Digital Transformation Coaching

To turn the risks associated with digital transformation into opportunities, companies must strategically and successfully integrate new technologies into their production and logistics processes and, if necessary, leverage digital services to create new business models [1]. Organizations that are already doing this successfully are systematically outperforming their competition. The COVID-19 pandemic has amplified this effect: before COVID-19 10% of the most successful companies increased their revenue twice as fast as 25% of the companies that were lagging technologically.

During the pandemic, which posed a particular challenge to the technological maturity of integrated processes, these top companies accelerated their revenue growth to five times the rate of their competitors [2]. This could be due to a different attitude towards change: they do not see it as a risk, but instead actively and continuously seek to bring it about themselves.

The average success rate of digital transformation projects in reality is still sobering. Whether introducing a driverless transport system, augmented reality (AR) glasses for warehouse use or a smart factory: up to 84% of projects fail to achieve their goals, are delayed, become significantly more expensive or even fail completely [3] – with costs per affected company averaging 5.5 million US dollars [4].

Unsuccessful transformation projects cost both time and resources while reducing the willingness of the workforce to support further innovations, which creates a considerable business risk for the companies concerned [5]. The upheaval caused by digitalization is also profound for the employees themselves and a wait-and-see approach is a risky strategy given the challenges ahead. The World Economic Forum expects that up to 44% of the workforce will have to significantly expand or adapt their skills (a process known as “reskilling”) between 2023 and 2027 to have a future in the labor market.

The top 5 focus areas for this reskilling by 2027 are analytical and creative thinking (1st and 2nd place), artificial intelligence (AI) and big data (3rd place), followed by leadership, i.e. the ability to lead others (possibly even without holding a formal organizational leadership function) in a way that goes beyond the professional and disciplinary functions a manager fulfills, and social influence (4th place). Finally, resilience, i.e. the ability to adapt and cope with external disruptions, as well as flexibility and agility [6] follow in fifth place.

Figure 1 also shows this: It is largely the areas of soft skills where companies see a need for development in coming years and in which they want to invest as part of their reskilling strategy.

Companies are dependent on their employees’ willingness to learn and change. The active, participatory involvement and co-determination of those affected and the works council generally has a positive effect on the acceptance of change by the workforce. Nevertheless, practice shows that problems in transformation processes are often not caused by hardware and software. Instead, it is the human factor which can significantly influence the success of an innovation project, such as the introduction of AR glasses in warehouse logistics, and which can determine its acceptance [1]. As the ability and motivation to support change varies from person to person, granular approaches to individual development could enrich change management approaches on a global scale [7].

The human challenge in Industry 4.0

Even as the concept of Industry 4.0 was being formulated, warnings emerged about dystopian scenarios rather than a positive vision of the future [8]. That is why the appeal to companies was clear: the system should serve the people – not the other way around. However, ten years later, many jobs have not become more challenging, but instead more monotonous [9] and unskilled workers tasks are being heavily dictated by computer systems [1].

While most employees can compensate for this change, there is a critical mass of employees who reject this, do not feel up to the development, are afraid of the technology and the associated changes to their job profile or fear losing their jobs [10]. This in turn has an impact on the rest of the workforce, resulting in high absenteeism rates, staff turnover [11] and increasing psychosocial stress [9]. Between 2011 and 2021, the number of days absent due to mental illness rose by 41% [12], while the total number of days absent rose by only 2%.

More and more employees are therefore hitting the panic button. The “Great Resignation” wave in the USA, which has seen resignation rates rise to their highest level in the last 50 years, has shown: employees are less willing to accept poor working conditions without complaint [13]. Companies with a toxic corporate culture are 10 times more likely to be left than others. Sull et al. (2022) [14] have identified the following factors that are significantly correlated with a toxic culture: insufficient promotion of diversity, equality and inclusion in the workforce, lack of respect for the needs of employees and unethical behavior. Workers migrate to companies or industries where human factors are better valued [15].

These losses are extremely costly for companies, both in terms of replacement hiring and the drain on knowledge and expertise. Individual resource activation and implementation support for employees could help to counteract this trend [7]. An early investment in employee satisfaction and empowerment, i.e. strengthening the personal responsibility of employees, could therefore quickly pay off economically and make the workforce – as well as the company as a whole – more resilient in the face of changes and crises [16].

