The Ultimate Guide to Master Digital Transformation by Culture
When it comes to Digital Transformation, Mittelstand has a cultural advantage through heritage and longevity. We suggest to leverage the current crisis as an opportunity to capitalize on this. Although, we further believe that in order to effectively achieve sustainable results, the leadership style needs to evolve from hierchical to adaptive leadership. As an experiment, we decided to share this article in English, in order to address a wider audience. Hope you like it and will find it valuable - see below ways how to stay in touch!
In the previous articles we have shared many insights around business innovation like the Three Horizons approach or the Dual-Speed Innovation Strategy, but we have not yet spoken about the organizational side of change. So, in this article we would like to explore the cultural aspects of transformation. In order to put it in more concreate perspective and a topic every organization can relate to, let’s introduce New Mittelstand culture that is required to master Digital Transformation.
Source: the social media
Digital Transformation is probably one of the buzzwords of the year 2019, especially with the COVID-19 crisis some of the digital transformations have accelerated by factors through the urgent need to change. So, it’s a good time to think about how you could leverage existing digital experiments and pilots and craft a meaningful and sustainable transformation.
The article is structured in 5 sections addressing the following questions correspondingly
Probably most of you have already heard this word - Digital Transformation - and have started activities around this area. But what is Digital Transformation really about?
In a nutshell, Digital Transformation is the disruptive impact of technology evolution and automation on an existing large corporate organization or NGO. In a recent study published by McKinsey & Ashoka it is estimated that by 2030, about 15% of all jobs will disappear globally because of automation, while about 20-21% of new jobs will be created. This means that about 1 Billion People will need to change their job focus / position over the course of the next 10 years.
This impact on businesses and organizations requires a new “Modular Business Logic” (see table). This type of business logic leverages the exponentially emerging new technologies and requires new capabilities i.e.
customer-centricity,
collaborative culture and
platform-oriented business logic.
Thus, it is not surprising that according to the McKinsey & Ashoka study, the number 1 significant challenge on how to meet digital priorities pointed out by organizations is about cultural and behavioral challenges.
Why? Most people do generally not like change and many people would see a disruptive change affecting their work as a threat rather than as an opportunity. If you are a leader in your organization you probably know this already and also have experienced that just knowing this does not make the organization change.
So, we believe that an organization leadership has to actively work on cultural change to master the digital transformation. Thought, keeping the the roots of Mittelstand culture while adding some spices from the Startup is a challenge. Though, if done right, it would great a good and resilient company that can stand the future challenges over the next generations.
Source: P21 framework; OECD; European Commission; World Bank; team analysis
Although this digital disruption will not make all jobs “digital”, on the contrary, the majority of new activities are inherently human and therefore not automatable. Here is a 21st century skills overview based on P21.org framework, summarized by OECD and World Bank. 21st centure skills include renowned digital skills, but also human skills as well as meta skills as an overaching element.
Now, not only the thin layer of leadership requires the “meta skills”, but many more people in the organization to handle such amount of change. These skills are often about self-direction and leadership, empathy and flexibility — therefore, cannot be easily learned, but need to be self-discovered. Often these have been “played down” as soft skills. Precisely these “human skills” will be increasingly important in the foreseeable future.
Especially for Mittelstand companies which have been very successful in the industrial age, the cultural shift that is required for the digital transformation is pretty massive. In a study originally conducted by the Bertelsmann Stiftung (see table below, adapted for mittelstand) on this topic, they have researched and identified many shifts in the cultural aspects of leadership.
We believe that “Adaptive Leadership” is a great term capturing the majority of the aspects of the new leadership kind, just to name a few:
Empowering, coaching style
Responsible workers as a pool of ideas
Peer-to-peer learning and ability to cooperate
This idea leads us to another great concept that Frederic Laloux described in his famous book “Reinventing organizations”.
This adaptive leadership style also also typical for purpose-driven organizations or so called “TEAL organizations” (see picture). This type of organizations is driven by the purpose and profit, and not driven merely by growth. This is why we underlined the importance of a clear purpose definition.
In our digital transformation strategy approach we believe that you have to start with culture, narrative and purpose first. Think about culture and leadership as the opposite side of the same coin (Edgar Schein). Culture is something that founders & leaders of the organizations have injected early on and soon it has become the cultural DNA for the success of the company.
This is why believe in the following 7 steps required to master digital strategy:
Step: Encrypt the success DNA. To successfully master the digital transformation as a leader you have first to “encrypt” and understand the original DNA / cultural code. This requires an understanding of cultural roots of the company. Especially in case of Mittelstand companies which survived for generations this is something really special.
Step: Craft a new meaningful narrative to give the organization the purpose for the years to come. Even if you understood the true success DNA of the company it does not mean that the company shall remain relevance in the future. As a leader you have to have a vision and craft a meaningful narrative to give the organization a purpose for the years to come.
