Designing Digital Organizations

Designing Digital Organizations

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Designing Digital Organizations

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    How Should Companies Approach Digital Business Design?

    There is no one right digital business 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 analyze data; and bring new products and services to market. As a result, 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 transportation systems, for example.

    The design of a digital organization starts with a digital business strategy. Because digital technologies offer a constant stream of new opportunities, the best digital 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.

    Intuit, for example, has redefined itself: originally, a desktop software company with multiple, independent products, the company now offers connected services for both individuals and small businesses. Management uses the capabilities of the cloud, mobile technologies, and data analytics to fulfill the company’s stated strategy: “We simplify the business of life.” Similarly, John Deere is transforming itself from a company that sells and services big equipment to a company “committed to those linked to the land.” This commitment recognizes the opportunities presented by new technologies and data-centric capabilities to help farmers find more efficient ways to grow crops.

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

    Once a company has committed itself to a digital strategy or vision, management must define and implement an operating model that allows for execution of that strategy. The operating model incorporates traditional considerations such as policies, processes, organization structures, and performance measures. But it also adds the design dimensions we have discussed above: customer experience, product and service offerings, ecosystems, control and alignment mechanisms, and ways of working. One particularly important element is 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 their extremely detailed operating models with a high degree of centralization and integration. These companies typically have a central group of people in charge of the design changes. For some, that is the senior leadership team, but for others, a business transformation or business architecture team is in charge. Techniques used in operating-model design include business design blueprints and multiyear roadmaps.

    Other companies design high-level policies and guidelines to direct the efforts of hundreds (or even thousands) of managers and experts 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.

    No matter which approach a company takes, the senior management team needs to clearly articulate the strategy and the operating model and encourage everyone in the company to take responsibility for business success.

    At Schneider Electric, Hervé Coureil, the chief information officer, was asked to coordinate the design and evolution of a new operating model. Coureil does not have a big group of architects or designers working for him. He works with two people, who, with him, act as catalysts. He describes the rationale behind this approach: “The reason I didn’t want a team was that if you do it yourself, the businesses will not feel accountable. So I needed to work more as an orchestrator. The business leaders need to design their operating models, but we need some central thinking about how the design of all those businesses would impact Schneider on the whole and how we could purposefully create commonalities across the business to gain more scale.”

    Since 2013, Coureil and his colleagues have orchestrated the design of the new operating model by defining and documenting, for instance, business models, company culture, organization structures, roles, decision rights, and handoffs. Many of the business and operating model changes at Schneider Electric involved the existing businesses, countries, and corporate functions. However, the need to move toward digital services combined with physical products led the company to create two new organization units: Digital Customer Experience and Digital Services.

    In summary, management must do three things to design a successful digital business:

    • Develop a visionary business strategy that guides efforts to apply digital technologies to customer needs.

    • Assess gaps in the company’s existing operating model to identify necessary changes in roles, processes, and ways of managing and working, and develop an ecosystem that will enable execution of the strategy.

    • Assign a team responsibility for ownership of the design changes and implementation oversight.

    To ensure the success of new operating-model initiatives, management also needs to continually collect feedback from the entire organization. The feedback will help the design team make adjustments and smooth rough edges. Companies need to use the same test-and-learn approach to continuous improvement that is commonly associated with product and service design. In doing so, they will discover what makes them great and how to succeed in the digital economy.