Biz Solutions

Why do many digital transformations fail?

Companies recognize that they need to imbue their operations with digital technology in order to survive and thrive. Yet most major change efforts focused on digital innovation do not improve company performance because leaders are not focused enough on people and digital culture, according to research by The Boston Consulting Group (BCG). The results are reported in the article “It’s Not a Digital Transformation Without a Digital Culture.”

“Culture provides the guidelines that steer employees to make choices that advance the organization’s goals. And the case for fostering a digital culture is powerful: it empowers people to deliver faster results, attracts talent, and pushes innovation,” says Jim Hemerling, a BCG senior partner, the global leader of the firm’s behavior and culture topic, and a coauthor of the article.

While only 17% of companies  that neglected culture during their digital transformation efforts were able to improve performance, 90% of companies focusing on digital culture reported breakthrough or strong financial performance, and almost 80% of the companies that focused on culture were able to sustain strong or breakthrough performance. The report’s authors have identified key elements of a digital culture:

  • Encourage employees to engage with customers and partners. By stepping into customers’ shoes, employees can create better customer experiences and more holistic solutions.
  • Promote delegation over control in the workplace. Digital transformation requires employees to be agile, so they need to be trusted to make decisions without supervisory approval. A digital culture serves as a code of conduct that gives employees the latitude to make judgment calls and on-the-spot decisions.
  • Encourage boldness over caution. In a digital culture, people are encouraged to take risks, fail fast, and learn quickly, and are discouraged from preserving the status quo out of habit.
  • Focus on action rather than on detailed planning. When it comes to effective digital initiatives, big-picture plans that take a long time to put in place can be counterproductive, given the rapid pace of change. Digital culture supports a “perfect as you go” process rather than perfecting an idea before launch.
  • Foster collaboration over individual work. Information sharing across departments is crucial to a digital transformation because success is achieved through collective work. The fast pace and iterative nature of digital work requires a high level of transparency.

How can an organization build such a culture? Business leaders should follow three steps: articulate what needs to be changed, including the main characteristics of the digital culture they wish to build; activate leadership qualities by creating everyday opportunities for leaders to model new behaviors and engage workers by encouraging them to act autonomously and proactively; and align the organizational environment (systems and procedures) with the characteristics of the digital culture to sustain the culture. The latter can include making leadership changes on the basis of a candidate’s digital skill set and replacing periodic performance reviews with active, dynamic feedback.

Underlining the importance of focusing on culture is the fact that the five-year total shareholder return (TSR) of businesses with strong company cultures is roughly twice the TSR performance of companies with weak company cultures. So, not only is a digital culture imperative to a successful digital transformation, but an overall focus on leveraging and nurturing the company culture stacks the deck in favor of success.

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