Digital Transformation means Culture Change - Hmmm, but why?

Dr. Horst Walther[1]	Nadja Obenaus[2]

1. Digital Transformation, what it is

When we try to define the term "digital transformation", we encounter such exciting explanations as "Digital transformation marks a radical rethinking of how an organization uses technology, people and processes to radically change business performance". (George Westerman, MIT Principal Research Scientist and author in Leading Digital: Turning Technology Into Business Transformation).

Frequently, no less is required than reinventing the business and finding new sources of revenue.

Are such bold statements helpful? Hmmm, not really. Rather, they lead to a kind of digital confusion. Perhaps one of the reasons for frequent failure of large-scale digital transformation programs, as the management consulting firm McKinsey documented them a year ago, lies in such exaggerated expectations of a digital world revolution lying straight ahead.

In most cases, change comes in a more modest guise. Rarely the total business model will be altered in a single step big bang approach. A step-by-step digitization indeed is far more common. In the medium term, however, the result does not necessarily have to be less radical.

But what precisely is a digital transformation? Well, first of all it's a transformation, of an entire company or at least major part of it. So, the company is being transformed from an initial state A today to state B in the future, using digital technology, or information technology (IT) for short. The company will be transferred from an initial state A to a future state B and hereby fundamentally changed during this transition, i.e. transformed. This transition in order to be transformative will change the very nature to the corporation.

Illustration 1: Transformation

Automating corporate processes through the use of a new technology is actually not a new idea. The approach is by no means revolutionary. We used to do that 50 or 30 years ago. Back then it was simply called automation. Ultimately, the entire industrial revolution is based on some kind of automation. So, what has changed in the meantime? Why are we no longer talking about automation, but about digital transformation?

Well, our technical capabilities have evolved considerably during these years. This has happened slowly and imperceptibly for most of us. Until a clever mind had realized it that meanwhile, for example at 5 to 10 years intervals, so much change had accumulated that it was worth thinking about how to turn the technological progress into competitive advantage. So, from time to time there was this magical moment when the famous transition of quantity into quality occurred. During that time mechanical automation was first augmented and increasingly replace by IT driven automation, for which we coined the fancy term digitization.

2. How automation changes the organisation

So, applying this stepwise transformation, how does it affect, how does it alter the organisation?

If we consider the organization of a classic industrial company from the beginnings of the ground-breaking works of the pioneers of "scientific management", Frederick Winslow Taylor for example, to the present day, it resembles a pyramid: many workers at the base and a few top managers at the top. In between the much derided middle management is positioned, an organisational layer commonly denounced to resist change and to generally impede the corporations progress .

Illustration 2: Organization of a classic industrial enterprise

Usually we started with automation at the lower end of this pyramid, where most functions of the in Anthony's functional enterprise model[3] are located and hence the bulk of workforce was affected.

Illustration 3: Simplified automation portfolio

If we follow a simplified world view consisting of only four quadrants, spanned by the two dimensions: up & down and simple & complicated (not to be confused with complex), then the development of the automation of business processes took and takes the following course:

1. Simple, operational processes
2. Simple, administrative processes
3. Complicated operational processes
4. Complicated administrative processes

1. Simple, operational processes– They were the subject of "classical" automation. The guiding fossil of this epoch is the assembly line. Although the entire process was made more efficient, it was by no means fully automated. On the contrary, as Gary Hamel aptly describes it in his farsighted book "The Future of Management", we have rigorously clocked people through the steps of the production process still left to them, such as in the production of the Volkswagen Beetle in the 1960s. By this, we were making man compatible to the automated process, reducing him to the simplest, almost endlessly repetitive, monotonous steps. We had turned man into an integral part of the machine. The machine controlled the entire process.


2. Simple, administrative processes – Initially, they were only partially accessible to automation. We take care of them today, with the appropriate technology at our disposal. In bookkeeping, operational cost accounting, account management, calculation of interest, annuities, residual purchase values calculating machines of all kinds provided valuable help at an early stage by taking over error-prone and / or computations-heavy steps of the overall process. As a rule of thumb, the overall process still is in human hands today.


3. Complicated, operational processes – In the past their automation was too difficult, too expensive. For apparently simple decisions, they required partial world knowledge that could not be precisely specified. We are only able to take on these processes today with the advance of artificial intelligence. It will take a few years, perhaps decades, until we can achieve something like full coverage. A good example is the challenge of creating self-driving vehicles: in theory it should be an easy to solve task. However, it is not yet really solved today – at least not safely and reliably under every day conditions.


