According to the work of Lewin, Bullock and Batten, ‘planned change’ (1985) consists of four stages: exploration, planning, action and integration [6]. Beckhard and Harris suggest that organizations change when there is a current dissatisfaction combined with a desirable vision. In sum, the product of desire and vision must be larger than the resistance to change [7]. Also, ‘change’ should not be looked upon as an episode but an ongoing process [8].
While it always helps to reflect on cultural and structural change, the specific requirements of digitalization have not yet been amplified in scientific literature. The pressure from digitalization is so strong that simple change is insufficient and deep transformation needed. In a relatively short time span, businesses have to fundamentally alter entire strategies and cultures. That’s where theory ends and a mindset of change has to be established not as an exception, but as a corporate norm. To do so, it is advisable to start at the top with a bold digital leadership, then begin changing the corporate culture and bring outside knowledge in, before adjusting corporate processes and structures to a new world. Fig. 11.1 provides an overview of key success factors for digital transformation.
Fig. 11.1Key success factors for digital transformation
11.2.1 Leadership & Vision
In the last century, selling airplane seats at a high margin and providing planes to move people from London to New York or to the Maldives was a prosperous business model. Today, successful carriers price some of their tickets below cost while making money with high‐margin added services. Even further, an online travel service has never met its clients in person, but knows much more about their travel preferences than their favorite airline and is savvy enough to monetize accordingly. It’s about selling travel time and experience, not transportation itself.
Nonetheless, in a 2016 board meeting of one of the world’s leading airlines, the discussion about how to adjust to a digital marketplace was lacking some real sense of urgency. “Why should we fear Google?”, a seasoned board member asked. “They don’t even own planes.” True, but nowadays, it is absolutely possible to run an airline without taking on the risk of buying a single plane. You simply lease the hardware and build a premium customer experience on top.
Even today, you will need mechanical engineers for maintenance, but without data scientists knowing what customers will want next, every airline is doomed to failure. “I see Ryanair as a digital travel leader that happens to have an airline attached to it,” its chief technology officer, John Hurley, said. To reach its goal of becoming the Amazon of air travel, the company invested 36,000 developer hours, which is equivalent to 18 business years, in building a new mobile platform [9].
As the previous example shows, the lack of awareness of digital change among executives can be frightening. They tend to overestimate the traditional infrastructure’s edge over aspiring, digitally‐minded competitors. However, executives need to be ahead of the curve to make positive transformation happen. Horst Kayser, who leads transformation efforts as the Chief Strategy Officer at engineering giant Siemens, acknowledges that “all company changes begin with leadership and these values and attitudes should inspire and motivate the rest of the organization.”
Leadership in the digital age requires a deep knowledge of digital business models, the courage to transform structures and processes against corporate inertia, and, last but not least, an unmistakable public commitment.
Create a Digital Vision and Strategy
The example of the airline board member is anything but unique. In a 2015 McKinsey study, only 17% of top executives said that their boards were sponsoring digital initiatives [10]. C‐level executives of traditional big players are feeling outmatched by the ferocity of changing technology, emerging risks and new competitors. Only a few boards are able to reflect and reorient concerning their strategic goals and would subscribe to a recent statement by outgoing General Electric CEO, Jeff Immelt: “The digital pivot is the most important thing I’ve ever worked on and I’m totally juiced about the changes” [11].
The vision needs to be integrated into a digital strategy that focuses not only on external measures such as investing in start‐ups, hiring agencies to build mobile apps or setting up an e‐commerce channel. The strategy needs to address all elements of the core value chain and shouldn’t spare support functions such as legal, human resources or finance. “At some point soon, it should even become the overall corporate strategy,” the digital transformation officer of a leading services company said.
So, what are other key ingredients for a digital strategy? It needs to set clear, measurable goals with regards to (a) future digital revenue shares, (b) investments and expenditures in technology and (c) training hours for management and lower‐level employees as well. Priorities need to be defined and actions coordinated. The strategy has to be credibly backed up by fast action and a roadmap for implementation. It’s equally important to communicate the vision and strategy in a unified voice both internally and externally to customers, investors and other stakeholders in order to make it binding for all parts of the company.
Anchor Digital Transformation at Board Level
The awareness of the relevance of digital methods and technologies is greatly lagging among many of today’s C‐level executives. They were trained in business schools or finance or engineering departments of leading universities in the ’80s or ’90s, when digital business was a footnote in booming Western economies.