The average sunk costs of USD 5.5 million for a failed digital transformation project could be offset by a team of experienced business coaches with a daily rate of around € 2,000 [17], who could provide coaching support for a medium-sized project within 25 workdays. The resulting additional costs of € 50,000 could be compensated for by a marginal increase in project success of just 1%.

Employee development methods

When developing employees and organizations, a combination of in-house change management – commonly with the support of an external management consultancy – is often used for strategy development and implementation as well as employee training [18]. As Figure 2 shows, training and consulting work at the cognitive level and are therefore important for learning skills, influencing knowledge and behavior when making rational decisions [19].

However, these methods do not have an immediate influence on the deeper level of attitudes if the individual is not internally convinced of the benefits of the change [20]. In the example of the introduction of AR glasses in warehouse logistics, e.g. to suggest an optimal route, the employee can fully understand the technology as a result of product training and be able to use it effectively (knowledge level). Thanks to information about the motivation for the introduction, such as the planned efficiency gains communicated by the responsible manager through shorter picking times, the purpose of the technology’s introduction can also be understood.

However, operational practice shows that knowledge alone is not enough to change behavior. Behavioral Operational Management (BOM) recognizes a variety of reasons for the dissonance between knowledge and action [19]. In the example of AR glasses, this could be, for example, an inner resistance to instructions from a computer (algorithm aversion) or an overestimation of one’s own knowledge (overconfidence) [9].

In a team of employees, group think is also a possibility, a phenomenon in which a community of competent people sometimes make worse decisions together because the individuals agree with the group opinion and thus support suboptimal solutions or reject an improvement [19]. In this case, a negative attitude, which contradicts the acquired knowledge, can undermine the knowledge level and lead to undesired action [10].

In business practice, personality-related methods of employee development are also increasingly being used. These include mentoring, a form of individual support, particularly for young employees, by experienced, usually higher-ranking managers [23], and coaching, a solution-oriented method for personal development through support in achieving individual goals by activating previously hidden resources [24]. In coaching, the knowledge required to solve the problem lies within the person being coached. Coach and client meet on equal footing.

Mentoring, on the other hand, focuses on facilitating knowledge transfer based on the mentor’s wealth of experience and thus assumes a superior position and level of knowledge on the part of the mentor [23]. Mentoring can be an effective tool, but its design depends on the personal preferences of the mentor and employee, is not subject to systematic qualification and is therefore not truly scalable or repeatable. For this reason, it will not be discussed in detail here. Coaching, on the other hand, when used correctly, has the potential to follow an overarching structure and thus have a replicable and scalable effect on both employees and teams [25].

Behavior modification through coaching

Coaching intervenes at the level of personal attitude and can therefore also help to overcome fears and inner resistance to adapt behavior in the long term [26]. In the context of organizational change, the distinction between coaching, training, and consulting is important: coaching can be long-term and open-ended, while the latter two generally pursue a specific, defined purpose of knowledge transfer, the content and scope of which is predetermined and limited [7]. In our example, this is the introduction of AR glasses and training on how to use them.

Change management is also usually project-related and therefore has a clearly defined start and end point [28]. However, the challenges of digital transformation and its impact on employees go beyond the boundaries of individual projects [5]. Rather, this process is characterized by its continuous, iterative development without a foreseeable end. For example, the introduction of AR glasses does not by themselves lead to a smart factory. And even a highly automated warehouse, such as the one we find at companies like Amazon and Alibaba, is never “finished” – it is continuously being optimized and will hardly resemble its current state in ten years’ time.

What remains are the organization’s employees, who have often been with the company much longer than the individual technologies [29]. When it comes to digital transformation, a lot therefore depends on employee resilience, willingness to change and ability to adapt to new technologies [16].

Digital transformation coaching in change management

Schmitz [7] identified the potential impact of coaching in the context of change management, which can be extended to the digital transformation (Fig. 3).

The impact potential shown can be seen as the antithesis to the frequently cited reasons for the failure of transformation processes [3, 28]. If coaching can develop the impact potential mentioned in Figure 3 in an organization within a change process, it would be possible to better address the needs and emotions of employees and reduce psychological stress as well as the resistance described in BOM[20]. This can have a positive effect on motivation and willingness to change.