4. Complicated, administrative processes – This is where the realm of utopia begins. These are processes that require a lot of knowledge, logical reasoning and the application of heuristics, intelligence. And if we want to automate them, we need to replace human intelligence by artificial intelligence in at least one of its various, diverse varieties. Where today lawyers, doctors, risk managers, compliance experts, auditors, but also programmers, testers, engineers, ... have their domain, justly earned by long and costly education, “tomorrow” robots and software systems may take over the job. We yet just don't know when this tomorrow will be.

So, when we talk about the "today" of the digital transformation of entire companies, it is about the completion of automation in the 2^nd and 3^rd quadrants and the first selected automation steps in the 4^th quadrant.

3. A transformed Organisation needs a different Culture

How is all this related to corporate culture? We'll get to that in a moment. Let's first take a brief intermediate consideration.

What effect does it have on the company's organization if automation eats its way through the company from bottom to top and from simple too complicated? There are, of course, other driving forces, such as saturated markets, that require increasing diversification of the product portfolio, which in turn require organizational change. But here we will focus on the effects of automation. What now happens when we cut chunks from the broad base of the pyramid?

Just as the workers had to be assigned to a task, supervised and assessed, so the deserted factory work floor still needs a certain management - but a completely different one. It is true that machines do not make any mistakes in their predetermined function. If, however, rarely occurring systematic errors or failure due to unanticipated attrition interrupt the operation, the human buffer is missing too. Then there will be no one down there to regulate smaller or bigger problems on the working level by "common sense". Due to this missing human buffer it makes sense to first simulate the overall behaviour of entire production lines in the model, including the effect of arbitrary perturbations. It is imperative to continuously compare the behaviour of the real production environment with that of the model and subject it to a continuous improvement process: it all starts with a model.

It might be already intuitive that a different type of leadership is required for such organisations. There is no longer the assertive manager sitting at a literally elevated spot, having the factory floor in view through a windowpane, who "encourages" the X-type of the worker with more or less external compulsion to perform process-compliant work. Instead, in addition to incident management, optimization and regular renewal, change turns out to be the major task. The skill requirements for “managers” here are different from those before. Less yet better skilled and specialized personnel is needed, a direct communication that no longer runs “ballistically” up via several hierarchy levels and down again just to reach neighbouring organizational units.

Illustration 4: Changing collaboration

The pyramid becomes a diamond, the middle management layer morphs into an expert pool. Here different communication lines are used, on which communication also differently too. Needless to say, experts are managed differently as well, since their respective superiors can no longer necessarily be expected to be ahead of them in terms of technical knowledge. They need to be of a different type, they deal with each other differently, they derive their self-confidence from different sources, and they bear different responsibilities.

Yes, that's culture - the way we deal with each other. And that is what inevitably changes during that kind of transformation.

4. A different Culture, as we deal with each other differently

So, because an initially solely technically transformed company requires a different organizational structure, wherein we work differently and deal with each other differently, our corporate culture inevitably changes - whether we like it or not.

So even if nothing is done to consciously change the corporate culture, change will occur in medium term even without intervention of top management, because the reality that determines culture meanwhile has become a different one. In this case however we will no longer necessarily hold the key to the outcome of the culture change in our own hands.

So, that’s why.

If you a curious to know how it can be done, please stay tuned for the 2^nd Part of this article: “Making Culture Change happen” to be published within a month time.

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[1] Dr. Horst Walther is Managing Director of the SiG Software Integration GmbH in Hamburg and Co-Founder of the Corporate Culture Institute in Vienna

[2] Nadja Obenaus is Systemic IT Advisor & Coach in Hamburg

[3] Anthony, R N, 1965, “Planning and Control: A Framework for Analysis”. Cambridge MA: Harvard University Press

Who's going to wake up Human Resources?

I just came across a contribution of Andrew Fox Group Head of HR Retail Banking and Wealth Management at HSBC Bank Plc., raising the vital question: “Why are organisations not keeping up with the changing world of work?” Good question - Andrew Fox certainly voices true words. This is especially remarkable as he represents HR in HSBC, one of the world’s largest banking corporations.

