Wim van Hennekeler

Digital organizations

Digital organizations

In a recent survey, four hundred senior managers in Europe and the United States were asked to state how they expect their companies to fare in the digital era. What aspects of the business will experience most problems? The answer was clear: any obstacles are caused not by technology, but by people and the organizational structure. Anyone who fails to address this situation will, the respondents suggest, be left behind. What actions should organizations take based on the results?

We hear a lot about the ‘digital revolution’. This term means different things to different people, however. A joint study run by Cognizant and The Economist therefore applied a very broad definition, as reflected by its title: People – not just machines – will power digital innovation.

Required skills and main effects

The study not only examines the technological dimension of the digital revolution and the new market opportunities it creates, which are already apparent to many organizations, but it also considers aspects such as organization, methods, procedures, talent development and change management processes. With so many points to consider, it is hardly surprising that the full implications of the digital revolution remain unclear to many organizations. Nevertheless, it is these aspects that the interviewees consider to be the key success factors in the digital era. Respondents also place these aspects at the top of the list of qualities which their respective organizations are currently lacking.

Sixty per cent of respondents cite the formation of multidisciplinary teams – working across the boundaries between traditional departments – as the most important new skill to be developed. In second place comes the recruitment of specialist personnel (58%), followed by the use of specialist third-party service providers (56%). By comparison, the seemingly obvious activity of acquiring digital business scored just 33%. Respondents clearly consider digital innovation a matter for the organization itself. You can’t just buy it off the shelf.

Another interesting finding was revealed by the question, ’what will be the main effects of improvement in these skills and qualities?’ The top answer, scoring 57%, was ‘greater chance of success in innovation’. In joint second place with 40% was ‘improved cooperation within the organization’, ‘greater agility’, ‘new markets’, ‘staying relevant’ and ‘improved customer and supplier relationships’.

Organizations and ecosystems

Many organizations have rolled out digital applications, doing so in their own manner and addressing their own traditional markets. They might, for example, implement a new communication channel for their customers, intended to replace the traditional channels in time. In the past, if you were planning to buy a new car you would first spend hours at the kitchen table poring over the various manufacturers’ brochures. You would then visit the dealer, where the salesman would explain the options in minute detail and help you to complete the order form. Today, you design your own car using the online configurator: a prime example of a far-reaching innovation. However, this is not the type of digital innovation with which the study is most concerned. Having used the configurator, the consumer must still visit the dealership to complete the purchase. The nature of the change is therefore quite limited: traditional processes have been replaced by digital processes which serve the same purpose. While this change does have some impact on the organization, that impact remains visible and manageable. The changes which concern the senior managers in the survey go much further. They are talking about ‘disruptive innovation’, whereby the changes combine to create a new dynamic, a new style of interaction, which is increasingly transforming the traditional economy into a connected economy. Service provision and production processes are being redesigned from scratch.

We can once again take the car as our example. In the digital economy, it becomes a connected car, constantly transmitting and receiving data which can be used for various purposes. An insurance company, for example, can adjust the driver’s premiums based on data relating to his driving style. The car is also connected in terms of other data flows and data analyses, which can relate to widely varying aspects such as the health of the driver, the condition of the vehicle, safety and information to support technological innovation in the development of new models. The car has become a platform, to use the term favoured in the digital era. It is a mobile repository of data, software and analyses, being constantly tracked by various organizations with diverse motives and objectives. Those organizations form the ecosystem around the platform. Is it then appropriate to speak of an ‘organization of organizations’? Is the ecosystem an organizational form, albeit a dynamic and constantly changing one? Is the car itself an organization?

To give another example: the American multinational General Electric (GE) has changed its strategy and is now focusing on becoming a software powerhouse. GE will continue to manufacture products, but intends to mobilize and exploit all relevant data connected with those products. The central principle of GE’s business plan is now permanent data collection. The production process has become the platform. All the smart data around that platform is the ecosystem. GE determines the form of the system and pursues ongoing improvement. In fact, as a learning system, it improves itself.

Ecosystems may appear to be a new phenomenon, but in fact they have been with us for a long time at both the large and the small scale. Consider WeWork, for example, an American company which has developed a global network of shared facility workspaces for startups, freelancers and small businesses. Five years ago, WeWork had three hundred shared locations. At the time of writing, it operates no fewer than six thousand.

The digital organization: does it really exist?

What skills will organizations and individuals need to function effectively within the ecosystem? According to the survey respondents, the basic requirements are interdisciplinary cooperation and the ability to learn quickly, develop talent, form smart coalitions, exploit market expertise and constantly reinvent yourself. In short, the very skills and qualities for which businesses using the WeWork locations are noted.

The development of these skills is, however, far from straightforward and organizations can take widely differing approaches. Two questions then emerge: what form should the organization take in the digital era, and how do you transform the existing organization to achieve this?

A ‘digital organization’ is almost a contradiction in terms, at least when we apply the traditional definition of an organization: a structure within which a group of people work to achieve certain business objectives. In the digital economy, this type of organization is too static, too hidebound. The organization – in the sense of the structure that a company organizes around itself – must be flexible. It must be capable of ongoing modification and adjustment. The organization then becomes a fluid community of employees, temporary expertise and synergic links with other organizations and ecosystems. Knowledge workers must have the confidence and opportunity to respond quickly within level structures. Good leadership will encourage effective action. Such leadership is not concerned with the ‘how’ but the ‘what’. The survey respondents see potential obstacles here, because many managers have built their career on very different leadership principles. Their focus is limited to their own department and they are concerned with the set procedures that their immediate subordinates are expected to follow. They are far less inclined to think in terms of multidisciplinary processes which straddle departmental boundaries. And yet, the survey respondents consider interdisciplinary thinking to be the most important skill of all: a basic prerequisite of success in the digital world.

I recently attended a workshop organized by a financial institution at which we were invited to discuss the consequences of the firm’s digital strategy in terms of organization and business model. It became apparent that management skills and attitude were a matter of concern. As one contributor said, “We don’t seem to have the right kind of managers for a digital strategy. But we can't just replace the lot of them with a team of bearded and tattooed hipsters.”

This comment relates to an important aspect of the digital revolution: the transformation from conventional organization to digital organization. In its simplest form, a transformation can be defined as ‘helping an organization from A to B’. However, a transformation which involves the development of ecosystems is never complete. Having arrived at B, we must proceed to C, then D, and so on. At the same time, the ability to make an effective transformation must be seen as a key quality and another prerequisite of success. At one time, transformation was a temporary state on the way to a new, stable situation. Today, there is unlikely to be a stable situation in sight.

Perhaps the comment about hipsters was well founded. Companies must undertake the transformation themselves, based on their own organization and resources. Obviously they cannot replace all their managers, but some will have to develop new skills and competences. Insights and knowledge gained from outside the organization are very important, as is working alongside creative and innovative people with a different mindset. However, it is not possible to simply brush the existing organization aside. Some publications about the digital revolution take an overly simplistic view. They are based on the premise that there is an ‘us’ and a ‘them’: the winners and the losers in the new economy. That is perhaps too stark a division but there is indeed a digital skills gap. The survey respondents consider bridging that gap to be the greatest and most important challenge of all. It will be difficult, but there is no alternative.

Wim van Hennekeler is Head of Cognizant Business Consulting, Benelux.

Gepubliceerd in Management & Consulting nr. 3, 2017.