Executives agree: The digital revolution will change the way their organizations operate. According to a McKinsey Digital Quotient survey from April 2019, 93 percent of executives believe that digital is critical to achieving their strategic goals. Even though organizations have been digitizing for decades, the digital revolution is still fairly new. Not only is the speed of technological progress often underestimated, but it is also getting increasingly faster.
Key digital technologies, such as automation, artificial intelligence, advanced analytics, the Internet of Things, and augmented and virtual reality, are constantly evolving. These technologies offer more groundbreaking application areas and will increasingly be implemented throughout the entire value chain. Against this background, corporations need to fundamentally rethink their organizational setup and embed digital in their DNA in order to remain competitive and reap the benefits of emerging technological opportunities.
However, few companies are set up for taking advantage of the new opportunities offered by digitization and for mastering the challenges that come with these. Nine out of 10 CEOs believe their organization is currently not ideally set up. Most companies focus on adjusting and extending their offerings to more digitally enhanced products or services. On the other hand, just as important, organizational implications are often neglected.
Adjusting the organizational setup to embrace digitization drives significant improvements in the financial performance of organizations. As indicated by McKinsey’s Digital Quotient Benchmark, corporations that adopt a digital-ready setup can quadruple their five-year Revenue CAGR and almost triple their five-year Total Return to Shareholders CAGR compared to corporations that do not foster and prepare for such organizational change.
In order to capture the potential of digital opportunities, organizations need to make fundamental design choices along three dimensions:
- Does the organization have a dedicated chief digital officer (CDO)?
- Is there a digital Center of Excellence (CoE) shaping digitalization centrally, or does every business unit have their own digital unit?
- Do we stay within existing structures or move towards a value-driven agile setup?
- Should the organization build digital skills internally through large-scale re-skilling, build on an external digital ecosystem of talent and partners, or a combination of both?
- Does the organization go for digital skill density with individual top performers or digital skill breadth across the organization?
- How do we best leverage our ecosystem of partners to get access to capabilities across the value chain?
- Do we stick to today’s ways of working, or do we adjust ways of working and the culture coming with these?
- Should a phased or a big-bang approach be taken to organizational digitization?
- Are our business processes set up in the right way to meet the expectations of the digital era (e.g., intuitive interfaces, around-the-clock availability, real-time fulfillment, personalized treatment, global consistency and zero errors)?
An example of a European e-commerce player we served epitomizes how well a digital organization can hit the ground running, when structure, processes and people are all adequately addressed by the transformation.
- On structure, the company at hand replaced the central digital department with dedicated tech employees staffed to cross-functional teams of buyers and software engineers, operations managers, UX designers, and brand managers throughout the entire organization. This new structural setup ensured that digital was embed in every function.
- On the people side, a significant investment was made as the new organizational setup required a new set of skills. Some existing roles became redundant and new roles were created.
- With respect to process, the entire process landscape was mapped, stack ranked against digitization impact and embedded into an end-to-end digitization process. In addition, the newly formed teams had to be steered in a completely new way, going from rather rigid, hierarchical processes to agile, output-focused, tech-driven ways of working.
The extent of organizational adjustments needed to meet the requirements of digitization can differ significantly from company to company and will take some time to implement. Nevertheless, in times of the digital revolution, they are of fundamental importance in order to maintain and expand a relevant position in the market.