How are older, established companies doing with their digital transformation efforts?
If we're to judge by the attention given the newer, more disruptive technology companies, it appears not very well. Yes, traditional companies are having some degree of success, Walmart post-Jet acquisition comes to mind here, but are they seen as leading the charge or following?
Often times older companies are falling behind not due to questions of technology but due to organizational culture.
Digital Age Breeds New Workplace Culture?
The “FAAA” (Facebook, Alphabet, Amazon and Apple) companies (previously “FANG” — Facebook, Amazon, Netflix and Google — now Alphabet) get significantly more attention than any group of existing firms, mainly due to their overall impact on the US economy. With a current market cap for all four companies at roughly $2.4 trillion, these four companies alone represent almost 13 percent of the overall US economy in 2016 at $18.46 trillion.
Facebook and Alphabet are less than 20 years old, Apple’s reincarnation under Steve Jobs is 20 years old and Amazon is 23 years old, so one could legitimately make an argument that the cultures at each company, having been created in this digital age, has contributed to their advantage.
If we are to take that as a truth, then we can assume the opposite: companies from pre-digital times have a different cultural make up, as culture is often defined early in a firm’s history based on the founders’ values, preferences, as well as industry demands.
Why Organizational Culture Is Such a Challenge
Companies from the pre-digital era therefore need to adjust or shift their organizational culture to keep up in today’s digital world. MIT Sloan Management Review and Deloitte recently released their third annual Digital Business report. The report highlighted five key practices of companies developing into "more mature digital organizations."
Each of these five key practices focuses on some aspect of organizational culture, a clear indication of the importance culture plays in a company’s ability to adopt new business methods and practices. The question is why is modifying culture so challenging and what guidance can companies follow to increase the likelihood of a successful cultural change?
Company culture reflects an organization’s deepest and most tightly held beliefs and values. Those beliefs and values have had years and often decades to become deeply entrenched and often played a significant role in why the organization reached its level of success in the first place. Thinking these beliefs and values can be easily changed is a fool’s errand.
As someone who has regularly been tasked with moving companies into the digital age, I have underestimated an organization’s ability to change quickly a number of times. I can also attest to the push back when the culture rejects the new way of doing things.
And more often than not, a company’s culture can’t be moved to adapt to the new changes which is likely a primary contributing factor to why more than 50 percent of the Fortune 500 has turned over since 2000.
Tips for Creating a Successful Cultural Change
So how can companies increase its chances of effecting cultural change? As always, there’s no magic bullet, but some best practices have emerged which I've aggregated below.
Management consulting firm McKinsey suggests several useful ideas including:
- Power of words: Modify the language used within the organization to reflect the outcomes the company wants
- Building a culture of constant change: Develop a culture of continuous improvement and evolution in how things work
- Board of Directors: Rethink the composition and role of the Board of Directors to be more reflective of the digital changes the corporation expects to see (this idea also applies to senior management, as leadership throughout the company is key).
Harvard Business Review and Ideo recommend focusing on leadership stimulating and tapping into the employees’ desire for change to create a movement. By convincing the majority of the need for change, you can then have them drive it with reinforcement along the way in the form of quick wins, creating safe havens and using symbols.
Another idea comes from the GC Index, which has developed a framework for how to identify roles and talent within an organization so that the leadership and other teams can be structured in such a way as to foster the transformation, sustaining or disruptive, that the organization seeks to enable.
Leadership Is Key
While just a small sample of suggestions for how to enable cultural change, the common thread is the important role leadership, and how it is organized, plays in the success of this type of effort.
And maybe therein lies the root of the issue for many companies: their current leadership needs some guidance and support on how to most effectively institute cultural change. Because without this ability to modify one’s culture, companies will struggle to maintain their current market position, let alone have a legitimate shot at closing the gap with the digital leaders.