How to Transform a “Big, Old” Company
Into an Agile Digital Business
by Irving Wladawsky-Berger, Chairman r4 Advisory Council
“As consumers, we take digital technologies for granted… We don’t wonder why these things are possible; we simply expect them,”said Designed for Digital a recently published book by Jeanne Ross, Cynthia Beath, and Martin Mocker in its Preface. But “the adoption of digital technologies in business doesn’t come as naturally,” especially if you’re working in a big, old company. “Inserting digital technologies to enhance operations and create new value propositions has proven extremely challenging.”
Previous research has uncovered this puzzling digital adoption discrepancy between individuals and organizations. While in our personal lives we’ve enthusiastically embraced digital technology advances, many corporations and institutions still struggle to do so. At a conference several years ago I learned about a so-called Sunday-night/Monday-morning syndrome, the name given to the frustration of employees of large companies who, at home on Sunday night, have access to the latest devices and applications, but at work on Monday morning, have to use the more primitive devices and applications that their IT departments support.
A quarter century into the digital age, as a recent McKinsey study found, the digital maturity of traditional incumbent firms is still relatively low — under 25% of their overall potential. Big, established companies, in particular, have been slow to embrace digital organizational practices — only 26% of worldwide sales are made through digital channels, 30% of internal operations have been digitally automated, and 25% of supply chains interactions have been digitized.
“If digital technologies are consistently making our consumer lives easier, why aren’t they making it easier to succeed in business?” asks Designed for Digital. “Why are business leaders anxious about digital disruption rather than marveling about how quickly they can provide new, exciting, and ever-improving digital solutions to their customers?” Based on five years of research at nearly 200 large companies — including executive interviews, surveys of business leaders, and in-depth case studies — the authors’ overriding conclusion is that “Big, old companies are simply not designed for digital.”
Many of these established companies have already deployed mobile apps, cloud computing and data analytics, and have brought to market a variety of digital products and services. This is necessary, but not quite sufficient. Digital success requires delivering new customer value propositions that anticipate and solve customer problems, rather than just selling them a portfolio of product and services — no matter how beloved or essential those offerings might be.
What does designed for digital mean? The authors define digital business design as “the holistic organizational configuration of people (roles, accountabilities, structures, skills), processes (workflows, routines, procedures), and technology (infrastructure, applications) to define value propositions and deliver offerings made possible by the capabilities of digital technologies.”
Agility, the ability to respond to rapidly changing technologies and markets, is the overriding objective of becoming a digital business. Doing so requires significant and constant changes to a company’s people, processes and technologies to help deliver compelling value propositions, which in turn requires a fast cycle of decisions and actions across a company’s functional and business silos.
To better explain what it is, the authors offer three different explanation of what business design is not.
It’s Not IT Architecture. Business design is often viewed as business architecture, a function that’s generally part of the IT organization. A well-designed IT architecture is very important. It reduces technology and business risks while guiding the adoption of new systems and the evolution of existing systems.
“But the design of a digital business considers far more than technology and systems. It takes a high-level view of the interactions among people, process, and technology. The IT unit is not positioned to design people and processes. Great IT leaders can help shape a vision for digital business design, but the design of a synchronized business requires much broader management engagement.” Given it’s enterprise-wide scope, digital business design is the responsibility of a company’s senior executive team.
It’s Not Restructuring. Business leaders create organizational structures to help manage the overall strategy of the company — a kind of divide and conquer approach that focuses the efforts of each unit on delivering a specific set of outcomes. But doing so divides the responsibility for getting work done and creates organizational silos that impede integration and agile company-wide decisions and actions.
Organization-wide structures are not the same as organization-wide designs. “In digital business design, structure is just one piece of the puzzle that allows leaders to align people with strategic priorities. New roles and accountabilities increasingly supersede structure as the primary mechanisms for defining who does what and in signaling where power is located. This shift from structure to roles is a natural response to a greater need for organizational flexibility.Structure stabilizes; it cordons off resources to a particular business objective. Roles allocate individual attention to emerging – often unclear – business needs.”
It’s Not an End State. Business design is akin to changing a tire while the car is moving. Unlike the blueprint for a new building, which clearly shows what the building will look like when completed, a business strategy is dynamic and likely to change over the strategic period. As technologies and markets change, the business must adapt and evolve. Furthermore, the organization’s existing operations must continue to function and deliver solid financial results while new features and capabilities are being added.
“The art of digital business design involves distinguishing what is relatively stable (e.g., core competencies, disciplined enterprise processes, master data structures) from those elements of the business that are expected to change regularly (e.g., digital offerings and features, team goals, apps, and people’s roles and skills) … Rather than define an end state, digital business design defines a direction and sets up a company to adapt as the future unfolds.”
Digital Business Transformation is a Long Journey. The book points out that “transformations in big companies cannot be speedy.” I couldn’t agree with more based on my personal work experience.The main reason is culture — the implicit social order of an organization. Culture shapes long term attitudes and behaviors, and defines what’s encouraged, discouraged, accepted and rejected within an organization.
“Rather than trying to overhaul culture, executives can gradually change specific habits. Introducing new technology and processes provides an opportunity to redesign roles and change habits — and thus eventually culture — one day at a time. ”Such a slow pace of change is actually a blessing for large companies, because, for the foreseeable future, most will continue to generate the bulk of their financial returns from their existing offerings and customers. Rushing a company’s transformation carries serious risks if the financial returns from existing offerings decline sharply faster than the hockey- stick-shaped returns of the innovative new offerings, which will generally grow slowly in their early years before (hopefully) rising sharply.
Becoming a Digital Business. How can a company that wasn’t born digital incrementally transform into an agile digital business? Designed for Digital identifies five key building blocks or organizational capabilities that will help established companies rapidly develop innovative digital offerings:
- Shared Customer Insights: Organizational learning about what customers will pay for and how digital technologies can deliver to their demands;
- Operational Backbone: A coherent set of standardized, integrated systems, processes, and data supporting a company’s core operations;
- Digital Platform: A repository of business, data, and infrastructure components used to rapidly configure digital offerings;
- Accountability Framework: Distribution of responsibilities for digital offerings and components that balances autonomy and alignment; and
- External Developer Platform: A repository of digital components open to external parties.
“The advantage of approaching digital business design as a set of building blocks is that it allows leaders to focus on specific, manageable organizational changes while implementing a holistic design. This is possible because the building blocks are interdependent: making one of the building blocks stronger contributes to making the others stronger. Each building block triggers changes in people, processes, and technology in ways that make the company more agile.”
This post originally appeared in Irving Wladawsky-Berger’s blog and is reprinted here with permission.