More and more organizations are realizing that successful digital transformation, which means radical changes in the use of technology, employees and processes, can significantly improve their business results. As a result, more than 40% of global funding for technology in companies is already spent on digital transformations, and by 2023 this share is expected to grow to 53%. Despite the obvious increase in investment in the technological part of the digital transformation, especially in hardware and software, the results of such activities do not give the desired results.
One of the world’s leading consulting firms, McKinsey, found in its latest global survey on digital transformations that more than 80 % of respondents said their organizations have undertaken a digital transformation in the last five years, but it turns out that real success in these transformations is lacking. While their previous research has shown that less than a third of organizational transformations manage to improve an organization’s performance and sustain those improvements, recent results suggest that the success rate of digital transformations is even lower.
Only 16 % of respondents say that digital transformations have improved the performance of their organizations and also equipped them for long-term maintenance of change. An additional 7 % say performance has improved, but these improvements have not been sustained. Digitally savvy industries such as high tech, media and telecommunications, also face major challenges with digital transformations. Among these industries, the success rate does not exceed 26 %. But in more traditional industries such as oil and gas, the automotive industry, infrastructure and the pharmaceutical industry, digital transformations are even more challenging: success rates range from just 4 to 11 %.
The paradox is therefore obvious: investment in digital transformation is growing rapidly and results are deteriorating dramatically. What’s the problem?
Let’s turn to Steve Jobs, the founder of Apple – one of the first digitally transformed companies in the world. Steve believed that technology is not as important as to have trust in employees, to believe that they are good and smart, and that if we give them the right tools, they will do wonderful things with them.
The McKinsey survey findings are similar. The results of respondents reporting success point to a narrow set of good practices that will make digital transformation more likely to be successful. These characteristics fall into five categories: leadership, capacity building, employee empowerment, tool upgrades, and communication. These categories, which address mainly the soft elements of company’s culture, show where and how organizations can start to improve their chances for a successful digital transformation of their business without large investments.
A successful digital transformation therefore begins and ends with the transformation of company’s culture. However, unlike most other things we need for a successful digital transformation, the right culture, the right people and flexible processes don’t come in a box or in the cloud. So what is digital culture, its characteristics and principles?
A healthy digital culture is a type of high-performance culture. There are three key characteristics of a high-performance culture which can help us understand the essential elements of digital culture.
The first characteristic is that employees and teams of people are engaged to achieve results, are committed to their work, purpose and goals of the organization, and are willing to give even more.
The second characteristic is that individuals and groups work in a way that will accelerate the strategy of the organization.
The third characteristic is that the organizational environment or “context” – including leadership, organizational planning, performance management, people development practices, resources and tools, vision and values, and informal interactions – is established to encourage such collaboration and human behavior that will encourage successful implementation of the organization’s strategy.
But just as there is no single, universal strategy, there is no standard digital culture. Each company has its own specifics to which the digital culture must be adapted. Even so, digital culture in principle has five elements. Therefore, it is worth starting to internalize the five key principles in strengthening the digital culture of the organization, developed by the leading consulting company BCG.
First: look outwards, not inwards. Digital culture encourages employees to look outward and work with customers and partners to develop new solutions. A major example of external orientation is a focus on customer travel and experience, so employees shape product development and improve the customer experience by putting themselves in customers’ shoes.
Second: give delegation priority over control. Digital culture disperses decision-making throughout the organization. Instead of receiving explicit instructions on how to perform their work, employees follow guiding principles that help them to be able to trust their judgment.
Third: Encourage boldness over caution. In a digital culture, people are encouraged to take risks, quickly test their ideas (whereas on paper good ideas often fail quickly in practice) and learn, and are discouraged from maintaining a habit of habit or excessive caution.
Fourth: more action, less planning. In a rapidly changing digital world, planning and decision-making must shift from the long-term to the short-term. Digital culture supports the need for speed and encourages constant repetition, rather than perfecting a product or idea before launching it.
Fifth: evaluation of participation over individual effort. Success in digital culture is brought about by collective work and the exchange of information between departments, units and functions. The repetitive and fast pace of digital work requires a much greater degree of transparency and interaction than a traditional organization.
The above five principles vary from industry to industry and from company to company. But as we can see, one of the fundamental components of a successful digital culture is the democracy of operation and management, which for many organizations represents an additional challenge in carrying out a successful digital transformation.
Also, the level of risk that is appropriate in a technology company will not be the same as the level that is appropriate, for example, at the level of the entire industry. Of course, the desired levels of risk will also vary within the organization. For example, the strategy department should accept risk to a much greater extent than the finance department. Encouraging risk-taking should, in particular, encourage thinking outside the box without being reckless or in breach of company rules or policies.
McKinsley concludes his research by finding that transformations are difficult, but digital transformations are even more difficult. If you’re embarking on a digital transformation, keep in mind that it’s primarily about the cultural transformation of the organization. Use the above principles and your chances of success will immediately be significantly higher.