Creating a culture ofdigital transformation

Contents01Foreword from Cindy Rose102Executive summary303A culture of digital transformation704Collaboration not competition1105Embracing fear1706Demonstrating value2307Respecting your ecosystem2908Living agile3509Conclusion4310Appendix46

01ForewordOrganisations across the globe are undertaking their own unique digitaltransformation journeys. With the rise of AI and machine learning, technologyis altering every aspect of the corporate and social landscape, fundamentallychanging the way we communicate and disrupting established business practices.Our goal in this report is to share perspective on the changing UK landscape andto better understand the challenges, and opportunities, facing UK organisationsrelative to global trends. Fifty-three per cent of UK business and IT leaders wesurveyed for this report say their industries will face significant digital disruptionwithin the next two years, yet 47% have no formal digital transformation strategyin place, with many struggling to capitalise on their technology investments toimprove business effectiveness.The organisations getting it right today aren’t the ones waiting to see how trendsplay out. They are the ones anticipating what comes next and proactively takingsteps towards it. These organisations are building strategies that deliver sustainablegrowth and are using technology to differentiate and drive transformation. Theresearch shows that the biggest challenge organisations are facing in acceleratingtransformation is not necessarily around the new technology itself, but the culturalchange required to derive value from it. Yet only 23% of UK business and IT leaderssays their organisation is undertaking a major programme to change its workplaceand organisational culture.Cindy RoseMicrosoft UK CEO andArea Vice PresidentSo, how do you create a culture that serves to foster and accelerate digitaltransformation? In this report there are perspectives from hundreds of CEOsand business leaders from a range of industries, as well as middle managersand junior employees, in addition to insight from subject matter experts likeworld-renowned Stanford University psychologist Carol Dweck. Together theseperspectives give a real-life view of the cultural changes that are needed tosupport successful digital transformation.Digital transformation is not a technology deployment or an IT exercise, it’s apeople exercise. Business leaders must therefore embrace cultural transformationfrom the top and explore the behavioural shifts that are needed to bring aboutlasting change. Above all else, this requires belief and commitment. Changinghuman behaviour is not always easy and there’s a level of discomfort that comeswith stepping into the unknown. Some people thrive on it, some people can learnit, and some people feel paralysed by it, so this must be handled sensitively. In thisreport, there are pragmatic and tangible steps that every company can take to helpboth business leaders and employees on their way.Microsoft’s mission is to empower every person and every organisation on theplanet to achieve more. Today that refers as much to creating the right culture toenable digital transformation as it does to technology. Digital transformation is ajourney that’s never finished. No matter where you are on that journey, our aim atMicrosoft UK is to help accelerate your success and ability to compete in a digitallytransformative marketplace.Cindy RoseMicrosoft UK CEO and Area Vice President12

02Executive summaryLast year, our report Digital Transformation: The Ageof Innocence, Inertia or Innovation? provided themost extensive insight to date on the impact of digitaltransformation on UK organisations across a broad rangeof sectors. Its findings were clear: pervasive access to newdigital services is changing every aspect of business – fromdisrupting corporate structures and practices, to catalysinginnovation and unlocking new opportunities for growth.Yet it also uncovered widespread discrepancies betweenthe ways in which organisations view digital transformationand, in particular, to what extent they are willing and ableto embrace the strategies, initiatives and operating modelsnecessary to successfully implement it.With those findings in mind, this year’s follow-up reportdelves deeper into the factors, obstacles and attitudesinfluencing UK organisations’ ability to succeed as theynavigate their own unique digital transformation journeys.We explore what it takes to create a true culture ofdigital transformation. A culture that is not only agile andprogressive enough to evolve alongside new technologicalinventions and applications, but that also fosters a sense ofempowerment and engagement among an organisation’sworkforce along the way.Before embarking on the study, we drew upon respectedconceptual models1 to build our own model of an agiledigital culture. This model is based on seven key dimensions:people and leadership; structure; technology; strategy; tasks;politics; and ethics. (See figure 1.)Using a combination of field research, interviews withsubject matter experts and business leaders, an onlineYouGov survey, workshops, and a chatbot study to capturereal-time feedback from employees, we then developed andtested hypotheses against each of the seven dimensions.(See figure 2.)Figure 1.Seven dimensions of an agile digital cultureWithin our model of agile digital culture, each of the seven dimensions fall into one side of an equilibrium. The first side represents organisationalstructures (e.g. policies, ethics and people) and the other represents what the organisation does (e.g. the tools and technology it uses).EquilibriumPeople &leadershipStructureTasksAgile dels used include: Socio-Technical Systems Theory, Leavitt’s Framework for Organisational Effectiveness,Lewin’s Force Field Model and Model of Change Process, and Miles and Snow’s Strategy Typology4