Reality however more often than not looks quite different. Here the department which unequivocally and pronouncedly treat humans as resources is often experienced as a stumbling block for digital transformation programs. The excuse often heard, is the high degree of regulation in many countries and the diversity of rules between nations. But there is more to it, why the typical HR department is often perceived as the conservative factor, or to be more precise, the innovation blocker, when it comes to cross corporate processes.

HR stands for Human Resources. Even if we would agree that humans are to be considered as factors of production triad of land, labour and capital, HR doesn’t live up to its own claim in breadth and in depth: It does not deal with all humans – just with employees.

The total workforce today is much larger than the number of hard core of employees. Even those show less static behaviour today. They change jobs more often, they need or want more flexibility in their employment terms, have to change job functions more often within a corporation. The increasingly important contractors, interim managers, intern, collaborators, … are often not well supported – or even not considered at all.

Not only their scope is limited, they tend to restrict themselves in coverage of the total talent value chain. In many cases they just restrict themselves to administrative tasks, paying only lip service to personnel development, playing only a supportive role in the hiring process and neglecting the strategic component of talent management.

When some 15 years ago the Management of the relations of the corporation with all its human stakeholders was recognised as a vital organisational infrastructure and coined the term identity management, HR was reluctant to grab this opportunity. Quite often they regarded it an IT topic, as the demand was raised by management of access to computer systems, by IT security or by Compliance issues. Also their clock cycle had months as the standard unit. In Identity Management it was days. Today, in a digitized world, it ought to be real time.

So in the majority of cases end-to-end automation of business process with some involvement of digital identities hit an invisible wall, when HR simply refused to be part of the game. I intend to hold back on speculation about its reasons. In some cases, however, I have seen the position of the HR manager being used as the final stop for managers, who did not make it to the top range.

Against this background, it seems particularly questionable why the HR department in many companies claims ownership of the corporate culture.

Maybe the most important shift to take place before we can seriously address a digital transformation of whole companies, is to abandon the traditional business School approach, that management’s first and most noble role is “doing the numbers” but putting the spotlight on the humans, which in the end have to “be” the change.

Do employees matter – or not?

I just right now - hence with some decent delay - finished reading Russ Elliots Blog post from Sep 2, 2015 “Are employees important in defining Company culture?” Elliot is SVP Human Resources Director at Bridge Bank. He argues, that employees, who feel working at a great work place feel better, are more productive and hence result in a competitive advantage for the corporation itself.

While I agree that you might be more productive if you enjoy your work - and there is indeed plenty of evidence for that, drawing the conclusion for the competitive advantage might be right or might be wrong.

The question goes a bit deeper too. Once I followed a dispute about “What is a good organisational culture?” Whereas the majority agreed that you cannot answer this question that simply and it may differ from case to case, I let the chance of participating in this conversation passing by that day in favour of digging a bit deeper.

A good culture certainly, and I hope most of you can agree to it, is a culture, which helps the organisation to thrive as desired. In most cases, unless explicitly intended differently, this means long-term success.

But this just leads to the next question: Which are the traits that make a corporation thrive for long? Earlier already (2010-09-13,  Structure follows market – and so does culture and 2010-10-03,  Corporate culture & market)  I published some thoughts on whether a certain culture is helpful or not.

Here I came to the conclusion, that the shape of the market, a corporation is in, demands a certain culture. So the way we are doing business influences, or even determines the way we interact with our customers and with each others – hence our culture.  E.g. for an unsaturated mass production market a culture characterized by a hierarchy is most effective – and hence a good culture, although this might not necessarily be a feel-good-culture.

This is the Henry Ford and Fredrick Winslow Taylor approach. However in an innovation driven market, where success is bound to highly skilled personnel, some different form might be more appropriate, like a clan type of culture or even the start-up type.

One of my favourite authors of management literature, Gary Hamel has put it brilliantly in his book “What Matters Now: How to win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation”:

• Today’s organizations were built for discipline and efficiency, enforced through hierarchy and routinization. They were simply never designed to change proactively and deeply.
• As a result, there’s a mismatch between the pace of change in the external environment and the fastest possible pace of change at most organizations. If it were otherwise, we wouldn’t see so many incumbents struggling to intercept the future.

