technology

How to Get to a Next-Generation Operating Model

Companies today are faced with a tough challenge: how to build value and provide compelling and responsive customer experiences while cutting costs and inefficiencies at the same time. Leveraging new digital technologies seems to be the obvious answer, but, as a recent article from McKinsey & Company argues, technology itself is only part of the solution. What companies need to do is let go of the way they’ve always done things and commit to a next-generation operating model; that is, a way of running the business that brings together digital technologies and operations capabilities in an integrated, holistic, and well-sequenced way.

A shift in approach.

For most companies, adopting such a model requires two big shifts in their established operational approach. The first is to use customer journeys as the organizing principle for improvement efforts, rather than to run uncoordinated efforts within conventional departmental siloes. In other words, this shift involves breaking down traditional business units and instead thinking holistically about customer journeys and the internal processes that support them. For example, in the case of a customer wanting to open a bank account, rather than focusing on the individual units involved (operations, marketing, credit, and IT) it’s preferable to look at that journey as a single, end-to-end element which should be handled as a whole and not broken down by department.

online banking

The second major shift is to move away from employing individual technologies or capabilities in a piecemeal way, and instead focus on working with multiple capabilities in a strategic sequence to compound the impact and achieve maximum results. The McKinsey article calls these capabilities “levers,” and provides a breakdown of the five most important levers that organizations typically use in improving the operations and processes that support customer journeys. Read on for an overview of the five levers.

  1. Digitization

Broadly speaking, digitization refers to the process of using digital tools and technologies to improve journeys. These tools can have a powerfully transformative impact on customer-facing journeys, notably by providing options for self-service and thus giving customers independence and autonomy in their interactions with companies. Digitization can also streamline time-consuming manual and transactional tasks, thus speeding up responsiveness.

  1. Advanced analytics

An increasingly critical component of business decision-making today, advanced analytics involves using sophisticated, autonomous tools to process data and uncover patterns and insights from which actionable recommendations can be made. The intelligence that analytics provides can greatly enhance journeys that require non-linear thinking; for example, insurers with advanced analytics capabilities in place are seeing huge improvements in areas like fraud management and smart claims triage.

  1. Intelligent process automation (IPA)

This emerging set of new technologies brings together robotic process automation and machine learning to trigger fundamental process redesign. In other words, for processes that involve data aggregation from multiple systems or standardized data input, IPA can take the place of human effort.

  1. Business process outsourcing (BPO)

outsourcing

The practice of using resources outside the main business to fulfill specific tasks and functions (for example, back-office document processing) has become a popular one in recent years. Often a useful measure for improving cost efficiency, BPO is typically best when used for manual processes that are not primarily customer-facing and do not have an impact on strategic choices or value propositions.

  1. Lean process redesign

This versatile methodology helps companies streamline processes, create a culture of continuous improvement, and eliminate waste, redundancies, and inefficiencies. It applies well to almost all processes, including short- and long-cycle, transactional and judgement-based, and client-facing and internal.

How should companies implement these levers?

The McKinsey article offers three important design guidelines companies should keep in mind when thinking about how and when to use the above levers:

  1. Each lever should be used to maximum effect.

For companies to reap the rewards of the next-generation operating model, they must be willing to push the limits. Too often, companies think they are applying capabilities to the fullest, but they are actually falling short of their true potential. Leveraging a few predictive models, for example, is not the same as truly harnessing the power of analytics. Companies, and their executives in particular, must be vigilant in monitoring the use of levers, and they must be prepared to challenge teams who are complacent in the belief that they are “doing all they can.”

  1. Each lever must be implemented in the right sequence.

So many variables are involved that it’s virtually impossible to build a “universal recipe” for sequencing these levers, but companies should know that the best results can be achieved when the levers are able to build on each other. Systematic analysis, which is looking at the opportunity to apply remaining levers in turn and the resulting impact, can help companies figure out which levers depend on the successful implementation of others to be most effective.

  1. The levers should interact with each other to achieve a compound effect.

Just as levers need to be applied in the right sequence, they also need to work in tandem to be most successful; that is, it’s not simply a case of one lever picking up where another leaves off. Some companies have adopted “heat maps,” which offer an organization-wide perspective on how each lever will impact each journey, as a tool to help in looking at the levers and their effects holistically.

technology

A Look at Today’s Most Important Emerging Technologies

In today’s rapidly shifting digital landscape, it’s more important than ever for companies to stay on top of emerging technology trends. To help businesses keep pace with the latest technological changes, Forrester recently published a new report on “The Top Emerging Technologies for Digital Predators,” which includes a wealth of information relevant to companies regardless of where they sit on the digital transformation spectrum. Read on for a closer look at some key takeaways from the report.

