It takes much more than tenacity and tools to yield significant business value from digital technologies: The enterprise must truly transform itself into a digital organization.
Research I conducted at MIT Center for Digital Business has found that business value comes not simply from adopting digital technology, but from building digital capabilities to transform the way a company conducts business.[1] That means changing employee perceptions about digital work and creating consensus about digital responsibilities without regard to traditional boundaries and limitations. Creating business value of this type requires strong top-down leadership as well as bottom-up collaboration—efforts that are more elusive than they may seem. Moreover, even the best intentions can get derailed at many points along the way.
Oftentimes, for instance, in their efforts to keep up with changing competitive dynamics, executives mistakenly focus on how well their enterprises use technology to accomplish specific strategic objectives – such as establishing stronger customer relationships through a presence on social media, or delivering new services through a mobile application. They overlook the broader impact of change on their organizations’ roles, relationships, and priorities. In fact, executives need to address the design and management of the organization that is expected to deliver on these new digitally-enabled enterprise strategies.
Fortunately, there are roadmaps for leaders follow. When we deconstruct a digital organization, we find that some enterprises demonstrate particular organizational characteristics and leadership approaches that support their current digital capabilities, while also positioning them to rapidly adapt to the next wave of digital technologies in the future.[2] This sustained ability to take advantage of emerging digital possibilities-- what we call digital dexterity-- is the hallmark of a true “digital organization.”
Designing Digital Organizations for Sustained Performance
New digital technologies and data analytics have gained broad acceptance among consumers around the world. Yet the extent to which businesses harness digital technologies to best advantage can vary widely—even within an enterprise. The term “digital transformation” is much in vogue as many firms evolve into e-businesses, re-inventing their customer experience, internal operations, and employee engagement. As noted, relatively less attention is paid to the design of the organization that must fulfill digital strategies. When organizational factors are recognized by corporate leaders, however, innovative possibilities emerge for designing, organizing, and managing highly productive work. Leaders begin to consider new options about how to operate (organizational design choices), as well as what to produce (strategic choices) -- truly maximizing the benefits of their digital tools and capabilities.
Digitally-enabled choices can trigger significant changes such as reconfiguring departments and assigning new responsibilities. But although jobs can be replaced and new skills can be acquired, these efforts are neither fast nor easy. As technologies continue to evolve, leaders may find themselves in the same predicament in one year or even one month, having to adjust organizational design again to meet strategic goals. Long-lasting digital advantage only comes from designing a digital organization: an organization marked by digital dexterity, the ability to rapidly and continuously self-organize apace with advancing digital technologies.
What are the specific rewards of digital dexterity? We have found, for example, that digital organizations establish partnerships, identify talent, or find experts more readily than those that don’t sufficiently adapt their organization to take full advantage of digital tools. They utilize digital information and operations to fuse both digital and human resources fluidly; they can respond to customers’ individual needs and preferences, and balance evolving localized and company-wide needs; they detect emerging trends early and reorganize quickly in response.
A digital organization embodies four interrelated characteristics—not one single practice—that collectively facilitate both digital capability and digital dexterity. For instance, members of a digital organization hold a distinct mindset reflecting a deep confidence in digitization and an inclination to pursue digital solutions. A digital organization also is characterized by widespread digital practices, an empowered and engaged workforce, and access to digital resources. Moreover, we believe that true digital organizations are “people-powered;” that is, they are collaborative, team efforts. Even as organizations digitize and automate processes, they rely on human creativity and leadership to thrive.
A key point is that a digital organization reflects a set of beliefs about digital possibilities, and the organizational practices, workforce characteristics, and resources to make those possibilities a reality. Astute digital leaders shape these four factors and then embed them in the organization, cultivating appropriate behaviors and driving digital investments and decisions
Characteristics of Digital Organizations
Our research reveals the foundational characteristics of digital organizations. These characteristics are integral to the enterprise’s ability to boost digitally-enabled performance in areas such as customer experience, operational efficiency or workforce enablement. These pillars work in concert to produce holistic results that are tailored to the environment and goals of the business, delivering digital capability in the short term and developing digital dexterity over the longer term.