You might even need to have both types – the efficiency driven and the innovation driven culture - in one corporation. And not surprisingly in a large banking corporation I encountered the interesting 3-letter Acronyms RTB & CTB, translating to ‘run-the-bank’ and ‘change-the-bank’ – meaning two distinct and considerably different worlds (and their resulting cultures) under one common roof.

Elliot is from the banking sector. I too had the opportunity to gain some experience in the banking sector with a considerable number of rather different institutions.

During an assessment of a banking merger (see 2010-09-16, Banking cultures – a case study) I found, that not accepting the need to maintain  two very different cultures in parallel, as they were likely to result from the merger, may cause serious difficulties and may even threaten the envisioned ‘synergies’.

Let me quickly insert a personal story here. I once was called to deliver some IT-Consulting to an old and highly regarded private bank in Cologne, Germany – which does not exist any longer. While entering through the entrance portal I was deeply impressed by the sophisticated atmosphere of the venerable grand building and the gentility of the staff at reception. This grandeur however was not meant for me, as I quickly had to learn. Although I was dressed the finest business attire that I could factor in to my consulting fees, the trained view of the receptionist instantaneously categorise me as neither ‘old money’, nor ‘new money’ but ‘working for money’ – which translates to ‘not a customer’.

With a faint look of disgust and expressing his deepest regret, he taught me that here was not the appropriate entrance for me. Servants, employees, advisers and other personnel would have to enter the building through a side entrance in a dark back street. Obviously employees did not matter here – but neither did efficiency. So what did matter? Well, it was reputation. Maybe this was not sufficient, as this company does not exist anymore - maybe it was just false pretences.

So the conclusion is: people may matter more – or may matter less for the corporate success, depending of, how it is doing business.

Of sheep and wolves

Throughout the winded course of my professional life I immersed into several distinctively different corporate ecosystems. On the surface there shouldn't have been much of a difference. Don’t we all have to go for a job after all, to earn some money, to make our living? However, when digging deeper, more arcane individual life concepts were revealed. This insight still might not appear to be very surprising but rather in line with the experience of many of us. 

At first sight many of your cohabitants in the open space offices don’t really draw much of your attention: Just uninteresting, average office people with rather mundane, earthly desires for cars, holiday trips or detached houses in some remote suburbs (and they're all made out of ticky tacky; and they all look just the same).

But I should better have been prepared for surprise. On some dull occasion, when forced into a travel companionship with one of these allegedly unremarkable colleagues, perhaps while waiting for the bus to take us both to a mandatory compliance seminar, I accepted my fate and started some small talk to maintain an easy flowing conversation, meant to wrap the day into a gentle packing. Then something unexpected happened: the ‘average colleague’ granted me some insight into his secret inner life, a rich world of personal interests, carefully cultivated passions or private studies on side topics, which could well fill the major subject.

What a contrast! During office hours they unresistingly accept their fate, ducking away, completing their assigned tasks. During their free time they switch the context completely, beaming themselves out of their current space-time continuum to their preferred parallel universe. They are studying old Egyptian hieroglyphs, are deeply involved in social care projects or combine their several years’ vacations to traverse deserts or jungles by foot or bicycle. How can they at the same time work in such a dumb job and maintain such a rich inner life? Well, it’s not is spite but because of the uninspiring day time job. Take it as compensation.

It might look like a strange passion, to dig such deeply into the individuals’ very personal matters. But I didn't do it on purpose. It just happened. When in my early years I once was on a consulting assignment for a large chartered accountant firm at a huge Insurance corporation, my team mate pointed me to an apparently strange phenomenon: “The employees here all have such a happy expression in their eyes. What is so special on this environment? What is the real reason?”

 

“Well they simply feel no pressing need. There’s nothing to complain about. Everything is organised and predetermined. It is like in Socialism: The flock of sheep is well herded.” I responded. This was a bit unfair and even not completely correct. Not everyone behaved like that: there were some wolves hidden among the sheep.

Once aware of the situation they were easy to spot. The fast dynamic body movements, the tall and slender appearance, the flickering glance, the carefully dosed aggressiveness of their approach. They were mountain climbers or marathon runners. Their career was on the fast track. Of course, they were working extra hours – when worthwhile.