What is a digital predator?

According to Forrester analyst and report co-author Nigel Fenwick, today’s companies tend to fall into one of three categories:

Digital dinosaurs—These incumbents struggle to shed their old business models and reinvent themselves for the digital economy. Their slow rate of change results from a number of different factors, including the power many feel from holding a near monopoly position, the need to defend large P&Ls (profit and loss), or simply a failure to see either the opportunity or the threat that digitization represents. Many retailers as well as manufacturing and construction firms belong to this group.

businessDigital transformers—These traditional businesses have successfully evolved to take advantage of emerging technologies; for the most part, they are creating new sources of value for their customers and are implementing competitive strategies that may take them beyond conventional industry boundaries. Companies like Burberry, L’Oréal, and Ford are good examples of digital transformers.

Digital predators—The third category of businesses is startup territory. These digital predators successfully leverage emerging digital technologies to challenge traditional incumbent companies for market share, frequently displacing them in the process. The names of some of the biggest digital predators won’t surprise anyone: Amazon, Airbnb, and Netflix, for starters.

What emerging technologies are having a significant business impact?

Fenwick argues that, regardless of whether a company is a digital dinosaur, transformer, or predator, every company needs to understand how emerging technologies are impacting the business landscape and, consequently, what role they might have to play in the company’s own digital transformation. This understanding can help executives like CIOs, CTOs, and CDOs ensure that their technology portfolios blend mature technologies that support current operations with emerging technologies that will help to serve future customers.

According to the Forrester report, some of the most critical emerging technologies that companies need to know about—that is, those technologies that have the highest potential to bring a competitive advantage, influence markets, or shift the business landscape altogether—include:

Intelligent agents—These are artificial intelligence solutions that have the capacity to not only interact with their users, but to learn their behavior and understand their needs, and eventually even to make decisions on their behalf through predictive analytics. The idea behind intelligent agents is to improve productivity, optimize a variety of business activities, and reduce costs. Equally important is the goal to increase customer loyalty by offering a personalized, high-quality experience. Some of the best-known intelligent agents at present include prototypes like Apple’s Siri or Google Now, but more chatbots, virtual agents, and robotic process automation services are being added to the landscape every day.

virtual realityAugmented and virtual reality—Augmented reality (AR) is a process by which digital information and experiences are layered on top of the physical world, while virtual reality (VR) goes one step further, creating a completely new, interactive digital environment. AR in particular has strong potential to dramatically alter the customer experience, especially in retail environments. For example, the home improvement retail chain Lowe’s recently released an AR “mapping” app that helps customers search for products, add them to a shopping list, and then easily navigate their way through the store to find and collect the items.

Internet of Things solutions—Smart devices and sensors connected to the Internet are providing companies with a new level of insight into how customers are using their products and how their systems are operating. The Forrester report makes the case that using a digital model to map the physical world will become a defining feature of business over the next decade, and that the Internet of Things (IoT) will simply become the business standard for companies dealing with physical assets.

Cognitive technology—Advanced machine learning has the power to mimic natural human cognitive functions, thus opening up the possibility for new data insights and suggested actions. Emerging technologies in this category include developments like natural language processing, which can personalize and differentiate the customer experience, as well as dramatically improve internal processes.

Hybrid wireless technologies—A new communications infrastructure could be on the rise given the advances in interfaces and software that allow devices to use and to translate between at least two different wireless providers, protocols, and frequency bands (such as radio, cellular, and Wi-Fi). These developments are likely to drive new applications that anticipate and meet customer demands in a whole new way.

server room

How to Thrive in the Fourth Industrial Revolution – 9 Principles

One of the biggest effects of the Fourth Industrial Revolution has been the erosion of conventional boundaries between industries. As a host of emerging and mutually reinforcing technologies (like the Internet of Things, data analytics, and machine learning) have opened up a vast array of new opportunities for business, it’s becoming increasingly difficult to see the difference between, for example, a retail store and a retail bank, or an entertainment production company and a telecommunications provider. In addition, the relationships among consumers, suppliers, and producers are similarly blurring as a result of digital technology’s power to enable individuals to connect outside of the traditional value chain.

