Organisational Complexity

Hello and welcome to Leading Digital Transformation with Rob Llewellyn and the Digital Transformation People. In this podcast series, Rob interviews experienced practitioners, authors and thought leaders whose stories and experiences provide valuable insights for digital transformation success.

Hi and welcome to another episode. I'm joined today by Roland Dizer. Roland is a Drucker Senior Fellow and leads the center for the Future of Organization at the Drucker School of Management at Claremont University. His current work focuses on the impact of digital technologies on leadership and organization, and on organizational capabilities required in disruptive business environments. Roland is also the founder and chairman of the Executive Corporate Learning Forum, which is a consortium of more than 50 global corporations from 12 countries, which he created in 2005 to shape the future of transformational learning and development in large organizations. As a keynote speaker, he has been addressing audiences in the United States, Europe, Asia, and Australia, and he's also been working in an advisory and board capacity with Global Fortune 500 companies such as Bertelsmann, Credit Suisse, Cisco Systems, Deutsche Telekom, SAP and Siemens, et cetera, as well as with emerging growth companies, primarily in the digital media convergence space. He's the author of the books Designing the Smart Organization and Transformers, and he recently published a research paper on digital transformation challenges in large and complex organizations, which is the focus of today's podcast. Roland, welcome.

Well, I'm glad to be here, Rob.

Hey, Roland, you've been working on organizational transformation for a long time. What's so special when it comes to digital transformation?

It's quite interesting. You know, transformation has been around since ever actually think about the big industrial revolution, things that happened and so on and so forth. We're now in one of those big transformational eras. I believe it's as big as the industrial one. It has been written about. And you could say, well, you know, transformation, isn't it always something where you have to go from A to B and this digital very different. I mean, one example, way back maybe 25 years ago, we did some work with a steel company produced welding wire. And they were the super experts in this very highly specialized steel that you need to weld difficult components. And they were big fish in a very, very small market. The whole market was maybe $2 billion. And they didn't know how to grow because they had a 75% market share globally. And we worked with them and changed their mind frame that they're not in the steel business, they're in the welding business. And if they're in the welding business, suddenly the whole stakeholder universe, they have to deal with is changing. They suddenly had to deal with gas maybe and other kinds of stuff. And all their specialists that they had in welding steel were still important, but not as important at all. And so this mindset shift had to happen. That was a big strategic shift for them. And back then, very few companies were able to do really these major strategic shifts in digital transformation. Today, similar things happen. We have to go from one mindset in which industry we're in, which product we're in, which kind of stakeholder universe we're in, to a different one. But it's no choice anymore. You have to do that. Because digital is so ubiquitous, I would say one thing is it's just there, it's huge and it's not as capable. So that is one thing why it's different and special, another one, it's really fast. And the acceleration and the exponential speed is incredible. And incumbents who have been there for years or maybe even decades, those time frames become shorter and shorter. And it's very hard to catch up in that speed because a startup or a new emerging company that starts right now in this moment always will have an advantage versus those who come to the legacy of existing business model. So that is another big different thing in digital transformation. And then obviously witnessing as well that in times of platforms and global players that go beyond national boundaries, the typical type where we looked at competition, the unit of competition was the firm that is also not anymore the case in the digital age. The unit of competition become networks that become kind of ecosystems that change and that are fluid. And all the strategic kind of thinking that used to wrap around its head about a single organization doesn't work in that simple way anymore. So that's another special thing as well. And last not least, I believe being in a society that really does not yet know how to deal with the digitalization, we have an institutional infrastructure with a political system, with a regulatory system and so on. That is based on the Industrial revolution. If you look at it, it took 70 years, really from the end of, let's say the 19th century, when then unions started to configure themselves and the political system configured itself. And then you had two world wars and you had a big depression and eventually you ended up with a Pax Americana and the western type of economic and societal structure that was based on the Industrial revolution and getting its contradictions more or less in check. Today we have a digital revolution, and we don't have these ramifications in check yet. And we see all those reverberations of issues that happen with how to deal with data, with security, with privacy, and so on and so forth that we still have to figure out. So that makes it very special as well.

Roland, in one of your recent studies, you mentioned three distinct arenas in which digital transformation happens. Can you elaborate on these three?

