Updated: Dec 10, 2019
Why are Companies revising Their Organizational Structures - An attempt to Digitally Transform?
This is no longer a secret; companies must transform in order to keep up with technological changes in the market today. Many business professionals refer to this change or disruption as Digital Transformation. Digital Transformation is defined as the profound transformation of business and organizational activities, processes, competencies and model that fully leverage the changes and opportunities of a mix of digital technologies and their accelerating impact across society in a strategic and prioritized way, with present future shifts in mind.
Other business domains describe Digital Transformation as a necessity as companies are struggling to keep up with competition and innovative trends. While going through a digital transformation period, companies must address the following questions. What exactly does this mean for employees within the organization affected by the transformation? Why are companies revising their organizational structures to accommodate this digital transformation wave? What is the industry trend for these kinds of transformation? The questions will be answered in the subsequent paragraphs.
Organizations must adjust to change due to technological advances, customer demands/expectations, and competitive landscape. Which means business processes and operations must gradually change to keep up with industry innovation, market competitors and customer demands. A good example would be gas vs electric cars. In cities like San Francisco where the use of electric cars is encouraged for transportation, electric vehicle charging stations are set up throughout the surrounding areas. This does not mean that all traditional gas stations are going away, at least not in the immediate future, but it does give an indication of the market trend. Change is inevitable and companies must adapt. Corporations that power our economy must do the same, just as Cities will have to build infrastructure to accommodate electric vehicle charging stations.
Companies do this by evaluating its strategy and aligning that with its business model. The leadership team normally directs these changes after reviewing with other organizational stakeholders. Anyone who listens to business news knows of retail companies that have hired leaders in their organization to bring sweeping change to ensure they can engage in the Digital Market. After these changes are commissioned in corporations, companies must manage the transitions. Since change must happen at a macro and micro level in an organization, it normally takes time to accomplish this level of transformation. Consequently, organizations immediately look to change their structure which may also involve re-aligning specific departments . This begins by starting to look at how organizations currently manage the products they sell and the technology which assist them in selling those products. Many companies manage projects around how funding is approved to upgrade, maintain or phase out/in new applications. There are many types of organizational structures such as functional, divisional and matrix. However, what structure or combinations of structures a company goes through depends on the vision of that company.
For the purpose of this article the focus will be on Product vs Capability aligned organizations. A good example of this would be stores like Sears. Sears had multiple departments like Tires, Clothing, Lawn and Gardening, and Catalog Printing department. Each of these are examples of products that Sears built strategies around. More than likely they were created with this distinction to make it easier for customers. In many companies, each of these departments have their own applications and ways of managing the budgets around operating those applications.
The example below depicts different products / departments and how applications may possibly be set up in this retail company. Each department would have different projects because funding would be approved separately in addition to ongoing cost for existing software applications already being utilized. Each of these products / departments are set up for the purpose of different types of consumers. A very common setup across retail companies.
Figure 1, Product Management Organizational Structure
As a customer you may only be set up in one of these departments because each of these products may also have its own data. That data could be sales and transactional data related to customer purchases, returns etc.
In figure 2 below, the drawing illustrates an organization that is aligned by capabilities. For example, column 1 starting from the left shows the Point of Sale Systems. Capabilities centric organization may change to align all sales transactions from all the other products. Instead of managing separate products for each store area, there would be combined items represented from perhaps one data source that is easily accessed from any departments POS system. In capabilities centric types of organizations, most companies move for one entire POS departments to fall under one area. This represents the combined sales of all products, vs the prior drawing where all products were separated sales domains with different sets of data to match.
Figure 2, Capabilities based Management Organizational Structure
Organizations are desperately seeking to strip down and transform their organizations to one that supports the industry's Digital Transformation trend. Many companies are struggling with this change and amount of time and dollars to invest in such changes. It is necessary that there is a dimension of understanding many don’t consider. That dimension is how projects, products and capabilities are managed in an organization. Organizations continue to ignore management methodologies that are currently out on the market which help them to manage and control the accuracy of output/results from various change investments. That methodology widely used is an organizational methodology called AGILE. Agile is a time boxed, iterative approach to software delivery that builds software incrementally from the start of the project instead of delivering everything all at once. Agile lean approach provides the framework that allows any organizational structures to manage the delivery of product changes in the shortest amount of time with the most collaborative approach. Agile forces collaboration among all affected products. It gives insight on where the direction is going and based on set roles, it creates an atmosphere where departmental leads and managers can collaborate on decided upon strategies and develop a roadmap. Organizations don't necessarily need to overhaul their structure; they need to look at changing how they strategically think about the future of the company.
Transforming into an Agile organization with the ability to be adaptive, fail, and recover as fast as possible ensures the company can handle the fast-moving pace of a Digital Transformation. A debunked Moore’s Law introduced by Intel's founder made a statement to the tune of technology processing chip speeds being able to double every 18 months. This was loosely coupled to technology in how business is done, which for most translates to the retail market. E-commerce has changed the market and is forcing those who are not digital to rapidly look for how to keep up with the pace. At the same time for those companies that are already in the process of transformation. It is forcing them to rethink their strategy and take a serious look at their own digital transformation plan. Many companies do focus on the organizational strategies’ vs embracing the Agile methodology of adaptability and collaboration
In conclusion, transformation will either be challenging or unsuccessful if organizations do not embrace an iterative approach to invent and deliver software. Adapting to an agility approach should be the first step to ensuring a successful Digital Transformation.