We refer to the coaching concept based around this assumption as “Digital Transformation Coaching” (DTC). It is to be understood as a long-term accompanying process that supports change management in digital transformation projects. The DTC concept can be combined with all commonly known change management methods, as it does not intervene in terms of content, but specifically assists the human factor in the change process [23]. The focus is on supporting the employees and teams affected by the changes. The process is as shown in Figure 3.

DTC itself comprises techniques adapted to the problem and can include both individual and team coaching [30]. In the case of the example of AR glasses in warehouse logistics, individual and group coaching sessions would be carried out. The group sessions serve to reach a consensus on the common objectives in the teams concerned, to work out ways to achieve them and to address reservations [7].

The coach acts as a neutral partner who guides through the process and uses the appropriate techniques [24]. Unlike in a training course, for example, group dynamic conflicts are addressed and resolved directly [29]. Analogies can be drawn with agile project management, which has replaced conventional project management in many areas and is flexible in terms of goal achievement, but also ensures stability, continuity, and transparency with fixed formats [29]. Individual coaching sessions help the people involved to recognize their own reservations and fears, such as the resistance known from BOM [19]. Systematic procedures can also be developed here in order to improve the handling of the altered situation [20].

In the example of the introduction of AR glasses, the following scenario is conceivable: An employee has been working in the company’s warehouse for a very long time, she knows her way around exceptionally well and is recognized as an expert by superiors and other employees. She is annoyed by the introduction of the new technology, which makes her feel patronized. She also secretly fears that she could be replaced by a robot in the not-too-distant future.

Coaching can contribute to a more constructive approach by getting to the root of these fears and increasing resilience [8]. Strategies can also be developed as to how the employee can continue to maintain and even increase their status as a valuable expert in the warehouse by using their experience in conjunction with learning new skills [5].

As these and other problems arise repeatedly during complex projects, the DTC process is agile, frequent and long-term. This means that new challenges can be addressed quickly before they become entrenched [27]. This dynamic way of dealing with such problems is learned by the group members [32], as the coaching sessions are not limited to the current project but serve to deal with change more effectively in general [23]. This in turn has a positive effect on the self-image of employees when using new technologies and can be reflected in the corporate culture in the medium term [32]. Consequently, this perspective can enhance the organization’s competencies, enabling it to view change not as a risk but as an opportunity, and ultimately achieve better results than its competitors [2].

Limitations and need for further research

Even though the effectiveness of coaching in general has been proven in various studies [7, 20, 27, 33], long-term coaching to support digital transformation has not yet undergone comprehensive scientific investigation. In principle, it can be assumed that both the individual and the group benefit from professionally conducted coaching by a well-trained coach [26, 27]. Negative experiences are also known to occur; these are often related to inadequately qualified coaches, uncooperative clients or a dysfunctional relationship between coach and client [34]. Therefore, particular importance should be placed on the careful selection of a suitable coach.

In the event of an unsuitable coaching constellation, the coach should be replaced [27]. In case of conflicts between team members, additional measures, such as conflict resolution and team coaching, should be intensified. The existence of an overarching effect on the overall organization and culture, as proposed in the DTC concept, still requires further research [25]. The effectiveness of DTC also requires other framework conditions to be in place, such as management support, availability of time and resources for the coaching units and a correspondingly high level of prioritization, a willingness to participate in coaching and a willingness to change on the part of the participants [35].

Successful implementation offers great potential

Numerous companies – SAP, Daimler AG, Novartis Pharma and many more – have been integrating their own coaching systems into their HR development for many years [36]. The availability of virtual formats from providers such as TheNextWe, CoachHub etc. and even AI-supported coaching facilitate access to and the comparability of certain measures and help companies to use such coaching measures in a targeted manner. Ricola and Nestlé, for example, have been using digital coaching concepts for some time [37]. The literature on coaching during change management processes suggests that employees can be effectively influenced using coaches [23, 25].

The effectiveness of the process depends on a systematic implementation that is tailored to the respective company [7]. In the medium term, if systematically and credibly integrated into HR development, this investment in the workforce, in combination with other methods of employee development, can have a positive impact on the entire corporate culture and help to promote open communication across all hierarchical levels [32]. This helps companies, as well as individual employees, to counter the risks of digital transformation and turn them into opportunities effectively and proactively [6].

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