Organizing for a Digital World

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Virtually all large companies, even those in old-line industries such as machinery and agriculture, have gone digital to some extent. But at many companies the efforts are falling far short of their potential. At one Asia-based conglomerate, for instance, digital initiatives have been popping up everywhere, and business units compete for the same digital talent. The company set up a digital incubator off to the side, but it has failed to spark interest with the mainstream divisions, and so creates great proofs of concept that never get embraced at large scale.

As digital continues to upend most business operations and markets, traditional organizations like this conglomerate struggle to cope with the pace of change. Breathless headlines and countless TED Talks suggest that executives should be asking "blow it all up" questions, such as:

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  • Does the concept of an "organizational structure" still make sense? Or should we move to self-organizing, manager-less teams?
  • Should we scrap the idea of careers and employee loyalty in order to attract millennial talent for "tours of duty"?
  • Do we really need any specialists in house, or should we do everything through partners in the ecosystem?

While digital clearly provokes change, most organizations do not need to make such drastic moves. The fundamental elements of an effective operating model remain as important as ever.

Rethinking the operating model


What makes the shift to more robust digital offerings, channels and operations so tricky is the stress it puts on old-line companies' operating models. Many new activities and capabilities—ranging from advanced analytics and rapid prototyping to cybersecurity and external partnership management—will need to be developed and located somewhere in the organization. Who takes ownership for these activities, who decides investment levels for each and how they will work are all major operating model questions.

In addressing these choices, companies usually start to realize that their legacy processes don't move fast enough to keep up with changing customer demands and behavior, which are shaped by digital interactions in other parts of their lives. Decision speed also may be too slow, because it's tied to budget cycles. Companies may find digital innovations hard to scale up beyond small projects. And certain kinds of digital talent have become very tough to source and hire.

As a result, digital transformations are significantly harder to pull off than conventional change programs. Bain & Company recently surveyed 1,000 companies around the world to gauge their level of digital readiness. After comparing financial results for five categories of companies based on their degree of digital sophistication, we found that revenues for the digital leaders grew 14% over the past three years, more than doubling the performance of the digital laggards in their industries. Profitability followed a similar pattern. Yet while the payoff from digital transformation can be impressively high, the success rate is regrettably low. In our survey, just 5% of those companies involved in digital transformation efforts reported that they had achieved or exceeded the expectations they had set for themselves (versus a success rate of 12% for conventional transformations found in an earlier survey). A full 71% of these companies settled for dilution of value and mediocre performance.


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