This is going to be complex and abstract. Business people are not sociologists – but effective managers seeking a digital transformation need to understand the sociology of their business culture or be so focused on the singular topic to allow for digitilization to succeed.

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Corporate culture is the sum of all values, world views and observed behaviors of people inside a company.

This sounds rather harmless. Lets have a look at how culture can be observed, loosely based on MIT professors Ed Scheins definition of cultural layers:

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You see what a monster culture truly is. It is everything that really counts for an employee. It is not just feelings and office furnitures, it is pure power, it is wealth, it is frustration and it is reward.

Measuring and judging a culture is hard to do, as it is so many things and is changing its signals to the subjective observer over time. Yet the underlying believes are so deeply ingrained over years of practice in hundreds or even thousands of employees that any inertia, any change or any transformation which runs against the grain of what people value and people think how they should behave -what they see as “good” – will be hard to pull off.

As shown in the previous post about the 5 forces of digitalization, every of these require a major culture change or those forces will not unfold their powers. The magnitude and the path of this change depends upon the starting point of the organizations culture. According to Ron Westrum, a sociology professor at Eastern Michigan University, in a paper amply called “Three culture model” distinguished three types of organizational cultures. Let me quote from directly form the summary of Westrums paper in Humble, Moleskin and O’Reilly’s “Lean Organisation”:

Pathological organizations are characterized by large amounts of fear and threat. People often hoard information or withhold it for political reasons, or distort is to make themselves look better.

Bureaucratic organizations protect departments. Those in the department want to maintain their turf, insist on their own rules, and generally do things by the book – their book.

Generative organizations focus on the mission. How do we accomplish our goal. Everything is subordinated to good performance, to doing what we are supposed to do.

Westrums work is a very good example of interdisciplinary work that crosses the line between management literature and sociology, developed for a totally different purpose: In a flight safety context. I wasn’t aware of this work, until I read “Lean Enterprise”, a gold mine for finding interesting interdisciplinary sources usable in the digitalization context.

Given these three types of culture, there is whole continuum and combinations to be found in real corporations. Lets compare these three types of organizations in detail:

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Another categorization of corporate cultures is the “dominate culture model” or the “competing values framework”, which are used in business consulting. Its exact academic origins are unknown to me, but the model resonates quite well with the business community. The dominant culture model points towards a central conflict in most organizations, the conflict between types of departments:

  • Engineering departments (e.g. product development or IT) are geared towards building. Engineers and technicians are trained to think systematically in cause and effect, to approach problems analytically, to follow phased approaches, to seek the right solution.
  • Sales departments are geared to make the deal. They are results driven, have a just do it mentality, a short time horizon, strive for flexibility and seek pragmatic solutions to make the deal happen.
  • Operation departments (e.g. logistics) are geared towards running existing processes. They seek standardization, a stable plan to give them time to adjust capacities, the adherence to rules and hate failure
  • Administration departments (e.g. finance) are geared towards compliance.They are the ones who need to deliver correct data at certain time points and maintain the transparency of the operation. Therefore they seek compliance to rules and standardization but efficiency is of secondary importance

Every organization has a dominant culture. Looking at the background of the CEO is mostly a very good indicator for determining the dominant culture. The german automotive industry is a prime example for the dominance of the engineering culture. It is very hard to find a CEO who is not by training an engineer. The telecoms industry is very good example for the domiance of the sales culture. Retail companies are mostly headed by CEO’s with a sales or purchasing background. To some extend this bias towards CEO’s with a background in what is perceived to be the critical business function in a specific sector is rational, so that dominant cultures and sectors are correlated. Still, the dominant culture needs to loosen its grip on an organization if digitalization is to succeed.

To summarize, what is the impact of Digitalization on a corporate culture? 

First, a company seeking digitalization needs to seek to transform into a generative culture. A bureaucratic company will be able to automate its rule based business with IT, but constant exploration of new business models for better and better customer service, will not work in this environment. A generative culture may exist in just a part of the organization, if the board is willing to protect this “cultural island”. But, as its needs time to develop and grow strong, stable support of the board over a longer time frame is needed.

Second, a company seeking digitalization needs to weaken the hold of its dominant culture on the organization. For example, if the dominant culture is sales, it needs to accept that building capabilities and systematic experiment are more important because of digitalization. If the dominant culture is engineering, it needs to learn flexibility and scientific experimentation, to “build to learn” instead of “learning to build”. Usually, sales cultures are in for a much more difficult culture change then engineering cultures.

The Transformation target for any sustained Digitalization effort of size must be to create

  • a generative culture
  • to give space to a more scientific, learning culture
  • to choose a path towards cultural change depending  upon the organizations starting point, esp. in respect to its dominant culture type

No one can predict, if the dominant cultures of today will survive the digital revolution unchanged or to which degree they will change. But a new culture type is emerging and this new kid own the block is already shaking up the system.

That leaves the all important question: How to change corporate culture?

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Communicating truthfully, providing a vision and displaying wanted behavior persistently will change the corporate mind set over time. There is no easy way, no “one click transformation”, there is persistence that must be rooted in values.

In the next post, lets take the promised look on these values, as observed in some of today’s successful “digital” companies.

Posted by frankthun

Management. Systems. Liberation

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