Wednesday, May 14, 2014

Organizational Structure and Digital Transformation

The real digital organization is wired to change and designed for innovation. 

Majority of organizations are designed to improve functional efficiency in the industrial era; and many traditional organizations today are running at two speeds, with the industrial speed, it can continue to keep the business light on; and with the digital speed, it will adapt to the more frequent digital disruptions, wired to change and designed for better innovation and long-term digital transformation. More specifically, how much influence does organizational structure or management hierarchy have on efficiency and innovation? How do you analyze your company's organizational structure for efficiency/innovation and radical digital transformation?

Organizational structure and its impact on efficiency and innovation could play either a positive or negative impact. The bottom line is how well the organizational structure is being influenced by the factors mentioned below: 
-Communication: Does the chain of communications flow easily or does it stop at one level? 
-Culture: Does the culture influence collaboration, cross-functional team application? 
-Management: Does management endorse open source knowledge and mindset? 
-Approach: Does innovation take the top-down or bottom-up; inside-out or outside-in approach? 

It depends on the best scenario to execute a specified business strategy. The successful organizations adopt one of three strategies and build their organization to deliver the strategy. The three strategies are product leadership, customer intimacy, or operational excellence. Customer intimate organization offer the “best solution” and are all about customization, retaining customers and spending the customers’ entire budgets; operationally excellent organizations offer the “best value for money” through standard (perhaps configurable) products delivered with high degrees of automation. To deliver these strategies, you need to build an organization with certain characteristics aligned. Generally speaking, having fewer organizational layers, so that everyone in the organization is closer to the organization’s leadership, the visionaries, or having some sort of direct line to give everyone an opportunity to contribute to the vision seems like the best way to be innovative.

There are many factors that influence and have an impact on organizational efficiency and innovation: Such as leadership, culture, organizational structure, people, technology, competition, market segmentation, roles and responsibilities, performance measures, organizational controls (budgets, authority, etc), process and information systems.etc, and these factors are interrelated if you don't have the leadership, can you have the culture of innovation... if you don't have the right people, can you innovate, etc. Therefore, changing organizational structure (managerial hierarchy: Control/information flow structure) is an easy part, however, without considering the correlation of varying factors listed above, change can flow on the surface whereas transformation needs to permeate into business vision strategy, culture, communication, process, etc.

Hence, digital transformation is a natural process and rather effortless to maintain, adjusting organizational structure could be necessary, but not sufficient. Transformation" has to go a step further, and involves internalization of the new values and conceptual model, so that the newly required behaviors don't require the same kind of effort and vigilance. Instead, the newly established behaviors will be in harmony with the internalized values, the transformed person or organization as a whole, and ultimately achieve the new level of efficiency and lead to the next level of innovation.


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