Digital transformation requires better organisational structures

The following is an outline of the keynote I gave today at the 7th Social Business Forum in Milan, with slides embedded at the bottom of the post:

When considering the ‘why’ of social business, it is worth starting at an even more fundamental level: why do large firms exist?

Ronald Coase said it was to minimise transaction costs by providing an infrastructure that lets the coordination of work and production happen more cheaply and reliably than if stakeholders went out to the market to source everything themselves.

But that no longer holds true in many cases. At the recent Europas Gathering conference, Emily Brooke spoke about how she founded the bicycle light company Blaze to help reduce cyclist deaths on the road by adding a laser projection of a cyclist 5-6m in front of the bike (generated by the light) that large vehicles could see despite their blind spots. She was able to raise funding on Kickstarter, refine her prototype in the UK and then source manufacturing in Shenzen, China, and they are now in business with a useful and innovative product – something previously only large firms could achieve with such speed.

Where bureaucracy and systems were once a protection for market position against new entrants, they have become a positive disadvantage for large firms, preventing them from achieving the agility they need to compete in new, fast-moving connected markets. The new power in these markets – and therefore defensibility – comes from platforms, ecosystems and the web of relationships within and around a company. To achieve this requires a different mindset, and importantly much more flexible internal structures that are oriented more towards customer and market pull than product or brand push.

At the same time, productivity and the culture of work are changing so rapidly that the notion of corralling a group of reluctant workers into a factory-like structure to extract value from their labour now seems absurd even in many modern factories, where ever new combinations of people and machines, such as the fascinating story of how Toyota are bringing people back onto the shop floor alongside robots, are producing new levels of output.

Companies wedded to simple command and control hierarchies, with micro-managed and often disengaged workforces are facing an urgent need to change. But even well-run traditional firms can now see that they need to be more agile, more ‘digital’ and connected if they are to compete successfully in the future.

Thankfully, we are seeing some signs of progress towards digital transformation. McKinsey recently released the results of a global survey on digitisation that shows some very promising progress in the companies they spoke to, and showing that growth tends to be highest among firms that are using digital transformation to create new lines of business.

But it also highlighted the fact that internal structures and inflexible business processes remain a barrier to change, along with finding and retaining the right talent. These are three areas that are central to the work that we are doing with companies pursuing a digital transformation agenda, and without addressing them seriously, I doubt it possible to truly change.

My friend Sameer Patel wrote recently of his excitement that the current wave of digital transformation is creating real business disruption that is materially improving the situation for consumers of products and services, citing AirBnB, Uber and Alibaba as examples. But he was also typically sanguine about the impact of social business change efforts to date in enabling companies to be ready for this change. The key point here, from my point of view, is that whilst startups are able to disrupt quicker and more effectively partly because they do not carry the legacy of top-down hierarchy and process-centric organisational structures that have become such a hindrance to many larger firms, if large established firms are to enjoy the same benefits, they must address internal change in order to create structures that can support digital transformation. Any company that thinks social media lipstick can hide their Taylorist internal wrinkles is mistaken.

Why do we care? Why not let the old firms die out and let everything be run by startups?

We believe that larger or older firms have so much long-term value to bring to the digital transformation party when they are able to throw off the shackles of old-style enterprise IT, ERP-driven processes and bureaucratic management. Not only that, but if we think the most interesting area of innovation is where hardware meets software and data wrapped up in highly experiential services, then there are many areas such as the Connected Vehicle, Connected Home and the Connected Factory where established firms have a depth of knowledge, scale and established systems that would be very hard indeed for a startup to replace. The best solution in these areas may well be to bring old and new together to create new forms of combinatorial innovation that could potentially re-invigorate the in-decline manufacturing and industrial sectors of Europe and the United States.

This provides a compelling reason to not only continue driving social business efforts forward, but to be more ambitious in seeking the organisational change and new ways of working that social technology can support.

We have written before about the various new models and ideas around organisational design that are made possible by highly-connected social technology in the workplace, and this is the focus of our work with large organisations. Starting with the realisation that hierarchy is just one of several dimensions of organisational design – others being communities, networks and small autonomous teams, for example – we can begin to see how some of the characteristics of new models such as Holacracy, Organising for Complexity, The Connected Company or Kotter’s Dual Organisation can be introduced without throwing away those aspects of the line organisation that are currently working well. The goal in doing this is to achieve the kind of Twenty-First Century company attributes that are necessary for real digital transformation to work.

It has never been easier or more possible to achieve. But where to begin?

Specifically, it makes sense to start by identifying those islands of networked or agile working that probably already exist, find out why they developed and why they continue, and build on them, giving the rest of the organisation visibility of what they have achieved. At the same time, it is good to think about which areas of the business have the greatest need for agility – perhaps those operating in faster moving markets or where cross-silo working is needed – and start to create protected spaces where new ways of working are encouraged and protected until they are strong enough to survive in the wider organisation, or alternatively are found not to work. Encouraging leadership to operate confidently in this emerging network-centric realm is important here, especially where leaders can provide executive support and protection for attempts to create new ways of working and new structures.

We may have been talking about social business and E2.0 for a long time now, so it is not new or novel, but the reality is that even mature adopters of these ideas and approaches are really at first base. There is still a lot it of work that remains to be done in creating the enablers of social business change.

Typically, that means thinking about how social business strategy can be aligned with key systems, processes and people at the holistic (macro) level, the (meso) level of key processes and workflows, and the (micro) level of individual teams, use cases and workplace scenarios. The goal for this kind of business strategy is not to drive adoption of social tools or platforms for their own sake, but to pursue the adoption of new and better ways of working. For example:

3-stage strategy framework.001

In general terms, we think about this as a journey of three main stages:

  1. Social technology adoption: putting in place the platform, services, tools and data to enable social business, and then working on the adoption of new ways of working through use case analysis and development, creating social surrounds to key processes and achieving basic efficiencies through connected and collaborative working. In truth, most organisations are still working their way through this stage.
  2. New organisational structures: moving on to adapt and reform organisational structures to take advantage of what is possible with successful social business adoption – for example, by reducing hierarchical working and creating more agile teams that can operate more autonomously, pursue innovation and run cross-functional, market-driven projects; but also by creating the common platforms, networks and data that make non-hierarchical working possible.
  3. New ways of working: a new approach to roles and tasks, talent support and collaboration; new approaches to network-centric leadership; new hybrid business models and the business structures needed to support them; and, finally, a new culture of work itself.

The important thing is that organisations can realise concrete benefits at each stage of the journey, rather than wait for pay-off in the future. It is a marathon, not a sprint, but the eventual goal of enabling established firms to succeed in digital transformation alongside the new players we are seeing trying to disrupt their markets looks like being worth it. In a sense this is no more than the constant business improvement that large companies should be undertaking all the time, but in this specific instance turning management bureaucracies into socially-connected and networked organisations that can support digital transformation is probably a big shift analogous to the introduction of the personal computer or email in past times.

 

Digital transformation requires
 better organisational structures from Lee Bryant

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