Many companies are currently facing the task of becoming more digital, more sustainable and more resilient. The automotive industry provides an example of this triple strategic realignment. The necessary complex process requires the change of a system of interconnected fields of action. The question arises as to how companies can succeed in mastering such a process together with politics, science and society.
In this blog post, I explain the difference between the terms transformation and realignment and explain why the concept of transformation is based on an outdated understanding of management that is unfortunately still widespread.
Automotive companies that need to become more digital, sustainable and resilient
Established automotive companies are in the fifth development stage of a connective strategic management,1 in which they must become more digital, more sustainable and more resilient. So far, management theory and practice have provided little guidance for such a triple realignment. However, it is becoming increasingly clear that the idea of a comprehensive, temporary transformation is illusory and will not lead to the desired results.
When we published our book on the ecological reorientation of automotive companies in 1994, we never thought that the mobility turnaround in Germany would take so long.2 Ultimately, a strategic reorientation towards sustainable forms of propulsion only came about in response to political and competitive pressure. Traditional companies in the industry are now facing a threat from disruptive stakeholder ecosystems.3 They are looking for suitable answers and are preparing for a complex change with various options.
Digitalization is the second important area of realignment and is being driven primarily by large tech companies and start-ups. It has taken place in various waves and affects both the automotive product and key business processes. Digital technologies have the character of game changers, which the general public has become aware of at the latest since the hype surrounding generative artificial intelligence (AI).4 The design of innovative stakeholder ecosystems is also crucial in this field. Trustworthy AI certainly opens up opportunities for Europe.
Parallel to these developments, the geopolitical crises have increased the importance of a resilience-oriented realignment.5 The focus here is on improving the resilience of Western companies in the various stages of value creation. Relevant fields include raw materials, batteries, semiconductors and AI applications. For example, the leading US chip manufacturer Nvidia is heavily dependent on the Taiwanese contract manufacturer TSMC.6 This example shows that although this third dimension of realignment is linked to the other dimensions, it requires specific approaches.
The following diagram illustrates the three dimensions of realignment. The specific approaches relate to the transitions
– from analog to digital, but also trustworthy
– from primarily financially oriented to sustainable, but also realistic and
– from dependent to resilient but also strategic.
This is a key challenge for the European economy and politics in the coming years.
To this end, it is important to understand the difference between the widely used term transformation and the term realignment.
Difference between transformation and realignment
The term transformation has a long history of development. As early as 1944, Karl Polanyi used it as a political term of struggle to express his demand for a change in the capitalist system.7 In the 1990s, consultants understood the term transformation of organizations to mean comprehensive change.8 In doing so, they sought to differentiate themselves from the reengineering concept, which was perceived as too mechanistic. Today, transformation has become a buzzword with unclear content. This is clearly illustrated by the current term twin transformation, which suggests that digital and green change have a twin character. 9
In order to bring clarity to this confusion of terms, we differentiate between a temporal and a content dimension in organizational change. We define transformation as a temporary, comprehensive change. This brings a transformation task close to restructuring and is now also interpreted in this sense by many management consultants. In contrast, we understand realignment as a longer-term, specific change, e.g. with a focus on digitalization, sustainability or resilience.
The idea that a digital transformation is possible in the short term and comprehensively underestimates the complexity of the task. We believe this idea is illusory. Such a transformation illusion is the cause of many failures.
The term alignment of a company describes a well-coordinated connection of important system elements (e.g. business model, strategy, innovation, core competencies, organization, IT systems, culture and stakeholders) with regard to a common vision and purpose. In the course of their development, such alignment has been lost in many companies and at the same time the task of realignment in the sense of a realization arises.10
Based on these definitions, I would like to explore the question of what the complexity of a triple realignment consists of and what approach companies can use to overcome this complexity.
Complexity of a triple realignment
A key finding is that the complexity of a triple realignment lies in the connection of different fields of action. This triple realignment requires the change of a complex system. The transformation illusion consists of the assumption that such a change is possible with the help of one-off top-down planning. This mechanistic strategy paradigm is outdated and has now been superseded by a new paradigm that focuses on managing complexity.11 The diagram shows important fields of action for such a
Over the past sixty years, strategic management has developed in five stages. Strategy 5.0 connects the development stages. Companies manage this connectivity in various fields of action. A common vision plays an important role here as a bracket for an innovation, sustainability and resilience strategy. The focal points of a realignment of business models result from these strategies.
A second field of action is responding to or shaping disruptive stakeholder ecosystems. The research and development (R&D) management of companies, together with stakeholders from politics, science and society, is aimed at achieving competitive advantages in innovative technologies.
Field of action number three is digital, sustainable and resilient value creation. A current topic here is increasing productivity with AI-based business processes and knowledge-intensive applications. This topic affects almost all sectors and company sizes.
Mastering these fields of action requires a change in human resource management and culture as well as the development of new skills. Important impetus for overcoming complexity comes from connective leadership with agile methods, which start-ups and digital champions have implemented more consistently than established companies.
There is a close connection between this and changes in the organization, IT architecture and project management. Established companies find it difficult to transfer the concept of a platform organization with agile teams developed by digital champions to their own situation.
Action area number six is value enhancement with financial and non-financial reporting. Many companies limit themselves to a reactive approach in order to comply with new sustainability guidelines. It makes more sense to see sustainability as an opportunity for innovation.
