Culture for a
digital age
Risk
aversion, weak customer focus, and siloed mind-sets have long bedeviled
organizations. In a digital world, solving these cultural problems is no longer
optional.
Shortcomings in organizational
culture are one of the main barriers to company success in
the digital age. That is a central finding from McKinsey’s recent survey of
global executives, which highlighted three digital-culture deficiencies:
functional and departmental silos, a fear of taking risks, and difficulty
forming and acting on a single view of the customer.
Each obstacle is a long-standing difficulty that has
become more costly in the digital age. When risk
aversion holds sway, underinvestment in strategic opportunities and
sluggish responses to quick-changing customer needs and market dynamics can be
the result. When a unified understanding of customers is lacking, companies
struggle to mobilize employees around integrated touchpoints, journeys, and
consistent experiences, while often failing to discern where to best place
their bets as digital broadens customer choice and the actions companies can
take in response. And when silos characterize the organization, responses to
rapidly evolving customer needs are often too narrow, with key signals missed
or acted upon too slowly, simply because they were seen by the wrong part of
the company.
Can fixes to culture be made directly? Or does cultural
change emerge as a matter of course as executives work to update strategy or
improve processes?1In
our experience, executives who wait for organizational cultures to change
organically will move too slowly as digital penetration grows, blurs the
boundaries between sectors, and boosts competitive intensity.
Our research, which shows that cultural obstacles correlate clearly with
negative economic performance, supports this view. So do the experiences of
leading players such as BBVA, GE, and Nordstrom, which have shown what it looks
like when companies support their digital strategies and investments with deliberate
efforts to make their cultures more responsive to customers, more willing to
take risks, and better connected across functions.
Executives must be proactive in shaping and measuring
culture, approaching it with the same rigor and discipline with which they
tackle operational transformations. This includes changing structural and
tactical elements in an organization that run counter to the culture change
they are trying to achieve. The critical cultural intervention points
identified by respondents to our 2016 digital survey—risk aversion, customer
focus, and silos—are a valuable road map for leaders seeking to persevere in
reshaping their organization’s culture. The remainder of this article discusses
each of these challenges in turn, spelling out a focused set of reinforcing
practices to jump-start change.
Calculated risks
Too often, management writers talk about risk in
broad-brush terms, suggesting that if executives simply encourage
experimentation and don’t punish failure, everything will take care of itself.
But risk and failure profoundly challenge us as human beings. As Ed Catmull of
Pixar said in a 2016 McKinsey
Quarterly interview, “One of the things about failure is that it’s
asymmetrical with respect to time. When you look back and see failure, you say,
‘It made me what I am!’ But looking forward, you think, ‘I don’t know what is
going to happen and I don’t want to fail.’ The difficulty is that when you’re
running an experiment, it’s forward looking. We have to try extra hard to make
it safe to fail.”
The balancing act Catmull described applies to
companies, perhaps even more than to individuals. Capital markets have
typically been averse to investments that are hard to understand, that
underperform, or that take a long time to reach fruition. And the digital era
has complicated matters: On the one hand, willingness to experiment, adapt, and
to invest in new, potentially risky areas has become critically important. On
the other, taking risks has become more frightening because transparency is
greater, competitive advantage is less durable, and the cost of failure is
high, given the prevalence
of winner-take-all dynamics.
Leaders hoping to strike the right balance have two
critical priorities that are mutually reinforcing at a time when fast-follower
strategies have become less safe. One is to embed a mind-set of risk taking and
innovation through all ranks of the enterprise. The second is for executives
themselves to act boldly once they have decided on a specific digital
play—which may well require changing mind-sets about risk, and inspiring key
executives and boards to think more like venture capitalists.
An appetite for risk
Building a culture where people feel comfortable trying
things that might fail starts with senior leaders’ attitudes and role modeling.
They must break the status quo of hierarchical decision making, overcome a
focus on optimizing rather than innovating, and celebrate learning from
failure. It helps considerably when executives make it clear through actions
that they trust the front lines to make meaningful decisions. ING and
several other companies have tackled this imperative head-on, providing agile
coaches to help management learn how to get out of the way after setting
overall direction for objectives, budgets, and timing.
