey, respondents cited such abilities as setting a forward-looking vision, empowering employees, and promoting collaboration.

The path to digital maturity is crowded with uncertainties. Employees want to follow leaders who can help them stay a step ahead, continually communicating their commitment to cultural change and reinforcing the purpose behind digital transformation.

In the survey, 68% of organizations believe they need to find new leaders to triumph in the digital era. What can be true of leaders may also be true of culture: The attributes that helped drive the organization to the threshold of the digital era may not be identical to those that will carry it through the impending transformation. In both cases, the key is to identify the necessary changes and address them-by developing or acquiring the appropriate skillsets -as swiftly as possible.

by Josh Hyatt, Deloitte Services LP, senior writer, Deloitte Insights


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