Corporate

Building Digital-Ready Culture in Traditional Organizations

By May 22, 2019 No Comments

Getting your company into digital shape doesn’t mean dumping everything that has made it strong.

 

SOURCE: MIT Sloan Management Review

Even though traditional companies find much to admire and learn from in the cultures of born-digital companies, some born-digital qualities are cause for concern. Amazon.com, for instance, launches new businesses quickly and drives repeated efficiency gains in operations. However, it is less admired for what can be seen as uncompromising relationships with publishers, partners, localities, and workers. Uber is revered for its ability to innovate services with agility. But many observers are dismayed by the ways it has seemed to dismiss regulators, exploit drivers, and, in a set of highly publicized incidents, fail to protect workers and customers from harassment.1

When Jonas Samuelson became CEO of Stockholm-based home appliance maker Electrolux in 2016, he wanted to reignite innovation and growth by building a faster, more digital-ready organizational culture. Yet many of the practices of Silicon Valley did not seem appropriate for his 100-year-old company or the social and business culture of Scandinavia. Samuelson couldn’t ask 55,000 employees to work 70-hour weeks and couldn’t incentivize them with millions in stock options. He couldn’t fire people just because their core skills started to age. He couldn’t constantly redesign the company’s processes and products — Electrolux makes hardware, not software, and customers expect to keep their products for many years. However, he could drive a culture shift that would energize employees to generate more innovation and profitable growth. He believed strongly that this could change Electrolux for the better without losing what was already terrific about the company.2

Electrolux is not alone in this quest. Many companies are trying to embrace aspects of digital culture without exposing themselves to the less desirable elements of Silicon Valley startups. Consumer electronics and appliances giant Haier has spent years transforming its culture in pursuit of greater speed and innovation while maintaining the efficiency and stability of its traditional manufacturing and logistics processes. KBC Bank is adapting to fight fast-moving fintech entrants while complying with strict European privacy and employee protection regulations. Leaders of Schneider Electric are pushing culture changes to play a major role in the rapidly evolving internet of things while still being a reliable provider of devices upon which thousands of office buildings and data centers depend.

For many legacy companies, culture change is the biggest challenge of digital transformation. How can a company become more agile and innovative without alienating its best employees or wrecking the best of its existing practices? And what does it mean to have a digital-ready culture?

We’ve been studying these questions for the past three years. (See “About the Research.”) Based on our findings, we’ve developed a framework to guide traditional companies in any industry. The process begins with understanding the four critical values of digital culture: impact, speed, openness, and autonomy. It then involves adopting or refining a set of digital-ready practices, grounded in these values, which will shape employee actions and organizational performance. We also offer suggestions for getting started.

Contrary to much that’s been written, incorporating the best of digital culture into a legacy culture doesn’t mean sacrificing integrity, stability, employee morale, or a company’s heritage. And traditional companies aren’t the only ones that can benefit from this framework. The insights also apply to startups striving to become mature and thriving businesses for the long haul.

Defining Culture

Culture is what happens when the boss leaves the room. This workplace truism is particularly useful for leaders contemplating a significant culture shift. Often described as “the way we do things around here,” culture is a set of values and norms that guides human interactions. It’s present in the espoused values of management, the unspoken assumptions of employees, and the commonly accepted behaviors that have helped an organization succeed in its chosen environment.

The good thing about culture is that it provides coherence and continuity. The bad thing about culture is that it can root a company in past practices that no longer fit a changing world.

Culture is harder to change than strategy, because much of it is unconscious. What’s more, leaders need to understand a company’s prevailing culture before seeking to modernize it. If they suddenly direct people to do things that run counter to deeply held values, rational discussions can quickly devolve into moral diatribes.

It’s equally important that legacy leaders understand exactly which digital values and practices they hope to embrace. At first glance, it seems that there are many values to choose from. At one point, Netflix published a deck of over 100 slides to describe its culture. But a few core values, such as high performance, freedom and responsibility, and context over control, drive the practices that power the company’s innovation and growth.3 Boston-based software company HubSpot has a similarly thick “culture code” deck, but a few characteristics stand out. The company “commits maniacally” to its mission and metrics. It always strives to “obsess over customers.” The company is “radically and uncomfortably transparent” and asks employees to be “unreasonably selective about our peers.” These dictums reinforce a hard-driving, constantly innovating workplace culture.4

Microsoft has redefined its culture around fostering a growth mindset in both individuals and groups. Company leaders worked extensively to shift from solely rewarding people for their individual contributions to recognizing the importance of leveraging the work of others. Other important changes include championing curiosity, actively seeking to drive greater diversity and inclusion, and fostering a “one company” approach over a confederation of fiefdoms.

The Four Key Values

A slew of books and articles purport to reveal the cultural secrets of digital titans. Yet behind this tower of corporate babble, we find a small shared set of cultural elements that are essential to help companies become agile, innovative, and fast-growing.

We reviewed the management literature on culture, examined published frameworks and stories of digital companies’ cultures, and interviewed dozens of executives to identify a small set of self-consistent values and practices of digital culture. We then conducted a survey of more than 500 digital and traditional companies to validate the culture framework and assess how the various elements of digital culture correlate with different types of self-reported performance. Ultimately, four key values of digital culture stand out: impact, speed, openness, and autonomy. (See “The Four Key Values of Digital Culture.”)

