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The management challenge in a digital transformation

IT Strategy vs Digital Transformation

The concept of digital transformation is often confused with the one of IT strategy. The development and implementation of IT strategies have generally been guided by the strategic lens to improve efficiency (e.g., lower costs, increase worker productivity), effectiveness (e.g., make better decisions, identify profitable customers), and ultimately gain long-term competitive advantage (e.g., alter the basis of competition, create new business models). Certainly, technology and digital tools are at the centre of digital transformation. However, the strategic lens on its own may not yield consistent improvements, especially in the implementation of strategic IT systems (Bhattacherjee, et al., 2007).

Digitalization is more a management transformation than a technological upgrade

Organizational Structure for the Digital Era

Scarborough argues that IT strategies need other elements with a strong influence such as politics to achieve the set goals and objectives. The political lens explains those organisational behaviours that depend on the distribution and control of critical resources, since it may confer power to individuals. Those valuable resources will only be shared when stakeholders share the same interests (Ancona, et al., 2005, p. 40). Since a successful digital transformation depends on key people within the organization (Tiko, 2015, p. 52), unless they are all involved and their interests are aligned, successful implementation is unlikely. The analysis of political factors connected with IT implementation might enhance the understanding of the drivers of success (Wurster, et al., 2009).

Digital Migration Partners (2015) suggest that digital transformation is more of a management challenge than a technology one. They argue that the right way to approach it starts by assessing how technology impacts the organizational structure and the company’s value chain.

Companies tend to inherit organizational structures that have been successful in tackling past challenges. In large organizations, IT management is often ‘system-oriented. Organizational units are delimited by the boundaries of software applications within the firm’s IT ecosystems. That organizational structure is characterized by functional and geographic silos that do not share information openly, as presented in the Figure, thereby leading to sub-optimal performance. That gives rise to fragmentation of IT management, with every single application having potentially different or even conflicting interests. Such organizations might not suit digital businesses in which efficiency is reached with integrated management at the product level (Digital Migration Partners, 2015).

Organizational design for the industrial era. Adapted from (Digital Migration Partners, 2015).

Agility & Hyperawareness

Digital supply chains are characterized by extensive information availability. They enable superior collaboration and communication across digital platforms, resulting in improved reliability, agility, and effectiveness (Raab & Griffin-Cryan, 2011). To unlock that capability, firms need a product or service-oriented structures. Some organizations are turning to cross-functional teams to become more agile and letting formal structures fade into the background or disappear altogether. Visa provides a brilliant case study. As the global payments industry evolves and established technology companies such as Apple and Google enter it, Visa needed to match the speed of the industry. It did so by shifting its departmental structure from vertical to horizontal and project-based (Kane, et al., 2016). Some firms establish communities of practices (Wenger & Snyder, 2000) to tackle complex issues by combining the skills and know-how of area experts.

No more space for silos

McConnell (2015) highlights that many companies struggle with digital transformation as it goes against the grain of established ways of working and threaten well-established management practices. Rivkin & Keyworth (2015) warn that by 2018, 70% of siloed digital transformation initiatives will fail, because of insufficient collaboration, integration, sourcing, or project management.

According to McConnell (2015), politics might prevent digital transformations due to:

Inability to prove business value of digital through traditional ROI calculations, resulting in lack of senior management sponsorship
Lack of understanding operational issues and difficulties when going from theory to practice
Slow or stalled decision-making caused competing priorities or attempting to reach consensus
Fear of losing control by management or central functions

Conclusion

A digital transformation is a complex problem that encompasses all aspects of a business. To succeed businesses have to combine technological upgrades with a rapid turnaround and establish a digital control tower. Turn data into a competitive advantage often requires real-time data-driven business processes that are powered by smart data hubs.

REFERENCES

  • Tiko, I., 2015. Strategic Information Technology Governance and Organizational Politics in Modern Business. 1st Ed. ed. Hershey: IGI Global.
  • Ancona, D. et al., 2005. Managing for the Future: Organizational Behavior and Processes. 3rd ed. Cincinnati: South-Western College Publishing.
  • Bhattacherjee, A. et al., 2007. The Differential Performance Effects of Healthcare Information Technology Adoption. Information Systems Management, Volume 24, p. 5–14.
  • Scarbrough, H., 1998. Linking strategy and IT-based innovation: the importance of the ‘management of expertise’. In: Information technology and organizational transformation. New York: John Wiley & Sons, Inc. , pp. 19-36.
  • Digital Migration Partners, 2015. Organizational Design As A Competitive Advantage In The Digital Era, Madrid: Digital Migration Partners S.L..
  • Raab, M. & Griffin-Cryan, B., 2011. Digital Transformation of Supply Chains, s.l.: Capgemini Consulting.
  • Kane, G. et al., 2016. Aligning the organization for its digital future.
  • McConnell, J., 2015. The Company Cultures That Help (or Hinder) Digital Transformation.
  • Rivkin, J. & Keyworth, B., 2015. 2016 IDC FutureScape CIO Agenda Prediction 4: 70% Failure Rate of Siloed Digital Transformation Initiatives in 2018, Framingham: IDC Research, Inc..