A Capgemini study showed that when CEOs communicate a clear digital vision, 93% of the employees agree that transforming the company is the right thing to do [12]. So, the vision is important, but only credible if it is backed up by knowledge and actions. “Our executives make headlines with how digital change affects us, but this only helps if we build a true momentum for change across the company,” a senior manager of an international financial conglomerate said.
Digital transformation can only succeed as a company‐wide initiative when CEOs, along with their boards, are its advocates and evangelists. They need to facilitate and effectively coordinate digital initiatives across the whole organization to develop a holistic digital corporate identity. Simply traveling to Silicon Valley is not sufficient to create a credible digital image.
In order to increase awareness for digitalization within the board, implementing a Chief Digital Officer (CDO) is one of the methods of choice among many large corporations (s. Fig. 11.2). Even if this is a first good step, it comes with several risks. First, integrating a CDO, often hired from a big digital player such as Google, into a traditional corporate culture is a major challenge. The person might behave somewhat undiplomatic, thereby creating a backlash against transformation among longer‐standing management, and in return becoming frustrated very soon. This is particularly true when the CDO has little or no profit & loss responsibility.
Fig. 11.2The role of CDOs worldwide. (eMarketer [13])
Second, the implementation of a CDO creates the risk that other board members feel relieved from the pressure of thinking more digitally themselves. They perpetuate their long‐standing offline business principles, even though digitalization should be the guiding principle for each and every decision taken at board level. The impact of digital transformation must be fully recognized by every single board member as they ideally form a digital committee in order to shape the digital future for the whole corporation.
CASE: How has Siemens AG Changed its Organizational Setup in the Context of Digital Transformation?
Siemens decided not to hire a Chief Digital Officer, but to include digital competencies deeply into every division. Horst Kayser, Chief Strategy Officer at Siemens AG, explains why:
“The fundamental organizational question we faced when we began this transformation was whether to cen
tralize our digital capabilities into one separate organization or to embed them into our existing market‐sector‐focused divisions. We chose the latter approach, because we felt that for a true business transformation to occur we had to be more digital everywhere rather than completely digital all in one place.
Some companies create separate digital units, however, they face the issue of acceptance by the traditional businesses and the continued silo mentality which digitalization needs to break down. That said, we have implemented a centralized corporate digitalization strategy and some technology and governance functions to coordinate and measure the implementation of digital initiatives across all divisions.”
Install Credible Digital Leadership Throughout the Organization
Leadership with a vision is important at the top level but doesn’t help if it doesn’t trickle down into the organization, particularly to the second and third management level. “That’s where the most conservative layer sits, full of managers reluctant to make changes that threaten their kingdoms,” the head of digital strategy of a leading automotive company said. 60% of managers assess their own digital competency as high to very high. On the contrary, only 26% of their respective subordinates say so about their managers [14]. “These people are very busy producing presentations and planning budgets, but are neither incentivized nor inclined by nature to promote real change.”
In 2013, Bertelsmann, the German‐based media conglomerate, introduced a format called “Digital Bootcamp” produced by Bertelsmann University and The Nunatak Group. From the CEO level downwards, the top 300 managers of all divisions were asked to participate in a two‐day immersive format where they experimented with mobile games, 3D printing or social media advertising and discussed potential impacts on their lines of business. Those who were most skeptical at the beginning turned out to become the strongest internal promoters of the program, even years after, when it was turned into a regular coaching format offered to all management levels.
In addition, ‘reverse mentoring’ provides an opportunity for the older employees to learn from their younger, digitally‐skilled counterparts unlike traditional mentoring where learning is dispensed hierarchically from an older mentor to a younger protégé. Thus, reverse mentoring is an inverted type of mentoring relationship [15]. Sylvain Newton, Global Head of Talent Sourcing and Development at Allianz SE, has successfully supported the implementation of the initiative and participated himself as a reverse mentee both at GE as well as at Allianz. He highlights the possibility to leverage the mutual expertise of digital natives and digital immigrants by being perceptive of their different needs, value systems, and work demands.
11.2.2 Culture & People
When you meet employees in an industrial‐style open‐space office, wearing shorts and making coffee with an Italian espresso machine, their fixed‐gear bicycles parked inside the door and office walls covered with slogans such as “Distinguish sense from nonsense” or “Accept change is inevitable”, you might assume you’re visiting a cutting‐edge start‐up in Berlin.
The truth is that you are in one of four innovation labs opened worldwide by the reinsurance company Munich Re, founded in 1890 and one of the most traditional DAX 30 companies. Engineers, mathematicians and marketers jointly work on new insurance models and sales channels while listening to Spotify playlists and discussing the latest episode of “Games of Thrones”.
