Lesson
Number 49
 

Leadership Culture: An Analog Dilemma in a Digital Age

Sandra Siebenhüter

Here are two statements that pack a powerful punch: firstly, the technical ignorance of line managers and management executives is the biggest obstacle to the digital transformation of German industry, and secondly, forty per cent of employees say that in their firm the principle of "order and obey" still predominates.(1)

The first statement refers mainly to an absence of digital know-how. Many managers are unaware of how digitization, for example via data analyses, can help them to better understand changing customer behavior and to develop new business models for marketing and sales. Secondly, the principle of command and obey, that is apparently still widespread, stands as an obstacle to successful digital transformation, which can smoothen the transition from redundant business areas to new value-creating business processes, which themselves require innovative work and organization structures. The potential of digitalization and the development of new and innovative business fields can only evolve in combination with changes not only to business organizations(2) but also a transformative change in management culture.

Command and Control is yesterday – Productivity Leaps is today

Ideally, executive managers will see themselves as mentors, coaches and moderators, whose actions are transparent and understandable, who welcome employee networking, and do not define themselves as the boss by surrounding themselves with underlings, by vetting each and every communication, or by totally commanding and controlling the worktime and ideas of subordinates. Traditional departmentalized hierarchies with separate development, production and sales functions are obsolete in this new age of digital processes and virtual organizational structures, which have become the new source of innovative potential — not least because digital technology now enables every employee to communicate across departments, locations and national borders for 24 hours a day, 7 days a week.
In fact, projects with intercultural teams that cross timezones depend upon non-hierarchical cooperation with access to knowledge in global information spaces and these in turn will generate opportunities for even higher productivity (productivity leaps).(3)

Network-based knowledge-working requires organizational preconditions that allow people to link-up their own knowledge and know-how with that of other experts in a simple and straightforward way without bureacratic hurdles. Moreover, it is a well-known anthropological fact that employees will only willingly share their knowledge and ideas with others if their contribution is appreciated, they are trusted and respected, they share a group identity, and any honest mistakes are met with tolerance not torment.

Collective knowledge in decentralized structures 

A word that describes this ideal-type of management approach for digitized businesses is "holacracy". The term was coined by the U.S. entrepreneur Brian Robertson.(4) Holacracy is a method of decision-finding that is based upon transparency and equal opportunities for employees to take on responsibility and to participate in decision-making across all organizational levels. Although there is enormous pressure within firms for managers to be ever more responsive and innovative, and although proactive team work and lean processes are essential for attaining those prescribed goals, many managers still have difficulty in adopting an open style of leadership.

Path-dependent management behavior

But it is wrong to blame the managers for every deficit in managerial behavior. Two other fundamental causes must also be considered: firstly, managers work, just like their subordinates, within a framework of organizational structures and routines that are often inflexible, especially in large corporations. "The adaptability of organizations is systematically overestimated", says the Berlin management researcher Georg Schreyögg(5). Businesses proceed, often involuntarily, as if on tracks or paths (dependency paths). This means that every action of a business and therefore also the actions of its managers, as principals and representatives of that business, are in fact largely predictable, because the decisions preceding their actions are based upon the same assumptions and hypotheses as their earlier decisions.

The more tradition-bound such a business has become, the stronger are these dependency paths. They form a self-reinforcing process until eventually they become so-called lock-ins. These locked-in behavior patterns not only inhibit innovation, they also create serious organizational problems, because they penetrate deep into employee culture, error culture and management culture. The signs of such dependency paths are easier for outsiders to see: for example, a product portfolio that revolves around a single type of know-how (keyword: competence trap) or when new projects or unconventional ideas that could offer fresh opportunities are rejected without proper consideration. As digitalization, which is less product-oriented and rather process-oriented, conquers ever more markets, these competence traps become a additional challenge for managers.

A further barrier to change is the usual method of appointing and promoting managers. Without doubt there are many well-qualified and committed men and women with managerial talent and skills who are ready and able to transform organizational structures. The only question is whether they will ever be appointed to a position in order to do so. Usually, only those people with the same social background as their superiors get promoted to top functions in a business, from which they could initiate a transformation of the organizational structure
Michael Hartmann(6), a sociology researcher of elites, describes this method of manager recruitment as a form of lock-in. This means that loyalty, social background and correct attitudes are decisive factors when making appointments to positions of power and influence. This also applies to selection procedures at lower levels. After all, it is only logical if people in positions of power and prestige decline to hire anybody who might challenge, change or abolish those exact structures that enabled their own hierarchical ascent. Clear signs of a recruitment lock-in are inadequate chances of promotion for women (glass ceiling) or advancement being conditional upon a similar social background. A habitus that differs from that of incumbents will immediately identify prospective candidates as being “not one of us". Consequently, many who may wish to initiate organizational change are excluded from the start. So what can be done, so that firms with self-perpetuating management styles and rigid structures can change and evolve to fit this new digital age and thereby evolve and survive (as in survival of the fittest)?

