This Is How to Boost a Company’s Digital Culture With a “Digital Factory”

When incumbents embark on the process of digital transformation, many are surprised to discover that one of the biggest challenges they face is not figuring out how to use new technology, but figuring out how to build a digital business culture.

The fact is that a successful digital transformation requires a radical overhaul of existing ways of working. It’s not simply a question of layering digital processes on top of the same old methods and hierarchies. However, it’s not uncommon for incumbents to find that their long-established practices are stubbornly resistant to the scale and speed of change demanded by digitization.


To address this issue, many incumbents are turning to an approach that has so far proved highly effective in helping companies transform their business culture: the establishment of a “digital factory,” as described in a recent article from McKinsey & Company. Read on to learn more about what this approach is all about and what elements are necessary for its success.

What is a digital factory?

As the name suggests, a digital factory has much in common with its traditional counterpart. It’s a unit that brings together the individuals, skills, processes, and inputs that are needed to create high-quality digital outputs. A digital factory is used to create and model a “prototype” of new ways to work – and the new products that can result. As a result, digital factories make it easier for the broader business to see innovations in action and gradually implement them.

The operation of a digital factory is governed by standard guidelines outlining required deliverables and work processes, including a clear structure for decision-making. A digital factory leverages advanced methodologies like agile software development, design thinking, and zero-based process reengineering to achieve the delicate balance between the structure and predictability needed for large-scale organizational change, as well as the flexibility and agility demanded by the digital marketplace.

What are the benefits of the digital factory approach?

The biggest benefit of the digital factory approach is that it provides a kind of laboratory-like testing ground. This gives incumbents the opportunity to observe a new digital culture and operating model in action. They can also get a feel for how these innovations could power broader change throughout a business.

digital factory

In this way, the digital factory serves as a microcosm for the company, offering a blueprint for what the future of the company could look like. Additionally, it is helpful in generating excitement and buy-in from employees and other key stakeholders. The digital factory also delivers outcomes. Thanks to high levels of flexibility and creativity, digital factories can typically launch a prototype of a new product or customer experience in as little as 10 weeks.

How can companies build successful digital factories?

To ensure the success of the digital factory approach, there are a number of key steps that companies can and should take. These include:

Behaving the way venture capitalists do.

When it comes to decision-making around factory initiatives and activities, speed is the name of the game. Businesses need to adopt a venture capitalist mindset, allocating funding for a product based on a good idea and a clearly defined business model rather than on time-consuming rounds of analysis.

Projects can then be jointly tracked – based on pre-determined KPIs – by the business owner and the digital factory head. If milestone objectives are met, projects can unlock further funding. If goals are not achieved, the project can be quickly ended and funding redirected.

Attracting top talent with creative strategies.

The skills needed for a successful digital factory are in high demand and, consequently, often in short supply. This means that companies need to get creative to attract and retain the necessary talent. Various strategies that have proved effective include hiring selects locate under the brand of the digital factory rather than the parent company, hosting events in the tech community in order to reach new talent that might not specifically be job-hunting, leveraging the networks of new hires to source additional talent, and making anchor hires (targeted hires of influential people that will attract interest from and bring in other talent).

Assembling teams with complementary skill sets.

Because agility and flexibility are key attributes of a digital factory, project teams must be kept to a relatively small size. Many companies adopt the “squad” approach by bringing together around eight to 12 people with the right set of complementary skills.

Typical members of such a team include developers, IT architects, user-experience designers, and a “scrum master” who is in charge of managing the team. This squad can be supplemented with additional specialists as needed, but keeping the core group lean ensures maximum flexibility and clear and direct communication.

Fostering workspace collaboration.

The physical space of a digital factory is an important factor that should not be overlooked. If digital factory employees are working in a space that’s no different from any other part of the building, it’s hard to imagine that the work that comes out of that space is going to reinvent the organization.

Instead, companies should strive to create an environment that signals and openness to innovation and a commitment to breaking new ground. This space should also facilitate collaboration between employees through features like open-plan spaces and informal meeting areas.