Organizing for digitalization – the how and the what

3 minutes read

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How do you prepare your organization for the unknown? How do you go digital if you come from an analog past and are still reasonably successful? How do you head off disruption before you actually know where it's coming from? Obviously, this is a strategic question – in the sense of strategy meaning "important" or "having far-reaching consequences". Accordingly, many organizations are inclined to respond to this strategic question by defining a strategy: that is creating a document comprising analysis, benchmarks, competitor insights, market trends, and a plan for going forward.

We suggest turning this logic around and not starting with the strategy, but with the organization. That is: Start with how things are done, not with what is done (or at least, don't make it a strict sequence in the sense of the classical "structure follows strategy" paradigm). Consider changing your organization and your way of working first before you answer definitively where you're going. And of course, do this with your strategic goal in mind.

Why? There are two reasons. First, the more disruptive the environment, the faster the speed of change, so it becomes ever harder to know where to place your bets. The challenge is not to get it right now and then execute against a long-term plan. The challenge is to making decisions as you go and get it right more often than not – and to be ready and capable of changing direction and make bold moves as you learn more about your environment. Again, this leads to how you do things as opposed to what you do (because the latter will definitely change in disruptive times and environments).

Second, strategy does in fact follow structure, at least to some degree. That means that as soon as you define a structure to execute a given strategy – for example, by defining unit structures as per customer segments or industry verticals – this structure will influence how decision makers in charge of those units think about markets, customers, and needs. You hard-code a picture of the world, which is described in your strategy, into your structure, and this structure will reproduce itself even if the outside world is changing fundamentally . It's this divergence of organizational entropy and outside dynamics that leads to the need for large-scale change programs.

So how do you start with the how? The answer lies in building an organization that is able to strategize instead of just executing a given strategy. An organization that is able to strategize is one that is able to make large and small strategic decisions in line with outside demands – and not merely in keeping with a strategic plan written up months ago or with a given power structure institutionalized in lines, boxes and committee memberships.

Unfortunately there’s no silver bullet when it comes to designing such an organization (or at least we haven't found it yet). Rather, it requires the full discipline of organization design. And it requires management innovation, both in the sense of fundamental, new ideas and their constant reinvention as well as appropriation in concrete organizational contexts. How do we structure our organization? How do we make decisions? How do we budget and track resource allocation? How do we work together and collaborate across spatial, functional, project and industry boundaries? And how do we constantly team and un-team to find answers to non-standard issues?

If anything, digitalization and its disruptive potential have pushed the need to be capable of organization design back to the forefront of management practice. Check out our growing series of Management Kits and our training offerings to learn more about how we think about organizing for a changing environment.

Take a look at how we use the Kit Board canvas of the Organizational Structure Kit to discuss the question of organizing for digitalization.

Check out our Designing Organizations Workshop