The failure rate for digital transformation is 70%. According to the Harvard Business Review, the reason for this high failure rate lies not only in the technical and financial obstacles, but also in the corporate culture, which does not promote digital transformation.
65% of executives admit that corporate culture is an obstacle to successful digital transformation. However, these executives are looking for best practices to convert culture from being a barrier to an enabler. In this article, we define the core values of a corporate culture that supports digital transformation and provide some best practices on how to build such a culture.
What is organizational culture and why is it important for digital transformation?
As the figure below shows, culture can be either an obstacle or an enabler for successful digital transformation. For instance, Boston Consulting Group argues that an effective culture increases the chances of a successful digital transformation up to fivefold.
Culture is the set of fundamental assumptions shared or held in common by members of a group that evolve over time. Culture Can be passed between members, is difficult to change suddenly, and reflects the history of group experience.
It can be an asset or a liability for the company. For example, a shared value can be acquired during a crisis and later become part of the organizational culture, facilitating the decision-making process on similar occasions. On the other hand, as the definition suggests, culture is relatively inert. It can constrain entrepreneurial behavior and strategic change.
What are the core values of an enabler culture?
Simply an enabler culture believes in following values:
- Importance of hypothesizing, testing and proceeding with positive results.
- Importance of being a sense of community for increasing workers’ contribution.
- Importance of being open mindedly searching for more effective methods.
Hypothesizing, testing, proceeding with positive results
The use of technology always involves risk-taking and experimentation to be successful. Therefore, the corporate culture should believe in the effectiveness of creating hypotheses, testing them, and proceeding with the ideas that yield positive results at the end of the tests. Shortly, we can call it a culture that follows scientific method. Naturally active feedback should be a part of such a culture.
Such a realistic culture can emerge both in hierarchical companies, where the top executives are benevolent dictators (like Apple with Steve Jobs), and in flat organizations, where collective decision-making is a high priority (like most Silicon Valley companies). Both approaches have their advantages, e.g., hierarchies are associated with a fast decision-making process. On the other hand, slower collective decision-making processes can lead to more sophisticated decisions due to synergy effects.
Corporate human capital becomes an important factor in steering culture toward a pole. For example, if your company has a genius, it is not optimal to slow her down. However, companies should consider that relying on a few individuals for success is not sustainable. At some point, those people leave or die. For example, 70% of family businesses go bankrupt during the transition from the first to the second generation, as these businesses usually revolve around their founder. Therefore, collective decision making can be a more suitable culture for lasting success.
Sense of Community
Everyone knows that digitization involves replacement. Therefore, employees might knowingly or unknowingly slow down the transformation process. To reduce such negative effects, companies should give their employees the feeling of being part of a community. Top managers should convey the feeling that digitization is an opportunity for employees to further educate themselves rather than replace them.
Constant search for the better
We live in a dynamic world where situations are constantly evolving. Therefore, falling into inertia is dangerous for organizations’ longevity. Consider the demise of empires and large corporations due to overconfidence and inertia. For example, 48 of the 100 largest industrial companies in 1912 went bankrupt or disappeared by 1995, and only 19 of those companies managed to remain on the 1995 Fortune 100 list.
That’s why companies need a culture that encourages their employees to try new methods and take new risks. This does not mean that companies have to constantly change the way they work. But they do need to be open-minded and innovative in the areas where they can improve their operations.
How to build a culture in support of organizational vision?
Culture emerges over time and is significantly influenced by spontaneous events. Nevertheless, top managers can nudge corporate culture through:
- Impact of founders/CEO and executive team
- Targeted hiring and strong HR department.
- By determining the level of hierarchy within the company.
- By setting a friendly work environment.
Start the change with founders/CEO and executive team
A founder figure builds a company. Consequently, companies are strongly influenced by the founder’s biases, beliefs, goals, knowledge, education, character, and contacts, which affect the company’s culture and institutions. The CEO and other top managers also have an impact on the company’s culture because of their position. Nevertheless, their influence is less compared to the founder figures.
In this respect, the way top managers and founders deal with challenges, their degree of data orientation, their openness to feedback, their claim to levels of authority, their behavior toward subordinates, etc., has a direct impact on corporate culture. So, in order to shift the corporate culture in a certain direction, top managers must first start the change with themselves.
Establish targeted hiring and strong HR department
One important way to shape the company’s culture can be maintained through targeted hiring. If the right employees with the desired ambitions, values and character traits are brought on board, the company can naturally move closer to the desired culture.
In addition, employees face daily difficulties from time to time. At such times, the way the HR department handles the situation affects the perception of the employees’ sense of community.
To achieve the right organizational culture, companies should establish HR departments with a set of written rules and duties that reflects the company’s organizational vision, mission and the goals. Companies should keep in mind that digital transformation requires investment in employees in the form of training. In this context, it is important to reduce employee turnover and ensure their satisfaction.
With the help of personality tests, case studies, group work, and interviews with different individuals, companies can find the right talent and characters to fit their digital transformation journey. Also, in the event of personal difficulties, the HR department should develop predetermined solutions to mitigate the employee’s unintended situation.
Restore corporate governance that is in harmony with the culture
We have mentioned the core values of the enabler culture. There is no doubt that these values are directly related to the management of the company. For example, there should be a formal separation of powers that organizes and monitors the process of hypothesizing, testing and proceeding with positive results.
Therefore, for digital transformation, companies need new departments to define, execute and monitor the digitization strategy. A suitable governance system that supports the organizational culture should include CIO office, line of business leaders and digital transformation council.
For more information regarding suitable corporate governance for digital transformation you can read here.
Set a friendly work environment.
To build a sense of community, companies can plan organizations and events as follows:
- Training and conferences: Channeling employees through such events contributes more than just improving their skills. Investing in employee training sends the message: “You are valuable to our company and we don’t want to replace you.” In this regard, such events increase employee retention.
- Letting workers to establish clubs: It is so common for people in a workplace to have similar hobbies. This fact can be used as a tool to strengthen the sense of community among employees. By creating certain clubs such as a music group, a tracking group, a reading group, etc., companies can ensure a healthy relationship between employees.
- Remembrance of special days, religious and national holidays: By celebrating employees’ birthdays, remembering important national or religious days companies can increase workers’ commitment to the firm. Especially for employees who have emigrated from their hometown, such small gestures can mean a lot.
You might want to check our digital transformation best practices article.
Our digital transformation consultants list can also help your business to find a consultant that guides you to build an enabler culture for digital transformation.
If you have further questions regarding organizational culture-digital transformation relationship please do not hesitate to contact us:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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