Organization of the digital transformation – rebuilding companies
What will organizations look like in the future and what impact will the digital transformation have on forms of organization?
Organizations must adapt to the rapid changes in technology. Linear growth is no longer appropriate with today’s technology. It is much more about exponential growth, rapid adaptations and also changes through digital innovations. This is about the organization and how it must adapt to digitalization.
When it comes to the digital transformation (Related Article: Digitalization vs. Digital Transformation), companies usually always ask themselves the same basic questions that influence the organization:
- Who should drive digitization forward?
- What is the best model for the organization in the company for digital transformation?
These are basically important questions but most of the time they are answered too early and in a hurry. A wrong decision in such topics can have great consequences for companies and send them on the wrong track in the long run. Often one can also see that companies let themselves be rushed into digitalization and carry out the digital transformation without a real understanding of their own goals and without a long-term plan.
Companies can be much better positioned for digital transformation if they first define the overall goals, strategically select the digital model that is appropriate for their organization and capacities, and then gradually and carefully introduce the overall strategies into the organization. The simple execution of individual projects and “silos” will in the long run degenerate into frustration, failure and above all waste of money.
But all the digitalization and its effects on the organization do not change the principles of organizational design or governance. Digital work and new work may not fit into traditional models. Here, managers and executives are especially challenged to adapt the models without tearing the structure apart.
Where the implementation of digitization begins
For many CEO’s it quickly becomes clear that they want to hand over the responsibility of digitization to someone else. So they quickly hire a Chief Digital Officer (CDO) and put together an agenda to start where. But these quick and ill-considered actions can quickly lead to bigger problems instead of bringing benefits.
One principle should be clear to all companies and understood by every executive. Digitalization and digital transformation are not computers and cell phones. They are about countless areas, all of which have to do with the customer. Marketing, back office, in-store promotions, decision making based on data, accounting and much more. Digitization affects all areas of a company and this decision should be taken just as important.
This is exactly what is reflected in the organization and governance. A company that cannot establish digital roles, clear authority and decision paths for digital transformation will always have to deal with major setbacks and failures in transformation. In the same way, a completely new model created from scratch can lead to friction that overwhelms existing teams and functions and negatively affects their performance.
In other words, every company that wants to implement its digital transformation faces a multitude of questions and opportunities. Some questions concern strategy, some concern functions, some concern management and some concern culture. So there should be clear steps that companies want to adapt and achieve on a strategic level, and this should also be done on the level of organization and leadership.
What such a model could look like, we show on the evolutionary path that a completely digitalized organization usually follows.
Goals and digital strategies for companies
Even in the days of electrification it was a problem that companies did not adapt. Factories still oriented themselves as if they were run by steam engines, although this was no longer the case. Such phenomena have occurred again and again in history, and they will be repeated.
Organizations usually only digitize their existing systems and usually do not rethink the basic elements of their organization. This is because the digital transformation of a company requires a complete rethink of basic assumptions and new approaches. This can lead to new opportunities that companies can take advantage of.
These opportunities are also created by the technology itself. Exponential growth of bandwidths, computing power and also storage sizes lead to a fundamental rethink for companies as well. Linear models are no longer sustainable and must give way to digital and scalable business models.
Companies must clearly define their goals and make sure that they can answer at least these 3 basic questions.
- What is the big (overriding) goal of the company?
Digitization should be seen as a service for this goal and not as an effort of some kind or even without any connection to this goal.
- In which areas can digitization support and advance the goals of the company?
For most companies it is impossible to digitize in all areas at the same time, because the capacities and resources for this are lacking. It is therefore important to create a clear list of priorities and to focus on the areas that create the most added value through digitization.
- How ready is the company for digitization?
Companies must have the right skills to implement projects properly. The digital skills of employees and the necessary infrastructure are a basic prerequisite for this. If these are not available, they should be built up first. Because a digital marketing specialist will not be able to manage robots in a factory.
Should a company build internal capacities for digitalization?
When it comes to implementing digital strategies, the question often arises as to whether internal or external capacities should be built up.
When it comes to building digital activities into the company in a sustainable manner, companies will not be able to avoid building their own digital capacities and hiring internal specialists. The goal should be to integrate the digital mindset into the company as quickly as possible, and this includes specialists with the necessary digital knowledge.
In the beginning, there is usually the question of whether or not to appoint a Chief Digital Officer (CDO) to oversee and drive the implementation of the digital strategy. For some companies this may even make sense. However, the question should always be asked whether digitization should be viewed separately as a separate area or whether the CDO should be seen as a staff position for the company’s own departments.
Depending on the company structure and the nature of the needs, a centralized team for digitization can make more sense than a decentralized one. Centralized has the advantage of having a spokesperson on the Executive Board to drive change, while decentralized has the advantage of many different departments being affected in the same way. The special thing about the decentralized system is also that it leads to easier adaptation and the change is carried more broadly into the organization. However, these many small islands often also lead to little exchange of information, no global strategy and run the risk of competing with each other or even running the same projects.
The hybrid approach can offer an approach in which there are decentralized units that take care of the implementation in the individual functions, but also a central unit that initiates and coordinates many things.
A separate department for digitalization?
This question is generally a bit more complex. Generally speaking, a separate department is worthwhile if the company’s ambitions in the digital transformation are very much in the direction of completely new business models and the necessary capacities and skilled workers are still scarce.
However, since this model is completely different from existing structures, there can be major hurdles during implementation because two systems collide, the old and the new world. These differences can always look different depending on the company. However, it is precisely this heterogeneous characteristic of an independent department that can also be used consciously. If companies try to work like start-ups or launch digitization projects as new “small companies”, such independent constructs can be perfect.
Integration into an existing organization
To a certain extent, the problems mentioned above are only marginally important. However, it is important to be aware that changes that deviate strongly from the current corporate culture will meet with a great deal of resistance and therefore take longer. It is important to change the culture consistently in order to be able to implement digital strategies much more easily with a digital corporate culture.
Companies must aim to fully implement digitization in their day-to-day business. Thus, it is usually the CEO who, through his strategy and corporate culture, influences and implements digitization as the most important element. This is because digitization is becoming one of the most important points in any corporate strategy.