Designing Digital Organizations

Designing Digital Organizations

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Designing Digital Organizations

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    Researching the Next Release: Some Common Themes

    The goal of the BCG-MIT research project was to gain an understanding of how successful companies of all stripes adapt to the digital economy. We heard a lot about how they had changed their product and service offerings and how the revised offerings affect their business and operating models. We also wanted to learn how companies design the “next release” of themselves. We asked the following questions:

    • How does a company go about designing itself to become more digital?

    • What particular management practices facilitate digital redesign?

    • Which dimensions of a company’s operating model need to change in order to succeed digitally?

    We observed a wide range of answers as well as some common themes.

    One common theme: since the beginning of the current millennium, most of the successful companies we studied had already gone through some form of major business transformation, typically redesigning their internal operating models. They had pulled numerous activities from business units and local offices and had placed these activities in new shared-service organizations. They had designed and deployed global business processes, supported by common finance, human capital management, customer relationship management, and supply chain software packages. They had reorganized product-oriented business units—in many cases, removing the sales and marketing functions and placing them in industry- or location-aligned units. The companies had also outsourced activities or moved them to captive offshore units.

    A second common theme: just about all these transformations had focused exclusively on the company’s inner workings. Many of the transformation program leaders had used a people-process-technology framework to manage and coordinate changes. In the people dimension, companies redesigned internal organization structures, roles, performance metrics, and incentive systems. Core business processes were revamped end-to-end to make them more efficient or, in some cases, outsourced. In the technology area, companies made design changes to core business transaction applications, data warehouses, business intelligence tools, and the technology infrastructure.

    Although these companies were transforming themselves with the help of information technologies, they did not necessarily use or take into account then-emerging digital technologies, such as social networks, mobile communications, big data analytics, robotics, cloud computing, and the Internet of Things. For the most part, customer offerings and business models were left untouched. And it is not surprising that, around 2012, the leaders of many of these recently transformed (or still-transforming) companies were stunned to discover that to become digital businesses, they would have to undergo another total transformation.

    The one big difference—and advantage—for them was that successful internal transformations provided stable operating platforms upon which digital services could be built. Companies that had not participated in the first wave of transformation faced the need to transform many more design dimensions—and as soon as possible.