In such a confused environment, full of ever-shifting lines in the sand, how can a business differentiate itself from its competitors (who may not even be in the same industry), build digital prowess, and play a pivotal role in the Fourth Industrial Revolution? A recent article from Strategy & Business magazine offers the following nine principles as a guide:

  1. Rethink the business model.

organization chart

Today’s digital landscape is full of cautionary examples of incumbents who clung to outdated business models, only to lose ground to startups that leveraged flexibility and innovation to introduce new products and services at significantly lower prices. Businesses today need to realize that traditional industries have changed forever, and paths to profitability have changed accordingly. As a result, it’s time to take a fresh look at long-established assumptions about doing business, and develop a new business model that’s a more appropriate fit for this new era.

  1. Build a platform-based strategy.

The value chain was the backbone of the old industrial system; in the new system, that backbone is the platform. A system that brings a range of vendors and customers together on a plug-and-play technological base, the platform has become widely recognized as one of the main driving forces of the Fourth Industrial Revolution. Companies must take steps to determine what role they will be able to play in a platform-based economy, such as a builder of platforms, an engager using platforms to provide products and services, or a developer of new technologies to serve existing platforms.

  1. Design for customers.

The new infrastructure of the Fourth Industrial Revolution may be a web of digital connections, but it’s important to remember that there are still real-life people at the end of those connections. Today, digital technology has given businesses the opportunity to be closer than ever to their customers, and to discover (and fulfill) what those customers genuinely want and need. A customer-centric approach to design has therefore become vitally important.

  1. Boost technological acumen.

business

Today, regardless of industry, software is the key to competitiveness. Over the next few years, every company, even born-digital startups, will need to improve its technological acumen in order to keep up with the pace of change and remain a competitive market force. This not only means recruiting software experts, it also means making training in digital tools and insight a key development focus for every single worker.

  1. Innovate quickly and openly.

Large-scale disruptive innovation has garnered the lion’s share of attention in the digital revolution, but many companies are finding that a steady stream of smaller, incremental innovations is just as effective, in terms of both profit and feasibility. Today’s digital tools allow smaller innovations like new products to be prototyped, manufactured in small batches, and tested in the market within a greatly reduced timeframe; this is a huge advantage in helping companies understand how real-world customers will respond.

  1. Leverage data.

Most companies are well versed in gathering data. However, the next step is to ensure that they properly analyze the data for important patterns, which can lead to critical insights and actionable decisions. For maximum effectiveness, companies should ensure that their analytics teams are integrated, and that there are regular discussions across the company about what findings are coming to light and how this information could affect the business.

  1. Embrace new financing models.

financing

The old ways of raising money are having a harder time delivering when it comes to financing new large-scale technologies. Instead, financing is seeing the same kind of shift that cloud computing brought to software—that is, a pay-as-you-go model that emphasizes smaller but more frequent payments in exchange for more flexible installations.

  1. Emphasize purpose over products.

Purpose is taking over from product as the main factor that differentiates one company from another. A clear value proposition, applied to everything a company does, is a must-have for anyone doing business in the digital age; consumers today want to know not only what a company provides, but why they provide it and towards what outcome.

  1. Handle data responsibly.

Even small companies are now collecting vast amounts of data, and customers need to know that companies can be trusted with their sensitive personal information. This not only means that companies must maintain secure privacy safeguards to prevent unauthorized data access, but it also means that they must handle data ethically and transparently to avoid betraying consumer trust.

ecommerce

B2B E-Commerce – 5 Big Mistakes to Avoid

B2B commerce may not have embraced the digital revolution quite as readily as B2C businesses did, but this initial reluctance is quickly changing as more and more B2B companies—driven by the speed of technological change and the high expectations of digitally sophisticated customers—realize that it’s simply no longer an option to do without digital. However, although today’s B2B businesses are joining the e-commerce landscape at an increasingly rapid rate, not all of them are doing it effectively. Many companies, incorrectly assuming that there’s little more to B2B e-commerce than a website and some sales software, fail to plan properly or conduct thorough due diligence; as a result, far too many B2B e-commerce efforts end up hampering, rather than helping, the companies behind them.

