Digital Transformation, Organisational Dysfunctions and Psychological Safety

Digital Transformation originally referred to the transition of an organisation towards delivering its products and services via digital or technological means, from a traditional physical or analogue delivery system. For example, Netflix transitioning from posting DVDs to your house, to providing a streaming service. This article will show how digital transformation addresses typical organisational dysfunctions, and why building psychological safety is key to a successful transformation.

Now Digital Transformation, because digital delivery is now largely the norm, refers to the organisational transformation from traditional approaches to work, such as Waterfall project management, top-down hierarchies, command and control management and functional silos, towards more lightweight, value-stream-aligned, long term approaches to delivery and organisational dynamics.

Organisational Dysfunctions

Digital transformation therefore attempts to resolve some of the many typical dysfunctions that we see in organisations, which include the below. This is a non-exhaustive list, and it’s worth noting that these dysfunctions are not discrete; they overlap and interact with each other, and one dysfunction may lead to, or mitigate another. These are simplified examples of frequently observed classifications of dysfunctions that digital transformation intends to resolve.

• Organised into functional silos – handoffs, knowledge hoarding, work and value has to pass through multiple teams before being realised (i.e. in the hands of customers / end users)

• A gap between strategy and delivery – we know what we want to do, and we have the people and tools to do it, but we can’t seem to do it.

• A gap between desire for pace of delivery and ability to deliver. We want to go at 100mph, but we can only go at 30mph.

• A lack of organisational observability that results in poor understanding of value flows across the organisation, poor awareness of sociotechnical aspects of the system as a whole, resulting in problems that are known by teams taking leadership by surprise, if they ever become aware of them.

• Short termism – incentives or cultures mean that people are focused on immediate short term wins rather than long term value and outcomes. This is also manifested by an adherence to project methodologies where the delivery of value has a start and, specifically, an end date, instead of a long-lived product approach that provides people with greater ownership of outcomes, longer lived teams, lower technical and operational debt, and higher quality products and services.

• Quality problems. We can build the right things, but we can’t do it well. Conflicts of interest or capability issues mean that products and services are delivered, but they suffer from reliability, consistency or architectural problems. Technical and operational debt is high, and teams feel like they are always firefighting and dealing with unplanned work.

• Poor learning ability. Systems, cultures and processes hinder people’s (and groups of people, such as teams or business units) ability to learn from failures and successes. The same mistakes are made repeatedly, and when successes do get made, the valuable learning from them is not institutionalised. 

• An excessive inward focus. Focussing too much on “what we do” rather than looking out at the world for challenges, opportunities, and a changing landscape means that opportunities are wasted and challenges can present existential threats to the organisation through a lack of capability to become aware of them, let alone adapt to them.

• An excessive outward focus. A focus only on the external means that opportunities and threats are detected, but the organisation itself is not capable of exploiting them. Additionally, threats to performance or opportunities for improvement arising from inside the organisation are not realised.

• A bimodal approach to value where the products and services delivered to customers far exceed the quality and features of those delivered to people within the organisation. 

• A culture of fear over a culture of experimentation. An organisation that enforces behaviour or strives towards goals based on the consequences of failure or divergence from the norms, will move much slower and gradually grind to a halt. In these organisations, the safest thing to do is to comply with rules and take as few risks as possible, rather than suggest ideas, try (and risk failure), or admit mistakes.

Digital transformation may address all these dysfunctions, and more still. 

Psychological Safety

Amy Edmondson has defined psychological safety as “The belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes”, and evidence including many research papers on the subject, Google’s Project Aristotle, and numerous State of DevOps Reports have shown that psychological safety is the primary foundation for high performing teams. High performance in a team is simply not possible without psychological safety, and a team without psychological safety will never reach their full potential.

Psychological safety is the outcome of practices, behaviours, interactions, and consistency over time. Long-lived teams possess more psychological safety than short lived teams, and it is highly context dependent. Different teams, business units, hierarchies, locations and more all have an effect on psychological safety. Building psychological safety requires highly capable leadership and management skills and effective management and clarity of organisational priorities and strategy. People need the right processes to be in place, effective tools and equipment, low cognitive load, an ability to see and think long term rather than short term, and speak up when they become aware of opportunities and threats whether they come from inside or outside the organisation.

Learning Organisations

Processes and cultures that facilitate learning from success and failure are core to building psychological safety, and the explicit permission to make (and admit) mistakes is fundamental, as is the framing of work not as a productivity measure, but as a mechanism for learning how to improve and do it better each time. An experimental mindset, at all levels of the organisation, bestows the ability to deliver incremental value quickly, and use the learning outcomes to build continuously better products and services. This is described in Dr Edmondson’s work “Is Yours a Learning Organisation?”

Further research by Cataldo et al in 2009 showed that “autonomy and structure must be balanced during a change process to enable flexibility whilst maintaining employee cohesion” (and maintain psychological safety). Bresman and Zelmer-Bruhn also showed in 2021 that team structure, autonomy and dynamics encouraged internal and external learning by promoting psychological safety.

Psychological safety therefore fundamentally improves, and indeed is required, in order to mitigate the above dysfunctions and transform away from them. Teams will only deliver high quality products and services consistently if they feel psychologically safe to think further ahead (and avoid technical or operational debt), learn from mistakes and experiments, ask for help when required and highlight opportunities and concerns.

Digital Transformations rely on Psychological Safety

70% of transformation efforts fail. The single most important aspect to focus on in your digital transformation is not detailed planning, financing, or strategy, it is to begin creating and modelling the practices and behaviours throughout the organisation that build and maintain psychological safety for everyone, so that everyone becomes part of the transformation. Deming showed us that Transformation is Everybody’s Job, and it’s about time we learned it.

Organisations are the interrelations of people. Psychological safety is created via the interrelation of people, and digital transformation absolutely depends on a foundation of psychological safety across the organisation.