How do you dive into a digital transformation journey for your organisation? I had the privilege of learning about corporate strategy and renewal from the late Professor Sumantra Ghoshal, one of the great management thinkers. He would talk about the “smell of the place” — the context in which an organisation operates — that can bring out the best or worst in people. He would illustrate it with a compare-and-contrast example of being in Calcutta on a summer morning — it’s hot, humid and drains you of energy — and being at Fontainebleau in spring: crisp mountain air, a fragrance of life, a spring in your step. Organisations, he said, are like that; they can lift you up or exhaust you.

I see many large organisations attempt to undertake a corporate-wide digital transformation. There is even a rough blueprint for it:

  • Re-evaluate your customer journeys.
  • Re-structure your business around value streams.
  • Undertake design thinking and growth mind-set training programs.
  • Hire new talent from technology firms.
  • Change existing processes in line with agile and DevOps principles.
  • Create budget for investing in digital projects: cloud, artificial intelligence (AI), blockchain, analytics, etc.

These organisations know roughly what they need to do. Why is it then that so many transformation initiatives fail, and many end up hitting the intention-execution roadblock?

One key reason is not changing the smell of the place, i.e., the underlying culture. To quote Ghoshal: “You cannot renew a company without revitalising its people. … Adults don’t change attitudes unless they encounter personal tragedy. Events at work rarely make such an impact. To revitalise employees, companies must change the context they create around people.”

Changing the underlying culture is harder to do and takes much longer to show results compared to, say, creating a digital budget, engaging a design agency or hiring new talent. The starting point is to acknowledge this.

Then comes the question: Who needs to drive the change? Management might say that you have to innovate and be the change agent. But is that where the change should start? I once asked Frédéric Laloux, author of “Re-inventing Organisations”, whether it was possible to build a micro-culture within my team that will be different from the general culture in the entire organisation. He said he hadn’t seen any such successful examples so far. So, changing the smell of the place has to be driven at and from the top. Period.

Another issue is to determine how important and urgent digital transformation may be for your organisation. If it’s urgent and you cannot wait for a cultural change, one potential approach is to create a new unit with a radically different smell of the place outside of your core organisation. Borrowing a concept from manufacturing, it’s like creating a digital twin of the organisation.

For example, a legacy bank wanted to create a strategic hedge for its main business and realised it could not do that within its main organisational culture. So, it is building a new digital bank founded on the principles of Teal organisations:

  • Self-management: Remove hierarchies and centralised command-and-control
  • Wholeness: Invite employees to bring their whole selves to work
  • Evolutionary purpose: Drive the business by a meaningful purpose

Following these principles, this bank is building a different kind of bank focused on value creation (transforming people’s relationship with money), as opposed to value extraction (making money by putting customers in debt). Its efforts are not about using feel-good practices and narratives — this bank has stretch goals, focuses on business performance, chases tight deadlines and is delivering expected outcomes on time.

On the other hand, a large UK bank is undergoing an organic digital transformation at a business unit level. It is changing the culture by adopting some Teal principles, such as rejecting command-and-control and valuing the wholeness of individuals. It understands that this is a longer journey. Its team lead explains: “When my team comes to me and asks what our strategy is or what we should do about something, I say: ‘I don’t know, let’s figure it out together’”.

That bank’s managerial conversations have also shifted from “What are your last week’s numbers?” to “Are you looking after your people?”. This shared sense of responsibility, the focus on people, and other next-generation practices are reflected in individual goals as well. The result? The bank showed a 25 per cent productivity increase in 2018.

When we talk about digital transformation, we often focus on the underlying technology. But the creators and users of that technology are human beings. The context in which humans operate is decisive. You cannot meaningfully drive digital transformation without changing the context, the smell of the place. And great things begin to happen when you do that.

Curious about how to achieve a successful cultural change in your organisation? Read these 8 tips on how to transform the way you work today.