By George Westerman, Deborah L. Soule, and Anand Eswaran – MITSloan Management Review
Getting your company into digital shape doesn’t mean dumping everything that has made it strong.
Even though traditional companies find much to admire and learn from in the cultures of born-digital companies, some born-digital qualities are cause for concern. Amazon.com, for instance, launches new businesses quickly and drives repeated efficiency gains in operations. However, it is less admired for what can be seen as uncompromising relationships with publishers, partners, localities, and workers. Uber is revered for its ability to innovate services with agility. But many observers are dismayed by the ways it has seemed to dismiss regulators, exploit drivers, and, in a set of highly publicized incidents, fail to protect workers and customers from harassment.
When Jonas Samuelson became CEO of Stockholm-based home appliance maker Electrolux in 2016, he wanted to reignite innovation and growth by building a faster, more digital-ready organizational culture. Yet many of the practices of Silicon Valley did not seem appropriate for his 100-year-old company or the social and business culture of Scandinavia. Samuelson couldn’t ask 55,000 employees to work 70-hour weeks and couldn’t incentivize them with millions in stock options. He couldn’t fire people just because their core skills started to age. He couldn’t constantly redesign the company’s processes and products — Electrolux makes hardware, not software, and customers expect to keep their products for many years. However, he could drive a culture shift that would energize employees to generate more innovation and profitable growth. He believed strongly that this could change Electrolux for the better without losing what was already terrific about the company.
Electrolux is not alone in this quest. Many companies are trying to embrace aspects of digital culture without exposing themselves to the less desirable elements of Silicon Valley startups. Consumer electronics and appliances giant Haier has spent years transforming its culture in pursuit of greater speed and innovation while maintaining the efficiency and stability of its traditional manufacturing and logistics processes. KBC Bank is adapting to fight fast-moving fintech entrants while complying with strict European privacy and employee protection regulations. Leaders of Schneider Electric are pushing culture changes to play a major role in the rapidly evolving internet of things while still being a reliable provider of devices upon which thousands of office buildings and data centers depend.
For many legacy companies, culture change is the biggest challenge of digital transformation. How can a company become more agile and innovative without alienating its best employees or wrecking the best of its existing practices? And what does it mean to have a digital-ready culture?
We’ve been studying these questions for the past three years. (See “About the Research.”) Based on our findings, we’ve developed a framework to guide traditional companies in any industry. The process begins with understanding the four critical values of digital culture: impact, speed, openness, and autonomy. It then involves adopting or refining a set of digital-ready practices, grounded in these values, which will shape employee actions and organizational performance. We also offer suggestions for getting started.
About the Research
To understand cultures in digital and traditional companies, we engaged in two stages of research. First, we interviewed executives and employees at more than two dozen digital and in-transition companies, asking them to describe how they work, without focusing on specific values or practices. We also read numerous accounts of digital companies and reviewed the extensive literature on organizational culture in traditional companies. Qualitative analysis comparing and contrasting across sources enabled us to discern a small set of values and related practices that are common across digital and transitioning organizations. We reviewed this framework of digital values and practices with employees and executives in digital and traditional companies for face validity.
Subsequently, we surveyed employees in over 500 digital and traditional companies about the extent to which these values and practices are typical of behavior in their organizations. Each measure of values and practices was composed of multiple items. Values were tougher than practices to survey, since respondents often simply agree with every positive statement. We got around this obstacle by presenting respondents with competing positive values and asking which was more important to their company. For example, we asked people to locate their company on a scale from valuing speed to valuing perfection. To supplement our questions about digital values and practices, we also asked about traditional practices related to integrity, stability, and rules orientation. We statistically aggregated responses to get a score for each of the values and practices. Finally, we asked respondents about different aspects of their organizations’ relative performance so that we could empirically link culture elements to performance.
Contrary to much that’s been written, incorporating the best of digital culture into a legacy culture doesn’t mean sacrificing integrity, stability, employee morale, or a company’s heritage. And traditional companies aren’t the only ones that can benefit from this framework. The insights also apply to startups striving to become mature and thriving businesses for the long haul.
Culture is what happens when the boss leaves the room. This workplace truism is particularly useful for leaders contemplating a significant culture shift. Often described as “the way we do things around here,” culture is a set of values and norms that guides human interactions. It’s present in the espoused values of management, the unspoken assumptions of employees, and the commonly accepted behaviors that have helped an organization succeed in its chosen environment.
The good thing about culture is that it provides coherence and continuity. The bad thing about culture is that it can root a company in past practices that no longer fit a changing world.
