Digital Economy Dispatch #107 -- How to Avoid a Digital Culture Clash

Digital Economy Dispatch #107 -- How to Avoid a Digital Culture Clash27th November 2022

The move to work in a business school was a big unknown for me. I had spent 20 years in various software development and delivery organizations. Before that, I had 5 years in university computer science departments completing a PhD and teaching undergraduate courses. But I was enthused by the idea that it was in a business school that I might be able to find answers to some of the question that had been bothering me for some time: Why do so many largescale software projects end in failure despite using great software teams armed with the latest technologies?

My attempts to engage computer science departments on this topic had been unsettling. In variably they led to disappointment as I came to realize they had little experience and interest in such questions. Depending on the location, those I met were much more excited by contributing to the science, engineering, and mathematical insights from the latest state-of-the-art research in this rapidly evolving field. Perhaps I’d have a more receptive audience in a business school.

My initial discussion there were very encouraging. It was clear that many of the answers to my question lay in fields that interested business scholars. I spent time engaged on learning more about management studies, organizational design, leadership, innovation and entrepreneurship, and several more topics. These discussions opened my eyes to many useful ways to view these themes.

But soon I began to get an uneasy feeling. Something was amiss. I had expected that business schools would be experts in how to design and run a business, and in particularly how to adapt existing large, complex organizations for success in a digital world. Yet most of my questions remained unaddressed. I was becoming uncomfortable.

Seeing my distress, a good colleague took me to one side to ask how it was going. As I described my predicament, he took me to one side. In half-whispered tones he replied:

“Remember that business schools can only explain about 10% of what happens in businesses. The rest they just put down to ‘culture’”.

As a result, there are an awful lot of theories about what happens in “the other 90%”. Many of the brightest minds and most experienced practitioners have spent time puzzling through the challenge of understanding more about how individuals, teams, and organizations knit together to become places characterized by the quality of their work, flexibility in how they adapt to changes, and, above all, where people enjoy working. Perhaps most famously, this search is summarized in Peter Drucker’s often-quote phrase: “Culture eats strategy for breakfast!”.

It is such a widely held view that it is almost impossible in today’s digitally disrupted world to open a business journal or visit a business consultancy website without reading the latest ideas on “why you need a digital culture” in your organizations. What does this mean? It is far from clear.

Here are some of the influences on my thinking on this as I work with mostly large established organizations to support their digital transformation journeys and why I believe change management is a key discipline at the heart of every digital transformation programme.

Digital Disruption Changes Everything

Culture is a notoriously difficult concept both to define in theory, and to examine in practice. In broad terms, an organization’s culture consists of the patterns of behaving, feeling, thinking, and believing that pervade the organization’s activities and actions.

Changing and evolving an organization’s culture is equally difficult. Becoming comfortable with constant change means that an organization must have a strong understanding of its culture. From both practical and academic perspectives, issues of culture have long been an area of concern. Embodied in a set of attitudes, values, beliefs, and behaviours shared by those within an organization, the characteristics of a culture play an important role in accelerating or dampening the organization’s ability to operate, and to undergo change.

Many studies from eminent scholars such as Peter Drucker, Gary Hamel, and John Kotter have highlighted the importance of culture in accelerating or dampening change activities. The overwhelming evidence from their work, supported by a variety of practical studies, is that an organization’s culture plays a key role in change activities from two perspectives: alignment of culture to the organization’s overall strategy, and the extent to which the culture supports and encourages change. Misalignment in either of these raises significant challenges to initiating change if it is perceived as increasing operational risk, and to motivating employees to support change when it involves personal risk.

This is particularly challenging in a fundamental shift such as digital transformation involving broad reshaping of how an organization views its role and value it delivers. For most organizations, digital transformation forces them to look beyond digital replacements for manual activities toward more substantial redesign of their ways of working. Three distinct pressures drive the organization to consider substantial changes.

The first pressure is to revise day-to-day activities to take advantage of the digital technologies in use. Hence, as they adopt them to improve their operating processes, they also look to revise many aspects of the way people work across all their business activities. Inevitably, this places pressure on the organization’s existing structure, strategy, and leadership.

Second, digital technology drives great use of digital data sources and communication mechanisms. They encourage their employees toward more direct engagement across the organization and with external stakeholders enhanced through the transparency and interaction offered by digital technologies.

Third, organizations must also react to the volatility and instability occurring across their supply chains. Even if they have a strong grasp on their own organizational strategy, the interactions with partners and clients will be affected by the digitally driven changes they are experiencing. This leads to a cascading effect across organizations in sectors disrupted by the new digital technologies.

As a result of these pressures, organizations are forced to accept that an ability to recognize and manage change is essential. Not just in terms of data that is manipulated and technologies in use. But more substantially across significant aspects of how it carries out key tasks, the expectations it has of its workforce, and the structures it puts in place to govern activity.

All Management is Change Management

From this perspective, it can be argued that all management is change management. At the heart of any management task is the need to define and enact a change within the organization and its environment. However, traditional change management often considers change as being detached from “normal” management tasks, treating it as a separate process that takes the organization from one stable state to another. In digital transformation where change is constant, it must be considered the essence of management, with implications on all the organization’s activities.

One fundamental conclusion is that cultural change within mature organizations will always be slower and more complex than the technological changes driving them. In a majority of cases the processes and practices in place, supported by organizational structures and governance mechanisms, are designed to emphasize stability over change.  As a result, technology replacement is typically undertaken through well-defined paths following market analysis, proofs of concept, and rollout into production. Operating procedures are adjusted to the capabilities of the new technology. It is much more complex, however, if these technologies force deeper questions to be addressed concerning the redesign of processes, reassignment of roles, or bring into question longstanding value propositions.

The conclusion, in line with other studies, highlights five focus areas for successful change toward a digital culture:

• Organizing work. In digitally-driven projects with tight deadlines and fast-learning cycles, the decomposition of tasks into work items requires careful consideration. Coordinating and organizing teams around these work items creates a more dynamic delivery environment optimized to the outcomes delivered.

• Strategic planning. The balance between short-term flexibility and long-term planning must be reconsidered in digital transformation projects. New approaches acknowledge uncertainties in the planning process and encourage more transparency to allow plans to be adapted to changing conditions.

• Exploring new ideas. The dynamic nature of the digital economy creates conditions where there is a constant stream of new insights and opportunities that influence all aspects of business. A more experimental approach to test new ideas is essential to increase the organization’s capacity and accelerate the rate at which new ideas can be explored.

• Attracting and retaining talent. The lack of skilled workers in emerging digital technologies has become a major inhibitor for many organizations. In a highly-competitive environment, attracting and retaining talent is becoming a determining factor for success. Furthermore, mature organizations face the additional need to constantly upskill existing employees with relevant capabilities.

• Maintaining leadership. Sustaining momentum in digitally-disrupted markets is critical for existing companies as they look to build on previous successes to ensure continued growth. The fundamental characteristics of leadership in a digital economy are shifting toward a more complex relationship between operational excellence, market-driven insights, and rapid exploitation of emerging opportunities.

Riding the Rollercoaster

In all business change, assessing and understanding an organization’s cultural characteristics is essential. Yet, the search to understand what forms part of that culture has been very challenging. As organizations undertake digital transformation it will require significant shifts in existing values and working practices. Undoubtedly this will force us all to rethink what we expect of a digital culture and how we define change management activities to deliver it.