Digital Mindset – 4 Steps How to Solve the Transformation Investment Paradox

Digital mindset in the focus of digital transformation and the possibilities to solve the investment paradox

Digital transformation consists of more than just technology, processes and business models. Above all, transformation initiatives must focus on employees and their digital mindset. But until now, companies have invested primarily in technology and processes. This article looks at why this is not the successful path in the long term and how this problem can be solved.

“Digital mindset is THE key success factor of the future. Those who know how to deal with risk and uncertainty with courage and are committed to the challenge of continuous change lay the foundation for long-term success.” – With this quote, Dr. André Größer – Capital Top 40 under 40 – succinctly outlines the focus of digital transformation. But what does this mean exactly?

The iceberg model originally made famous by Sigmund Freud (then with a communication model) could not better describe the digital transformation and the focus of companies in the current era. The entire iceberg represents the digital transformation that almost every company, without exception, is going through right now.

Iceberg model with Pareto principle - according to Freud, von Ruch and Zimbardo
Iceberg Model with Pareto Principle – Freely adapted from Freud, von Ruch and Zimbardo – Source: MoreThanDigital, Benjamin Talin

The visible part of the iceberg

The visible part of the iceberg, i.e., the part above the surface of the water, includes the much discussed (internally and publicly) areas of technology, processes, and business models. After all, it is usually the technology of companies that first receives the most attention in the discussion surrounding digital transformation. This is absolutely understandable, as the following impulse is obvious: Digitalization = Technology.

Here, there is a lot of talk about the current state of technology in companies and how general technology trends will impact the future business landscape. Driven by buzzwords like cloud or IoT, the attention of the discussion about digital transformation and next steps is reduced to a technology discussion.

Derived from this, discussions about the current and future processes in companies start. This is because new technologies lead to new process possibilities and opportunities: For example, new digital collaboration options can be used to work together virtually, so that coordination on a new product can take place regardless of location.

In addition, new technologies also lead to mandatory process adjustments: For example, a product that is delivered to customers via the cloud can be more easily continuously improved and redelivered (keyword: update over the air). However, in order for these continuous adjustments to be made internally and for customer feedback to be incorporated into development, an agile way of working with iteration loops is required. This means a change from the previous classic (waterfall) project management.

If, in addition to the introduction of new technologies and processes in companies, digital transformation is consistently thought through further, the business model moves into focus. Here, revenue streams and sales models are revised with the help of the new technological possibilities and redesigned processes. For example, the business model could change from a license-purchase model to a subscription model through the possibilities of the cloud and provide for more continuous revenues.

The visible part of the digital transformation iceberg is rightfully receiving a lot of attention from companies and the public. But what lies beneath the surface of the water, and is there enough attention being paid to it?

The invisible part of the iceberg

Below the surface of the water lies the largest part of the iceberg and thus the foundation of digital transformation: people and the digital mindset.

However, this foundation – because it lies beneath the surface of the water – is usually not the focus of companies and not a prominent part of the much-discussed digital transformation. However, the best technology, the best process, and the best business model are of little use if companies do not have the people who will go along with the changes and actively drive them forward. It is not a question of the specific hard skills of the employees (e.g., how well they can operate software or which programming languages they have mastered), but above all of their behavior and personality with regard to change and transformation. It is therefore about a digital mentality – the digital mindset. The digital mindset lays the foundation for employees to continuously develop their hard skills (e.g., technology or process knowledge).

The investment paradox of digital transformation

Not only in the public discussion, but also in internal company discussions, the focus is on the visible part of the iceberg (technology, process, business model). Although this makes up the significantly smaller part when the entire iceberg is considered. The level of attention also transfers to the investments companies make in digital transformation. For the small visible part of the iceberg, which is about 20%, the majority of investments are made in the companies (up to 80%). In contrast, for the large part of the iceberg (digital mindset of the employees), which accounts for around 80%, proportionately much smaller investments are made.

Thus, the 80/20 principle can be applied here in the same way as for the Freudian iceberg, but in reverse order.