Culture is harder to change than strategy, because much of it is unconscious. What’s more, leaders need to understand a company’s prevailing culture before seeking to modernize it. If they suddenly direct people to do things that run counter to deeply held values, rational discussions can quickly devolve into moral diatribes.
It’s equally important that legacy leaders understand exactly which digital values and practices they hope to embrace. At first glance, it seems that there are many values to choose from. At one point, Netflix published a deck of over 100 slides to describe its culture. But a few core values, such as high performance, freedom and responsibility, and context over control, drive the practices that power the company’s innovation and growth. Boston-based software company HubSpot has a similarly thick “culture code” deck, but a few characteristics stand out. The company “commits maniacally” to its mission and metrics. It always strives to “obsess over customers.” The company is “radically and uncomfortably transparent” and asks employees to be “unreasonably selective about our peers.” These dictums reinforce a hard-driving, constantly innovating workplace culture.
Microsoft has redefined its culture around fostering a growth mindset in both individuals and groups. Company leaders worked extensively to shift from solely rewarding people for their individual contributions to recognizing the importance of leveraging the work of others. Other important changes include championing curiosity, actively seeking to drive greater diversity and inclusion, and fostering a “one company” approach over a confederation of fiefdoms.
The Four Key Values
A slew of books and articles purport to reveal the cultural secrets of digital titans. Yet behind this tower of corporate babble, we find a small shared set of cultural elements that are essential to help companies become agile, innovative, and fast-growing.
We reviewed the management literature on culture, examined published frameworks and stories of digital companies’ cultures, and interviewed dozens of executives to identify a small set of self-consistent values and practices of digital culture. We then conducted a survey of more than 500 digital and traditional companies to validate the culture framework and assess how the various elements of digital culture correlate with different types of self-reported performance. Ultimately, four key values of digital culture stand out: impact, speed, openness, and autonomy. (See “The Four Key Values of Digital Culture.”)
The Four Key Values of Digital Culture
How closely do your company’s values match?
Recognizing the immense scalability of digital solutions, digital leaders typically focus on creating impact, assuming that profit will follow. At their best, these companies revolutionize how people and organizations interact, reinvent industries, and break the power of entrenched gatekeepers. The other three values support that mission. Speed helps companies stay ahead of competitors and keep up with rapidly changing customer desires. Openness encourages employees to challenge the status quo and work with anyone who can help them achieve their goals quickly. Autonomy gives people the freedom to do what’s right for the company and its customers without waiting for formal approval at every turn. Together, these values can foster an engaged, empowered workforce where employees feel a personal responsibility to constantly change the company — and often the world.
How Practices Bring Values to Life
The values of high-performing digital companies frame their essential practices: rapid experimentation, self-organization, data-driven decision-making, and an obsession with customers and results. (See “The Spectrum of Digital and Traditional Practices.”) Our research shows that these practices reinforce one another when they’re all in place, creating a unified culture that is an effective expression of the four key digital values.
The Spectrum of Digital and Traditional Practices
Here’s what culture typically looks like in digital and traditional organizations. Practices range from rapid experimentation to strict rule adherence, with some overlap between the extremes.
Here’s one way to look at this: Autonomy means that workers have the latitude to focus on the tasks that they believe matter most to customers. They can experiment rapidly without fear of failure, increasing the chances for truly novel outcomes. So why don’t successful digital companies turn into unmanageable collections of solo artists reaching for the moon? By valuing openness and striving for big impact, these companies encourage people to seek out relevant data and expertise wherever it resides. To achieve speed and impact, workers self-organize quickly to conduct experiments and achieve their goals, without worrying about a collaborator’s title, function, or organizational affiliation. Moreover, openness, even to counterpoints or critical perspectives, leads to individuals and teams having more information and producing more effective solutions. The emphasis on data and results, meanwhile, drives accountability, encouraging persistent striving for customer-focused, scalable results. This system of interrelated values and digitally enabled practices can be remarkably effective when management gets it right.
Traditional companies tend to share their digital counterparts’ focus on customers and results. They differ culturally in how they aim to minimize problems through strict rules, drive integrity into all daily behaviors, and work to create stability for stakeholders. While some digital natives might deride this combination as stodgy and bureaucratic, not all traditional practices need to be eliminated in the quest for digital culture. In fact, it becomes clearer every day that stability and integrity are qualities to be prized.