Compared to similar efforts, the innovation labs are not some distant satellites but deal with issues relevant to the core business of Munich Re. “Yes, I’m personally afraid because our business model is severely threatened,” a board member answered when asked about his perspective on Fintech companies and disruptive insurance start‐ups [16]. Nonetheless, if the people working at the innovation lab attended a meeting at the corporate headquarters in Schwabing, a mere 15‐minute ride by subway, without changing their attire, they would stand out from their colleagues working in the business culture of a reinsurer.
At some stage of the transformation process, entertaining different cultures at the same time is the right way to go. However, one should begin with the end in mind and with an answer to how these cultures will merge into a new corporate DNA down the road. The bigger challenge is not to motivate young employees to work in innovation labs but to induce their more conservative peers to break out of silo thinking and orientation on short‐term benefits. In addition, innovators must be encouraged to remain creative and continue to think outside the box, instead of adjusting to the legacy corporate culture.
Establish a Culture of Open‐Mindedness and Risk‐Taking
Organizational structures of large corporations are characterized by lengthy approval processes instead of trial and error and hierarchical decision‐making instead of entrepreneurial leeway. To keep up with the higher speed and shorter product life cycles of small, agile start‐ups, large corporations need a massive cultural shift towards open‐mindedness and risk‐taking. Siemens’ Chief Strategy Officer, Horst Kayser, agrees: “Speed is a critical success factor and whilst large global companies like Siemens may have the advantage of size and scale, the slower speed of decision‐making and execution is sometimes a hindrance, especially given the pace of change within software industries.”
So, how can large corporations win this game? More than ever, fostering creativity and innovation is key in order to keep up with fast‐changing customer needs. Giving employees the opportunity to contribute to idea contests or similar programs is no news to many corporations. However, in order to implement thinking outside of the box permanently, it is important to create a culture of openness and exchange. Here, design‐thinking approaches help. Building upon the work of scientists Herbert A. Simon and Robert McKim from the late 1960s, it was introduced to the business world by David M. Kelley, the founder of design‐thinking agency IDEO. In design thinking, teams are built across functions and divisions, meet in creative environments and follow an overall goal and vision, instead of trying to solve a very specific issue. In a recent study, the Hasso‐Plattner‐Institut confirms that the approach is not only helpful when building new products, but also contributes to changing patterns of problem‐solving and collaboration [17].
For a limited period, a parallel culture, as in the Munich Re example above, is one way to go. It creates an innovative, agile playing ground for digital initiatives while also keeping up the old wallpaper for traditional business relationships. That’s also how many IT departments in large corporations try to reinvent themselves: In a bimodal structure (as conceptually introduced by Gartner in 2014 [18]), agile and flexible units are used for the development of innovative software, while legacy technology continues to be maintained through traditional processes. Obviously, someone – in this case, the original IT department – must maintain and update the accounting software or manage user accounts on corporate computers.
Regarding risk‐taking, corporations have a harder time than young, venture‐backed companies that have to try new things in order to find a path to success. However, this doesn’t mean you have to constantly reward those who don’t take any risks but just improve their current business bottom line. “In fact, we should tell our shareholders that we will invest all our earnings of the next two years in digital projects,” the interviewee from a large automotive company said. “This doesn’t mean that we stop taking care of our daily business, but it would help us to remain competitive with the tech giants a few years down the road.”
Challenge and Support Existing Workforce
Today’s workplace is a highly demanding, complex environment that requires flexible minds and the willingness to learn and adopt new digital technologies. Digital expertise needs to be profoundly integrated into the mindset of workers to develop successful pl
atforms and products. This doesn’t create any hurdles for recent university graduates who have grown up using several mobile devices at the same time. However, no large company would be able to exchange its seasoned workforce with newcomers instantaneously, and would be ill‐advised to do so.
So, how to combine the two worlds? The newcomers will make their way naturally, if they’re open to learning some of the corporate lingo and understanding corporate processes. Overcoming the fears of more experienced employees is the bigger challenge. In their famous book “Reengineering the Corporation”, Hammer and Champy state that the whole idea of change always brings deeper instincts such as fear to the surface [19]. The productivity of employees feeling left behind suffers greatly.
When guided with appreciation, provided with access to digital expertise and steered by ambitious yet reachable digital goals, employees are willing to join the transformational path. Thus, refocusing existing education programs around digital topics is obvious but by far not sufficient. “My social media training was not really helpful. It lacked practical elements and a trainer with online journalism experience,” a spokesman from a major financial company complains. Integrating external experts and providing hands‐on training in educational programs for employees are methods of choice.
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