Organizational models for the digital age

Faced with the need to be flexible in order to compete, companies are seeking alternative models and organizational architectures that afford them the agility to adapt quickly to changes in their environments of concern, particularly that of digital transformation. Technological transformation and stakeholder demand challenge companies to be proactive in anticipating and respond quickly to trends by redesigning their structure, models, and organizational architectures. Companies strive to be relevant in their markets, but efforts are often insufficient, especially when aligned to an inappropriate organizational model. Companies that were not born innovative need to review their activities, so as not to lose relevance in the lives of customers.

The expression “digital transformation” has gained currency lately and, it appears, will become ever more common, due to the fact that no company unwilling to invest in this transformation will remain competitive. Samir El Rashidy, Director of Solutions, Services and Pre-sales for Latin America at Orange Business Services, has said as much. Digital transformation and the necessary migration of the company to the digital age do not relate to only the technological dimension, but also models of governance, organization, management, business and, above all, people – as people ultimately determine change in organizational culture. In this way, employees need to act as change architects of the transformation for the success of the company in the digital age.

According to studies developed by Oxford Economics, IHS, IBM Analysis and IDC-Seagate Data Age 2025, as early as 2025 the digital economy will account for some 24% of global GDP, or about $23 trillion.

Studies have been developed to identify alternatives to prepare companies to deal with the challenge of digital transformation.

One such study was conducted by Yves Moyen, Vice President of Digital Services & Retail, IBM Services Latin America, and published in the Harvard Business Review. It addresses five models, or five types of organization, for managing digital initiatives and programs: Entrepreneur, Centralized, Insular, Center-Led and Neural. These can be seen in Figure 1.

The choice and consequent adoption of these models is determined by three factors: the company’s digital maturity, organizational culture, and business momentum.

The Entrepreneur model is generally adopted in the early stages of a company’s digital journey. The responsibility for digital management is decentralized and diluted. According to the author, it is common in this model for management to wear two “hats”: because of the lack of digital maturity, it is common for IT leaders to take on digital management concomitantly. Moyen further states that, due to the absence of policies, guidelines or standards, and with a minimum of coordination, this model favors diversity and a profusion of ideas in each of the business units. The adoption of methodologies for digital management lacks coordination, and it is common to observe diverse approaches to agile, design thinking, prototyping, digital factories, etc. On the other hand, this lack of structure and direction generates diffusion of priorities, inconsistencies, inefficiencies, redundancies, and rework, which effects a low rate return on digital investment, low traction, and low rate of progress in the digital journey. For these reasons, the Entrepreneur model is often is often followed by the Centralized model.

In the Centralized model one observes an organizational unit headed, as a rule, by a Digital Officer (DO) or another IT executive. The planning and control of the digital agenda is determined by this unit, and the goal is autonomy, combined with self-sufficiency. This model only works well, according to the author, with a DO with extensive experience, digital knowledge, and servant leadership skills (in this context, this means self-denial, dedication, and altruistic behavior for the benefit of the organization and its members) within a culture that values ​​and respects corporate guidelines. In addition, the centralized model is particularly useful where there is excessive entropy in the definition of the digital agenda, and a “management shock” becomes necessary, bringing about greater discipline and methods common within the business and across departments.

In the Insular model, digital management is fragmented into “islands” of planning, control, and execution. This fragmentation may be a result of the existing governance model (the group operates the business independently and the corporate role is minimalist) or the low priority or immaturity of the concept of digital transformation. They can be companies, business units or geographies that operate independently, without the direction or coordination of a central or corporate unit. As a rule, each unit has the autonomy to define its digital agenda and investment in digital technologies – which usually mirrors current policy regarding with technology investments in general. With autonomy in management comes the responsibility to define a robust agenda of digital reinvention (in line with the imperatives of the business) and the necessary investments. Competition between units may be stimulated, which may result in an acceleration of the digital project. On the other hand, the Insular model is dependent on collaborative leadership and the organization of personnel so as to favor synergistic collaboration.

In the Center-led model, digital management is led by a group of executives who coordinate and ensure the consistency of the digital agenda and associated investments. The focus is on going digital at the corporate level (while maintaining flexibility vis-à-vis the specific strategies of different departments), synergies within the business and between departments, and the sharing of experiences and best practices. This assumes that multifunctional teams are in place to leading and execute initiatives at the business or departmental level, adopting common policies, incentives, and metrics, while maintaining flexible processes. As the author points out, this model requires high digital maturity and will likely fail in an environment where leadership has not yet defined ambition, digital agenda and funding for the journey.

Finally, in the Neural model hierarchy is defined by knowledge, organizational maturity, and effective contribution. Self-organization, unsupervised learning, collaboration, and connectivity are fundamental aspects of the Neural model. The decision-making process can be controlled or influenced by one or more network nodes simultaneously. The sharing of ideas is frequent and multipolar, with no hierarchy defined, introducing high potential for synergies and collaboration. On the other hand, the Neural model requires greater risk tolerance and a culture of experimentation valuing ​​diversity and tolerant of ambiguity.

According to the studies developed by Moyen, the Entrepreneur and Centralized models are more often adopted by companies initiating the process of digital reinvention. On the other hand, the Insular, Center-Led and Neural models are more present in companies with a higher degree of digital maturity.

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