Lessons Learned: Organizing for Digital Transformation in Industrial

Conceptualizing digital transformation

Digital transformation is currently one of the key challenges that industrial leaders are grappling with. As industrial companies evolve to ensure they stay relevant in the new ecosystem, building a high-performing and effective digital team should be a key priority.

• What is the ideal digital organizational model?
• What are the pitfalls to watch out for when creating a digital team?
• What part does culture play in designing organizational structure?
• What will be the metrics by which (digital) performance is measured?
• How long will a standalone digital team be required?

Organizational models for digital

There are three main organizational models to drive digital business: centralized, decentralized, and hybrid. Each has its own strengths as well as vulnerabilities. In some organizations, the hybrid model is referred to as “federated” or “hub and spoke”.

Key considerations when developing the organizational model for digital

Evolve existing model
If digital capabilities are currently organized into a central digital team, it is timely to evaluate how to successfully integrate these capabilities with business units. If digital experts are scattered throughout the organization, it is important to centralize key capabilities to ensure synergies and a consistent strategy and approach.

Evaluate cultural readiness
Evaluating a company’s cultural openness to digital adoption is important in determining which organizational model will enable the digital team to be most effective. Look closely at other functions in the organization and how they are structured, as some cultures cannot integrate functional models that run counter to those which their business is accustomed to.

Partner closely with HR
No matter the stage of the digital transformation, engage HR to implement a program to support the direction, create a training agenda and get wise as to how much you can accomplish in a certain span of time, and determine what talent may need to be developed or acquired to achieve the desired results.

Design KPIs that encourage collaboration
It is important to ensure that the performance metrics for the digital team encourage the outcomes the organization is trying to achieve. For example, report digital revenues at business unit level to encourage collaboration with the business units and implementation of digital concepts there.

Lessons learned

Action may be necessary, but timing is everything: Decentralizing might be the right decision to ensure that business units take ownership of their future, but a premature shift can have negative consequences. Some executives shared the frustrations of decentralizing before the digital strategy has been woven into the fabric of the organization.

Transformation is a shift in process and culture: Digital transformation requires a shift in culture as well as in organization structure. Since culture is driven by the top leadership of the company, digital transformation needs to be a priority for the Board and the CEO. Culture change requires an environment that encourages success but also leaves room for failure. This happens in “people policies” – such as performance assessment and compensation. In addition, some companies are investing in office layouts that facilitate a culture of collaboration, flexibility, and innovation.

Integration blurs the line between digital and non-digital: Over time, digital will become integrated into the business units, and the distinction between digital and non-digital will disappear. It is likely that key digital talent, especially those who have had P&L responsibility, will move into executive roles in the business units.

As digital migrates into the business, the profile of the industrial executive will change

As a result of the integration of AI and an increasing reliance on algorithms for decision-making, executive behaviours will need radical rethinking. The industrial experts we spoke with have expressed the importance of the following traits and skills:

• Being a collaborative and empowering leader
• Openness to “not invented here”
• Understanding the art of the possible
• Influencing/managing stakeholder expectations
• Ability to execute in a complicated, matrixed structure

Additional Authors

Matti Takala is a Research Director based in Helsinki.

Samppa Nylund is an Associate based in Helsinki. 

Natasha Treschow is a Knowledge Associate based in London.