However, delegating authority only works if the
employees have the skills, mind-sets, and information access to make good on
it. Outside hires from start-ups or established digital natives can help inject
disruptive thinking that is a source of innovative energy and empowerment.
Starbucks, for example, has launched a digital-ventures team, hiring vice
presidents from Google, Microsoft, and Razorfish to help drive outside
thinking.
Also empowering for frontline workers (and risk
dampening for organizations) is information itself. For example, equipping
call-center employees with real-time analysis on account profiles, or data on
usage and profitability, helps them take small-scale risks as they modify
offers and adjust targeting in real time. In the retail and hospitality
industries, companies are giving frontline employees both the information (such
as segment and purchase history) and the decision authority they need to
resolve customer issues on the spot, without having to escalate to management.
Such information helps connect the front line to the company’s strategic
vision, which provides a compass for decision making on things such as what
sort of discount or incentive to offer in resolving a conflict or what “next
product to buy” to tee up. Benefits include improvements in the customer
experiences (due to faster resolution) and greater consistency across the
business in spotting and resolving problems. This lowers cost at the same time
it improves customer satisfaction. In addition, frontline risk taking enables
more rapid innovation by speeding up iterations and decision making to support
nimbler, test-and-learn approaches. These same dynamics prevail in
manufacturing, with new algorithms enabling predictive maintenance that no
longer requires sign-off from higher-level managers.
Regardless of industry, the critical question for
executives concerned with their organization’s risk appetite is whether they
are trusting their employees, at all levels, to make big enough bets without
subjecting them to red tape. Many CFOs have decided to shift all but the
largest investment decisions into the business units to speed up the process.
The CFO at one global 500 consumer-goods company now signs off only on
expenditures above $250,000. Until recently, any spend decision over $1,000
required the CFO’s approval.
Making bold bets
At the same time they are letting go of some decisions,
senior leaders also are responsible for driving bold, decisive actions that
enable the business to pivot rapidly, sometimes at very large scale. Such moves
require risk taking, including aggressive goal setting and nimble resource
reallocation.
A culture of digital aspirations.
Goals should reflect the pace of disruption in a
company’s industry. The New York Times set the aspiration to
double its digital revenues within five years, enabled in part by the launch of
T Brand Studio as a new business model. In the face of Amazon, Nordstrom
committed more than $1.4 billion in technology capital investments to enable
rich cross-channel experiences. The Irish bank AIB decided customers should be
able to open an account in under ten minutes (90 percent faster than the norm
prevailing at the time). AIB invested to achieve this goal and saw a 25 percent
lift in accounts opened, along with a 20 percent drop in costs. In many industries
facing digital disruption, this is the pace and scale at which executives need
to be willing to play.
Embracing resource reallocation.
Nimble resource reallocation is typically needed to back
up such goals. In many incumbents, though, M&A and capital-expenditure
decisions are too slow, with too many roadblocks in the way. They need to be
retooled to take on more of a venture-capitalist approach to rapid sizing,
testing, investing, and disinvesting. The top teams at a large global
financial-services player and an IT-services company have been reevaluating all
of their businesses with a five- to ten-year time horizon, determining which
ones they will need to exit, where they need to invest, and where they can stay
the course. Such moves tax the risk capacity of executives; but when the moves
are made, they also shake things up and move the needle on a company’s risk
culture.
The financial markets are double-edged swords when it
comes to bold moves. While they remain preoccupied with short-term earnings,
they are also cognizant of cautionary tales such as Blockbuster’s 2010
bankruptcy, just three years after the launch of Netflix’s streaming-video
business. Companies like GE have nonetheless plunged ahead with long-term,
digitally oriented strategies. In aggressively shedding some of its traditional
business units, investing significantly to build out its Predix platform, and
launching GE Digital, its first new business unit in 75 years, with more than
$1 billion invested in 2016, GE’s top team has embraced disciplined risk taking
while building for the future.
