Strategy and Governance: What is a Digital-First Operating Model?
In this blog post, I look to introduce a Digital-First Operating Model framework for Chief Information Officers (CIOs) and other executives leading organizational change. If you haven't already done so, make sure to listen to the podcast (or watch the video) associated with this post below and join the conversation on Twitter by using #AskRangle.
It’s all about value!
Digital solutions are accelerating the performance and capabilities of businesses, yet many struggle to keep up with the new pace. The way we consume and create value is changing faster than ever and companies must adapt their organizational models equally as fast - if not faster - to gain the advantage.
This is not about disruption and in fact, the word disruption is often used in the wrong context when we describe what’s happening. Companies that have failed to remain relevant have simply been slow in reacting to changes in user behavior and perceived value. Their value proposition has become less relevant to their customers when presented with other options. Consider how generational change is constant, and the attitudes and behaviors of this generation are different than the ones that came before it. The surge in shared workspaces, the maker-economy and crowd-sourcing are all examples of this in action. There is no disruption here; work is still being created, things are still being bought and sold. Digital has simply introduced new value propositions and that has forced companies to rethink how that value will be experienced, delivered and acquired.
“Don’t mistake a tired value proposition for being disrupted”
When we consider what it takes to stay relevant, one of the biggest competitive advantages a company has is its ability to make rapid, informed decisions. An adaptive business is able to consume new information and adjust accordingly, while at the same time removing the barriers that prevent innovation from occurring. Digital tools, along with a Lean strategy and the right Agile mindset, enable companies to move faster and unlock new capabilities along the way. These new capabilities begin to create new value propositions that then transform your business model or parts thereof. Hence the term digital transformation.
“Digital transformation cannot be achieved through existing capabilities and models. That’s why it’s called a transformation “
Why focus on Operating Models?
Each business has limited resources and is therefore constantly prioritizing where to invest and focus. Those resources are consumed during daily operations in service of your business model. Customer-perceived value is thus operationalized through your operating model. For this reason, we must look at changing our operating model if we’re to optimize our organization and unlock the internal capabilities required to drive Digital Transformation.
It’s important to close the gap between the long drawn-out planning cycles and execution as quickly as possible. At the same time, it doesn’t mean every company needs to act like a startup either. A key barrier to remove is an over-reliance on big pilot projects. Companies often think they’re being Agile but instead of a nimble POC, they fool themselves with big pilot projects that in actuality take a long time to test before deploying enterprise-wide. Removing this barrier will increase the success rate of your innovation and digital transformation initiatives. Another barrier to remove are the silos in your organization that are hindering your digital efforts. A digital project team or innovation team working in the confines of a business unit or lab are not going to drive the organizational change necessary to achieve desired results.
With that in mind, we must first decide if our goal is Digital Business Optimization or true Digital Business Transformation. Often times, the optimization of our business for digital allows for transformation to occur. Wherever you choose to start, know that it will have significant impacts on your approach.
Digital Business Optimization or Digital Business Transformation?
The tactics for both approaches will require changes to your business operations. The degree of severity is what will vary between the two. As a result, the most successful companies deploy a governance model that has three components to it:
Signaling change and a willingness to reinvent themselves. The leadership team provides the confidence to experiment while at the same time reallocating resources from ‘running the business’ or ‘scaling the business’ to ‘transforming the business’.
Rapid execution of Lean digital initiatives. Avoiding the long drawn-out and multi-year initiatives typical in enterprise that depletes the energy of teams and delays the realization of results, and more importantly, learnings. Integral to organizational readiness and change management when initiatives are ready to scale enterprise-wide. A bottom-up approach counters the overly rigid and often slow top-down approach.
Multidisciplinary teams working with autonomy across organizational boundaries. Value creation within an organization crosses multiple business units, as do the processes and policies that support them. So must our digital initiatives have representation across the organization. Focus on realizing key business outcomes and new capabilities.