Figure 2.Agile digital culture hypothesesFigure 3.S-curve modelHypothesisPeopleA culture of capability and positivity supports digital transformationLeadershipThe ability to manage effectively in a digitally transforming world will improve firm performanceTechnologyTechnology democratises data, so workers can manage risk and exploit opportunitiesTasksTask mix needs to be optimised for exploiting digital transformationStructureNetworks and nodes structures support digital transformationStrategyDifferent competitive strategies require different responses to digital transformationPoliticsInternal and external environmental constraints and opportunities effect digital transformationEthicsDigital transformation requires clear policies regarding appropriate data useWithin the key findings, we see that technology andethics are the most significant drivers of an agile digitalculture. Indeed, while UK leaders are strongly focusedon introducing new technologies to sharpen everythingfrom operating practices and strategic decision-making toemployee management and customer experiences, theyare also highly attuned to the pressing need to developclear governance around data usage, cyber securityand compliance.Leaders themselves remain central to digital transformation asthe originators and mission-setters of change. Yet we revealthe process must be fully two-way, with employees giventhe tools and support to innovate, fail, and collaborate withnew technologies, both individually and as a group. Theyshould then be free to offer unrestricted feedback on howsuccessfully those technologies augment their day-to-dayroles, boost productivity and enhance job satisfaction.In other words, adoption must be driven from the groundup, not autocratically delivered from the top down.Perhaps unsurprisingly, then, the organisations leading thecharge on creating a culture of digital transformation tendto be the ones whose leaders are adopting this collaborativeapproach – that is the UK leaders among the 58% surveyedthat agree that augmenting their workforce with technologyis more important for productivity than simply automatingworkforce tasks.These organisations are actively accessing and introducingnew technologies, with dedicated teams and self-directedsub-groups focused on driving innovation. Crucially, theyunderstand how to cultivate a process of continual, iterativeimprovement in which they seamlessly move onto the nextelement of digital transformation while still in the midst ofthe current one. (See figure 3.)rmer sDimensionGrowthThe S-curve describes thegrowth of one variable interms of another variableover time. In the case ofdigital transformation,it shows the progress oforganisations that quicklyadopt new technologies. Inparticular, it demonstrateshow they avoid any potentialslow-down or tail-off duringthe transition phase byfocusing on the next stepof the journey before theprevious step is complete.o f hi gPathr foTransitionCompeteScaleStart-upWe also identify five key challenges of digital transformationrooted in the seven dimensions. Challenges that organisationsof all shapes, sizes and sectors must successfully confront andact upon, if they are to thrive in an ever-more digital world.The five challenges of digital transformation are:Collaboration not competition – helping people understandthe collaborative potential of new digital technologiesEmbracing fear – acknowledging the anxiety that changecan cause and proactively supporting people through itDemonstrating value – offering the resources andframework for people to experience and build on newtechnologies themselvesRespecting your ecosystem – understanding theenvironment an organisation operates in and hownew digital technologies should fit within itLiving agile – helping people move to a flexible, forwardthinking culture of continuous improvement and innovationA detailed exploration and analysis of these challengesprovides the framework for this report. Crucially, each issupported by a range of practical tips and recommendationsthat explain how organisations can go about tackling andovercoming it. You will find these recommendations at theend of every chapter.5h peTime“I used to work with a major bank wherethey introduced a new communication tool.Three months after launching, engagementwas great. But then after a year, it haddipped right back down. That’s becausethey tried to drive the culture purely bythe adoption of a tool, without puttingother scaffolding around it. Fundamentallythat didn’t work – people changed theirbehaviour briefly but because the culturedidn’t change, the old culture restateditself. But where change bubbles up,it’s being driven by the prevailingculture and that’s why it’s far easier.”Nik Kinley,Director and Head of Talent Strategy, YSC6

03A culture ofdigital transformationDigital transformation is happening. Across multipletypes of organisations, the impact of emergenttechnologies such as AI, machine learning, chatbots, bigdata and the Internet of Things are disrupting all aspectsof operations.In 2016, we revealed that nearly half (44%) of UK leaderssurveyed believe their business models will cease to existwithin the next five years. Checked again for this year’s report,that figure has now reduced slightly to 38%, implying progressis being made in terms of the operational shift required toproperly integrate new digital technologies into the workplace.But alongside this powerful operational impact, the effectsof digital transformation are being felt in more human andless instantly tangible ways too. Just one in four (23%) of UKleaders surveyed say their organisation is undertaking a majorprogramme to change the workplace and organisationalculture. Yet the reality is that digital change must be far morethan an investment in the IT department or a few tweaksto the tools that staff use in their day jobs. Rather, it has tobecome a way of being. An ethos that starts with leadershipbut permeates all levels and areas of the organisation.“Digital transformation isa cultural transformationaffecting the majority of thepeople working. It has to be aleadership task. If you followthat, you have a high chance ofsuccess. If you delegate it, thereis a big chance you will fail.”Andreas Schierenbeck,CEO, thyssenkrupp ElevatorA culture.But what exactly do we mean by culture? Perhaps the best wayto describe it is as a set of deeply ingrained beliefs and ritualsthat act as the glue sticking an organisation together. Led byaccepted group norms and behaviours, it is something thatunites individuals in a sense of belonging and joint purpose.People identify with a culture not because they have been toldto, but because of shared values and attitudes that motivateand inspire them. It is what they do when nobody is watching.The need for a holistic culture shift to support digital change– and how organisations achieve it – is the focus of thisreport. Here, digital transformation is considered in termsof the specific strategies, tasks, people and leadership,digital technologies, structures, ethics and politics impactingorganisational productivity and performance in an agiledigital workplace culture.After all, many organisations change their technologies,infrastructure and processes. Evidence suggests that if theydon’t address the human elements of change, successfultransformation is unlikely to happen. Or as Microsoft UKCOO, Clare Barclay, explains it: “You’ve got to get the rightculture and change programme in place to unlock the truevalue of technology. Creating a culture in which technologyblends with human potential is where the magic happens”.78

“Creating a culture in whichtechnology blends with humanpotential is where the magichappens.”Clare Barclay,COO, Microsoft UKOf course, leaders are critical to creating an agile digitalculture. They, after all, are the ones who set the mission,objectives and reasons for any programme of change.But as we explore in the following pages of this report,culture shifts cannot