Amazon, for example, was seen historically as cultivating a high-pressure and argumentative work environment, believing that only the fittest should survive for the long run. But that approach, which led to poor press and high turnover among certain groups, is starting to change: By experimenting with more schedule flexibility and explicit support for more gender balance, the company is now beginning to set a less cutthroat, more inclusive tone. Google, too, realized that more stability for employees can benefit the company’s stability; after internal analytics showed that new mothers were leaving at higher rates than other employees, it boosted family leave policies, reduced on-call demands, and achieved a 50% reduction in attrition among these employees. After HubSpot developed a reputation as a difficult place to work, with long hours and insensitive “graduation” announcements for terminated employees, the founders made changes to build more empathy into the company’s culture.
As for integrity, a series of headlines over the past few years has made clear that some digital-native companies need to become more principled. Facebook has been widely criticized for its perceived indifference about user data privacy and informed consent. At Uber, weak policy enforcement on harassment led to a public scandal and, ultimately, the departure of the CEO. Autonomy, experimentation, and self-organization can drive marvelous innovation but, in the absence of sound guidance, can also lead to abuse.
Cultivating a Digital-Ready Culture
The challenge, then, is to develop the elements of digital culture to promote innovation without sacrificing integrity and stability. It’s a worthy goal. In fact, our research on more than 500 digital and traditional companies shows that striving for integrity and stability in a company’s culture does not hurt self-reported measures of innovation, profitability, and customer satisfaction. That’s good news for traditional companies, maturing digital companies, and millennial workers who now care as much about growing families and communities as they do about growing businesses. Instead of ditching all past practices, traditional companies should try to create a digital culture that embraces the best of their legacy. We highlight three principles for making this happen. (See also “Principles for Creating the Culture You Need.”)
Principles for Creating the Culture You Need
Become a digital-ready organization without sacrificing important values.
Build the practices that set digital companies apart. The greatest advantage of digital companies is the speed with which they create and test innovations. Traditional businesses must try to cultivate habits of rapid experimentation and self-organization within a framework of data-driven decision-making. These practices may feel alien to companies whose structures, values, and governance rules were designed for cautious stability. Yet our analysis shows that rapid experimentation and self-organizing strongly drive measures of self-reported performance, including growth and innovation. Moreover, organizations can’t experiment effectively without the data to measure change.
Preserve practices that promote integrity and stability. Your customers, employees, regulators, and shareholders deeply appreciate these qualities and the practices that support them. As we noted above, companies managing for integrity and stability report performance that is neither better nor worse than that of companies that do not. Yet the negative outcomes of omitting these practices have become apparent in many digital-native companies. That’s why many successful digital businesses have begun to improve their integrity and stability practices as they mature.
Reorient important practices that are still optimized for the pre-digital world. The speed and interconnectedness of the digital world demands a new orientation to customers, results, and rules. Asking customers about their needs must be supplemented by anticipating customer desires and proactively experimenting to delight the customer. Infrequent and opaque performance evaluations must be replaced or supplemented by ongoing attention to transparent goals and performance metrics. Wherever possible, strict rules and controls must give way to broader guidelines and transparent monitoring. Employees who use rules to prevent change must be counseled to be more flexible. For example, Google requires employees to follow strong technical and data standards but encourages innovation that builds on those guidelines. Objectives and key results at the company, team, and individual levels are visible widely. This transparency encourages higher performance and improves collaboration.
How DBS Bank Built a Digital-Ready Culture
One of Asia’s largest banks, Singapore-based DBS, has undergone a radical turnaround. As recently as 2009, DBS was ranked last of the region’s top five players in customer experience. Customers joked that DBS stood for “damn bloody slow.” But, by 2013, through a constant focus on reducing process failures and improving speed and customer turnaround time, DBS ranked first in customer experience among the same group.
But that was just the beginning. As we learned in our discussions with company leaders over the years, senior executives envisaged DBS as a leading digital company, not just a leading bank. Achieving this audacious goal would require further improvements in the company’s technology platforms and product development processes. DBS also needed to foster a digital culture, improving its innovativeness without alienating its best customers or risking regulatory lapses.
CEO Piyush Gupta and CIO David Gledhill started promoting the idea of DBS as a 22,000-person startup. They visited major digital players globally to understand their corporate cultures and then defined a set of values and practices to change the DBS culture. They wanted the existing customer focus to become a data-driven customer obsession. The company analyzed 250 customer and employee journeys to identify process issues and then built analytic models to improve those processes and enhance employee performance. For instance, by modeling demand in its ATM network, which, the company says, handled more transactions per month than any other bank in the world, DBS ensured that its ATMs never ran out of cash. Another model developed to predict salesperson turnover proved to be 85% accurate, allowing executives to intervene and have a conversation with the bank’s top salespeople before they decided to leave.
