It’s not just tech: Organization design is at the heart of digital transformation

I recently saw a headline asking if I’m ready for the quantum computing revolution. It talked not only about the first wave, but the second wave, of a technology that should be front and center as part of a smart company’s digital transformation. 

You’ve seen them, of course, next-new-thing articles that make it sound like there’s one solution to all our needs: “Our patented technology will have greater visibility into your data, better automation and efficiency, and the absolute best customer experience.” And of course, once it’s implemented, we’re set. Victory is ours!

After 20 years helping companies “be more digital,” I’ve got news: We’ll never be done. 

There will always be another new system promising, well, everything. The only constant is change, right? As a result, transformation should be seen as a journey, not a destination, and successful transformation starts with recognizing that technology, however amazing, is fungible. It’s everything else in your organization that matters. 

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What makes the difference is how well an organization can adapt, a need being driven home forcefully by a pandemic that’s changing consumer and work habits, regulations, supply chains, and business models. The goal shouldn’t be to “be more digital,” or to be like digital-first companies (many of whom fail) but rather to be more adept at change, to build a culture of innovation and learning. “Survival of the fittest” wasn’t about being the strongest or fastest, Darwin said, it was about “who can best manage change.” 

In a recent Harvard Business Review study, “Rethinking Digital Transformation,” only 20% of executives rated their companies’ digital transformation efforts as effective. That jibes with other research suggesting that 70-80% of large-scale change projects fail to deliver the intended results. There are a lot of reasons for the failures, but a critical one is a lack of a clear, well-communicated strategy. Another is starting with the “digital.”

“We see some fundamental disconnects between business goals and technology investments when companies start chasing shiny objects,” Melissa Swift of Korn Ferry said in the HBR study.

It’s critical to make sure that technology selection and implementation are driven by business strategy, not the other way around. Platforms and applications are designed to be flexible enough and feature-rich enough to attract a broad range of customers but not so flexible that development becomes overwhelming. As a result, customers can be left trying to shoe-horn business models into the technology, supported by professional services teams focused on implementations but not the broader planning and change management needed to ensure success. Customers may know all the options available to use a system but may not know or agree on why.

Keys to successful digital transformations/organization design are like those for any major change, starting as I said above with the strategy. Everything else – reporting structures, culture, business processes, and people practices like hiring, training and rewards – need to support a strategy and not be driven by a technology.

There are at least as many models for strategy development and organization design as there are consulting companies. Maybe more, given the evolution of business thinking and professional services marketing. That said, one of the most straightforward models to conceptualize organization design is the Star Model developed Jay Galbraith of MIT Sloan Business School and others. Many of the other models are variations on this theme, and it’s helpful as a way to introduce the basic concepts.

Galbraith’s five-pointed star displays the interdependent considerations of Strategy, Structure, Processes, Rewards, and People, the foundation for design. An organization’s design, he said, affects its behaviors, performance, and culture.

Strategy is a company’s formula for winning, its “why.” Strategy lays out a company’s values and mission, as well as its rationale for the customers it serves, the products and services it offers and the value those provide to the customer – its competitive edge. It also recognizes what the company chooses NOT to do, the things that could distract attention and resources. Implementing a new technology to improve customer service is not, of itself, a strategy; neither is digital transformation – it’s an initiative that supports a strategy.

The hierarchical organization structure as pictured in most org charts is increasingly inadequate in today’s fast-paced environment, where information needs to flow more easily and decision-making needs to be pushed closer to the front lines. the boundaries that define what’s inside and outside the company may blur for companies sharing data and insights with customers to improve services and delivery. There is no one-size-fits-all answer to structure, but companies “digitally transforming” – looking to move fast and innovate – tend toward flatter structures made up of cross-functional teams that help ensure all perspectives are considered. Teams have some level of autonomy to act in support of the overall strategy – freedom within a framework. 

As it’s often used, digital transformation refers mainly to streamlining business processes or operations. That’s also the part of design that can be most affected by technology, including knowledge and financial systems making data more easily accessible across flatter, more agile organizations for faster decision-making. Customer service reps with inventory, order history, and delivery data at their fingertips can provide instant answers and act to build customer engagement. 

In order for change to stick, companies’ reward systems – pay, career paths and other benefits – need to be aligned with the strategy and goals. I worked with a couple media companies that couldn’t get their traditional ad sales teams to embrace selling digital ads. The answer in both cases were comp plans that made it appealing for the account reps to go beyond the way they were accustomed to selling. 

Finally, having the right people is critical. Hiring, recruiting, and training policies should be aligned with the strategy. I worked with one company that couldn’t understand why they were having a hard time hiring a creative, out-of-the-box head of marketing. It turned out the profile that HR used for all hiring was based on an earlier time in the company’s history when it was more focused on creating standard procedures for building out a chain of franchise restaurants than on creating new products and competing with new entries to the market.

A company’s choices on all these aspects of design help determine its culture, which ultimately is crucial to the success of transformation, digital or otherwise. In fact, 63% of executives in the HBR study said cultural challenges were the biggest obstacles to transformation efforts. A nimble culture that can pivot on a dime is less likely to flourish in an organization with rigid hierarchies and layers of bureaucracy. 

All organizations are perfectly designed to get just the results they are getting. Different results require new designs, and new designs mean change.

“Transformation isn’t just a project,” according to George Westerman of MIT Sloan School of Management and author of Leading Digital: Turning Technology into Business Transformation. “It’s something that must become part of an organization’s being. That means putting a culture in place so that transformation becomes a natural way of working.”