Yeah, that's quite interesting. We looked at that. We did this study where we talked actually too about 30 or more C level executives from global corporations that have all of them more than 100,000 employees. And how are these things happening? This was actually a conversation we had with the CEO of one of the larger business units of Siemens who said, you know, what is digital transformation? Can we wrap our head around that? Because everybody somehow has a different association, a different definition. To make it simple for our employees, we actually put three buckets. First bucket is to save money. So we use digital to save money, which means we improve processes and we use technology to make customer interaction more smooth or to, you know, just save money. A second bucket is we use digital to make more money, which means we're enhancing products. We use digital to make products smarter, to make them maybe more attractive, more customer friendly and so on, but they still remain the products we have. They're just better products, different products with added value that make more money. And then there is one element of digitalization that actually creates new money and that would be really breakthrough, disruptive kind of ideas that bring us one step almost away from our original business, that opened up new opportunity spaces and that actually really bring us into new industries and into new customer segments. And by the way, interestingly, at Siemens here, The distribution was 70% of the project budget for digital transformation went into the saving money, about 20% into the more money and only 10% into the new money. Having said this, all three of them are important. And obviously the CEO said, well, we're trying to really grow the share of the new money, but that's the hardest thing to do because it's the most disruptive thing to do. So those are the three buckets we were talking about.

Roland, you say that to compete in the digital age, organizations need to create an agile architecture. Now we all use, we all hear the word agile banded around quite a lot these days. But what do you mean by agile architecture?

Yeah, you're saying, rob, right, we are really using this word a lot. Digital transformation has created a whole plethora of buzzwords. Agility, ambidexterity, and I mean, you name it. There's a lot of new stuff that goes into the dictionary here, and agility certainly is one of them, I thought it's important to distinguish three elements of one is, and a lot of people do that is making people more agile. Which means agile mindsets get people a little bit more curious, get people out of their mindset of staying just within a silo of thinking. Agility on a personal level would mean enhancing collaboration between people and so on and so forth. And for that you have trainings and you know, you go into hackathons and you go into design thinking kind of things where people go across their traditional ways and find new ways of being creative and develop things. So as a person you become more agile. A second element would be as a team. Agile teams would be a composition of organizational elements that usually would not collaborate, but they're put now together into a team that is cross functional and that does not go in the traditional process of, you know, from A to B to C to D. But for ABCD is already one team and they can work together on a specific customer related issue. A great example of this is at Daimler, for instance, one company we were here investigating where they have so called swarms. And those swarms are multifunctional people that come together to work on specific projects. But the hard thing of these agile teams is that of course come with people who come still with their own type of departmental thinking. So the team itself needs to become an agile element as well. And that's more a design issue, how you compose the team and how you then coach the team. And it's also been pretty familiar kind of thing. But my third thing I think is as important, which is the agile structures, which is something that organization that now has maybe an agile mindset, people have a mindset that is agile. The teams are cross functional to everything, but still the organization is not yet able to see how it interacts. A very complex and changing environment in an ecosystem where they have to deal on one hand maybe with very large organizations, on the other hand maybe with startups. And the third element they have an M and a deal. In the fourth element they have a licensing deal. And they have to deal with all these stakeholders in very different ways. This creates a kind of challenge where you have to have structures that are not anymore driven by more or less essential governance, but that require a lot of independence of peripheral units that then may interact with with each other more or less self organized, but depending really also on the context in which they have to be sometimes very protective, sometimes they have to be more open and so on and so forth. And these things of agile structures is a Third one that I believe is important. And together those three create the agile architecture. And I always say if you have great people that are creative and flexible and agile, but you don't have the structures in which they can thrive, not much will happen. But if you have structures that are enabling people to do these things, it's already a better kind of thing. But you really have to work on all three elements of an agile organization.

Roland, a few minutes ago you mentioned that of course we've got these buzzwords which are flying around these days, such as digital transformation and agile. And another one of those words was ambidexterity. I'm glad I said that one correctly. Could you explain what you mean by the ambidexterity challenge?

Well, the ambidexterity challenge is something also something that is not really new, right? If you did strategic change and transformation back then, it was not yet digital. You always had to deal with on one hand an old way to do business, an old operating model, and then moving towards a new operating model. The example that I had at the very beginning, if you're into, let's say, welding wire as a steel industry and you're connected very much in the vertical of creating expert steel, shifting towards being a service provider, let's say, in the enlarged welding industry means a very different type of organization and operating model. And going from A to B means you have to really manage both sides in the same way. In digital, we've been talking a lot that the world of innovation and exploring new opportunities and so on and so forth requires a different type of organization than staying in the old traditional operating model. Now, each and every transformation has the challenge. You have to still excel in the present in order really to make your money and to sustain, while at the same time you have to create for the future. Those are very different mindsets and that's a challenge to mitigate them. And there have been a lot of efforts and solutions to do that. Some say it's important to keep both worlds of innovating and more or less exploiting the existing one under the same roof. Others say, well, you know, they're so different, you have to keep them separate and only then bring them together at a later stage. I personally think it's even more than that. In a conversation I recently had with a colleague of mine from Shell, he said, and I like that a lot, it's not about ambidexterity only. It's really poly dexterity, which means it's not only two operating models, not two mindsets. We have to deal with. It's a multiple set of mindsets. It's a mindset where sometimes if you work with a startup in an early stage, is very different than if you work up maybe with a startup that has now suddenly, through funding and blitz scaling, created a huge presence, but is still a kind of a startup kind of culture. Then you deal at the same time, maybe with a manufacturer that is in, let's say, very traditional bulk business, which is important for you as well. And each of those deal relationships that you have require a different way to operate. And we've seen it just one example, the last one here, for instance, in the famous case of DVD media towards streaming media. In this transformation, there are still DVDs sold, and DVDs require a very different way of distribution and retail relationships and so on and so forth than streaming. And you've got to somehow mitigate those two. How do you integrate them and how do you do things? But then at the same time, we see already now in streaming that Netflix today, for instance, is threatened by suddenly the studios catching up and Disney launching its own streaming service, and so on and so forth. So we will see that this old operating model of Netflix streaming might have to be rethought again at the same time. So it's not only one, it's multiple models you have to deal with.