Carefully they avoided the trap of becoming a domain matter expert. There were sufficient sheep around, who were – in some cases – highly knowledgeable in their small specialized niche. And those were happy to get involved and receive at least some acknowledgement for their otherwise unnoticed efforts. No, wolves see themselves as leaders. They excel in tactics although pretending to think strategically. Decisions were happily taken, but from their specific career centered opportunistic viewpoint. This approach of course did leave no room for corporate or long-term considerations.

Wolves were looking at sheep with disdain – however they needed them. Sheep lived in fear of wolves or at least viewed them with incomprehension. But sheep in turn also couldn't maintain their sheltered ecosystem without the wolves. They lived in symbiosis.

And if they did not die, they still live today - in banks, insurance companies and other lage corporations.

Banking cultures - or, why are they so weird?

I have seen several institutions in the financial sector, dwelling in different niches in the same sector, being located in as different countries as Ukraine, Germany, Switzerland, Austria, UK. Also these are not my first musings on this topic.

But they still puzzle me.


Although each has its own characteristic depending on the embedding country culture, the market forces driving a certain behavior or some more individual traits rooted somewhere deep in their history, they also do have something in common: something inanimate, inhumane, somewhere in between a machine and a pack of raiders.

Yes, and at least for a while, I am back in a typical banking culture - and I wonder why banking cultures use to be so weird. By the time three distinct suspicions came to my mind – and refuse to fade away again: reputation, money and product. Ok this needs some explanation. So let me elaborate a bit on this threefold suspicion.

I suspect it is because compared to other industry sectors the single employee's contribution is less important here. Rather the reputation or image (or you may call it false face) of trustworthiness and professional competence of the whole abstract organization drives the success. Such set-up does not require motivated employees. They just have to comply with the rules, the more machine like approach.

Also - as banks traditionally deal with money - employees are distrusted at first hand and are heavily supervised. They might get corrupted by the huge assets; they have to take care of, while themselves they may struggle to pay their rent. They in turn react in their way - just 'work' for the money, turning them to - how NNT would call them - corporate captives.

Maybe banking culture is influenced by the fact, that banks don't have real products to sell to their customers, at least no tangible ones, and most often even not a conceptually defined and implemented ones. They, more or less, go straight for the numbers. The bottom line however doesn’t stimulate the member’s imagination. Of course there are so called ‘banking products’. And if you take investment banking, they may become so complex and sophisticated, that even the more simple minded individuals among the bankers, and there are some of those around, don’t understand them – but happily sell them. But, take retail banking: a simple current account is not enough a product, which can be attributed customer value to, to safely isolate even benevolent individuals from the cruel forces of the bottom line.

After having said that, it may not surprise you, that several banks invest some serious effort to deliberately change their culture (e.g.:  here) – giving me the impression, that they consider their culture like a broken washing machine, which just needs fixing. To take an – dated – example, according to the above mentioned source: “Citi’s new CEO Michael Corbat is trying to change the culture to bring more accountability and discipline through the use of score cards for top executives based on a set of weighted goals from five categories: capital, clients, costs, culture and controls.” However, to cite the voice of a non-disclosed British regulator: “The cultural change that we hoped for never actually happened”.

Deliberate culture change is not impossible per se. But it has to be done firmly founded on truthfulness of the underlying intentions. Corporate culture cannot be cheated. It will otherwise strike back and possibly eventually honor Bertold Brecht view “What is the robbing of a bank compared to the founding of a bank?”

And - as always - comments are very welcome!

The rude manners expert – fire or keep?

Recently I received the following request for advice:

“Hi Horst, I have a colleague who is very efficient, hard working but she is very rude and insensitive. She shouted at me until now 4 times, even when all people can hear that. Besides, she has conflicts with all senior colleagues here. I think I will cancel her working contract. But I am afraid that means I cancel the working contract with the hardest working person in this office. What do you think?”

Yes, I know this problem. I was confronted with this kind of conflict before too – more than once.

During my past I mostly decided in favour of continuation of working with that person. It mostly meant the continuation of the tense situation.

Today I would most probably decide differently and terminate cooperation.

It is because - very much like a tree - success has many roots; more than just the single person's good and hard work. In the end the team has to succeed. You all have to thrive as a group, as a collective with mutually accepted positions. As more manual and routine work will be automated, companies will undergo a shift towards knowledge based and communication bound working processes. And the way we interact – if among each others or to the outside world – expresses our common corporate values, hence is at the core of our corporate culture.