1. Mindset: A distinguishing feature of a digital organization is a digital mindset -- an attitude that reflects a broad tendency to seek out digital solutions, use technology as a tool for competitive advantage, and approach enterprise data in a systematic fashion for customers, partners, and employees. Companies with strong digital mindsets believe that their aspirations are attainable and actively engage with digital solutions. They understand the opportunities, as well as the risks, and they proceed confidently.
As an enterprise experiences success with digital, attitudes begin to change in a cascading manner: new mindsets inform subsequent decisions. For instance, leaders may invest more in data quality or in gathering additional data. They also may try to develop stronger analytical capabilities or expand their workforce with particular or uncharacteristic skillsets.
2. Practices: The second feature of digital organizations is how they transform their operations through digitization, and how much they engage in collaborative learning and data-driven decision-making.
In other words, the more digital an organization is, the more it relies on digitized information to document, control, and monitor internal enterprise operations and to help in decision-making. These organizations also fully embrace collaborative learning as an organizational norm, reflecting a readiness to cross business boundaries to innovate, solve problems, and discover new insights. Digital organizations favor teamwork and partnering without regard to disciplinary, geographic, ownership or other traditional parameters; these practices are shared and encouraged by executive leadership.
Collectively, these norms of digitization, collaboration and data-driven decision-making strengthen an organization’s near-term digital capabilities, while simultaneously developing its transparency, fluidity, adaptability, and resilience for the longer term.
3. Workforce: Digital organizations view their “workforce” in broad terms, acknowledging the contributions of employees, contingent workers, partners, and customers to achieve enterprise goals. Key characteristics of this workforce include technology experience, digital skills, and high engagement. While automation is commonplace, digital organizations highly value their human resources, depending on engaged and self-directed workers to address important issues that are not, or cannot be automated.
A digital culture starts to emerge in an organization as these characteristics of mindset, practices and workforce capabilities gain traction. The combination of collaborative learning norms and a highly-engaged workforce is crucial for developing digital dexterity and becoming a digital organization.
4. Resources: Unsurprisingly, the fourth pillar of digital organizations comprises assets such as digital tools and data. When technology experience is established, the easy availability of data and communication tools complement performance-related outcomes.
Quality data, i.e. timely, accurate, and complete data, is obviously crucial for enterprises seeking digital capability in different aspects of their businesses. Our research shows that an effective communication, collaboration, and coordination toolset is also critical for supporting aspects of digital organizations, particularly collaborative learning and workforce engagement. Together, these essential resources are the bedrock for intense information processing and broad social connections -- a combination that enables nimble actions as well as productive decisions by both humans and machines.
Digital Leadership: Shaping the Organization to Deliver Digital Outcomes
Digital leadership works through the organization to obtain desired outcomes such as concrete capability in specific domains and digitally-enabled performance improvements.
Digital capability refers to the use of digital technologies to transform how business is conducted. Digital technologies could be used to target innovation in domains such as customer experience, internal operations, or even a company’s business model(s), yielding tangible improvements in enterprise performance.
Despite the fact that investment in digital technology initiatives may certainly deliver positive outcomes in the short term, it is insufficient, on its own, to significantly alter organizations. Bottom-up digital activity and technology-centered innovation are great catalysts for change, but they must be combined with top-down leadership and organization-centered change management to fully transform an enterprise.
It is incumbent on business leaders to cultivate the foundational seeds of digital organizations, particularly perceptions, attitudes, and behavioral norms. Perceptions along with corporate culture play a central role in shaping the extent to which an enterprise is digitally transformed. Remember, too, that digital dexterity is dependent on the right combination of enterprise practices, leadership, and workforce characteristics.
References:
[1] G. Westerman, D. Bonnet, and A. McAfee, “Leading Digital: Turning Technology into Business Transformation.” (Boston: Harvard Business School Publishing, 2014).
[2] D. Soule, A. Puram, G. Westerman, and D. Bonnet, Becoming a Digital Organization: The Journey to Digital Dexterity (2015), Working Paper #301, MIT Initiative on the Digital Economy.