If Culture is the key to Digitalization, what examples are out there to learn from? I have selected 5 companies for the sake of their diverse backgrounds and business models, their undoubted success and the fact that culture appears to be the centerpiece of their success.
Xiamoi (“little Rice”) is the world’s 4th largest telecom manufacturer, although it was founded only in 2010. Besides Uber, it is the world most valued privately held company. Xiaomi is not a Chinese clone of Apple. It differs fundamentally:
- It is more software than a hardware company. Xiaomi’s roots are in providing a version of the operating systems for google’s Android phones which surpassed the performance of google’s original version
- It targets the Mid-market target in the emerging markets, the biggest market in the world, while still providing phones with aspiring designs, complete functions, and especially very high reliability
- The prime sales channel is eCommerce, with a large chunk through their own run web store: Xamoi’s website is the 3rd largest commerce site in China. The only secondary importance of traditional brick and mortar stores is an essential element of Xamoi’s ability to scale fast and globalize
Culturally Xiaomi is a showcase for the the five forces of digitalization. Although it is selling mobile phones (plus gadgets), its core competency is IT. And IT is looking at nothing else than the satisfaction of customers by including them already in the design of phones, reacting quickly to problems by pushing out a new operating system update every Friday. The company has been recruiting a panel of end customers to guide Xiamoi through the development process even for its very first phone. Constant learning is at the core of Xiaomi’s processes with direct feed back loops from customers to developers.
For more information about Xiaomi see Edward Tse’s just released book “Chinas Disruptors: How Alibaba, Xiaomi, Tencent and other companies are changing the rules of business.”
Spotify is leading the global music subscription market, with 75 Million active users, thereof 20 Million paying users. Founded in 2008 it has the full DNA of an IT-driven startup company. It follows the lean start-up movement, initiated by Eric Ries (see sources), is very open and shares it’s inner organization quite openly on Spotify Labs blog. Spotify appears to follow the lean start-up dictum in it’s approach to software engineering culture. A few highlights:
(1) Teams are “high autonomy – high alignment,” in other words: Spotify follows the “Mission Control” approach introduced in the post on “Force 4: New Work organizations”.
(2) High Autonomy allows experimentation and learning. High Alignment gives direction to all the experimentation. Experimentation gives data for better decisions.
(3) Culture is determined primarily by behavior. That may sound simple, but are an important feature of behavioral economics and human psychology (see psychological theories of behaviorism). Rather than to fight the causes of wrong behavior fight the result, i.e. the behavior. If the behavior changes, so do a culture. Behaviorism is an old theory from the 1940’s but had a massive re-emergence during the last 10 years in organizational behavioral theory and behavioral economics. It is the science of human behavior – so no wonder it re-emerges coincides with the rise of Digitalization!
First time i have been exposed to Spotify’s Labs organization, I regarded it as highly interesting, but limited in its implications to start-ups and software engineering. Over time I found it’s way of thinking more and more applicable to transform not all, but significant parts of existing organizations in traditional sectors even in non-IT areas such as sales, purchasing and logistics. Just wait for the future post… Meanwhile, have a look at this lovely video summarizing Spotify’s culture. Beware! Its software engineer, “Techie” stuff and I have once seen even a CFO been carried away, wanting to implement it right away, without understanding its complexity, pre-conditions, and interrelations. Still, Digitalization is technology, too and business transformation in the 21st century will not be mastered without grasping the basic concepts of information technology.
Just like Spotify is subjected to a lot of criticism because of its key role in the “death of the music industry,” Amazon raises criticism because of its sheer scale of success and esp. its rudeness to its employees. Amazon is disrupting the shopping industry as a whole. The IT industry with its cloud services and plays an important role in video streaming and digital book business. Amazon is too big to need an introduction and too complex to exactly pinpoint the main point of its culture by just looking at one business unit. But what unites all business operations run by Amazon are the values displayed in its 14 leadership principles:
- Customer Obsession – Leaders start with the customer and work backwards. They work vigorously to earn and keep their customer’s trust. Although leaders pay attention to competitors, they only obsess over customers.