Scaling across the enterprise
With the appropriate governance model in place, the focus moves to scaling your digital efforts across the organization. As enterprises often grow organically over time, so do their operations which lack the cohesive and systematic design required to handle the higher pace of change and adaptability enabled by a Digital First Operating Model. Here we look at four areas of focus to deliver an integrated set of changes to allow your digital initiatives to scale:
The people in your organization (your employees) are the ones that create value and deliver upon your business model. Seek to enable them through digital tools, Lean / Agile frameworks, and the necessary data to accelerate value creation. The added benefit here is that happy and productive employees are recognized by your customers who in turn provide profits that you can invest back into your employees. This virtuous cycle is the true test of your company’s culture and operating model.
As you introduce new digital tools and frameworks, you must adjust your processes so that your employees may move at the new pace afforded by digital. As your organization embraces digital and becomes more adaptive, so too must your processes. Seek to eliminate rigid workflows and command and control models for ones that recognize experience, new learnings and changing user expectations.
Your people and processes are governed by the policies that are part of your operating model. These too must change in order to meet the realities of a digital-first organization. Seek to implement a new set of policies that encourage experimentation and small bets that may or may not always succeed. The budgeting process, metrics and how you evaluate resource allocation must be revisited as part of the process.
Digital platforms are what enable you to scale. Small Proof of Concepts (POCs) grow into enterprise platforms rapidly in digital-first organizations. Self-service platforms enable innovation and further remove blockers to efficiency and decision making. A personalized platform economy within your enterprise is the foundation of a truly Digital First Operating model.
Partnering for success! Hand-offs are incredibly dangerous in a project and even more so in your transformative initiatives. They introduce risk, loss of context and ultimately lead to failed accountability. We mitigate hand-offs in digital projects through agile frameworks and delivery methodologies when compared to traditional, gated approaches. Yet we fail to address hand-offs when working with internal teams, partners, and vendors.
When the planning and strategy are defined by the executive team and then handed over to the implementation team, we introduce a point of weakness. The transfer of vision and goals is rarely seamless when conducted in isolation of those who are responsible for their realization.
“We mitigate hand-offs in digital projects through agile frameworks, yet we fail to address hand-offs from the planning phase to the implementation team”
As a best practice, bring your implementation teams and partners early on into the process of establishing the strategic plan and vision. Leverage your partners and their expertise to help you identify the vision state and how to get there. More importantly, build accountability by having the implementation team also define the measurement framework that will monitor and guide them towards success. Your partners are called that for a reason, so look to deeply partner with them through a shared vision and alignment of what mutual success looks like.
Budgeting for Outcomes
There is constant pressure in organizations to evaluate and invest resources against competing priorities. The trouble is that the budgeting process typically occurs annually and with the information available at that time. Limited resources are fixed to projects after a long planning process. As we’ve come to see, adaptive organizations strive to re-prioritize resources based on new information and learnings as they become available. Budgeting, and the necessary changes to its approach, therefore become a critical function in your governance model.
Allocating resources for ‘transforming the business’ with a shift in focus to smaller ongoing tests enables an Agile mindset in the budgeting process. Accepting that not every test may payoff is part of the new mindset. Focusing on outcomes instead of projects further simplifies the process to help you understand how much to invest in any given initiative.
Measuring progress against desired outcomes is a critical component to the process and allows rapid reprioritization as necessary. Having the right measurement framework and data available will inform your budgeting process and completes the circle established at the start of this blog post. Rapid, informed decision making is one of the best competitive advantages available and necessary for an adaptive organization to thrive.
Digital-First Operating Model in Summary
The journey to becoming an adaptive organization, able to predict and defend against changing conditions, involves many moving parts. Rarely is a single project team enough to drive the change necessary. A Digital-First Operating Model seeks to align your organization's limited resources, people, processes, policies, platforms and even culture to unlock new capabilities and speed afforded by digital.
Enjoy the journey and know the outcomes will be worth the investment.
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