This article is concerned with the role humans play in the digital transformation of organizations. It assumes that whether or not such a transformation is successful depends on the convergence of “cold” (technical and infrastructural) and “warm” (social and cultural) factors. The second part of the article approaches potential pitfalls of human transformations within organizations and the deliverables MetaDesign provides to address these.
Identification for change does not come from bits and bytes
“Transformation describes the fundamental turning point in a company’s relationship with individuals and its economic and social environment. In a business transformation, all relationships of the company are redefined.”
Digital transformations of companies are cold. Mostly, they go hand in hand with an infrastructural and technical upgrade of machines, algorithms, and databases. In contrast, human transformations in companies are always warm — the human at the center of digital transformation.
Digitalization is about enabling intelligent connections
In companies, the core task of digitalization is to improve the possibilities of coming closer to the customer. With better data that better understands their behavior, their needs, and socio-demographic characteristics, and makes their purchasing preferences more predictable, this is possible. However, digitalization also means creating a new kind of tailored closeness through the real-time use of digital channels and other networking services.
Building a close relationship to the customer is a premise for commercial success. This closeness, however, can only be created through empathy. Above all, such relationships are generated by people who are capable of and ready for empathic thinking and acting.
Machines collect data, people use them. This correlation is still undisputed. The current challenge of redefining creative interrelationships in companies is related to this. It takes employees who understand how to use these new opportunities to formulate marketable offers and find ways to communicate them effectively and quickly.
Digital transformation is accompanied by speed and creativity, combined with a capacity for empathy. Warm and cold merge and, together, create the right temperature for the customer.
So we are facing a fundamental change in organizations. Bits and bytes, the main currency of modernity, are the drivers of this change. The protagonists of those transitions are people. And these people need new scripts, so that they can play their new roles with inner conviction.
Silo mentality is not a human predisposition but a consequence of silos
The challenge is two-sided. Updating the technological and logistical infrastructure is one thing, making use of the opportunities is another. What good is the best technology if people don’t know how to use it? In other words, “A fool with a tool is still a fool.” The need is clear: Digital transformation requires new structures, new work environments, better training, and new belief systems for employees to unfold their full potential in the digital modern age.
Currently, all large companies have structures that follow the logic of departments. These are often referred to as silos. Silos are self-contained units that accumulate knowledge in vertical organizational structures. The behavior of employees in these departments follows set spatial and “organizational-grammatical” laws. In this context, the silo mentality, which prevents cross-department collaboration, is often criticized. However, silo mentality is not a consequence of people having an inherent disposition to work in this particular way but an implication of the silo structure. Such structures have worked in the past; otherwise they would not exist. The assumption that they are no longer suitable for the digital modern age is justified. After all, digitalization means increasing the ability to network. And exactly that is the weak point of silos — they are closed systems in a world that is opening up more and more.
In order to make the departments in a company more effective, they need horizontal permeability — i.e., breathing walls — which makes the exchange of knowledge beyond silos more efficient than before. In this context, efficiency is for a change not about controlling but primarily about speed and creativity. Employees in departments are always personally obligated to the next higher authority. They follow instructions, are monitored, and, at best, promoted and rated by precisely these superior authorities. This vertical orientation is often equated with hierarchy. But hierarchies are not the problem here; the logic of the silos is. It is not cross-silo cooperation that is rewarded but solely the successful preliminary work for the superior manager.
Ideas need networks, innovations need hierarchies
When it comes to inventions — ideas formulated in the company — exactly this cross-silo networking is needed. Hierarchies are needed to make innovations — ideas established in the market — possible. This distinction is important because the number of engineers and patents does not yet express the innovative strength of a business. The “unicorns” of Silicon Valley or Shenzhen are predominantly successful in market-established innovations. The rapid rise of Google, Facebook, Amazon, Airbnb, Uber, and WeChat proves their innovative power precisely in their outstanding ability to connect with their customers. Companies in the process of digital transformation must adapt and prepare their organizations and people for this new logic of networking. Without a human transformation, digital transformation is not possible. Hence a new culture in companies is required which can be called “creative culture.”
Creative cultures think marketing new – putting the customer at the center of their universe, just as the earth revolves around the sun
“Marketing is the consistent orientation of the entire company according to the needs of the market.” — Gabler Economical Encyclopaedia
When Galileo Galilei published his theses on a heliocentric worldview at the beginning of the 17th century, he contradicted the common beliefs of the Catholic Church. Although companies are committed to a modern customer-centered dictate, they usually follow old beliefs with a stubbornness similar to that of the Catholic Church. Marketing is precisely not about focusing on the needs of the market. Rather, it is about fulfilling the interests of sales. Hence the top management pays particular attention to economic indices. Market success therefore only implicitly reflects customers’ interests because it is mainly based on sales performance figures.
The starting point is an inside-out approach which ultimately only takes as a premise what the company is producing at any current moment. This thinking comes from a product-dominant logic. The explicit interests of the customers are not the focus of attention. The marketing efforts are geared to aligning the products on sale with the buying motives of potential target groups. What always lies behind this inside-out way of thinking is the belief that money must be put into push activities.
Implementing an outside-in approach is much more difficult for companies. It requires a certain way of communicating with the customer along with the establishment of sensors capable to detect their true needs. Further, a creative entrepreneurial effort is required to formulate these needs in line with the market and offer them as desirable innovations. This empathic approach is also described as “service-dominant logic,” as the company is serving the customer to a certain extent. The benefit of this new orientation is also a shift of marketing budgets from push to pull concepts.
Although it is now common courtesy to talk about “customer-centricity” in corporate mission statements, these announcements rarely originate from fundamental new approaches within the organization. Rigid systems, such as the aforementioned silos, express rigid thinking based on past experiences.
When CEOs make statements from the digital modern age and demand agility, flexibility, efficiency, and entrepreneurial thinking and acting from their employees without fundamentally reorienting the company, it is a double-bind situation from the perspective of employees. No matter how the individual employee behaves, it will be wrong at the core. He or she is part of the rigid silos but should act agile and flexible. Being exposed to this permanent paradox usually leads to hard-to-tolerate frustrations and internal withdrawal on the part of employees. That is where a properly formulated mission statement becomes part of the entrepreneurial problem. How can we overcome the biggest traps of human transformation within companies?
To be continued…
_Sven John is Executive Director Global Business.
He is one of Germany’s most experienced brand leaders and was shareholder and managing director of BBDO. Sven is an innovation thinker and transformation expert and a well-versed strategist with deep understanding on people, thus implementation. He worked with the powerhouse of Germany’s international brands, i.e. Deutsche Bank, Volkswagen, BMW, Mercedes, Allianz, Telekom.