Summary: As more and more companies try to climb on the digital bandwagon to secure their existence it becomes evident that digital transformation is a long and winding road. Especially times of rising income inequality demand great responsibility from digital investors. What initially seemed to be a simple case of scattered digital implementations soon may become a people oriented process meant to infuse entire organisations and their business culture. Promising as it is, digital investment has to be done the right way.
Income inequality in the United States has been growing distinctly over the past 40 years. As productivity gains failed to come along with equivalently greater hourly compensation, today, 10 percent of the highest earning Americans generate an income 9 times higher than the bottom 90 percent.[1]
Graph 1: Real Household Income at Selected Percentiles, 1967-2014[2]
Graph 2: U.S. Productivity and Real Hourly Compensation, 1948-2016[3]
A far too overlooked issue of income inequality is the role that companies themselves actually play in this scenario. We are dealing with a corporate landscape in which earnings are tide to the kind of firm a person works for rather than his or her own productivity. With higher productivity companies were able to set themselves apart from other firms and establish their market power, leaving competition behind and earning huge profits.[4] Thus, rates of wage inequality have climbed the most in sectors in which differences in productivity have grown the most. But as already stated above, this inequality growth doesn’t come from productivity gains in certain sectors alone — the type of company you work for matters as well.[5]
But why should companies care? Too much financial inequality has an impact on entire communities and societies as it keeps economically disadvantaged families from good education and health care. In a system like this, economic opportunity does not only depend on your own skills but also on your social and economic heritage. This promotes decreasing rates in social mobility — and this in turn impacts societies and businesses alike.[6] On one side companies depend on a large variety of skills and talents. This variety is reduced by social and economic inequality and deprives businesses of employees with the best set of skills their jobs require. On the other side income inequality can lead to a decreasing support for the free market as more and more parts of society feel left out. This can result in dangerous political tendencies and populist movements, threatening the very vision of capitalism that everyone has the opportunity to access the market. If this vision is lost, capitalism is in great danger and thus the business community that depends on it.[7]
The best way to prepare employees and thus the company for success is to ignite Corporate Social Responsibility, invest in education and equip teams with the skill-set they need to compete on the future job market.[8] Sustainability needs strong leadership, it drives innovation and efficiency and creates lasting business value.[9] Long-term rather than short-term interests both on the employee’s and the employer’s side can set a business apart from other companies during digital transformation. In order to avoid problems during the digital shift and implementation of new strategies, a number of adjustments has to be made to the overall business culture. Leaders should dispose of shortcomings in organisational culture. These include risk aversion, weak customer focus, and limited mind-sets. Executives will fail to meet the agility and speed they need if they miss out on building cultures that appreciate risk, cooperate across business units, and take a customer-centric stance. While sole technological changes seem to be made rather quick and easy, their proper realisation relies on much slower and complex long-term changes within the business culture.[10]
Planning for the future must become a constant building block during digital change. Companies should create new timelines and replace short-term returns with long-term visions, especially in the financial service sector. Successfully going forward requires strategic planning for business stability and growth over the next decade, rather than quick profits in the next quarter. New technology is a resource that can be utilised by any business. The real difference between companies will be carried by the willingness to take risks implementing visions. Long-term success relies on tech- and risk-savvy visionaries. Companies must focus on talented people — not technology — and invest in leadership with the right set of skills to build digitally transformed businesses that have the potential to be strong for several decades instead of excelling only for a few years.[11]
Corporate executives today have to realise that inequality harms their firms’ long-term interests and that their current strategies contribute to income equality. They should rethink their business and alter the way their companies compete. They must oppose growth shifts, disruptions and tensions in society by creating new strategies with societal and outcomes that enable employees to deal with disruptive technological change by fostering talent and skill.[12] A sustainable transformation of business culture can reduce income inequality and secure a company’s long-term success in times of digitalisation.
About the author: After his studies in economics Dieter Timmermann worked in executive management positions as CIO and CFO for more than 30 years. He led major transformation initiatives for Kraft General Foods, Braun AG, Gillette, Bombardier Transportation, and Zurich Financial Services. Alongside those change initiatives, he conducted process standardisation and implemented off-the-shelf software solutions. Just recently Dieter contributed to digital-cookbook.com as a guest author and advisor.
Literature:
[1] Income Inequality in the United States. (n.d.)
[2] U.S. Census Bureau (2015): Current Population Survey
[3] Economic Policy Institute (2017): The Productivity-Pay Gap
[4] Frick, W. (2016): Corporate Inequality Is the Defining Fact of Business Today
[5] Berlingieri, G., Blanchenay, P., Criscuolo, C. (2017): A Study of 16 Countries Shows That the Most Productive Firms (and Their Employees) Are Pulling Away from Everyone Else
[6] Henderson, R. (2017): Why Inequality is an Urgent Business Problem
[7] ibid.
[8] Bloom, N. (2017): Corporations in the age of inequality. Inequality isn’t just about individuals — it’s risen between companies, too
[9] Kiron, D., Unruh, G., Kruschwitz, N., Reeves, M., Rube, H., Meyer zum Felde, A. (2017): Corporate sustainability at a crossroads. Progress toward our common future in uncertain times
[10] Goran, J., LaBerge, L., Srinivasan, R. (2017): Culture for a digital change
[11] Sheikh, N. (2017): The Financial Industry Needs to Start Planning for the Next 50 Years, Not the Next Five
[12] Greenberg, E., Hirt, M., Smit, S. (2017): The global forces inspiring a new narrative of progress