Customers, customers,
customers
Although companies have long declared their intention to
get close to their customers, the digital age is forcing them to actually do
it, as well as providing them with better means to do so. Accustomed to
best-in-class user experiences both on- and off-line with companies such as
Amazon and Apple, customers increasingly expect companies to respond swiftly to
inquiries, to customize products and services seamlessly, and to provide easy
access to the information customers need, when they need it.
A customer-centric organizational culture, in other
words, is more than merely a good thing—it’s becoming a matter of survival. The
good news is that getting closer to your customers can help reduce the risk of
experimentation (as customers help cocreate products through open innovation)
and support fast-paced change. Rather than having to guess what’s working in a
given product or service before launching it—and then waiting to see if your
guess is right after the launch takes place—companies can now make adjustments
nearly real-time by developing product and service features with direct input
from end users. This is already taking place in products from Legos to aircraft
engines. The process not only helps derisk product development, it tightens the
relationship between companies and their customers, often providing valuable
proprietary data and insights about how customers think about and use the
products or services being created.
Data and tools
Underlying the new customer-centricity are diverse tools
and data. Connecting the right data to the right decisions can help build a
common understanding of customer needs into an organizational culture,
fostering a virtuous cycle that reinforces customer-centricity. Amazon’s
ability to use customers’ previous purchases to offer them additional items in
which they might be interested is a significant element in its success. The
virtuous circle they’ve created includes customer reviews (to reassure and
reinforce other shoppers), along with the algorithms that share “what customers
who looked at this item also bought.” Of course, Amazon has also invested
heavily in automated warehouses and a sophisticated distribution model. But
even those were tied to the customer desire to receive merchandise faster.
A unifying force
At its best, customer-centricity extends far beyond
marketing and product design to become a unifying cultural element that drives
all core decisions across all areas of the business. That includes operations,
where in many organizations it’s often the furthest from view, and strategy,
which must be regularly refreshed if it is to serve as a reliable guide in
today’s rapidly changing environment. Customer-centric cultures anticipate
emerging patterns in the behavior of customers and tailor relevant interactions
with them by dynamically integrating structured data, such as demographics and
purchase history, with unstructured data, such as social media and voice
analytics.
The insurance company Progressive illustrates the
unifying role played by strong customer focus. Progressive’s ability to
persuade customers to install the company’s Snapshot device to monitor driving
behavior is revolutionizing the insurance space, and not just as a marketing
tool. Snapshot helps attract the good drivers who are the most profitable
customers, since those individuals are the ones most likely to be attracted by
the offer of better discounts based on driving behavior. It also gives the
company’s underwriters actual data in place of models and guesswork. This new
technology is one that Progressive can monetize into a business unit to serve
other insurers as well.
Busting silos
Some observers might consider organizational silos—so
named for parallel parts of the org chart that don’t intersect—a structural
issue rather than a cultural one. But silos are more than just lines and boxes.
The narrow, parochial mentality of workers who hesitate to share information or
collaborate across functions and departments can be corrosive to organizational
culture.
Silos are a perennial problem that have become more
costly because, in the words of Cognizant CEO Francisco D’Souza, “the
interdisciplinary requirement of digital continues to grow. The possibilities
created by combining data science, design, and human science underscore the
importance both of working cross-functionally and of driving
customer-centricity into the everyday operations of the business. Many
organizations have yet to unlock that potential.”2The
executives we surveyed appeared to agree, ranking siloed thinking and behavior
number one among obstacles to a healthy digital culture.
How can you tell if your own organization is too siloed?
Discussions with CEOs who have led old-line companies through successful digital
transformations indicate two primary symptoms: inadequate information, and
insufficient accountability or coordination on enterprise-wide initiatives.
Getting informed
Digital information breakdowns echo the familiar story
of the blind men and the elephant. When employees lack insight into the broader
context in which a business competes, they are less likely to recognize the
threat of disruption or digital opportunity when they see it and to know when
the rest of the organization should be alerted. They can only interpret what
they encounter through the lens of their own narrow area of endeavor.
The corollary to this is that every part of the
organization reaches different conclusions about their digital priorities,
based on incomplete or simply different information. This contributes to breaks
in strategic and operating consistency that consumers are fast to spot. There
isn’t the luxury of time in today’s digital world for each division to discover
the same insight; a digital attacker or more agile incumbent is likely to swoop
in before the siloed organization even knows it should be mounting a response.
