CAN YOU CREATE A DIGITALLY INNOVATIVE CULTURE IN TRADITIONAL COMPANIES?

Is digital transformation new? Is it what IT executives have been doing for the last 30 or more years? Advanced Practices Council (APC) members distinguish between what they have in fact been doing for the last 30 or more years and the current goal of digital transformation.

Digitally transforming an organization goes well beyond leveraging technology to streamline processes or even rethinking processes to fully benefit from new technology opportunities. It encompasses reinventing a company’s vision and strategy, organizational structure, capabilities, and culture to exploit evolving digital business opportunities. It may involve not only changing the company, but redefining markets and industries through innovative products, services, and business models created across industries and among former competitors.

Digital Innovation is everyone’s business, not just the designated IT staff. Innovative pockets across the organization should be welcomed because it takes everyone’s expertise and ingenuity to compete in today’s volatile business climate.

We were probably all born eager to innovate. Some people have kept that inclination and ability, but others have not. Likewise, some organizations (mainly those created more recently) have innovative cultures; others (mainly more traditional) may have pockets of innovative culture, but many pockets that don’t. If we need people throughout the organization – even in those pockets not characterized by innovation – to be innovative, can we transform them?

In 2021, Advanced Practices Council (APC) members explored that question by supporting research. The responses of three researchers in particular, each coming from a different perspective, are noteworthy.

Digital Transformation Execution

University of California’s Vijay Gurbaxani’s first study (“Gearing Up for Successful Digital Transformation”) identified six dimensions needed for successful digital transformation, one of which was a culture of innovation characterized by calculated risk-taking, encouragement of new ways of thinking and solutions from diverse perspectives, learning from failure, rewards to innovators, and acceptance of cultural resistance. The second study (“Digital Transformation Execution”) compared progress on those six dimensions across over 150 companies since 2017. Although dramatic progress was indicated on many of the dimensions, such progress was not reported for a culture of innovation. Changing the company’s culture to a more innovative one continues to be challenging. Moreover, respondents indicated that the cultural challenges would likely intensify in more hybrid work environments.

Gurbaxani also conducted in-depth interviews with executives at companies noted for digital transformation success to understand better how to make cultures more innovative. Based on his interviews, Gurbaxani recommended several strategies for building more innovative cultures in traditional companies.

Change Your Operating Model. Incentives work. Explore how your company monitors, measures, and rewards performance. Question whether decision rights, performance measures, compensation schemes, and other incentives align with innovation.

Build a New Funding Model. Funding models created to support monthly or yearly projects are no longer appropriate in companies with innovative, agile sprints geared towards offering continuously improving products and services. Consider, for example, services based on machine learning initiatives which have no end date because systems keep learning. At Amazon, long budget cycles are considered too slow for innovation and new capital requests can be made weekly. Gurbaxani quotes an executive at a financial services company: “At the core of true agile adoption, you would be incrementally funding the evolution of a product, not a monolithic multi-year project. With a big company that’s answerable to the market and must plan for the capital, that is where there’s grit in the gears. You must create business cases for investment on a product portfolio, rather than for an individual project. That requires a bit more of a hybrid view on what the outcome looks like even though you’re not entirely sure. It will change along the way.”

Build a Coalition of Influencers. Influencers throughout the organization can help change the culture by listening to others’ perspectives and explaining the digital transformation strategy. According to one CEO, “You have to have a pretty good idea of where you’re taking your company. You have to have a new influence group accelerate the knowledge transfer and the business model transfer inside a large organization.”

Rethink Hiring and Onboarding to Bring New Employees into a Digital Culture. Gurbaxani advocates asking questions during hiring interviews that assess the candidates’ openness to innovation and then providing new hires with collaboration tools that support innovation. According to an executive in a transportation company, “It’s important to sustain a high-quality community with the company and make sure that people are learning from each other and building the skills they need from watching each other work.”

Retrain Existing Employees for New Technologies. Existing employees must understand how your industry might evolve in the future as well as potential implications for them. They must also learn new methods and tools needed for digital transformation. Some companies have distinguished various levels of competence that employees require in the new tools, such as literacy (senior executives who make investment decisions), fluency (functional managers who help design and use systems in their units), and mastery (system builders who design and deploy systems).

Model New Behaviors. Leaders at all levels have been told to model the behaviors they want to encourage. They sponsor innovation contests and say the right words at events. But they forget that they are always role models. They are being role models when they react to proposals, accept arguments for doing things the way they have always been done, forget to ask questions about new approaches, invite the usual people to explore an issue, and promote someone who thinks the way they do to a new role. What if they did just the opposite – ask for data that supports a decision, ask what other options have been considered, hire someone who thinks differently, invite a young maverick into brainstorming meetings, and encourage rethinking of how things are done? Employees are watching their leaders consciously or unconsciously all the time seeking clues about what gets rewarded in their company. Modeling new behaviors is a powerful and also full-time task.

Building a Digital-Ready Culture in Traditional Organizations

MIT’s George Westerman presented his research on how to build a digital-ready culture, which he defines as a shared and mutually-reinforcing set of values and practices that enable high performance in service of innovation and execution in a digital world. Organizations characterized by these values support rapid experimentation, customer responsiveness, and a results orientation. The values are:

• Impact – changing your organization and possibly your industry and beyond through constant innovation

• Speed – moving fast through iterations rather than waiting to have all the answers before acting

• Autonomy – allowing people high levels of discretion to take whatever action is appropriate rather than having to rely on formally structured coordination and policies

• Openness – engaging broadly with diverse sources of information and insight, and sharing advice and information openly rather than hoarding knowledge.

Leading in a Remote Working Culture

APC Director Madeline Weiss confirmed Westerman’s values through her research but approached organization culture from a different perspective – how such cultural elements as impact, speed, autonomy and openness can support re-thinking use of space and time in remote and hybrid working environments, which will likely continue post-pandemic. If employees spend part of their time in the office to gain benefits from in-person information and knowledge sharing, collaboration, and community building, then a significant amount of office space should be designed for groups working together rather than individuals working separately in offices or pods. Weiss wondered whether people need designated office spaces or could manage with dedicated lockers or drawers for personal items and mobile workstations to hold their laptops. She suggested that those days in which everyone is in the office be dedicated to team or group activities instead of individual work. For example, McKinsey, a firm in which consultants spend much of their time outside the office with clients, has designated “Super Friday,” a day where everyone is expected to be physically present in the office. Events such as special lunches, town halls, practice meetings, and happy hours are planned for these Fridays.