A promising approach to this triple realignment, which connects various fields of action, is based on a breakdown into phases and learning loops. This approach differs fundamentally from rigid roadmap concepts,12 which are widely used in the literature but have often failed in practice.
Procedure for a triple realignment
Structuring the approach of complex tasks into phases and learning loops is based on the action learning model, which also forms the basis for agile methods. Similar to the scaling of agile teams, the challenge here is to bring the entire organization together in an iterative process. In practice, it has proven useful to divide each of the learning loops into the six phases shown in the diagram.
A realignment begins with an analysis of the company’s specific initial situation combined with a look into the future (foresight). Particular attention should be paid to the early recognition of possible radical changes. This requires a high level of contextual intelligence in order to correctly assess the complexity of external developments.
In the next phase, the task is to develop a vision for a triple realignment. One trigger may be the need to overcome crises and regain resilience. For many companies, the topic of sustainability has a meaningful effect. Digital technologies provide the potential for renewal. It is crucial to involve employees in this process and to credibly convey a spirit of optimism that provides the positive energy for the subsequent phases.
The vision forms the framework for prioritizing the dimensions of digital, sustainable and resilient as well as the fields of action for a realignment. In an initial learning loop, the company works on the challenges with the highest priority. Lower-priority tasks are completed according to the same pattern in later learning loops. This iterative approach makes an important contribution to overcoming complexity. Management often reassesses the current situation of the company and its environment after each learning loop.
In many companies, a triple realignment fails due to the existing governance model. By governance, we mean the interplay between human resource management, culture, organization and control. The supervisory board must ensure that the governance is suitable for changing this complex system and take appropriate measures if this is not the case. This fourth phase is therefore crucial to overall success. A misconceived approach to transformation contributes to an increased likelihood of joint failure between the board, management, employees and external advisors. It is possible that a restructuring may be necessary before the realignment. However, it is important to communicate this clearly and not hide behind a vaguely formulated transformation concept.
Another important hurdle is implementation in the form of programs and projects, which takes place in phase five. Coordinating the fields of action with the help of agile and transparent performance management has proven its worth here. A suitable approach is the Objectives and Key Results (OKR) method. This is used successfully by start-ups and successful digital giants, but still frequently encounters the barriers of a silo culture in established companies. In this respect, the success of the individual phases builds on each other. Without suitable governance in phase four, the coordination of the fields of action will not succeed. Feedback is therefore of great importance in this process.
The sixth and final phase is human resource development in the form of specific action learning by many. In view of the growing importance of generative AI, companies are increasingly faced with the question of how they should organize the further training of many employees during an ongoing digital realignment. As there has been nothing comparable in recent economic history, new approaches are needed here. These should start with school education. Unfortunately, Germany has largely missed out on this and is now facing the need to further develop its education system. However, the economy cannot wait for this and must take the initiative itself when it comes to human resource development.
Our practical experience shows that this approach has the character of a framework concept that each company must adapt to its specific situation. We support managers in this adaptation by combining consulting with personnel development. In this way, we achieve a better price-performance ratio for our clients than with traditional management consulting.
Conclusion
– Companies must currently master a triple strategic realignment and become more digital as well as more sustainable and resilient
– We understand the term realignment to mean a long-term, specific change
– The complexity of a triple realignment lies in the processing of different fields of action that are linked to each other
– In this form of change, an iterative process structured in phases and learning loops has proven its worth
Literature
[1] Servatius, H.G., Strategy 5.0 for mastering the new challenges. In: Competivation Blog, 28.06.2022
[2] Berger, R., Servatius, H.G., Krätzer, A., Die Zukunft des Autos hat erst begonnen – Ökologisches Umsteuern als Chance, Pieper 1994
[3] Servatius, H.G., Designing innovative stakeholder ecosystems. In: Competivation Blog, 10.01.2023
[4] Kaufmann, T., Servatius, H.G., Das Internet der Dinge und Künstliche Intelligenz als Game Changer – Wege zu einem Management 4.0 und einer digitalen Architektur, SpringerVieweg 2020
[5] Servatius, H.G., Resilience-oriented strategic management. In: Competivation Blog, 15.03.2023
[6] Hofer, J. et al, Nvidia’s Taiwan risk. In: Handelsblatt, May 28, 2024, p.1, 4-5
[7] Polanyi, K., The Great Transformation – Political and Economic Origins of Societies and Economic Systems, Suhrkamp 1973
[8] Goullart, F.J., Kelly, J.N., Transforming the Organization, Mc Graw Hill 1995
[9] Christmann, A.S., et al, The Twin Transformation Butterfly. In: Business Information Systems Engineering, January 23, 2024
[10] Trevor, J., Re:Align – A Leadership Blueprint for Overcoming Disruption and Improving Performance, Bloomsbury 2022
[11] Servatius, H.G., With a strategy 5.0 to success with Digital GreenTech. In: Fesidis, B., Röß, S.A., Rummel, S.(Eds.), With digitalization and sustainability to a climate-neutral company, SpringerGabler 2023, pp.71-94
[12] Rogers, D.L., The Digital Transformation Roadmap – Rebuild Your Organization for Continuous Change, Columbia Business School Publishing 2023