The digital operating model: How corporates can make digitalization happen (1/4)

The need for a digital operating model

Digitalization is not a strategy, because strategy involves a choice. And, thus, the choice around digitalization is rather in the how than in the why or what. Still, the discussion about why and what to do in digital transformation turns into quite a buzzword bingo these days, as we see from current debates in media, at conferences and in the experiences of our clients. This  creates more confusion than clarity and easily overwhelms with the breadth of issues and options for how to handle digitalization. The executive team of a corporate is often challenged to give direction, and an approach of test-and-learn could easily be misinterpreted as a lack of leadership. When turning to experts, companies are confronted with heterogeneous approaches on digital transformation. Some see the need for a new CRM as most pressing (which they can provide, obviously), others start by digitizing project management (a small lever, overall), others sell their digitalization assessment tool only to jump to the surprising conclusion that their services are needed to catch up with the competition. To stress their own relevance, IT experts often anticipate the unconditional dominance of technology at the heart of the organization and any digitalization effort. All these different agendas, technology myths and too much focus on the strategic aspects of digitalization actually dilute this topic.

 

Thus, we suggest to take this debate to a next level of specificity: Let’s park the vague discussions whether to digitize or not, stop focusing on the why or the what and rather to talk about the how.

 

What is a Digital Operating Model?

The operating model connects strategy with the daily business operations. It effectively describes how the strategy is implemented and the business is run. Without it, people would either not know what to do to achieve the strategic mission or – in the better case – would do things in an inconsistent and non-repeatable way. There are various approaches to describing an operating model, more or less structured and stringently defined. In our daily practice we have found five components that consistently affect how well a strategy is implemented via an effective operating model – ordered by logical dependency: Processes, Decision making logic, Capabilities, Incentives and Organization (PDCIO – or DIPOC, for the sake of pronouncability). When a trend as radical as digitalization is reshaping every aspect of the modern enterprise, a firm cannot get around substantially adapting those five pillars. Thus, a digital operating model is the post-transformation operating model, which has undergone a digital redesign of its processes, decision making logic, capabilities, incentives and organizational structure. A digital operating model is mandatory to realize digitalization goals such as internal process efficiencies, higher innovation effectiveness or better customer experience.

 

We have often seen companies set ambitious digital strategic targets, but fail to adapt their operating model respectively. This blocks the strategic vision from reaching the employees, because the latter cannot connect with the strategy and resources are not adapted accordingly to support the strategy.

 

We don’t believe that digital transformation can be achieved just by hiring a CDO or launching an app. Neither can the operating model be redesigned based on vague suggestions like “use big data”, “be customer-centric” or “work agile and lean”. Not only today’s CEOs should stop focusing on just digitizing the corporate project management in order to keep their position, but also tomorrow’s CEOs should do so in order to actually prove their execution capabilities. Instead, it is time to mobilize resources to design, establish and implement an efficient and holistic digital operating model. For this, they need to get specific on what has to be transformed how. In this thought piece, we provide a perspective on this transformation and define the components in question while giving hands-on advice on how to adapt the operating model.