Unconscious Bias and Digital Transformation

In a world characterized by rapid change, globalization, instant communications, and shared virtual experiences, companies find themselves unable to cope effectively with the attendant rapid business changes. This immediate challenge makes leading and managing digital transformation initiatives a sort of litmus test for many in their careers. Since the pandemic dramatically accelerated the adoption of collaboration technologies, digital customer support, and service channels, remote and hybrid employee work models, the adoption and proliferation of these and many other innovative business imperatives have become crucial career progression. Success with innovation initiatives also requires acknowledging that digital transformation is a fundamental, strategic paradigm shift requiring a diverse, equitable, and inclusive culture supportive of change.

A defining characteristic of digital transformation success is a diverse digital culture. This cultural approach maximizes human capital. It also leverages that strength to maintain current customers through the change while simultaneously discovering ways to gain more customers. Tightly coupling the adoption of digital transformation with the elimination of cultural bias across the organization increases the odds for the success of any business strategy aimed at increasing revenue and margin.

The value of a diverse organizational environment, especially when it comes to driving innovations like digital transformation, has been verified in multiple studies. A broadly respected one published by McKinsey & Company, titled “Delivering through Diversity,” presented the business case for the impact of diversity and inclusion on business growth and performance. This research defined diversity as a significant proportion of women and ethnically/culturally diverse individuals in corporate leadership. The results used a data set of over 1,000 companies across 12 countries. Financial performance was measured using:

• profitability as average EBIT margin; and
• value creation as economic profit margin.

The relationship between diversity and business performance was prominent, showing that:

• A statistically significant correlation between a more diverse leadership team and financial outperformance persisted over the three years since an earlier D&I study.
• Companies in the top-quartile for gender diversity on executive teams were 21% more likely to have higher profits and 27% more likely to create superior value.
• Companies in the top-quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability.
• The penalty for bottom-quartile performance on diversity persists. Overall, companies in the bottom quartile for gender and ethnic/cultural diversity were 29% less likely to achieve above-average profitability than all other companies in their data set. 

A diverse culture not only delivers value to the bottom line, but it provides the guidelines—the tacit code of conduct —that steer individuals to act appropriately and make choices that advance the organization’s overall business goals and strategy. A digital culture delivers synergy by empowering people to deliver results faster due to flattened hierarchies that accelerate decisions. It also draws professional talent because leading performers, especially Millennials, are attracted to collaborative and creative environments that provide greater autonomy.

One key obstacle that companies often encounter as they pursue digital transformation is an unexpected culture clash revealed by the rapid working environment changes, which include:

• Changes in the activities employees perform caused by evolving business models, methodologies, and goals;
• Directed and required changes in employee individual behaviors; and
• Unavoidable changes in the ways employees interact with others inside and outside the organization

The existence of embedded unconscious bias within the organization spurs friction and confrontation. A lack of Diversity, Equity, and Inclusion (DEI) in the work environment often is the root cause of this bias.

A 2019 global study commissioned by Innovate UK and conducted by LSE Consulting reviewed policy initiatives to drive DEI in business innovation. The review looked at national case studies in Finland, France, the Netherlands, Norway, Poland, Sweden, the UK, the USA, Israel, and Estonia. The effort also highlighted what inclusive innovation meant across these countries by identifying flagship programs, analyzing DEI evidence, mapping synergies, differences, and gaps in inclusive innovation policy, and distilling best practices in policy design, implementation, and evaluation. In summarizing the critical best practices:

• Successful companies address diversity and inclusion together, not separately. This approach means designing initiatives that both increase the number of diverse sets of participants and promote feelings of inclusivity;
• Designing organizational policies that confront the unique challenges and restrictions faced by target communities. Simply adapting employee hiring criteria to target underrepresented groups merely is not enough; and
• Leading private sector organizations collaborate and coordinate with relevant government organizations to encourage creativity, initiative, and entrepreneurial approach to DE&I initiatives. 

Senior leaders must articulate the required changes using unambiguous language. This clarity is critical in today’s environment characterized by a scarcity of face-to-face interactions and expanding remote employee options. Leadership must also exemplify the five defining elements of digital cultures:

• Promote an external, rather than an internal, orientation.
• Values delegation over control.
• Encourages boldness over caution.
• Emphasizes more action and less planning.
• Values collaboration more than individual effort.

Companies must also visibly incentivize appropriate behavior. Incentivizing includes upending the hierarchical operating model in favor of distributed and interlocking networks consisting of digital experts, mentoring resources, organizational goal focus teams, and promoting informal interaction between employees and across every managerial level.