So the first imperative for companies looking to break out of a siloed
mentality is to inspire within employees a common sense of the overall
direction and purpose of the company. Data and thoughtful management rotation
often play a role.
Data-driven transparency.
Data can help solve the blind-men-and-the-elephant
problem. A social-services company, for instance, created a customer-engagement
group to better understand how customers interact with the company’s products
and brands across silos—and where customers were running into difficulty. Among
other things, this required close examination of how the company collected,
analyzed, and distributed data across silos. The team discovered, for example,
that some customers were cancelling their memberships because of the deluge of
marketing outreaches they were receiving from the company. To address this, the
team combined customer databases and propensity models across silos to create
visibility and centralized access rights with regard to who could reach out to
members and when. Among other achievements, this team:
·
created
segment-specific trainings that offered an integrated view of each segment’s
suite of needs and offerings that would meet them
·
drew
on information from different parts of the organization to give a more
developed picture on engagement, retention, and the total number of touches
associated with various segments and customers
·
showed
the net effect of the entire organization’s activities through the customer’s
eyes
·
embedded
this information into key processes to ensure information was accessible in a
cross-disciplinary way—breaking siloed viewpoints and narrow understandings of
the overall business model
Management rotation.
Another way to achieve better alignment on the company’s
direction is to rotate executives between siloed functions and business units.
At the luxury retailer Nordstrom, for example, two key executives exchanged
roles in 2014: Erik Nordstrom, formerly president of the company’s
brick-and-mortar stores, became president of Nordstrom Direct, the company’s
online store, while Jamie Nordstrom, formerly president of Nordstrom Direct,
became president of the brick-and-mortar stores. This type of rotation can be done
at different levels in an organization and helps create a more consistent
understanding between different business units regarding the company’s
aspirations and capabilities, as well as helping create informal networks as
employees build relationships in different departments.
Instilling
accountability
The second distinctive symptom of a siloed culture is
the tendency for employees to believe a given problem or issue is someone
else’s responsibility, not their own. Companies can counter this by institutionalizing
mechanisms to help support cross-functional collaboration through flexibly
deployed teams. That was the case at ING, which, because it identifies more as
a technology company than a financial-services company, has turned to tech
firms for inspiration, not banks. Spotify, in particular, has provided a
much-talked-about model of multidisciplinary teams, or squads, made up of a mix
of employees from diverse functions, including marketers, engineers, product
developers, and commercial specialists. All are united by a shared view of the
customer and a common definition of success. These squads roll up into bigger
groups called tribes, which focus on end-to-end business outcomes, forcing a
broader picture on all team members. The team members are also held mutually
accountable for the outcome, eliminating the “not my job” mind-set that so many
other organizations find themselves trapped in. While this model works best in
IT functions, it is slowly making its way into other areas of the business. Key
elements of the model (such as end-to-end outcome ownership) are also being
mapped into more traditional teams to try to bring at least pieces of this
mind-set into more traditional companies.
Start by finding mechanisms, whether digital,
structural, or process, that help build a shared understanding of business
priorities and why they matter. Change happens fast and from unpredictable
places, and the more context you give your employees, the better they will be
able to make the right decisions when it does. To achieve this, organizations
must remove the barriers that keep people from collaborating, and build new
mechanisms for cutting through (or eliminating altogether) the red tape and
bureaucracy that many incumbents have built up over time.
Cultural changes within corporate institutions will
always be slower and more complex than the technological changes that
necessitate them. That makes it even more critical for executives to take a
proactive stance on culture. Leaders won’t achieve the speed and agility they
need unless they build organizational cultures that perform well across
functions and business units, embrace risk, and focus obsessively on customers.
By Julie Goran, Laura LaBerge, and Ramesh Srinivasan McKinsey
Quarterly July 2017
http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/culture-for-a-digital-age?cid=other-eml-alt-mkq-mck-oth-1707&hlkid=4df2c3f6dee64184927e942698917d28&hctky=1627601&hdpid=5a4c36db-3406-4e57-aede-172eec72efeb
No comments:
Post a Comment