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Identity crisis? How companies transform digitally and stay true to themselves at the same time

Many leaders and employees around the world are seeking answers on how to effectively implement digital transformation in their companies. Sociologist Angela Graf and business information specialist Thomas Hess, along with their interdisciplinary project team, have discovered that an organisation's identity plays a crucial role. It sets the boundaries for what is possible and creates the environment for successful digital change.

The company: A German, medium-sized mechanical engineering company with 150 years of history. World market leader, 3,000 employees. Forty locations worldwide and a turnover of 600 million euros per year. In this setting, the management wants to drive digital change—an excellent case study for project leader Dr. Angela Graf and her team of the bidt project.

The researchers investigate what role organisational identity plays in digital transformation. “Engineering companies, such as machine builders, are particularly interesting for us,” reports Angela Graf. “Because they have always had a strong focus on technology. But just not on digital technologies.” On the contrary, you could say.

In mechanical engineering, people are proud of established competencies, technical know-how, and the art of engineering. Now, these companies are confronted with the possibilities of new digital technologies. “It’s more than streamlined processes or easier customer communication,” says Prof. Dr. Thomas Hess from the Ludwig-Maximilians University of Munich. “There are opportunities for completely new business models that can change technology-centric companies – and their identity – in particular.” Unlike software companies, for example, which work with digital technologies from day one.

So, does digital transformation particularly challenge the identity of engineering companies?

Two case studies from engineering companies with a strong tradition

As part of the bidt project, researchers from sociology and business informatics are deeply diving into two established German mechanical engineering companies. “At the first company, we conducted about 80 interviews; at the second, about 60. That means we have very extensive material,” explains Angela Graf. The team deliberately chose companies with a long tradition: “They have to reconcile visions for the future with their traditional self-image and often long-standing success.” To provide a comprehensive picture, the researchers interviewed employees at all hierarchical levels, across all areas and functions.

An example of how not to approach digital change in business was demonstrated by an initiative at the first company: “There were ideas to modernise the company, to do ‘things differently’, and the top management promoted this endeavour enormously,” Graf reports. Regardless of market pressure or return on investment, a new, separate “digital unit” was founded. With a start-up culture, intensive external communication and new employees. “Many felt stepped on; that’s what the employees told us. People couldn’t understand it; they wondered: ‘We’ve been earning money for decades, we’re doing our job, and now the Shiny Digital Guys get the attention, the budget and determine the company’s future.’ That led to massive conflict.”

While this case may not be applicable in every situation, it does bring into question a common assumption: Should a company focus on driving digital transformation separately from its core business before implementing it company-wide? The idea is appealing because not all business units are directly involved. But: “Even a separate digital unit does not operate in a vacuum. It needs acceptance, and that requires persuasion,” says project manager Angela Graf. “Employees’ concerns and fears must be taken seriously.” She says a good mix of what management offers and the possibility of participatory discourse is crucial.

This is what the researchers experienced in their second case study, an engineering company with billions in turnover, where digital transformation has focused on process digitalisation. Angela Graf explains: “In this company, we witnessed a lively debate regarding the design and implementation of digital transformation. What should be the approach? Who should be responsible? What opportunities does this bring to the product range? Are there concerns and perceived obstacles that need to be addressed?” It quickly becomes a matter of existential questions, such as: What distinguishes us as a company? What is our identity? A conscious, close interplay between corporate identity and digital transformation.

The identity question: Who are we as a company, and who do we want to be in the future?

The question of a company’s identity usually only arises in times of crisis – in much the same way that people tend to look in the mirror in hard times and ask themselves: who am I? “We wanted to know from the employees: ‘What does your company mean to you?’ For example, the company’s machines were mentioned,” says Angela Graf. “Frequently, there were answers like: ‘We are particularly good at that’ or ‘We are the world market leader’. Many also emphasised the strong sense of community.” So it is aspects such as products, skills, competencies and, not least, a sense of belonging that make up a company for employees. But how can organisational identity be scientifically defined?

“We know from organisational research that the members of an organisation – no matter whether it is a company, a party or a university – have a common self-image. Otherwise, organisational action is not possible,” Graf explains. This means members of an organisation have an orientation framework for their decisions and actions. This includes, for example, collective values, assumptions and perspectives that specifically shape this organisation. Normally, organisational members are hardly aware of the collective self-image. It becomes self-evident at some point so that it is no longer an issue. “That’s why collective self-understanding doesn’t mean: I ask a hundred people and get the same answer a hundred times.”

Organisational identity describes the collectively shared self-image of organisational members.

PD Dr. Angela Graf To the profile

Digital transformation of companies – what does that mean?

“Digital technologies have not just been around since yesterday,” says business informatics specialist Thomas Hess. “These technologies have been playing a role for companies for 40, 50 years—for example, SAP and other IT systems for the back office. Collaboration and communication tools are also normal today. They simplify processes and automate production. They support what a company does.” Newer digital technologies, such as artificial intelligence, potentially have a greater impact. They make it possible to develop additional features to existing products or entirely new business models. “It’s no longer just what a company does per se that gets better, faster, easier. The entire purpose of a company can change through new digital possibilities,” says Hess.

In mechanical engineering, for example, innovative offers are becoming established with the help of the latest technologies, such as predictive and preventive maintenance. A company not only builds and sells machines but also collects and analyses real-time data to make statements about wear and maintenance. This information is made available to customers as a service and contributes to the trouble-free operation of the machines. The mechanical engineering company thus becomes a provider of digital services. “This development goes far beyond the original offer of a company,” explains project manager Angela Graf. “It requires different internal structures, different thinking – also with regards to future customer wishes.”

This example shows that digital transformation can mean comprehensive, profound change at all company levels. “In such a situation, what is completely self-evident, unquestioned and self-explanatory is flushed to the surface. Frequently associated with massive uncertainties and ambiguities among the people involved,” says Graf.

But does digital transformation always go hand in hand with a fundamental realignment of the company, with a change of identity? “This idea is what can trigger fears among employees. They ask themselves: Will I still fit in with my skills and ideas after all these changes?” Digital transformation does not necessarily mean that a company builds machines today and is a software company tomorrow. “You have a discourse that can also have the result: We remain essentially what we are and do some things differently here and there.”

Our studies show that companies are renegotiating their identity, but not necessarily completely realigning it.

Prof. Dr. Thomas Hess To the profile

Digital transformation in companies? Only if people go along with it

“We have seen in our case studies that if the management has a very top-down approach to digital transformation activities, it leads to resistance. If they are disconnected from the discourse in the company at different levels,” Angela Graf summarises. In the worst case, this endangers the success of digital transformation. Because digital transformation depends on the people in the company implementing important changes. It shakes up organisational identity and triggers a new discourse. At the same time, it is the foundation upon which digital transformation is possible in the first place. It opens the space for possibilities of what is perceived as conceivable.

A critical mass in the organisation must support the change. Otherwise it will be very difficult.

PD Dr. Angela Graf To the profile

“There is another important point,” adds the sociologist. “In the best case, digital transformation does not take place when it is already too late – i.e. not in a crisis where a company is compelled to change in order to remain viable or competitive, but in a certain comfort situation.” On the other hand, who is eager for change when everything is fine and comfortable? Especially then, the discourse on corporate identity is crucial, says Graf. “You need a collective self-understanding in the company of what should change and what should be worked on together.”