How Should We Organize For Digital?
Not since the world went from moving around by horse and cart to the use of steam engines, has the pace of change accelerated as much as it is now. So, when back in February 2018 Forrester published a paper entitled Digital Rewrites the Rules of Business it quite rightly focused on the need for companies to think transformational, rather than incremental when figuring out how to adapt to the digital world.
Many of my clients are on this journey and have asked me the question: “How should we organize for digital?”
Now that’s a simple question …. but it comes with a somewhat complicated answer. Whatever your scale of operation, there are a few basic questions you need to answer before trying to figure out how to organize for digital:
- What is your digital strategy? I know it sounds obvious, but you’d be amazed how often structure comes before strategy as companies rush to “become digital”
- How fundamental and far reaching are the changes you plan? i.e. be clear about how much disruption you are prepared to live with
- How quickly do you need to get there? If the answer is fast, then you better have good decision-making processes in place, because that is often the biggest cause of delays in organization design
- What is your ability to source the talent you need? Be realistic – if you need to go outside, start early
In other words, trying to answer the organizational questions before you have a clear (digital) strategic context is an all too common horse before cart response to the pressure to make rapid progress. Don’t do it! But then once you have the context, from an organization design perspective here are four core questions that you will need to answer:
1 – What’s the right reporting line for digital?
Frustratingly, there is no golden rule, as the answer depends on your circumstances as well as what you are trying to achieve.
For example, at one retail company I worked with the question of reporting line was important as much for its symbolic as operational significance. By having their Chief Digital Officer (CDO) reporting to the CEO, it enabled them to signal the strategic priority of the transformation. In contrast, at another client they felt that while digital operations were being developed, they merited oversight from an established executive, in this case the Chief Marketing Officer (CMO), who could incubate and guide its growth. At the same time the CMO could provide the mentoring the new (and crucial) leader from outside needed while getting established.
Both made sense in the context of their situation, and both were successful. Whatever the choice of reporting line, there will likely be implications for wider leadership structures as decisions are made about what capabilities should reside in “Digital” versus other functions. Which leads us to question #2….
2 – What capabilities should the digital organization “own”?
Decisions about which capabilities should be situated within the digital function will depend on the answers to many questions about what happens elsewhere in the business. There are inevitable overlaps with, most obviously, IT, Marketing, eCommerce, Sales and, in some cases, even HR. IT might seem an obvious home because it is already the “owner” of core enterprise technologies and budget, but don’t jump to that conclusion.
One Fortune 50 corporation I advised made a good case for why you might avoid the temptation to load up IT. They were keen to avoid the risk of digital development needs too easily slipping down the development priorities list and decided IT and Digital should have separate reporting lines. But they also acknowledged their interdependence and established service level agreements (SLAs) that ensured shared accountability for the success of the digital transformation.
The importance of how formal relationships are established between Digital and other functions where there is a co-dependency is a critical component of successfully organizing for digital….. And if you are a mega company, like a PepsiCo or a Nestle with multiple business lines and global operations, it becomes more complicated still – do you allow each BU to run their own digital operation or operate a hub and spoke model? Where do data and analytics fit into this? How much say should product leaders have in the user experience and functionality? There are myriad such questions, and to find a way through the maze it helps to list all the capabilities, map how processes will flow across them, and then determine the most logical set of reporting structures to house the required capabilities. But wait, where will the capabilities come from…?
3 – How to resource Digital?
It’s one thing deciding reporting lines and shared accountabilities, but quite another to agree how to build the teams. This is really a make, buy or rent question. Make, which means developing new skills in existing staff, is only really going to work for skills that are closely related to ones that already exist. If you are early in the digital game it is likely that the real question is whether to buy or rent. This is partly an economic question (full time versus part time needs, cost to hire versus cost to partner or contract), and partly a scarcity question (what is your ability to attract quality talent, are you in a talent scarce location?).
Equally important is the challenge set by how quickly you need to operationalize – the higher the speed imperative, the more likely you should start with a partnering (rent) model, that allows you to be lean inside and carry a variable cost by using external parties.
4 – How ready is your culture?
This might be the most important question of all. You can have all the technology stars aligned, the optimal organization designed, the talent requirements defined, but if the attitudes and behaviors of leaders and norms across the organization aren’t behind it, then you are heading for a world of pain and frustration. Understanding across the company why shifts are being made, how digital translates into commercial value and what new behaviors and norms are expected will be the ultimate determinants of success.
Next time your company plans to expand its digital operations, taking account of these questions will go a long way to reducing risk of failure. If you are looking for outside perspective, let’s chat Redwood Advisory Partners has decades of experience supporting organizations through the design and implementation process of building digital operations.