4 reasons why the investment paradox exists

The question now arises as to why companies have so far focused their investments in digital transformation on technology, processes and business models. The answer to this is multi-layered, complex and cannot be described in all-encompassing terms. However, here are a few approaches to the investment logic:

1. Short-term successes with shorter terms of office

Focusing investments on the visible elements of the iceberg promises greater success in the short term. This is because the introduction of a new technology can lead to rapid process improvements that directly result in measurable higher output or lower costs. In addition, short-term successes are relevant in the case of shorter tenures of certain positions.

2. Easily calculable

Following on from the first point, there is greater calculability of investments in the visible part. Because the success of the introduction of a technology, combined with a process improvement, can be calculated clearly and directly in a break-even point.

3. Tangible and visible

The introduction of a new technology is visible to many people in the organization and can be touched, at least digitally. This makes this investment much more visible

4. Comfortable

Investments in the upper part of the iceberg are much more convenient for an organization than in the lower part. This is because the introduction of a new technology and the change of processes is nothing new per se, but a mechanism that companies have known for a long time. As a result, the rate of acceptance is at a higher level right from the start and resistance from employees is lower.

4 Solutions to the investment paradox

The four points mentioned above, which approach an explanation of the investment paradox, show how strongly organizations are tempted to invest in the upper part of the iceberg (technology, process, business model).

But how can organizations manage to dissolve the investment paradox and put the employees and the mindset more in the center of their investments?

The following four points are elementary to ensure more investments at the bottom of the iceberg.

1. Make mindset clearly measurable

In order for mindset development to be targeted and help the overall transformation, learning opportunities need to be tailored to employees. To do this, each employee must first understand how his or her own mindset is currently characterized and what the goal of mindset development is. For this, valid diagnostics to measure the mindset are indispensable.

2. Making value creation potential measurable and demonstrating it

In order to achieve a high level of acceptance for investments in the Mindset, value creation potentials that result from the development of the Mindset must be made measurable and presented in a way that makes them easy to understand. After all, only by understanding how these investments pay into value creation (even if it is long term) will management buy-in increase.

3. Develop new KPIs for learning: Measure learning progress over the long term.

Mindset development is not a sprint, but a marathon. It takes about 9 months to develop Mindset in a measurable way. This is a relatively long time to see first results. Thus, the KPIs used to measure learning success and mindset development should also adapt accordingly. Pure tracking of attendance at workshops is definitely no longer the right KPI to measure learning. E.g. a re-run of the Mindset Diagnostics could make development visible or the change in the number of started innovations.

4. Moving away from ad hoc learning to continuous learning.

In order to ensure that the investments in employees and the mindset are actually used and can have their effect, it is important to change the learning concept from punctual workshops to continuous learning. This is the only way to achieve long-term mindset development. This means that location- and time-independent learning should be skillfully linked with peer group learning via a learning experience platform. This creates a learning architecture in which learning takes place alone, but also together, and knowledge is applied.

According to the World Economic Forum, by 2025 about 50% of employees will need to re-skill and upskill in the core competencies of their current jobs (skills of the future). This can only succeed if the focus of learning initiatives is not only on hard skills, but above all on soft skills – the mindset. In addition, companies must create the right offerings for this by resolving the investment paradox and increasing investment at the bottom of the iceberg.

Or, to paraphrase Sigmund Freud and his iceberg model, the relationship level must be strengthened.

Mit dem Fokus auf dem digitalen Mindset begleitet Julian Knorr Unternehmen im Rahmen zukunftsgerichteter Organisations- und Personalentwicklung und innovativer Recruiting Lösungen. Mit dem Digital Competence Indicator (DCI) entwickelte er mit seinem Unternehmen hierfür ein wichtiges Tool, um das digitale Mindset der Mitarbeiter messbar zu machen. Er ist Gründer & Vorstand der ONESTOPTRANSFORMATION AG und Gründer & Geschäftsführer der Agile Kitchen GmbH. Zudem ist er Keynote Speaker und Business School Dozent.

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