Recognizing the immense scalability of digital solutions, digital leaders typically focus on creating impact, assuming that profit will follow. At their best, these companies revolutionize how people and organizations interact, reinvent industries, and break the power of entrenched gatekeepers. The other three values support that mission. Speed helps companies stay ahead of competitors and keep up with rapidly changing customer desires. Openness encourages employees to challenge the status quo and work with anyone who can help them achieve their goals quickly. Autonomy gives people the freedom to do what’s right for the company and its customers without waiting for formal approval at every turn. Together, these values can foster an engaged, empowered workforce where employees feel a personal responsibility to constantly change the company — and often the world.

How Practices Bring Values to Life

The values of high-performing digital companies frame their essential practices: rapid experimentation, self-organization, data-driven decision-making, and an obsession with customers and results. (See “The Spectrum of Digital and Traditional Practices.”) Our research shows that these practices reinforce one another when they’re all in place, creating a unified culture that is an effective expression of the four key digital values.

Here’s one way to look at this: Autonomy means that workers have the latitude to focus on the tasks that they believe matter most to customers. They can experiment rapidly without fear of failure, increasing the chances for truly novel outcomes. So why don’t successful digital companies turn into unmanageable collections of solo artists reaching for the moon? By valuing openness and striving for big impact, these companies encourage people to seek out relevant data and expertise wherever it resides. To achieve speed and impact, workers self-organize quickly to conduct experiments and achieve their goals, without worrying about a collaborator’s title, function, or organizational affiliation. Moreover, openness, even to counterpoints or critical perspectives, leads to individuals and teams having more information and producing more effective solutions. The emphasis on data and results, meanwhile, drives accountability, encouraging persistent striving for customer-focused, scalable results. This system of interrelated values and digitally enabled practices can be remarkably effective when management gets it right.

Traditional companies tend to share their digital counterparts’ focus on customers and results. They differ culturally in how they aim to minimize problems through strict rules, drive integrity into all daily behaviors, and work to create stability for stakeholders. While some digital natives might deride this combination as stodgy and bureaucratic, not all traditional practices need to be eliminated in the quest for digital culture. In fact, it becomes clearer every day that stability and integrity are qualities to be prized.

Amazon, for example, was seen historically as cultivating a high-pressure and argumentative work environment, believing that only the fittest should survive for the long run. But that approach, which led to poor press and high turnover among certain groups, is starting to change: By experimenting with more schedule flexibility and explicit support for more gender balance, the company is now beginning to set a less cutthroat, more inclusive tone.5 Google, too, realized that more stability for employees can benefit the company’s stability; after internal analytics showed that new mothers were leaving at higher rates than other employees, it boosted family leave policies, reduced on-call demands, and achieved a 50% reduction in attrition among these employees.6 After HubSpot developed a reputation as a difficult place to work, with long hours and insensitive “graduation” announcements for terminated employees,7 the founders made changes to build more empathy into the company’s culture.8

As for integrity, a series of headlines over the past few years has made clear that some digital-native companies need to become more principled. Facebook has been widely criticized for its perceived indifference about user data privacy and informed consent. At Uber, weak policy enforcement on harassment led to a public scandal and, ultimately, the departure of the CEO.9 Autonomy, experimentation, and self-organization can drive marvelous innovation but, in the absence of sound guidance, can also lead to abuse.

Cultivating a Digital-Ready Culture

The challenge, then, is to develop the elements of digital culture to promote innovation without sacrificing integrity and stability. It’s a worthy goal. In fact, our research on more than 500 digital and traditional companies shows that striving for integrity and stability in a company’s culture does not hurt self-reported measures of innovation, profitability, and customer satisfaction. That’s good news for traditional companies, maturing digital companies, and millennial workers who now care as much about growing families and communities as they do about growing businesses. Instead of ditching all past practices, traditional companies should try to create a digital culture that embraces the best of their legacy. We highlight three principles for making this happen. (See also “Principles for Creating the Culture You Need.”)

Build the practices that set digital companies apart. The greatest advantage of digital companies is the speed with which they create and test innovations. Traditional businesses must try to cultivate habits of rapid experimentation and self-organization within a framework of data-driven decision-making. These practices may feel alien to companies whose structures, values, and governance rules were designed for cautious stability. Yet our analysis shows that rapid experimentation and self-organizing strongly drive measures of self-reported performance, including growth and innovation. Moreover, organizations can’t experiment effectively without the data to measure change.

Preserve practices that promote integrity and stability. Your customers, employees, regulators, and shareholders deeply appreciate these qualities and the practices that support them. As we noted above, companies managing for integrity and stability report performance that is neither better nor worse than that of companies that do not. Yet the negative outcomes of omitting these practices have become apparent in many digital-native companies. That’s why many successful digital businesses have begun to improve their integrity and stability practices as they mature.

Reorient important practices that are still optimized for the pre-digital world. The speed and interconnectedness of the digital world demands a new orientation to customers, results, and rules. Asking customers about their needs must be supplemented by anticipating customer desires and proactively experimenting to delight the customer. Infrequent and opaque performance evaluations must be replaced or supplemented by ongoing attention to transparent goals and performance metrics. Wherever possible, strict rules and controls must give way to broader guidelines and transparent monitoring. Employees who use rules to prevent change must be counseled to be more flexible. For example, Google requires employees to follow strong technical and data standards but encourages innovation that builds on those guidelines. Objectives and key results at the company, team, and individual levels are visible widely. This transparency encourages higher performance and improves collaboration.