Friday, March 13, 2015

The Digital Dimensions of Organizational Structure

The future of digital organizations is complex enough to act intelligently and nimble enough to adapt to the change promptly.

Digital means change, choice, speed, and customer-centricity. One of the key business competencies is agility, which is the capability to adapt to the changes; and the ability to manage complexity more effectively than competitors provides a competitive advantage. From an organizational structure perspective, how can you fine-tune the digital dimensions of your organizational development?

The digital dimension of organizational structure is enjoying a powerful tailwind: Evolution needs catalysts for change. When the enterprise is at risk of being defeated by smaller, nimbler, more agile competitors, then the silos’ owners understand it is for their own benefit to collaborate and build “horizontal” organizational interdependencies to achieve better time to market for global products & services, deploy knowledge from one subsidiary to another, or gain efficiency in the global supply chain. In a traditional organizational structure, the processes are more formal and rigid, that has been the past (and present for some digital laggards). But, nowadays the process dimension is enjoying a powerful tailwind. New generations of digital technologies such as a social platform or other collaboration tools are enabling not only the structured processes of the past but also the unstructured processes of the social enterprise. It is the hybrid organizational structure well blends structured and unstructured processes to run with two speeds: industrial speed and digital speed.

Structured cross-border interdependencies vs. Loosely structured cross-border interdependencies: Structured cross-border interdependencies can be enabled with formal organizational elements; such as standardized business processes and management systems (planning, control), centralized functions at headquarters. These elements function as a set of well-designed highways able to carry the “heavy organizational traffic” of cross-border structured interdependencies across well-known origins and destinations. Loosely structured cross-border interdependencies, on the other hand, require a much greater dose of informal organizational elements such as social networks, shared corporate values & culture, common business language, multi-dimensional skills, regular face-to-face meetings of cross-border people, and so on. These elements function as a large set of small roads (even non-paved) able to carry the “capillary organizational traffic” of emergent cross-border, non-structured interdependencies across organizational nodes.

Strategic synergies and organizational interdependencies have a life cycle: They start as non-structured ill-defined ideas. The informal organizational elements are very effective to carry this “emergent traffic.” Then, some synergies prove to be very successful and need to be escalated. Usually, the original informal elements are replicated and augmented, but the coordination costs increase heavily. This is the result of carrying “heavy organizational traffic” through a network of effective but not very efficient small roads. This efficiency crisis eventually creates the need to incorporate the formally structured elements, which is only successful when the corresponding learning curve has reduced uncertainty to the point where both the strategic synergy and organizational interdependence can be structured. In such a scenario, it is possible that organizations of the future will exhibit a diminishing set of structured organizational inter-dependencies and a larger set of informal organizational elements. The bandwidth of the informal network for “capillary organizational traffic” could expand at a low cost. That would make it cost-and-effectiveness-competitive with the traditional formal network for “heavy organizational traffic.” Then, the new organic, self-organizing system approach to organizational structure could become a reality. And that will be a true evolution for digital transformation!

The digital balance to human nature will need to have some combinations of structural design and incentives: The digital global strategy represents the demand side of organizational design as it points toward the cross-border synergies that need to be developed to create value. These synergies require effective and efficient cross-border organizational interdependence. The “organizational design problem” would be to build the “best” mix of organizational elements (the supply side) that enable the organizational interdependence. What works and what doesn´t, depends on the nature of the organizational interdependence that needs to be enabled. From a talent management perspective, promoting people based on taking advantage of the opportunities for horizontal and lateral engagements is likely to be a core principle for actually building global digital organizations. Maintaining digital balance is a never-ending business life-cycle. The challenge for organizations is to manage its portfolio of relevant cross-border strategic synergies and organizational interdependence with the appropriate mix of enabling organizational elements, engaging digital talent and balancing effectiveness and efficiency.

Due to the “VUCA” nature of digitalization, the business complexity is unavoidable, firms that are skilled at managing complexity can gain advantages by pushing the boundaries of a more complicated business mix that provides opportunities to create inter-business value. The future of digital organizations is complex enough to act intelligently and nimble enough to adapt to the change promptly.


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