The Hardest Part of Digitization: Cultural Change

Digitization is a global megatrend, causing shock waves across a myriad of industries. By 2020, Generation C (for “connected”) will have grown up in a primarily digital world. These customers follow different behavioral patterns and want an instant and seamless digital experience right at their fingertips.

Despite the radical implications resulting from the above, many companies still lack a formal digital transformation plan. However, those failing to come up with a clear strategy and roadmap face the risk of being stranded in “organizational inertia”. That is, the tendency of a mature organization to continue pursuing its current trajectory and routines.

Bright future ahead or fight for survival?

Around the globe, companies are confronted by stakeholders with high expectations to capitalize on their digital efforts, yet few are well positioned to realize their full potential. In a recent study from Harvard Business Review Analytic Services and Genpact Research, only 21% of companies were truly harvesting the transformative value of their digital strategies. And 48% of responding executives said that they were unable to experiment quickly on digital projects. For 41% change management was causing problems, while 38% quoted risk aversion as a hurdle, along with departmental silos.

Re-examining the core of the firm

Rather than just scratching at the surface, digital-savvy companies need to dig deep and re-examine the core of the firm; that is, where you want to compete, and how you want to play. The questions posed are all about the company’s ability to compete and capture market share, or in other words, the firm’s weaknesses and its ability to create value.

The saying "culture eats strategy for breakfast," which is often attributed to Peter Drucker, does contain a lot of truth. Realistically, both require years to build; both require years to change. This is one of the reasons why established companies struggle to cope with disruptions in their respective market space.

Circumnavigating the seductive success trap

In Greek mythology, the Sirens were dangerous creatures who lured nearby sailors with their bewitching voices to shipwreck on the rocky coast of their island. Quite similarly, there is the success trap in business. Companies that are really good at what they do run the risk of switching off the radar and operating on autopilot. These companies encounter big struggles in changing and reinventing themselves, and only take action when it’s too late. As Bill Gates once said, "Success is a lousy teacher. It seduces us into thinking we cannot fail.” Therefore, no matter how good the current performance might be, smart leaders need to permanently question the status quo and think two steps ahead. This is even more true in a digital universe that keeps evolving at rapid pace.

A real game changer: Exploration vs. Exploitation

The distinction between exploration and exploitation has been highlighted in a wide range of management literature. Companies must be aware that excelling in the digital era will require a different mindset altogether. Rather than operating in an “exploitation mode”, companies must exit the stable equilibrium and leave their comfort zone behind. However, switching gears into an “exploratory mode” is a big game changer and much easier said than done, since it requires a completely different way of thinking:

Exploitation:

Exploration:

There is plenty of tension between the two distinct capabilities. Few companies are successful at operating in ambidexterity, meaning to balance both worlds simultaneously. However, research has shown that those who handle it well will enjoy higher performance and outperform their rivals.

Going digital is a far bigger stretch than many companies might think. Companies should apply a capabilities-driven strategy, based on their core strengths and their value chain, that articulates where and how to compete.

Leaders should ask themselves whether the set ambition level is high enough. It’s important to understand that becoming a thriving digital company means leaving the comfort zone and embarking on a journey that requires courage, perseverance, and, even more importantly, the freedom to radically challenge the status quo without any taboos.

Organizational inertia is perhaps the biggest obstacle that needs to be tackled. Many leaders don’t recognize their own unconscious beliefs and behaviors that prevent them from embracing change. In particular, internal politics and a culture that doesn’t accept failure are major roadblocks.

To reach ambidexterity, leaders should either consider a structural approach (e.g. organizationally differentiating between exploration and exploitation units) or a contextual approach (differentiating between exploration-oriented or exploitation-oriented the activities in their daily work).

However, a cultural change is not going to happen overnight. Similar to crossing the Atlantic, companies are advised to come up with a solid transformation plan that helps with navigating around the icebergs and ensuring that shore will be reached safely.

Marc Wilczek is an entrepreneur and senior executive with extensive experience in helping market-leading ICT companies to transform themselves, expand into new fields of business and geographies, and accelerate their growth. He began his career as one of the youngest entrepreneurs in the German state of Hesse when founding two successful IT start-ups in the 1990s, and since then has held various leadership roles within the ICT industry over the past two decades. At present, he serves as Vice President Portfolio, Innovation & Architecture for T-Systems, the corporate customers unit of Deutsche Telekom. In this role, he heads the “productization” efforts for the company’s cloud and hosting business worldwide.