Therefore, if interaction is disturbed, in the end each one better should follow his / her own way. Enforcing this process means quit the contract, fire the person in focus.

But as this implies a critical change, it needs a clear and careful communication to send the right signals to those whom you want to keep. Also you should keep in mind, that the leaving person will spread some messages about these unpleasant events in the public. So we prudently shouldn’t charge the situation with emotions beyond the damage, which is already done. But rather cool down and take a rational, professional approach by arguing from the enterprise perspective and the cultural alignment.

In any case, regardless how you may decide, it will cause some pain for all of you.

Well, this is my opinion. What is yours?

What are the main differences between Western and Chinese Business Strategic Thinking?

A question raised by Strategic Management Consultant Muhammad AbuLaban, MBA,B.Eng. in the LinkedIn group: STRATEGY PROFESSIONALS NETWORK  (http://www.linkedin.com/groups?home=&gid=134530&trk=anet_ug_hm):

“What are the main differences between Western and Chinese Business Strategic Thinking?
All MBA books that we have studied in graduate school of management in Malaysia were from Western point of view of strategy.
I wonder How Chinese business thinkers differentiate in their strategic thinking..
Do you have any idea?”

Well, good question; and we all know this attribute translates to “hard to answer” - like it seems to be always the case with simple questions. 

Of course nearly all strategy books and most popular management recipes are created with a specific western, US in particular, view in mind. Some US based practices fail already when attempts are made to apply them to “Europeans”. Surprisingly this strange human species turns out to behave different from what the US mainstream culture may predict. And – even worse – they are by no means homogeneous. 

This rift even widens at least tenfold when going further to the east: the differences become more profound as does the heterogeneity. A considerable number of attempts has been made figure out their very nature. However it turned out, that even the dimensions alongside which you could detect different values and attitudes are determined by cultural preconceptions. To put it plainly: To get the right answers we often even ask the wrong questions.

But the good news is that we are not alone. And we are not the first ones to ask these questions. A rather well-known name which is traded in the culture scene in this context is Geert Hofstede, whom I once called the grand old man of inter-cultural research (http://corporate-culture-institute2.blogspot.de/2008/03/what-silly-question.html). Geert devoted a major part of his life to find quantitative evidence that culture between nations differs. 

So there is a simple answer to your question as well - at least when you are willing to accept the underlying statistical research methodology. 

e.g here …

• USA: http://geert-hofstede.com/united-states.html
• China: http://geert-hofstede.com/china.html

Just look at the high US-value for ‘Individualism’ which is remarkable low in China.  On the other hand ‘Long-Term-Orientation’ is valued low in the US. Here china shows a totally different picture.

Remarkable differences may be found between countries, which might look so similar from some more remote viewpoint, like …

• Denmark: http://geert-hofstede.com/denmark.html
• Netherlands: http://geert-hofstede.com/netherlands.html
• Germany: http://geert-hofstede.com/germany.html

Here Denmark dominates in ‘Long-Term-Orientation’, the Netherlands in ‘Individualism’ and Germany differs in its strong focus on ‘Uncertainty avoidance’ and ‘Masculinity’.

You may go on comparing e.g Japan (high ‘Masculinity’) and India (high ‘Power distance’)

• Japan: http://geert-hofstede.com/japan.html
• India: http://geert-hofstede.com/india.html

In case of irresistible profound interest, I recommend to work yourself through the 500 pages of Geert Hofstede’s, "Cultures and Organizations".

I did it – and at least for me it was worth the effort.

Comments are welcome

Corporate culture & market

Is there a good or a bad culture? When people talk about the organisation culture of a particular company and mention that they have an excellent corporate culture they usually want to express, that this culture suits them. Most often they just concentrate of a few aspects of that culture only – their relationship to the superior and the colleagues.

Obviously this gut feeling definition is not very helpful in our context. For any organisation only a successful culture can be a ‘good culture’, a culture which drives success. Success itself depends on the interaction of the corporation with its context – market, first of all, but also society, political set-up and some more environmental factors.

Much dispute is recently going on about corporate agility or flexibility which is declared to be more important today than ever culminating in a – like the Gartner Group called it – real time enterprise (RTE). On the other hand lots of concerns have been raised on the ever growing complexity driven by governmental regulations and other compliance necessities, by some ill-designed legacy IT or simple driven by the forces of saturated markets towards specialisation. And third we share the perception that the more the complexity of an organisation grows the less flexible it can be and vice versa.