Step: Trust your talents and create a holocratic culture of empowerment based on personal relationships. Now that you know where you’re coming from and where you’re heading towards, its important to define how to get there. We believe that the fastest way is first to think about people in the organization and their true needs and talents, then to think about how most nascent technology can make people most effective within the defined purpose.
Step: Build empowring tech backbone — your unique toolset for the future. Of course though, especially as a Mittelstand company you can’t compete with Startups within the internet economy without a proper toolset of your own. So, crystalize the toolset you need and create a department to take care of designing it short- and long-term.
Step: Transform the organization by adapting the new toolset project by project, starting with 1-3 lighhouse projects. “Rome was not built in a day” and you can’t just change the core of your business and transition it on a new toolset over night (too risky, could “kill” your business). Instead, find 1-3 lighthouse (“Leuchturm”) projects (Horizon 3) and people behind these, who you really trust can represent the future culture & purpose of the company the most.
Step: After 1-3 lighthouse projects are implemented, crystalize learnings and create a transformation roadmap to go full spead. Now only it is the time to go full-speed with the transformation of the whole organization. In addition to the “tech backbone”, don’t forget to establish a change management organization that will help your leadership to cope with the change.
Lead the change by inspiration and motivation and track the process decentrally through a flexible set of OKRs (Objects-Key-Results). Many people believe that OKRs have been invested by Google, but actually they were introduced there by the famous VC, Kleiner Perkins. He knew that OKRs help organizations to scale faster and in create more sense of ownership. Even huge missions like “become a multiplanetary species” (Elon Musk) could be broken down into OKRs to craft a focused organization structure around it (like in divide-conquer-algorithms).
Jut to finish this piece, we tried to sum up 3 tips on how to succeed in this digital (or shall we say now cultural) transformation from the New Mittelstand perspective. Note: this view has been inspired through the collaboration with Applied Optimism initiative who we just added a partner - more information here.
I. Run Optimistic Experiments (and share Learnings)
Learn and embrace the the optimistic and entreprenerial startup philosophy to support the transformation of your core talents within your organization. This means that we shall not only talk about “failing fast”, but embrace failure as an essencial and central part of any innovation process.
As desribed in the initial article around the 3 Horizons of Innovation, it is very crucial to understand that fast innovation (Horizon 3) is meant to increase the option value of the business in the future. It is often hard to quantify and assess the value of a failed startup or experiment in the step 5 above. While it can make a P&L look bad, the true value of experimentation for the team who run is in understanding and sharing of the learnings that you experienced while running it.
II. Strengthen the strengths (and love diversity)
In the future there will be less and less need to have generalists, as such generalistic tasks can often be taken over by machines more efficiently. So, motivate your team to implement the culture of positive psychology, so focus on strengthening the strengths, instead of strengthening the weaknesses.
The golden circle by Simon Sinek
Being able to cope with higher amount of diversity is needed and essencial to achieve a positive psychology culture as there is higher need to change perspectives, emphathize with each other. Learn from artistic, (social) entrepreneurs and startup founders how they treat failures in a positive way and keep pushing on a particular expertise / vision for a long period of time. This is something Mittelstand companies have been also traditionally great at and this DNA could help a lot in the digital transformation (especially if combined with a clearly defined purpose).
III. Define a clear purpose (and focus on it)
Spend sufficient time developing/ revisiting the narrative and purpose of the organization in such a way that is going to be inspiring to stay positive about the opportunity to change. Especially in times of uncertainty it is important to ask why and digital transformation does pose lots of uncertainty on the people as we mentioned in the beginning of the article. So, as Simon Sinek proposed in this “golden circle” (see picture above), we highly recommend to define the WHY, before you define the HOW and the WHAT.
In organizations that have proven to be succesful, especially in some really traditional family owned Mittelstand, it is often really difficult to ask these questions as everything is rather optimized on efficiency. But the New Mittelstand generation is coming — this brings a new chance to ask why again. The generation XY, that is taking over the leadership of many Mittelstand businesses at the moment, has a deeper sense to connect to the higher levels of the Maslow's hierarchy of needs.
Asking WHY properly makes you often rethink the whole business and supply-chain and this is really not going to happen if your leadership and often ownership teams are not behind this idea.
Subscribe to our newsletter or download vision paper and don’t miss futher updates as we plan to have several deep-dives on the individual steps of the proposed transformation strategy as well as success case studies to highlight some successful transformation experience in Mittelstand.
Join our regular meetups to exchange experience and learn from each other — maybe you as a Zebra will inspire a Mittelstand company to collaborate and create a light-house project yourself?
Join our community — we are always looking for the best inspiring entrepreneurs & intrapreneurs and experts, who have experience with such a process at parts or as a whole. Please get in touch to join our movement.
Thank you!