- Ownership – Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job.”
- Invent and Simplify – Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here.” As we do new things, we accept that we may be misunderstood for long periods of time.
- Are Right, A Lot – Leaders are right a lot. They have strong business judgment and good instincts.
- Hire and Develop the Best – Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent and willingly move them throughout the organization. Leaders develop leaders and take their role in coaching others seriously.
- Insist on the Highest Standards – Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and driving their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed, so they stay fixed.
- Think Big – Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
- Bias for Action – Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.
- Frugality – We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. There are no extra points for headcount, budget size, or fixed expense.
- Vocally Self Critical – Leaders do not believe their or their team’s body odor smells of perfume. Leaders come forward with problems or information, even when doing so is awkward or embarrassing. Leaders benchmark themselves and their teams against the best.
- Earn Trust of Others – Leaders are sincerely open-minded, genuinely listen and are willing to examine their strongest convictions with humility.
- Dive Deep – Leaders operate at all levels, stay connected to the details and audit frequently. No task is beneath them.
- Have Backbone; Disagree and Commit – Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
- Deliver Results – Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.
Just skimming through these principles reveals a lot of the concept found in “Mission Command”: Customer obsession, Commanders intent/ Alignment, Experimentation, Speed, Directness, Back Briefing, Local Autonomy – just to name some key concepts.
The first three are well-known tech companies, model companies of a new era. Now, let’s look at the least glamorous of sectors, the public sector. If digitalization works successfully there, it surely can in other, old style, traditional and slow-moving sectors and companies too. The full war story is available in Humble, Moleskin and Reilly, “Lean Enterprise.”
Gov.uk has been set-up to consolidate all the various websites of all government branches into a common, easy and fun to use website and interface. That would be a considerable achievement on its own, as citizens will be able to better communicate to government authorities. But there is a greater potential beneath this obvious use. As more and more services are provided by gov.uk, more and more services are standardized for all government departments and may be “carved out” of their systems. Take for example your personal data. I am married with three children. Although the birth dates of my children are not going to change, i need to re-enter them in my yearly tax declarations every year, which can be problematic to get it right for a man – but not for me, of course. What about just maintaining all my customer master data myself in this portal and that data being used by all government authorities? For companies, the concept of having a single customer data entry makes immediate sense.
Gov.uk has been set-up as start-ups with small, interdisciplinary teams working to shape an optimal problem solution fit for a service before scaling. Creating a hypothesis how a service would work, validating and testing that with potential users, adapting the hypothesis and iterative re-testing. It has all the signs of “Mission Command” at work, like in the glorified companies listed above.
The most interesting part is that it has not been staffed with nerds or highly qualified people with formidable educational backgrounds, but with ordinary civil servants from other government departments. By giving the company a new set of work procedures based on lean start-up principles, making Mission Command a central piece of the organization, the creative potential of otherwise regular performers was unleashed.
Some Managers in traditional companies tend to think: “What can I do with these people? They will never get it!”. Be sure, that employees think the same about managers. My hypothesis is that the more people are working in a command & control environment, the more estrangement there is. In the gov.uk case, people have been selected for two main qualifications: Skills and most importantly “growth” mindset. That is to say: Not everyone has an abundant creative potential to unleash. But I am convinced there is a rich resource of people with growth mindset in traditional companies. Some of these people may not even know of their potential or do not have the self-esteem to even suspect that there is skill hidden in them. This subject deserves another post in the future, a post on people management and digitalization.
This finishes the series about the 5 forces of digital transformation. As planned in the first post, the next series will look at “eternal” business transformation practice and seek to adapt it to the 21st century. The focus will be to transform “classical” companies, as literature on how to run start-ups is abundant already, but advice for classical companies is still too shallow.