DBS leaders also encouraged ideation and experimentation at all levels. They urged employees to identify ways to remove millions of hours of customer wait time. Strategy workshops, daily briefings, startup exchanges, and a variety of other supports drove more than 1,000 experiments, many of which led to new products or improved services. The bank also redefined internal processes to build agility in IT units and product development teams. IT staff and business product owners now work closely together to rapidly develop, test, and refine products, increasing the speed and quality of product launches. The company has removed more than 250 million hours of annual customer wait time and more than a million hours of employee wait time.
In addition, leaders strove to build a learning organization where every worker can engage in continual self-improvement. Online and classroom training courses were expanded. Experiential learning opportunities such as hackathons, job shadowing, and immersion experiences helped employees gain greater understanding of DBS itself. Collaboration platforms, pop-up classes, innovation fellowships, “learning days,” fast-paced PechaKucha sessions (essentially rapid-fire presentations), and other methods enabled peer-to-peer mentoring. Theme weeks, learning hours, reading clubs, and other gatherings helped make learning a ritual.
DBS has made great strides toward becoming a digital master. It rapidly launches digital innovations to meet a variety of voiced or unvoiced customer needs. Its customers are quickly shifting to cashless processes. New products, such as a gamified mobile app to help parents teach children about savings, both test market opportunities and connect customers more closely to the bank.
Another unforeseen opportunity emerged from the many process improvements identified by employees. Automation and process changes had reduced costs significantly, but two processes — customer service and identity verification — still required employee actions. In India, DBS used chatbots and the country’s biometric identity system, along with product simplification and some partnering, to create a digital bank that requires virtually no intervention from DBS employees. At near-zero marginal cost, the digital bank’s processes make it possible to serve hundreds of millions of poor Indians who could not be served profitably by traditional banking processes.
Like DBS, many companies around the world are growing their digital cultures. While changing culture is never easy, we’ve identified the following steps to help you start growing strong cultural roots for a digital transformation.
Reframe the vision around radical impact. People in digital startups tend to have a sense of purpose that goes far beyond the walls of the office and motivates them to work hard and innovate. To start your digital culture transformation, create a vision that is bigger than your business. Nike doesn’t just try to sell shoes; it wants to be part of its customers’ lives. It wants to be part of the conversation around any sport, any time, in any channel. Nike knows how to sell shoes. But by promoting a richer conversation around sports, Nike gets closer to sports fans — its customers — by making them feel they are part of a community.
In the B2B world, Rio Tinto is redesigning mines with the goal that no miner will ever again work in a dangerous underground environment. By improving the lives of its employees, it also increases efficiency and profits. Other B2B companies are linking their work to end customers; employees feel more connected when they serve humans instead of companies. Schindler, for example, has shifted its vision from selling elevators and escalators to transforming urban mobility. At the office, apartment, or mall, Schindler aims to improve customer experience by having elevators that arrive when needed, provide a smooth and fast ride, and feature useful media and information. That vision helps employees see how they help people, not just buildings.
Visibly promote new values and practices. As a leader, you must live the change you want from your company. Tout the new values loudly and often. Identify company stories that broadly inform and reinforce these values. Engage in open conversations so that employees can comfortably express their hopes, doubts, and fears about what might be lost, and so that unconscious beliefs can come into the open for discussion. For example, Microsoft CEO Satya Nadella encourages employees to transition from being know-it-alls to being learn-it-alls, underlining a new cultural emphasis on learning, openness, and empathy.
Then you have to walk the walk. Explicitly highlight those arguments that need support from data. In meetings where managers make decisions based on experience or intuition, ask what experiments they might conduct to test their beliefs. Make key decisions based on a diverse set of perspectives, including those of customers or partners. When considering a major internal policy change in an area such as performance evaluations or budgeting, conduct visible pilots and experiments before doing a global rollout. Be transparent in rewarding people who engage in valued practices and in encouraging behavior change in those who don’t. One or two high-profile stories can yield a long tail of conversations throughout the company.
Be selective in choosing where to start. Not every unit of a company needs a digital culture. Change is more urgent for units in dynamic environments like sales, marketing, or product development than for more stable areas like finance. Start in the unit or region that makes the most sense. Even if you believe you need to revitalize culture company-wide, as Microsoft and Electrolux do, feel free to pay more attention to some units than to others as you learn what works best in your company. Focusing on quick wins and high-potential opportunities can build momentum for broader challenges later.
