Is Your Organization Ready for Total Digitization?

July 25, 2013 Editor 0

What do the following items have in common: credit cards and streaming or recorded music, robots for production, CAD systems, telephone networks, digital games, computers in products like cars and vacuum cleaners, sensors, and video consoles used in remote mining? Answer: They are all digital and connectable.

This is the world of total digitization: a multitude of digital devices and sensors creating streams of data, as well as any number of digital services and products for both internal and external use, distributed throughout the enterprise, and sometimes, but not always, connected. As the drive toward increased digitization continues, enterprises have to get a handle on this total digitization — and corporate CIOs have to step up to the challenge.

Three Approaches to Managing Total Digitization

How are enterprises managing the spread and scope of total digitization? We at MIT CISR have found that enterprises are using one or more of three approaches to managing total digitization: convergence, coordination, or a separate digital innovation stacks approach. Each approach has very different objectives and measures of success.

Convergence. This approach brings all digitization investments together and places them under a single executive. At Boeing, all enterprise technology (including digital) investments are managed by the CTO, which enables significant synergies. For Commonwealth Bank of Australia, convergence involved bringing together operations and IT into a new unit, Enterprise Services (ES), headed by the CIO. ES helped CBA achieve its goal of both reducing costs and becoming number one in customer experience. Convergence usually requires the introduction of new organizational structures to create efficiencies and synergies and to increase reuse of resources. Enterprises using a convergence approach will, wherever possible, organizationally consolidate the key assets of people, data, infrastructure, skills, and management processes.

Coordination. This approach doesn’t change the organizational structure but adds mechanisms (such as committees or gates) onto a business case process, to increase the coordination of big digital investments across groups such as engineering, operations, or product owners. Leaving the organization structure “as is” reduces disruption while the mechanisms help facilitate working together across the units. A typical structure consists of separate organizational units supported by a shared infrastructure at the base and connected by customer-facing coordination mechanisms at the top.

For example, BMW set up two committees focused on digitization to deliver on its enterprise goals, including the design and delivery of a custom car within six days. These committees at BMW ensure the creation and smooth handoff of information. In a coordination approach, the mechanisms all work together to achieve a specific outcome. This approach works well when there are one or two enterprise-wide goals. But be aware, when there are numerous enterprise goals spanning multiple geographies and business units, the coordination approach can lead to a spaghetti-like set of governance committees and processes. But with just one or two overarching enterprise goals, the coordination approach helps to create a consistent customer experience or, in some companies, ensures regulatory compliance.

Separate Digital Innovation Stacks. Enterprises with this structure and approach believe the key to their success is innovation via local management. Each of the separate stacks — such as the different product groups, business units, or geographies — is left alone to maximize its own local value without any coordination overhead. Taking this approach (e.g. News Corp) commits a firm to local innovation, often organized by products or stand-alone businesses. These enterprises have decentralized management and diversified businesses. Capabilities are often duplicated with slight differences in each stack, and there is local accountability for profit and loss. Typically, though, some global risk management is necessary. As digitization increases and customers (and regulators) expect a more integrated multi-product experience, we expect to see far fewer business units pursuing a separate digital innovation stacks strategy. Diversified enterprises, however, may still find it a useful approach.

Identifying your enterprise’s core strategic drivers is the key to deciding which approach is best to follow. Convergence is about reducing cost, reducing risk, and achieving synergies. Coordination is the right choice for enterprises that are trying to achieve a few enterprise-wide goals such as improving customer experience or asset utilization. Finally, the separate digital innovation stacks approach is right for enterprises that believe autonomy helps improve innovation and local customer responsiveness.

We believe that managing total digitization is one of the biggest opportunities and challenges facing enterprises — and their CIOs — today. We are already seeing companies in which the total digitization spend is over 25% of the operating budget and expect this will become commonplace. In our ever-more-fully digitized world, you need to strategically manage total digitization or you run the risk of digital anarchy in your enterprise.

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Categories: HBR, Insights

Tags: Chief information officer, Commonwealth Bank, Computer-aided design, Digitizing