For most enterprises, successful digital transformation hinges on the ability to interpret customers’ changing needs, recognize technology’s potential to meet those needs, and leverage technology to generate revenue.
The first two challenges are fairly straightforward, but developing revenue-generating products and services requires talent with specialized skills such as artificial intelligence, Agile development, and user experience. It can be hard to find employees with those skills, especially for legacy companies.
One way around this is to create a new digital entity. Digital disruption thrives in a startup-like environment, freed from the technical and bureaucratic constraints of the legacy enterprise. However, separation also increases the likelihood of strategic, operational, and technological misalignment between the digital entity and the parent company, especially at the leadership level.
A recent research briefing by Nick van der Meulen, John Mooney, and Cynthia Beath of the MIT Center for Information Systems Research outlines how Toyota Motor North America routinely places executives in multiple, concurrent roles. Known as multi-capping, this practice lets executives lead digital transformation efforts while maintaining their role within the enterprise.
In 2016, Zack Hicks, then the chief information officer at Toyota, established a standalone company called Toyota Connected to develop new services for customers based on the telematics-based data generated by Toyota vehicles. The new company operated like a startup and was seeded with $5.5 million from the parent company. Hicks became president and CEO of Toyota Connected while retaining his role at Toyota.
As the researchers point out, the multi-capping strategy benefits enterprises and executives in four ways.
Ownership without risk of loss. Often, executives give up their established role within the company when they shift to lead a new business unit. Multi-capping provides a safety net for executives to take ownership of new offerings — especially if executives came up with the ideas themselves — without losing their hard-earned business relationships, pay, and benefits.
Expanded strategic alignment. If leading a digital initiative off to the side becomes an executive’s sole job, it can be difficult to tie that innovation back to the enterprise, no matter how successful. With multi-capping in place, the executive’s work on the digital initiative is more closely tied to their existing role in the enterprise, which improves strategic and operational alignment.
Shared best practices. Housing digital initiatives within a separate entity can make it hard for new skills and best practices learned through those initiatives to be applied to the enterprise at large. This creates a critical learning gap just as enterprises are committing to innovation. Instead of transferring executives and employees from one business unit to another, multi-capping lets these teams apply their expertise across several business units.
Local support to drive scalability. Digital innovations can stall when they are dictated to regional subsidiaries and other business units far removed from corporate headquarters. Multi-capping by putting executives in leadership or board member roles at subsidiaries helps to overcome the “not invented here” bias by showing subsidiaries how the large-scale digital initiative can be applied to the unique needs of their local market.