One of the big hurdles to bridging the digital divide is that traditional business models and their management structures have embedded in their culture, a fear of failure.

This is why getting the cultural and leadership changes necessary to support innovation and the new business strategy is key.

As McKinsey’s Catlin and his colleagues argued in Raising your Digital Quotient that “big data analytics, digital content management, and search-engine optimization—are crucial” but “a strong and adaptive culture can help make up for a lack of them”.

Building a strong and adaptive culture

How does an incumbent business change its culture? How does it adopt the values required for its digital transformation while recognising the value of legacy businesses and while taking staff on the journey?

It’s not an easy task.

The adaptability, experimentation, willingness to fail, and openness required will be uncomfortable for many leaders and their teams. Leadership must also seek to drive the structural changes needed so every worker will understand their part in the plan and thus obtain for themselves an “ownership” of digital.

Hiring the right people to facilitate the journey is clearly a key part of this process. But so to is taking incumbent employees on the journey.

The WEF suggests 4 key areas leaders “should focus on in order to move toward a digital culture”;

  1. Communication. Communicate three times as much as necessary. Besides face-to-face conversations consider all digital channels (e.g., social media, blogs, wikis, forums, shared mailboxes, webcasts and videos). Focus on an honest and open conversation style; this will make the journey easier for employee to accept. Companies should also consider using a communication log.
  2. Journey management. The leadership team needs to drive the cultural change. Leaders have to consider that the change needs to reach the grassroots level. The “clay layer” (middle management) of an organisation in particular is difficult to address, so it is important to tackle this thoroughly. Leaders need to release people’s creativity and apply lean startup methodologies described earlier such as hackathons and design thinking. Companies should also hold digital immersion trainings for leadership to develop their digital literacy. This also needs to be supported by putting in place the right HR policies.
  3. Make changes visible. Create job aids and reference guides for employees; consider the use of semi-permanent visualisations, change journey maps and paintings on the walls of the offices to support the endeavour.
  4. Continuous change monitoring. Use tools such as change tracking, culture/feedback surveys and performance monitoring.

Bain and Company partners Laurent-Pierre Baculard, Greg Caimi, John Senior, and Elizabeth Spaulding say, “human capital is clearly at the heart of successful digital transitions”. They highlight that a “successful digital transition rests on overcoming this organisational resistance.”

To do this they say leadership has to generate “buy-in”. To facilitate this they recommend the following steps:

  1. Define the change clearly and create alignment behind it by translating what it means for each part of the organisation;
  2. Ensure people understand that as cycle times accelerate, decisions need to be swifter and wired differently than in the past;
  3. Staff may need intensive training to learn new skills and behaviours; and
  4. Everyone needs to have a clear understanding of how their role in the transition affects and depends on others.

Both these approaches are approximated in many other case studies and examples in the literature. And one thing that is apparent in the process of successful digital transformations is that cross-functional collaboration is going to be as important to success as a culture that fosters experimentation, testing, learning, and sometimes failure.

This is where structural and cultural changes need to merge. People across all levels of the organisation need to feel empowered to work on and offer solutions to problems. They need to feel ownership.

That, according to Bain’s Baculard and his colleagues “requires some critical organisational and cultural changes”. To facilitate that the CEO needs to empower boundaries to be broken down because “everyone, for instance, needs access to customer data, as well as the analytics and visualisation tools used to interpret it— information that is typically hoarded in a particular part of the organisation”. This is often achieved by the CEO “giving teams permission to set new rules and by providing the strategic framework to buttress the new order they say.”

Google’s digital culture

Digital natives like Google – companies that have grown up in this digital age and are thus already adapted to it – are the gold standard for operating in the current environment. But while they were born digital that doesn’t mean they have to adapt to the changing environment.

So, more established businesses, ones with traditional business models and leadership structures can learn from the core tenets of what makes a company like Google successful.

McKinsey’s Barr Seitz spoke to Jon Kaplan, Google’s VP of US sales and operations, to better understand Google’s culture.

Kaplan cited three tenets inherent in Googles DNA.

He said because of how Larry Page and Sergei Brin founded the company – the original servers were made of Lego – it did the best with what it has. It is thus “incredibly scrappy”. He also highlighted Google is a data-driven company, explaining that “at Google, you really don’t walk into a meeting talking about your gut feel on something. You need to have the data to back it up” he said.

The third tenet is that Google is agile with the company having evolved and changed over it life such that it is “totally different today than when we started”. That, he said means “we have to have leaders, we have to have employees, and we have to have technology that is all very agile for where the industry is going”.

It is this focus on agile which is important for other businesses to understand if they want to successfully negotiate their digitisation journey.

Kaplan said Google does “dozens of tests and experiments every single quarter”. It does this in a small way and then scales up if successful. “We can start very small and test a theory, and if it doesn’t work, we can very quickly pull that back. That’s a really important part of what we do every day,” he said.

