The Four Pathways to Cultural Change and Business Transformation in China
Our research illuminates the change mechanisms with the most impact, both within China and beyond.
As organizations build resilience amid world-altering shifts, transformation is increasingly relevant. Yet change is challenging, and leaders are often unsure where to start–or where to go next.
For transformations to succeed, the importance of an organization’s culture is beyond question. That said, cultural transformation is often the most significant challenge to take on. Prophet’s 2020 global research based on nearly 500 global transformation leaders, “Catalysts in Action: Applying the Cultural Levers of Transformation,” identifies four pathways of cultural change intended to help companies focus.
“For transformations to succeed, the importance of an organization’s culture is beyond question.”
In this article, we discuss some of the main differences we see between companies in China and the rest of the world, with observations that can help spark uncommon growth.
In many ways, businesses in China approach transformation differently. Compared to other regions, they are more willing to embrace change, and this by a high margin. The Alibaba Group epitomizes this attitude, making “Change is the only constant” one of its core values.
Q: Which of the following best characterize the most recent significant transformation project that you have been involved with in the last two years?
More companies in China are embarking on cultural transformation to keep up with changes internally and to maintain a competitive edge externally. Ping An has started an enterprise-wide digital transformation over the last few years by embracing a culture of innovation and by encouraging to fail often and fast. ByteDance has implemented a bottom-up approach to objectives and results that encourages more transparency and an entrepreneurial spirit. Haier has made employee management and culture central to Haier’s strategy, with hundreds of internal micro companies yielding far better and faster innovations and deeper understanding of local consumers needs around the world. So, we want to understand how business leaders can accelerate growth through cultural transformation.
Proven pathways of change indicate where to start–or where to go next–in transformation. Prophet’s research identifies four pathways of cultural change: Defining, Directing, Enabling and Motivating. All paths are relevant at varying points in time. But it is important to determine which is most relevant to your company right now.
1. Defining the transformation: Don’t overlook middle management.
Consider this the “control tower” for all other pathways. It is where the company solidifies its business and brand strategy, purpose and values. The C-suite is seen as most critical to–and most responsible for–driving the transformation. But this cannot be at the expense of empowering managers, who must serve as key change agents.
This is a regional weakness in China, with only 17 percent of business-unit leaders and middle management given adequate responsibility. While companies in China are more willing to communicate the change widely across the entire organization (46 percent of Chinese companies actively engage most employees, versus 19 percent in rest of the world), decision-making is still led by C-level leaders. And managers are less empowered to drive change.
Q: What level of leadership is most responsible for driving transformation in your organization?
One of the few companies in China that realizes the importance of driving transformation from the bottom up is footwear manufacturer Belle International. A key component of its success has been decentralizing data and using digital as a tool to empower retail managers, giving them more freedom to lead their teams. “I’ve always believed that the vitality of the end market comes from the energy of each store manager and staff,” says Liang Li, executive director, in an interview with Harvard Business Review.
How to accelerate transformation: Find ways to involve BU leaders and middle managers more, creating meaningful roles. They are the connective tissue between the overarching transformation objectives, the marketplace and the day-to-day work of employees.
2. Directing the Transformation: Empowered TMOs yield impact.
This pathway requires taking a holistic view of all the governance, processes, roles, systems and tools needed to enable an operating model that makes transformation real. One way companies do this is by creating transformation management offices (TMOs). Those that have done this have a clear advantage. And those that have given these TMOs the most oversight and influence over decisions are the most successful.
This is an area where companies in China are leading in the way, both in setting up these TMOs and in giving them more oversight. With clear results: 76 percent of companies in China that have established empowered TMOs, are reporting very positive impact.
Q: Which of these best describe the impact that your organization’s transformation management office (TMO) has had?
How to accelerate transformation: A first step toward changing this is establishing a TMO. And if one already exists, make sure its scope is more than just project management. TMOs should be allowed to shape strategy, break down functional silos and coordinate vital initiatives on the transformation roadmap.
3. Enabling the Transformation: Build the capabilities and leadership needed.
This pathway is where organizations identify, source and build capabilities required for employees to thrive. And it is essential if organizations want to succeed in the Digital Age. The current talent landscape demands a compelling employee value proposition (EVP), but this is no longer enough. Companies must take a strategic approach, reimagining where and how they will find the talent needed to power their ambitions.
Although 90 percent of companies in China say that they have aligned talent systems in service of the transformation, there are still some gaps. While China does well-developing employees’ technical skills, it lags when it comes to nurturing the leadership expertise required for transformation. Globally, this leadership upskilling is prioritized by 48 percent of companies and just 35 percent of those in China.
Q: What training topics have been of the greatest need to enable your organization’s transformation?
How to accelerate transformation: Continually assess enhanced capabilities and develop ways to both re-skill existing talent across seniority levels, as well as source new hires through a more strategic approach to workforce planning.
4. Motivating the Transformation: The only failure is failure to learn.
To bring organizational change to life, leaders must behave differently. They must embody the transformation, creating trust among employees as they adopt new ways of working. Stories, rituals and symbols help build belief among employees and connect their day-to-day work to the organization’s new direction. Most organizations rightly celebrate success stories, while failures are less likely to be shared and understood. Focus on levers that create safe spaces and mechanisms for employees to talk about what is working and what isn’t.
This is yet another area where companies in China excel. Despite a directive leadership style, China has embraced a “fail fast and learn” approach that promotes experimentation, with 58 percent of Chinese leaders saying their corporate culture tolerates failure, compared to just 32 percent in the rest of the world.
Q: Which of the following best characterizes the way your organization responds to failure during your recent transformation?
And leaders in China are far more likely, at 79 percent, to encourage experimentation in executing alternative initiatives relative to plan compared to the rest of the world, at 44 percent.
“Risk-taking is strongly encouraged, and failure isn’t stigmatized,” says Jessica Tan, deputy CEO of Ping An in an interview with McKinsey. “What I’ve found is that with each new success, you become more confident in your abilities and your instincts to try the next big thing.”
How to accelerate transformation: Bring teams and divisions together by encouraging the “fail fast and learn” mindset to develop a systematic approach to test-and-learn thinking. The more employees can see these efforts, the better they will understand the transformation process.
Many businesses in China have already made a good start on cultural transformation and recognize its importance in driving growth. Companies in China should continue to pursue those initiatives while shoring up their efforts to teach invaluable leadership skills. But they can’t neglect to take a holistic view to make sure they are setting all aspects of the enterprise up for future success. That means making sure they know how to….
- Define transformation: Set a powerful ambition and align with leadership, at all levels, on their role in achieving it
- Direct transformation: Establish and empower transformation management offices to optimize operating models
- Enable transformation: Match talent strategy to transformation goals, and elevate employees through future-state capability planning
- Motivate transformation: Develop culture programs and training to reinforce employee behaviors
- Ngai, Joe. Building a tech-enabled ecosystem: An interview with Ping An’s Jessica Tan. McKinsey Quarterly, December 2018
- Yuhao, Liu. 别跟字节跳动讲管理 [Don’t Talk Management with ByteDance]. https://www.huxiu.com/article/344321.html. March 13, 2020
- Zhen, Wang. 海尔裂变：2000亿公司创业的样本 [Haier’s Fission: A Case Study of How a 200 Billion Company Creates Startups]. https://www.yicai.com/news/5284427.html. May 14, 2017
- 百丽国际：让数字化赋能离客户最近的人 [Belle International: Let Digital Empower Those Who Are Closest to the Customers]. Harvard Business Review, January 25, 2019