New business models in conventional biotopes?

Some members of executive boards are aware of such lock-ins in their firm and hope to overcome them by creating parallel structures with cross-department and cross-competence project groups, to act like start-ups with completely new business models and to unbureaucratically interact with external partners (universities, research institutes and other start-ups) without taking account of established hierarchies.
Examples of this are Start up Autobahn of Daimler, Start up Garage of BMW, Audi Business Innovation GmbH of Audi and Heimat of Bosch. These corporations then take great care to ensure that legacy and innovative management structures are kept separate, usually by placing them in different geographic locations. An outstanding start-up unit is next47 (7) of Siemens, which provides an umbrella for the launching of internal and external start-ups.

Another alternative is so-called innovation labs. Their purpose is to develop new business models and to imitate the creative spirit of start-ups by bringing together interdisciplinary teams of in-house employees, customers and suppliers, who employ specialist approaches and methods (examples are Design Thinking, Lego Serious Play). One outcome of such novel processes is the railway travel-planner app "Qixxit" of Deutsche Bahn (German railways).

Another route taken by a number of businesses, because here the outcomes are visible sooner, is to invest in or acquire start-ups and give them substantial managerial freedom. This is a way of avoiding any collision between old and new management cultures. Many automobile manufacturers are now being forced to take this route due to customer expectations with regard to mobility and in-car software, which are increasingly important. The new watchword of the automobile industry in Germany, We don’t sell cars, we sell mobility, underlines the dilemma they are facing. Among the start-ups that these car manufacturers have invested in are Arculus (Audi), Mobileye (BMW) and Gett (Volkswagen).

With all the routes just described the first priority is always to ensure that the emphasis, like that of start-ups, is on technical know-how and a resolute determination to develop a fully functioning business model.
In addition to finding new ways to cooperate and by acquiring start-ups, major corporation now also aim to create elements of a digital culture themselves(8). 24-hour hackathons(9) are just one example. That these firms are following various routes to in not a voluntary act. They must do so to avoid being left-behind by digitalization. Let us hope for their sake that this burst of dynamism is more than a short-term response to new digital competition.

After all, what goes for the Silicon Valley also goes for European firms:

Uber yourself before you get Kodak´ed!

 

Sandra Siebenhüter, March 2017

 

Footnotes

(1) Stauffen Unternehmensberatung (2017), Studie zu Industrie 4.0: Wissenslücken der Führungskräfte bremsen digitale Transformation aus.

(2) See BMAS (2016 Weißbuch, Arbeiten 4.0 (Entwurf), Berlin, pp. 82-89.

(3) The Productive Leap in Boes, A., Kämpf, T., Lühr, T. (2016), Von der »großen Industrie« zum »Informationsraum«. Informatisierung und der Umbruch in den Unternehmen in historischer Perspektive. In Vorgeschichte der Gegenwart. Dimensionen des Strukturbruchs nach dem Boom. Published by Anselm Doering-Manteuffel, Lutz Raphael and Thomas Schlemmer, Göttingen, pp. 57-78.

(4) cf. Interview with Brian Robertson on Holocracy

(5) cf. Schreyögg, Georg (2013): In der Sackgasse. Organisationalefadabhängigkeit und ihre Folgen. In Organisationsentwicklung, No. 1/2013, pp. 21-28.

(6) See interviews in Der Spiegel (2016): hnp://www.spiegel.de/karriere/wer-chef-werden-will-muss-sein-wie-die-chefs-a-1109965.html and Der Welt (2015): https://www.welt.de/wirtschaft/article145330194/Sie-sind-aus-Leipzig-Dann-haben-Sie-s-schwer.html

(7) Reference to Werner von Siemens who founded Siemens in 1847, invoking his spirit as an entrepreneur and inventor.

(8) See Audi Smart Factory dated 11 Nov 2016 slide 15 (in German).

(9) This word stems from "hack" and "marathon" and means an intensive, combined software/hardware development workshop.