He added one of the hallmarks of Google is how it learns from failure “in its test and learn culture”.

Unsurprisingly Kaplan also said Google is “highly analytical about our culture”. It does that buy an annual survey of all employees covering “every aspect of what a great culture would include: innovation and autonomy, forward thinking, teamwork. All the things that are important to the DNA of the culture”.

But it doesn’t become shelf-ware.

Google then looks at the feedback “and [analyses] it every single year, and then we actually take every piece of feedback” and address the areas where there is room for improvement.

Empower your people by connecting the dots

While it’s easy to say you need to change you culture and empower your people to be like Google, it’s unlikely for established players who aren’t digital natives to be as straightforward as the theory would suggest.

Janet Balis, EY Global Advisory Services Leader for Media & Entertainment, and Kris Pederson, EY Americas Advisory Principal, argue that the very best companies have, in effect, always had what we now call a digital mindset.

Citing the 12% of companies listed in the 1955 Fortune 500 who still exist today, they say these companies are, “providing consistently exceptional experiences, one interaction at time, across the entire value chain, realizing that business may be driven but technology but is fundamentally about human experiences”.

Tech is the enabler. Human experiences are the connective tissue.

Balis and Pederson also say, “these companies also understand that they need to move at the speed of change. The more connected companies are with their internal capabilities and the external ecosystem, the more likely they will be able to anticipate where customers and competitors are going next so that they can design for the future instead of today”.

To achieve that they say companies must “challenge current constructs and use technology to build more agility into the way information and intelligence flow”.

It’s not the first time you’ve read something similar in this report. But Balis and Pederson have a 4-step process they say will allow companies to “connect the dots faster”. It’s a succinct road map for a business with an aim to take out the human frictions and objections to the change that many companies will experience on the path to digitisation.

1. Change your culture, nest your purpose.

Like others, Balis and Pederson say culture must change. But they nuance that by highlighting a company needs to “nest its purpose”. In doing that the, company defines itself and then allows each functional silo to “determine its nested purpose to align with the higher goal”.

They say every part of the C-Suite, every function, and business unit should also have their own purpose statement to “prioritise what’s important to your customers and motivate people to drive those goals”.

2. Break down the divisional and brand silos

They admit this “imperative isn’t new, but it remains a source of friction”. That’s because humans are humans and they are competitive. This mean they “may still be focusing solely on their own KPIs or on a digital agenda that doesn’t align with your organisation’s broader and integrated agenda”.

They say that “leading practices can only emerge with better collaboration, especially around customers and data”.

But what is unsaid here is that the management task of working with these employees and divisions who are or may become roadblocks is going to mean a hands on approach to manage of exit these members of staff.

The old skills are still necessary in a digital world because at its essence its still about people and their human foibles.

3. Dismantle the data and technology silos

Technology is often rolled out through a business as a “series of point solutions that could solve specific issues – ERP, CMS, CRM, etc.” Balis and Pederson say. But companies need to find a way for these technologies to “more seamlessly speak to each other, and intelligent automation removes prior barriers around system integration”.

On data they argue that the silos need to be overcome by driving “analytics across all of the available data sources so that the organisation can see the customer holistically and drive actions to scale the business”.

4. Connect the external ecosystem

Google is Google, Facebook is Facebook. They have the size and scale to seek to do most things inhouse. But that option is not available to all companies, probably most.

So Balis and Pederson argue that after connecting the dots internally it is time to “consider making connections across the broader ecosystem of partners, suppliers, agencies, media companies or vendors, and other organisations”.

In this way, “external partners contributing to the business will drive more value if they understand the context of their relationship” Balis and Pederson say.

The point of this 4-step process they say is that “by focusing on one area at a time, organisations can introduce change in a way that allows connective tissue to form”.

Balis and Pederson argue that “technologies are deployed as a means to and end: they enable the business strategy, which, ultimately, must focus on the customer… Organisations looking to survive — and thrive — 10, 20 or 50 years from now, will need to rally around innovation and technology to serve their company’s higher purpose and deploy them with conviction. They’ll want to understand all of the underlying dynamics of their current and future customers to make the right connections and create the synergies that will drive the future of business”.

The tool to empower company learning – the MVP

Test and learn, be prepared to fail, learn from failures.

It sounds simple, if a bit managerial. Exactly how a company can do that depends on a simple concept of the minimum viable product, or MVP.

An MVP according to Bain & Co’s Pierre-Laurent Baculard and his colleagues is the development of digital initiatives “as prototypes, with clear time constraints for design and deployment”. That’s important because it “forces cross-functional teams to create ‘minimal viable products’ and test them on a part of the customer base to get early input”.

MVPs are big enough for a real live test, but small enough not to disrupt the overall business and its customer relationships.