How efficient now, how flexible should a corporation be? Well, about 2 posts back I explained that the answer to this question is not so much about free choice but seems to be determined by market forces. What we perceive as our standard organisation for large corporations is based on the scientific management dating back to the early days of last century. Those people – among who was the famous Frederick Winslow Taylor – for the conditions they found themselves being in: unsaturated markets, unlimited supply by – yet unskilled – workers, and still no automation for white collar jobs defined the industrial standard organisation.

To understand that this has not been just done by accident but there were compelling reasons for that specific outcome lets try to imagine what kind of organisation responds best to four different required characteristics: low to high flexibility and low to high complexity like in the portfolio diagram “specialisation versus flexibility”.

Let’s examine the four quadrants:

1. Quadrant – Generalist in a static environment
   In an environment with low change rate (static environment) and easy conditions (e.g. unsaturated market, low competition …) actors at first don’t need to be very specialized. A relatively simple organisation (low complexity) may serve the needs. The companies may thrive and grow but need not change much beyond that.
   
   But the longer these good conditions last the more competitors are attracted. Competition increases. Finally, when there is high competition, only the strongest survives: it competes through size (economy of scale).
   
   Such universal success models are found in nature as well: sharks exist with few changes and low specialisation since 400 million years. Dinosaurs ‘ruled’ the world for more than 160 million years – until conditions changed radically.
   
   
2. Quadrant – Specialist in a static environment
   Those which were less successful in the static environment either left the game or specialized into smaller niches where the big players were not able or did not want to follow.
   
   For conquering ecological niches highly adapted efficiency specialists were required. In order to outperform the generalists they had to build a higher complexity. This excess complexity well paid off in terms of the survival of the fittest. For organisations this means, that the hierarchy needs to be overlaid by delivery relationships from special purpose groups / experts.
   
   Niches are defined by high market entry barriers. So – for a while – the new niche dwellers were equally sheltered by these barriers as they were confined to their niches.
   
   Wildlife offers many examples of such niche dwellers: the polar bear is perfectly adapted to the polar region - and highly endangered as this niche is threatened by global warming. The camel is another example of a highly specialized creature – in this case to deserts.
   
   

3. Quadrant – Generalist in a dynamic environment
   But what if environmental condition tend to change more rapidly not allowing for much specialisation and turning large and complex organisations more into a burden than into an advantage.
   
   In this cut-throat competition scenarios flexibility turns out to be of major advantage. Flexible process innovators outperform economy of scale; the fast beat the big. Often the first mover advantage counts more than the highest efficiency or the optimal product design.
   
   For corporations this means to leave well known and understood territory and to explore the unknown. As the right answer to new challenges is not always obvious parallel solution finding streams – aka redundancy – must be tolerated to gain at least one feasible solution within a given time frame. Also hierarchical communication turns out to be less effective. Increasing dynamics require a different organisation, hence a different culture.
   
   In nature the wolfe is a good example. The wolfe has proven to survive under changing conditions from the arctic to the Indian jungle (remember the ‘jungle book’), from deserts to high mountains. And another new feature helps him in this game: the social system as the wolf most often does not compete as a single individual but as a collectively organized group.
   
   
4. Quadrant – Specialist in a dynamic environment
   And what’s about the 4th quadrant? Can it be populated as well? Are there organisations possible which are at the same time specialized and agile? So can they take advantage of “windows of opportunity” which opens just for a short while?
   
   This is the least traditional scenario and it is hence still not well understood in terms of corporation organized appropriately to thrive in this environment.
   
   To my understanding the swarm is the most appropriate organisational metaphor for these agile specialists: highly collectively organized nomads.
   
   In the wild again migrating animals like migrant birds could be the solution Mother Nature has found to this challenge – after millions of trials.

Each for the four prototypic optimal organisations result in a typical organisational culture. Considering the whole chain of influences we can conclude, that the environmental conditions (market) determine the culture in the organisation.

After laying out this big picture I like to receive some comments on it. And after we have found a widely agreed model it would be the next challenge to build a metric of the corporations’ complexity and its agility. Having these metrics at hand and performing measurements of existing corporations could allow us to position them in the survival portfolio. Perhaps this would give us a diagnosis instrument for the appropriateness of a corporations organisation.