With the digital era here to stay, those organizations who don’t embrace the opportunity risk joining the old-economy organizations that have fallen by the wayside, warns a recent Deloitte report. The ‘Building Your Digital DNA’ report explores whether organizations are using 21st century technology but with a 20th Century structure and what type of leadership is required to compete in a digital era. The report argues that culturally open, dynamic and flexible structures built on mutual trust are the basis of the information economy yet many large corporates are based on a ‘command and control’ management structure. How can large corporates especially global banks create a culturally open organization to compete in a digital age? Karen Higginbottom reports…
Before we start, what exactly is a digital economy? Well it’s not simply organizations communicating by using social media, explained Dr Gordon Fletcher, co-director of the Salford Business School, center for digital business. “A truly digital economy has a digital workflow that is integrated into the business’s day-to-day practices and it’s not just about people talking online. It’s about the fact that any business to business transaction can be conducted digitally.”
Organizations that are thriving in the digital economy have adopted loose hierarchies in which responsibility sits closer to where decisions have effect, claims the Deloitte report. They also focus on outcomes, not on the processes that realize those outcomes. Culturally open, dynamic and flexible structures built on mutual trust are the basis of the information economy but the report argues that it would be a mistake for leaders of more long-standing enterprises to attempt to jump to such a structure, remarked Will Gosling, digital human capital lead at Deloitte. “The shock may be too great for the organization and therefore damaging to day-to-day operations.”
The problem with many organizations is that they cannot call themselves ‘digital businesses’ if only one department is digital, remarked Fletcher. “You’ve got to recognize that you’re not a digital business if you’ve got a marketing department that is flying with social media yet have a HR department with arcane systems.”
The banking sector recognizes that the digital economy is here to stay but has not focused on it in the past due to the financial crisis, commented Margaret Doyle, financial services insight lead at Deloitte. “Banks are working up to the need for digitally-savvy employees but recognize that is not how they are set up. Banks are not built for flexibility, they are built to last and they don’t want too much creativity and innovation. There are institutional reasons why banks have not been historically innovative as there have been other things that matter such as regulation.”
Doyle argued that large global banks are responding to the digital era by adopting different strategies. “In the late 90s, internet banks set themselves up as stand-alone entities and were then swallowed up by large banks. One strategy is to say you don’t want innovation and you want people to be process-focused so you buy innovation rather than changing your core culture. Another alternative is to have an innovation hub separate from your headquarters which will feel more like a technological company. The third strategy is to shake up the institution. Many banks are doing a whole examination of their culture and recognize they need to change it. This is being driven by regulation and the financial crisis. A desire for a different culture may complement a desire for innovation.”
This type of dynamic, entrepreneurial working environment required of a digital business is not typical of the organizations in the UK, according to research from the Chartered Institute of Personnel and Development (CIPD). In its ‘HR: Getting smarter about agile working’ survey of HR leaders in the UK, only 10% of organizations felt they had a dynamic and entrepreneurial structure. In fact, large organizations were more likely to be characterized by a formal, controlling environment with 46% of HR leaders in large organizations identifying with this type of culture. The report revealed there were three barriers to changing culture from one of culture to a flexible, open and dynamic operating model: risk aversion, a lack of trust and a lack of a holistic approach.
The nature of leadership changes when an organization becomes more flexible and dynamic, added Fletcher. “I would suggest that the types of leadership that you expect would shift and it would require a different type of leadership. It’s not just because it’s a digital business but it’s the culture that goes along with it where the nature of leadership becomes decoupled with hierarchal arrangements of management. It’s leadership for specific tasks and projects. It’s also good to have people prepared to be led or take up the mantle. It’s a much more fluid form of leadership.”
Another consequence of a digital economy is its impact on working patterns. “Technology moves so fast that I’m not sure that organizational structure is keeping pace with it. People work quite flexibly in many roles but not all roles can work flexibly,” commented Dr Christine Grant, part of the research center for psychology, behavior and achievement at Coventry University. “In senior roles, people tend to work flexibly but where it affects people more is middle management. How do they approach the digital process and should they be logging in at midnight?”
Fletcher argues that the UK has a long way to go before it can call itself a digital economy. “If we were truly in a digital economy then we wouldn’t call it a digital economy. Within organizations, the systems would be transparent and there would be the free flow of data.”
