Digitalisation 2.2 – Impact on Organisational Structure

How Does Digitalisation Impact Organisational Structures?

Intro

This article is part of a series looking at how digitalisation affects an organisation as a whole.

The series explores how all aspects of a business are impacted and interdependent. As mentioned in the previous article, we use the 7S model as a framework, a concept which considers all essential parts of a business. The model is based on the premise that, for an organisation to perform well, 7 elements need to be aligned and mutually reinforcing – this video demonstrates the interdependencies. The model can be used to identify what needs to be (re)aligned or how to maintain alignment (and performance) during times of change. It effectively illustrates the organisational impact when managing accelerated change like digitalisation.

 

 

 

 

 

 

 

Structure follows strategy – we have all heard this saying (Alfred Chandler, 1920’s). Nowadays, we have a more balanced view, arguing that the relationship between strategy and structure is reciprocal. In the words of Henry Mintzberg: “Structure follows strategy … as the left foot follows the right.” Digitalisation affects all parts of an organisation, including organisational structures.

 

Why should we bother?

In times of digitalisation, strategy development needs to be fast. So your organisation needs to react quickly to strategic adaptations. This requires a clearer focus on market opportunities and changing customer demands. If competitors respond quicker, you lose out.

Your future focus should be on true customer engagement, core value chains and integration.

 “Digitalisation is not just about jobs. It challenges the very core of what today’s corporation is all about: efficiency, long-term stability, predictability. Does this mean the death of large corporations as we know them?“

 

The different parts of organisational structure

What about management structures?

These are traditionally visualised in charts designed from the top down, providing clarity and boundaries. In very large organisations, logical steps such as matrix systems are implemented.

An EY survey shows that large companies attempting to digitalise struggle with “unsuitable” structures and “inflexible” business processes. Many also lack human talent ––particularly analytical know-how ––to run digital projects, employee incentives and processes to measure digital ROI.

“We need a structure that facilitates the horizontal flow of resources and know-how. Nowadays employees are moved across teams, to work on large projects or product development processes, without being released from their existing positions.”

Internal digitalisation will result in a rapid shift away from command-and-control and matrix structures towards networked organisations. Companies which recognise the informal networks that drive them are better positioned for this. They can use these networks to adapt and evolve quickly.

Future organisations need to react to digital insight faster and readjust activities such as task allocation, coordination and supervision. They need to focus on achieving organisational aims. Therefore corporations will break up into smaller units to become ‘easier’ to govern.

“Instead of a corporation of 50,000 employees,
you will see 10 business units of 5,000.”

 

How will organisational units change?

Many traditional management structures emphasise specialisation, rigorous configurations that divide a company into units. These are managed individually, often focusing on planning and efficiency, which results in inward-looking silos.

These barriers need to be broken down. In management terms, this means setting up cross-functional projects, implementing supply chains, total cost of ownership systems and adding interdependent KPIs. Offices need to be designed with cross-communication and –collaboration in mind. A beautiful example is the purpose-built O-shaped office of TeamBank (Germany) with all departments arranged along the value chain. Christian Polenz, board member, said:

“Future office structures need to support the natural flow of businesses.
Designs need to encourage openness, connectivity and collaboration.”

The objective is for employees to engage outside their box, consider the bigger picture and recognise their own vital role in delivering true and measurable value to customers.

 

Roles & Responsibilities in the new era

Currently, R&R are clearly defined by a profile outlining what is and isn’t part of someone’s job. This rigorous logic often means sticking to one’s responsibility to avoid annoying colleagues and getting into trouble.

However, more dynamic environments lead to changing responsibilities, with two possible outcomes: an overlap develops over time between employees or departments but is ignored to avoid confrontation; or a new, as yet undefined area emerges.

People should be allowed to react more flexibly and speak with counterparts without involving management. They need to look at the bigger picture and take what most corporate employees lack today: ownership.

R&R charts need to be redefined with explicit roles and accountabilities granting clear authority, evolve to account for learning and the organisation’s ever-changing reality. The holocracy approach provides a practical example:

Future R&R descriptions need to cover potential emerging areas, be updated as necessary and written by people familiar with the roles to ensure an accurate fit.

The most important aspect, however, is the role of CEOs in digital transformations. A very encouraging finding in a recent McKinsey survey is that 41% of employees say their CEOs are now leading digital agendas.

 

Conclusion

To achieve a satisfactory digital ROI, most corporations need to take a hard look at their structure and ensure everything is aligned with their digital strategy. For many, this will be the single most important business strategy in today’s increasingly connected, technology-intensive business environment.

Here are a few tips:

• react quickly to opportunities or allow the competition to gain the edge
• focus on core processes and stay true to your value chain(s)
• eliminate all unnecessary inefficiencies and focus on your bottom line
• empower employees to actively adjust organisational structures to suit them
• give decision power to employees and take leaders out of the equation – they are often resistant to change and slow down processes.

Realise that we are but at the beginning of the roller coaster ride. Think of future AI solutions where systems automatically provide organisational blueprints on how to mobilise manpower to best support the latest needs. Action has to be initiated now!

“Technology is coming to get us all. That’s the one thing all organisations
in all industries can be sure about. “

 

To see how we integrated the 7S into what clients call a “clever and game-changing approach” when assessing business units and teams, please try our Pathfinder Freemium version.

Alternatively, watch this short clip to see how STRUCTURE fits into the bigger picture. If you are interested in finding about more, please feel free to contact Rhys.