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Digital economy

Business leaders gird for ‘organizational explosions’

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You understand there is no one road to digital transformation. You remind your stakeholders that different companies take different paths, and none of them are easy. You warn your team to look out for potholes. But are you ready for “organizational explosions?”

For the last four years, the MIT Sloan Center for Information Systems Research has collected data from more than 800 organizations that are undergoing digital transformation, according to Nick van der Meulen, research scientist at the center. In its study of the data and interviews with the organizations, the center developed a framework for successful transformations.

 

“We’ve found you have to think about digital transformation across two dimensions: operational efficiency and customer experience,” said van der Meulen, who moderated a panel on the topic at the recent MIT CIO Symposium. “If you do both, you become what we call ‘future ready.’” The center describes four typical transformational paths to future ready:

  • Focusing on operational efficiency first
  • Focusing on customer experience first
  • Addressing both in iterative steps
  • Creating a future-ready organization from scratch by spinning off a new entity.

Along the way, companies should expect to encounter one or more “organizational explosions,” which the center defines as “significant, disruptive changes that affect most of a company’s customers, employees, and partners,” according to a research brief by four CISR scientists.

These are explosions in the sense that they blast away traditional structures and hierarchies, making space for new ones that will enable a company to achieve top performance as a digitally enabled business. Rather than tiptoeing around them, organizations that prepare for and successfully manage these massive changes will get the biggest benefits from digital transformations, said van der Meulen, one of the authors of the paper.

The explosions “will come at you differently, depending on which transformational pathway you’re on, but you’ll have to deal with all of them,” van der Meulen said. “So, the important thing becomes how to control these explosions so that they don’t wreck your company, but rather help you gain your transformational goals.”

Explosion 1: Decision rights

The first explosion brings down old decision-maker hierarchies. This means flattening the organization and pushing decisions to lower levels, and it means changing employees’ responsibilities and performance incentives. “People who had a lot of power or who owned individual products or budgets will have to lose some of that power [to make way for] integrated digital offerings,” said van der Meulen.

Paul J. Gaffney, executive vice president and chief technology officer of Dick’s Sporting Goods, said his company is pushing decision-making responsibility to the front line — the retail store — where a salesperson deals with a consumer. “To me, that’s become the true lens of future ready,” he said. “It’s when you give the decision-making power to those moments of truth that happen between customers and front-line associates.”

Management can get prickly about it. “Often people in headquarters believe they’ve finally got to a place in their career where it is their turn to decide what gets done,” said Gaffney.

One effective technique Gaffney has used is to bring customers, front-line associates, and managers together in the same room, so managers can hear what is getting in the way of the best customer experience.

Explosion 2: New ways of working

The second explosion reconfigures how employees work. This means shifting from people working in isolation to working in cross-functional teams that use agile methodologies, for example. It means conducting testing and learning continuously, not just once; forging new partnerships; and even co-creating with customers.

That can require a huge change in corporate culture. “You can’t take the siloed approach to digital transformation, having one person writing new business requirements, then handing it off to somebody else for the next stage,” said Eash Sundaram, executive vice president, chief digital officer, and chief technology officer of JetBlue. That process simply takes too long.

Instead, JetBlue formed small cross-functional groups to focus on certain things, like digital commerce, from end to end. “There is no product handoff,” Sundaram said.

Explosion 3: Platform mindset

Organizations need to create reusable platforms to deliver their value as digital services. This means having modular, service-enabled, automated processes.

KPN, a telecom company in the Netherlands, removed 25% of its legacy systems and software, replacing it with cloud-based platforms and open-source software. It formed a special transformation unit, which built a digital engine that included application programming interfaces to more than 300 back-end legacy services.

Connecting legacy infrastructure to the new platform meant developers could quickly deliver customer-facing programs, according to the paper. For example, one project reduced the time it took to transfer retail store orders for its popular quad-play bundle of services to the company’s main system from 30 minutes to three minutes.

Explosion 4: Organizational surgery

Companies not designed in the digital era require organizational surgery. That usually means restructuring and reorganization to eliminate silos, reduce complexity, harmonize processes, and flatten management hierarchies.

Manulife, a wealth and asset management firm, created a global technology and operations center, which allowed the company to break down geographic silos. Before, “everyone knew only their own piece,” said Lee Ann Murray, global CIO. “Now we can move operations around the world. Our trading is now global, and our technology suite is now global.”

Organizational surgery can mean outsourcing functions that are not strategic to the company. Or co-locating in-house talent with outside contractors: JetBlue has development shops all over the world where JetBlue employees work alongside third-party contractors, Sundaram said.

In breaking down silos, it helps if you can show management how those silos impede the customer experience, said Gaffney, repeating how effective it can be to bring executives, front-line employees, and customers together for a meeting. As managers hear customers describe their experience, they realize why silos must come down.

“In the old days, you could hide your organizational dysfunction,” Gaffney said. “Now the customer regularly encounters your silos and your organizational boundaries.”

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