In today’s digital economy, growing companies are often going through some sort of organizational change. While restructuring can be difficult, approaching it in a methodical way can improve financial performance and increase innovation.
A recent study conducted by the MIT Center for Information Systems Research found that the typical company goes through an average of 7.2 reorganizations over a five-year period. That’s roughly one reorg every eight-and-a-half months. Getting these reorganizations right can pay off, though: Top-performing firms that successfully restructure grow nearly 12% more than their industry’s average and create 45% of their annual revenue from products introduced in the past three years.
The key to unlocking new digital value, according to MIT CISR research scientists and is aligning a reorganization around four levers: customer, capability, commercialization, and component. Here’s a quick look at what it typically takes to succeed with each lever.
Goal: Identify new, unique types of customers and deliver tailored customer journeys to them.
Requirements: Understand the persona, customer journey, data model, channels for engagement, and other characteristics of each customer type.
Process: Focus on specific customer types, drivers of sustainable growth of those customers (such as client acquisition or increased engagement), and the right market segments to target.
Results: According to the CISR research, top-performing companies focused on an average of nine unique customer types.
Governance: These projects are usually led by business unit heads who engage with each type of customer.
Goal: Create shared business capabilities to gain speed and efficiency.
Requirements: Identify which capabilities are common across customer types, such as a customer profile shared across multiple accounts.
Process: Explore ways to standardize, automate, brand, and reuse these capabilities to provide a common customer experience and generate greater insight into customer behavior.
Results: Top-performing companies tend to offer at least six business capabilities as a service.
Governance: These projects are usually led by a shared services group and/or chief operating officer or chief information officer.
Goal: Produce a new revenue stream by commercializing an internal capability.
Requirements: Embrace the anything-as-a-service (XaaS) model to drive value from the company’s own efforts to improve services.
Process: Find opportunities to serve more customers with existing capabilities, such as when a competitor exits a market or new compliance mandates emerge.
Results: Top-performing companies generate an average of 56% of their revenue from the XaaS approach.
Governance: These projects are usually led by the head of business-to-business sales, working alongside owners of business services.
Goal: Drive consistency and speed to market with embedded digital models, also known as components.
Requirements: Embed, nurture, and reuse components of self-contained business capabilities across the organization.
Process: Identify components that are fit to be reused, and share them using application programming interfaces.
Results: Top-performing companies are able to reuse up to 80% of their components.
Governance: These projects are led by the owners of the business capabilities embedded within the digital module.
Organizations need to use all four levels in unison to create digital value, the authors write. That takes time, and multiple iterations might be needed before leaders get everything right. The governance model is critical here because it identifies who owns each lever and encourages communication among stakeholders to help find additional opportunities to reuse capabilities and create components.
Like any large-scale corporate initiative, reorganizing to create digital value needs the support of the CEO and the board; their buy-in makes it easier for owners to move the necessary levers to hasten reorganization. Metrics are a must as well because owners need to know whether their efforts are hitting the mark and determine where resources might need to be reallocated.