Roland, I know from some of the work you've done that the concept of boundaries and boundary management play an important role in your thinking. Firstly, before we get onto the why, can you explain to listeners what is the concept of boundaries and boundary management? And then tell us what. Why it's important.

I like that you bring this up, Rob. I was always fascinated by boundaries. And boundaries are the place really where change happens, where development happens. Boundaries are where different worlds collide and out of that difference something you can develop. And this is true for boundaries on all levels. Think about the boundaries of your own mind, your own cognitive map that you have. There are certain boundaries and if you don't challenge these boundaries on a daily basis, actually you stay more or less in a pretty restricted space and you cannot really learn. Learning is really always dealing with your own cognitive boundaries, maybe emotional boundaries and so on. But then if you go into more complex system, the boundaries that constitute, for instance, marriage, always an interesting thing to look at, these boundaries or boundaries that constitute a team. And we tend that these systems, they try to be silos, they try to keep themselves secure. And the reason is boundaries have this important function of securing identity, security, and so on and so forth, but at the same time they constrain us. And it's true. Then if you look larger to organizational boundaries, to industry boundaries, they always keep our minds within a certain kind of confined space. And we have to challenge them because this is the only way we develop and we learn and it's the only way to become, as we said before, agile. Because if you don't challenge the boundaries, then these things don't happen. Now, luckily enough, if we design boundaries in a way today, there is this word of fluid boundaries. I called them way, way back, I called them semi permeable boundaries. So they have to be a boundary where you still provide that safety, that identity, that you know who you are. But at the same time you have to make them fluid. You have to be able to collaborate across those boundaries. And in digital transformation and in digital contexts, in those ecosystems you're working with today, one of the biggest challenges is really how to decide the degree of openness, for instance, of these boundaries you want to have. Are you sharing your ip, are you collaborating and co creating or are you trying to do it yourself? And there is no simple answer to this because from situation to situation you may choose one hand to be more closed, in the next relationship, you're more open, in the third one, you totally open up yourself. And that is something that, which is one of the big strategic challenges of designing your boundary architecture. So that's how I see the importance of boundaries.

Roland, I want to dig a little bit deeper on that because, okay, you've explained the concept really well and why it's important, but this is a really difficult one, isn't it? How do we get organizations to not operate in these silos so much? How do we get them to move in the direction that you've just explained?

Well, I think it's very much an organizational design issue, right? I mean, in one sense I say you have to create institutional mechanisms that make sure that people go across boundaries. And many organizations are designed in a way that reinforce boundaries rather than actually encourage cross boundary collaboration. Because only if you start to collaborative cross boundaries, you can even decide the degree of openness you want and you need. And that's very often also a question of negotiation. I think that technology helps us a lot here these days. We have now social media, which for instance forces people to think about that information goes across boundaries relatively easily. It horizontalizes communication and conversations and it's really an enabling technology that helps to best boundaries. For instance, social enterprise platforms, they are an excellent mechanism that you can use. If you use Them, well, of course they come also sometimes with its challenges, dangers. I've seen one company, for instance Otto Group, which is a German originally mail order business company that transformed itself very successfully into now being the number two in online retailer after Amazon. They have institutionalized function that is dedicated to assure networking across boundaries. It's on the VP level, reporting directly to the CEO. And what they do is nothing else than making sure that knowledge flows easily across those boundaries between the various businesses. For instance, they have about 102 or so different businesses in their organization. In their group they connect people, they provide instruments, among other things, of course also the intranet to enhance this and so on and so forth. They broker between people and they really create a networked organization. Of course you can do policies that help people to go across boundaries. For instance, just introducing the swarm concept at Daimler and say, well, the CEO who just now gave the baton over to a new guy, but Dito Cecchi, who was at the helm of the company for almost 20 years, he said, well, I want to have 20% of my employees working in swarms. And these swarms are these cross functional, cross boundary teams. And that's a big statement. If you do that and say, well, 20% of my workforce goes now out of those hierarchies, out of those traditional roles and connects into a project type network organizations. So policies are important, of course, these agile principles we were talking about, so there are things you can do to enhance cross boundary. I love, for instance, also platforms, collaboration platforms that you bring up. And that's true by the way, not only inside the organization, I think a great way to create industry leadership. If you initiate and you facilitate platforms of stakeholders that you orchestrate, for instance, together with your customers, create a customer dialogue platform about issues that are important to them, create a supplier platform or bring other stakeholders of your ecosystem into conversations. I believe it's very much about enhancing really conversations and dialogue architectures. And that's an art rather than a science because it's very much also related to anxiety because people hold on to their boundaries a lot.