For example, Google’s Kaplan said his firm can do, “1 percent test, for instance, on our core search product—scale that up if it’s successful, but we can start very small and test a theory, and if it doesn’t work, we can very quickly pull that back.”

Baculard says one of the benefits of the MVP process is that it “brings together all functions during the inception of digital initiatives, representing all components of the process. And it allows teams to learn rapidly from market feedback and adapt accordingly before scaling up deployment across the entire organization”.

Building an MVP

Clearbridge Mobile, a Canadian App development firm, has a very simple prescription for planning out an MVP which can act as a functional guide for companies to use as a template and then mold to their own situation.

1. Identify and understand the business needs
2. Find the opportunities
3. Decide what features to build

PWC’s risk assurance practice suggests using an “agile” approach to the MVP process to allow for the test and learn mantra which is seen as best practice for digitisation.

“One common adage in the IT industry is that 80 percent of all end users generally use only 20 percent of a software application’s features. Agile addresses this by focusing on creating the minimum viable product (MVP) by delivering the minimum set of
features that will deliver perceived value to the users. The MVP also allows them to continuously incorporate feedback into each future iteration as more information about the product becomes available, and added to the minimum features required (by the users),” the authors said.

But this agile approach can be dangerous, says Henrik Kniberg, a lean/agile coach at Crisp in Stockholm who has worked extensively with Lego and Spotify. Writing on the Crisp Blog Kniberg argues the agile approach is like delivering a tyre as the first iteration when the customer wanted a car.

Rather he says, “we start with the same context – the customer ordered a car. But this time we don’t just build a car. Instead we focus on the underlying need the customer wants fulfilled. Turns out that his underlying need is ‘I need to get from A to B faster’, and Car is just one possible solution to that”.

He notes this is a metaphor and readers should “think any kind of customized product development situation”.

His team then delivers the initial product, in this case the skateboard to facilitate the movement from A to B and notes, “we’re not trying to make the customer happy at this point. We might make a few early adopters happy (or pragmatists in pain), but our main goal at this point is just to learn”.

He says the key is to tell the customer, “don’t worry, the project is not finished, this was just the first of many iterations. We’re still aiming to build a car, but in the meantime please try this and give us feedback”.

He says companies should work through this process, from skateboard to car (remember it’s a metaphor) learning along the way. You’ll note in the second iteration the company delivers a convertible, not a hard top. That, Kniberg says, leaves you with an overjoyed customer because, “we learned along the way that he appreciates fresh air in his face, so we ended up with a convertible. He did get a car after all – but a better car than originally planned!” (his emphasis).

He goes on the give examples of Spotify, Minecraft, a big government product and Lego before saying that the concept of minimum viable product should change with the M and the V being dropped in favour of a new process which includes Earliest Testable, Usable, and then Lovable Product.

His takeaway is simple and possibly gives a better sense of what a company undergoing a digital transition might be best focusing on.

His advice:

  • Avoid Big Bang delivery for complex, innovative product development. Do it iteratively and incrementally. You knew that already. But are you actually doing it?
  • Start by identifying your skateboard – the earliest testable product. Aim for the clouds, but swallow your pride and start by delivering the skateboard.
  • Avoid the term MVP. Be more explicit about what you’re actually talking about. Earliest testable/usable/lovable is just one example, use whatever terms are least confusing to your stakeholders.

We asked Albert Naffah, the Commonwealth Bank’s General Manager, Payments Development & Strategy, what he thought about the two approaches – MVP and Kniberg’s adjustment.

Naffah said that in his experience the problem with many MVPs was that the “viable” part was misunderstood and often misused.

“It’s got to be viable. Often companies put out prototypes, and call them MVPs, but they’re not viable, or desirable, for the intended customer segment. So, they don’t meet the first hurdle which is to serve the purpose of the people who want them,” he said.

Naffah said the Commonwealth Bank often launches MVPs and “for them to qualify, they’ve got to be customer ready. They’ve got to meet at least one or more needs, they’ve got to function, and they’ve got to be reliable. But we do know that we can build and iterate on those MVPs to address changing customer needs over time”.

There you have it. Whether you take Kniberg’s approach or follow Naffah’s example the key remains to leave the customer at the heart of the process.

Things you should know

  •  This article has been prepared by Business Insider solely for information purposes and is not to be construed as a solicitation, an offer or a recommendation by the Commonwealth Bank of Australia. The information may be incomplete or not up to date and may contain errors and omissions. Any projections and forecasts are based on a number of assumptions and estimates, including future events and contingencies, which may be inaccurate. It must not be relied upon as financial product advice and is not Investment Research. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek the appropriate professional, including taxation advice. We believe that this information is correct and any opinions, conclusions or recommendations are reasonably held based on the information available at the time of its compilation but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made. Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian credit licence 234945.