Designing digital organisations for a digital economy

Designing digital organisations for a digital economy

Digitisation is often championed by one unit within an organisation, with a narrow approach limited to changing technology or making the transition to automated processes. But the whole idea of a digital economy rests on the premise that entire organisations and its leaders will tap the dynamic scope of digitisation.

This process does not necessarily begin or end with adopting or deploying technologies, but often focuses on connectivity within and outside the organisation. Let's take an example of a successful "traditional" manufacturing company that has transformed itself into a digital organisation.

Founded in 1836, Schneider Electric today is as much a digital business as any 21st-century high-tech company. It has changed the design of the business across multiple dimensions. Management decided to connect as many products as possible to the internet, add information-based services to the customer offerings, adopt agile product development processes, establish a new digital services organisation, and update the way the sales force interacts with customers.

"When we went into digitisation, we knew connectivity and we knew software, but when you turn to the cloud, you can't do anything alone," explained Jean-Pascal Tricoire, the chairman and chief executive. "Today's world is prone to partnerships -- the big bets are about choosing the right partners. Your success depends on you, but also on the ecosystem you are choosing."

While many companies in Thailand are and will be facing digital disruption, it will be critical for them to be multi-dimensional in their approaches to digitisation. Most importantly, they must enable partnerships that will help create an ecosystem within and outside the organisations.

The Boston Consulting Group (BCG) and the MIT Center for Information Systems Research mounted a two-year research project focused on designing digital organisations. We studied more than 40 companies in a number of industries to understand how successful companies adapt. We asked how they went about designing themselves to become more digital, what particular management practices facilitate digital redesign, and which dimensions of the operating model needed to change.

Are digital businesses different? For the most part, the companies we studied use new digital technologies in two ways, often simultaneously. First, they incorporate digital technologies into their products and services. Second, interactions involving customers, employees, business partners, suppliers, investors and regulators are increasingly digitised. Both applications may seem simple, but each requires substantial redesign of business and operating models.

Indeed, the companies we studied made explicit design changes in five separate dimensions: customer experience, product and service offerings, ecosystems, control and alignment mechanisms, and ways of working.

A good example is BBVA (Banco Bilbao Vizcaya Argentaria), a multinational Spanish banking group, which has evolved over the last decade with a priority on digital transformation. It views itself as a "technology company" and not as a bank, which is the mindset necessary to drive cross-functional collaborations within organisations to make digital transformation possible.

Is there one right digital business design? There is no one "right" design. But, because digital businesses are more integrated and automated than traditional businesses, they must be more explicitly designed, even if the design is seemingly as light-handed as establishing guidelines within which customer-focused innovation takes place.

Digital businesses are heavily dependent on software to facilitate seamless end-to-end experiences; store, process and analyse data, and bring new products and services to market. Companies need to be designed with the same kind of detailed attention to component interaction that is applied in complex-system design -- think computers, enterprise resource planning software suites, oil refineries and transport systems.

The design of a digital organisation starts with a digital business strategy. Because digital technologies offer a constant stream of new opportunities, the best strategies provide a clear direction while remaining responsive to shifting circumstances and prospects. As a result, digital strategies tend to be more visionary than traditional business strategies.

Such visionary strategies provide direction to leaders aiming for agreement on the most valuable applications of digital technologies. They help everyone recognise opportunities to fulfill the vision and avoid the tendency to pursue technology only for its own sake.

Once a company has committed to a digital vision, management must define and implement an operating model that allows for execution. The model incorporates traditional considerations such as policies, processes, organisational structures and performance measures and adds the design dimensions as mentioned before: customer experience, product and service offerings, ecosystems, control and alignment mechanisms, and ways of working.

One particularly important element is achieving cross-functional collaboration while maintaining clear accountability for the delivery and operation of software modules that can interoperate and manage large amounts of data. As businesses become software-driven, they need talent and processes to manage the complexity of integrated systems, as well as massive amounts of data. A well-designed operating model makes it easier for companies to develop or acquire critical skills and focus management efforts.

Some companies design extremely detailed operating models with a high degree of centralisation and integration. They typically have a central group of people in charge of the design changes. Techniques used in operating-model design include business design blueprints and multi-year road maps. Other companies design high-level policies and guidelines to direct the efforts of hundreds (or even thousands) of managers as they adjust the design of small pieces of the business.

The companies we studied take steps to ensure transparency, alignment and collaborative ways of working. They also make sure that local design decisions are in sync with the company strategy and that conflicting design decisions are spotted early and resolved quickly.


Isada Hiranwiwatkul is a partner and managing director and head of the Bangkok office of The Boston Consulting Group. Contact hiranwiwatkul.isada@bcg.com

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