Consider creating a separate unit that can safely experiment with new modes of thinking and acting while staying connected to the rest of the organization. Seeing a new culture successfully take shape in this unit can break down resistance elsewhere in the organization. The digital units in companies as diverse as Nestlé, P&G, and Lloyds Banking Group, for example, started as concentrated sources of talent, tools, and culture to drive digital innovations and then began to diffuse those practices back to the main company.
Give people the chance to make an impact. Even if they want to innovate, busy people often feel that they don’t have time to do so. Google’s 20% rule makes it clear that every employee has the opportunity and the expectation to innovate. But in practice, such policies don’t reduce productive time by 15% or 20% but rather add an expectation that people will innovate on top of a full workweek. You can change the situation by providing opportunities for employees to contribute in small ways that have a huge cumulative impact. Innovation contests, hackathons, and recognition go a long way toward cementing the idea that innovation should be routine, not the exception. At DBS, employees were encouraged during normal work hours to identify conditions that make customers or employees wait or to suggest potential ways to reduce wait time, even if they couldn’t solve those challenges themselves. At some companies, employees whose innovation suggestions are selected can get a temporary assignment to the team implementing the innovation before returning to their original roles.
Look to IT (where possible). Often, the best examples of rapid experimentation and self-organizing can be found in an unexpected place — the IT unit. The best IT units have been experimenting with agile IT, where teams of tech and business people constantly self-organize and experiment to rapidly develop new enterprise software features. Whether they practice agility or not, great IT leaders understand what gets in the way of innovation and speed and have tools to help. They understand the difficulty of working with spaghetti-like legacy systems and can help you fix them.
Not all companies have great IT leaders or agile practices in IT. But if you think your company doesn’t, then it’s worth looking more closely to test your assumptions. You may find pockets of IT leaders who can help. If they can’t, you may need to transform your IT unit and its leadership so that it can support the kinds of change you want to see in your company.
Provide the right tools. It’s tough to make data-driven decisions without good data. It’s also tough to work with people around the world without the tools that make collaboration easy. For example, your employees need effective ways to download data safely, collaborate smoothly across locations and time zones, examine their customer’s journey in detail, or monitor a production process in real time. Make these tools part of everyday work, rather than just another password to remember. Don’t set up your employees to fail by asking them to engage in 21st century practices using 20th century tools.
Be transparent about goals and performance. Is your company as transparent as your favorite digital company? Is it as successful? The answer to the first question shapes the answer to the second.
In many organizations, the operations group is more transparent than other divisions. Transparency around output, quality, and safety helps factory workers collaborate to fix problems and raise productivity. Showing real-time performance in IT operations increases uptime and employee engagement. In sales, transparency around individual and team performance helps every salesperson identify what she and her colleagues are doing to meet the unit’s goals. In Chinese tech company Luculent, the front doors to many departments have screens showing the unit’s real-time key performance indicators and performance to all passersby. Transparency can raise productivity, help teams police themselves, and build greater understanding and trust across units. Nonetheless, it can scare employees if they feel as though they’re under constant surveillance. You can begin to overcome this resistance by defining KPIs that are truly meaningful and by clearly using the data for the agreed-upon purposes. But, in the long run, true transparency is possible only with a sustained effort led personally by a company’s top leaders that emphasizes the value of performance and innovation while reinforcing trust.
No Silver Bullets
The most important word in digital transformation is not digital, but transformation. Launching technology projects is just the starting point. The ultimate goal is to move from building systems and processes to building capabilities — building a culture where innovation is the norm and where employees constantly seek learning and growth, making the most of the best new technologies and techniques.
The right culture for the digital age matches the speed and innovative nature of digital-native companies while avoiding the locker-room culture that can prevail at some of them. It promotes rapid experimentation with products and business models while staying true to valuable capabilities that help the company thrive.
Culture is a core executive responsibility, but there are no silver bullets. People offering simple answers for culture change don’t know what they are talking about. Culture comprises a mutually reinforcing set of values and practices, only some of them conscious. Shifting culture takes intense effort and sustained attention. It takes constant adjustment to ensure values and practices remain aligned even as the company’s competitive demands change. It takes continuous performance management at all levels. And it takes the commitment of everyone across the company to live by the culture you want to achieve.
Developing a digital-ready culture does not mean doing away with all that is good in a traditional company’s culture. Instead, it’s a matter of communicating the desired values and then introducing some new practices while fine-tuning others. You can develop the strengths of digital culture without sacrificing integrity and stability. Digital entrants are fast, but they rarely have the size and entrenched power of traditional companies. Combining a traditional company’s assets and competencies with a digital-ready culture can be a winning formula for competing with fast-moving digital entrants in any industry.