Roland, there are many key figures which play an important role in transformation. I'm just going to pick on one. I'll pick on the Chief Digital Officer, which are popular in some organizations and not so in others. What makes Chief Digital Officer successful?

Well, the Chief Digital Officer is again a little colorful new invention, right? So we said, well, we have got this digital transformation challenge. Let's bring in the wizard who can help us to really do all that well. And so they hire Chief Digital officers who are digital digital transformation people who should now be the ones who make sure that very complex issue of going from a traditional operating model and traditional ways to do things into this new organization of the 21st century. The problem is very often chief Digital officers get recruited, let's say, out of it, because digital is it. And so IT people should best know what digital is about, which may be true on the technology side, but we know that digital transformation technology is maybe the easier part. It's a lot of social architectures. You have to change mindsets, you have to change operating models, you have to change. It's not just bringing in the latest cloud technology. Chief Digital officers to be successful, really, they need to be super multidisciplinary, super multifunctional. They have to really dip into functions that currently are differentiated and not under one roof. If they, for instance, drive, let's say, a new culture of doing work and new skills that you need to succeed in the digital age, they're actually doing the work of hr, right? If they try to help find the CEO a vision where company could go because of these opportunities that come up with digital technology, they step into the realm of strategy and vision, right? When they try to create something like horizontal collaboration, we talked just briefly about boundary transcendence and stuff like that. They might be in organizational design or in communication and so on and so forth. Customer centricity, another important element, because digital transformation is an outside in kind of thing where you really deeply have to understand customer value and leverage that and co create things with them so they're suddenly in the marketing sphere. So they really have to cover a lot of ground here. And the big challenge for Chief Digital officers is if they do that successfully, it becomes a highly political function because they step on the toes of existing people who say, well, strategy is my territory. Oh, HR is my territory. Oh, marketing is my territory. So how can they do that? One example is, for instance, Christian Langer, who heads up the Chief Digital officer of Lufthansa. He's got a different title, but de facto that's what he does, is that he said, I only can do this job if I get a kind of a board of the most powerful stakeholders that come from the various functions that I can rely on, and that is my kind of community that works together with me to do these things. So it's an important thing to really bring the stakeholders onto one table and then really foster also the conversation among those stakeholders, what's important, and not try to command and control. As a chief Dislodge. It's really enabling a flow of different perspectives and changing the mindsets and making the boundaries more fluid in the process.

Roland, this is something we could probably talk about for hours, but I'm afraid we're going to have to wrap it up there. Listen, you've talked about a lot of different concepts in this episode. Where can people people go to learn more about these concepts?

Well, we have a center which is called center for the Future of Organization, which is here at the Drucker School of Management at Claremont Graduate University. And we are building really a kind of a body of work around the issue how digital changes leadership and organization in this world. So the project that we actually spoke about in this episode was the first one we really did on large global corporations. What are the challenges they see in digital transformation? Our next project we're currently working on is on digital business ecosystems and how to shape them and how to succeed in them. And what are the capabilities organizations need to really successfully leverage and shape the ecosystems in which they, for better or worse, have to exist and to thrive. We also do some work on how social media is transforming social technology, better said, how social technology is transforming organization and leadership. And so if you go to www.the futureorg.org, that's our website or center for the Future of Organization, you will find some material there that you can download. And we are also planning to launch a platform, a dialogue platform, a global one where people can participate and actually a series of conferences and events and also online platform. We're planning to enhance the conversation about these really important issues that shape the future of business and society.

That sounds really interesting and I'll make sure that we include links to those in the show. Notes. Roland, it's been an absolute pleasure speaking with you. Thank you so much for your time.

Thanks, Rob. It was a real pleasure for me too.

Thanks.

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