For B2B companies that are considering making the leap to e-commerce, understanding where many businesses go wrong is one of the most helpful ways to guard against failure. Read on for a look at five of the most common mistakes companies make in B2B e-commerce implementation, and ideas for how to avoid them.

1. Failing to outline business-specific requirements.

checklist

In their hurry to jump on the e-commerce bandwagon and get a digital platform running as quickly as possible, many B2B companies don’t spend enough time on creating a detailed list of requirements for their future e-commerce system. But shortchanging this step of the process is a very risky move. Choosing a B2B e-commerce system is not a one-size-fits-all activity, and companies that don’t think carefully about what specific things they want from their system are much more likely to end up with a platform that doesn’t quite fit; this is a mistake that could have significant opportunity and efficiency costs down the road. Instead, companies should avoid rushing this step and should take the time to thoroughly document their requirements in order to find a platform that will be viable over the long term.

2. Underestimating the importance of the user experience.

B2B businesses need to come to terms with the fact that the expectations of B2B buyers are determined by their experiences as B2C customers. In their personal lives, B2B buyers are making purchases from some of the world’s most sophisticated e-commerce sites, and they see no reason why their experience shopping for products in their professional capacity should be any different. That’s why B2B businesses must remember to keep the user at the center of all their e-commerce efforts. A strong investment in user experience design—including fully optimized mobile sites and omni-channel capabilities—is a critical step in building long-term customer loyalty.

3. Not involving the sales team.

All too often, B2B sales teams view e-commerce as a competitor that will usurp their responsibilities and cause them to lose out on their commissions; this fear is amplified by the fact that many B2B companies plan and implement e-commerce efforts with little or no input from the sales team. But in fact, when e-commerce is aligned with sales, both aspects become more powerful: sales input provides valuable customer insight that can guide the e-commerce design process, while an effective e-commerce platform helps eliminate low-value, routine tasks from the sales team’s to-do list and frees up time and energy for them to focus on more strategic selling. In other words, B2B businesses shouldn’t make the e-commerce initiative the sole province of a few top executives or the marketing team. Instead, they should open the effort up to sales in order to unlock significant value potential.

4. Underestimating organizational requirements.

organization

Many B2B businesses assume that, thanks to the power of digital technology, e-commerce will basically run itself, but unfortunately the truth is not quite that simple. Adding an e-commerce platform is more than just adding a website; it involves the addition of an entirely new channel to the business, and that new channel is going to need corresponding roles to manage it effectively. Significant internal investments are typically needed on web operations, web merchandising, customer service, digital marketing, technology, and fulfillment. Of course, it’s not necessary to build a huge team right away, but it’s important for businesses to be aware of the scale of an effective B2B e-commerce support system to avoid being blindsided by the level of organizational requirements required.

5. Not planning a post-launch investment.

As appealing as it may be, a “set it and forget it” approach does not work in the e-commerce world. To tap into new markets, gain greater traction with existing customers, and drive traffic, strong digital marketing initiatives are needed to supplement the initial e-commerce efforts. Many B2B companies only plan as far ahead as the launch of their e-commerce platform and then can’t understand why they’re not getting the revenues they projected. In addition, businesses must handle new features and site updates regularly in order to grow the e-commerce operation most effectively and ensure that the platform is always fully optimized.

internet of things

4 Important Takeaways from a New Study on the Internet of Things

IoTWorldForumHosted by Cisco in late May 2017, the fourth installment of the Internet of Things World Forum (IoTWF) brought together some of the world’s most innovative IoT thought leaders from business, government, and academia for three days of discussion and debate in London, one of Europe’s fastest-growing technology capitals.

One of the highlights of this year’s IoTWF was the release of a new study conducted by Cisco on the current state of the IoT landscape. To compile the study, Cisco surveyed more than 1,800 business and IT leaders across a range of industries in the US, the UK, and India, focusing exclusively on respondents from organizations that had completed or were in the process of implementing at least one IoT initiative.

Despite widespread excitement about the enormous potential of the Internet of Things, the results of the study highlighted the fact that getting successful IoT initiatives off the ground is not always an easy task. According to survey respondents, the majority of IoT initiatives (60 percent) grind to a halt at the Proof of Concept stage. As for companies with completed IoT initiatives, only 26 percent consider their initiative to be a complete success, while on the other hand, a full one-third of completed projects were deemed unsuccessful.

Other important takeaways from the study include:

The human factor still matters.

Technology may be at the heart of the Internet of Things, but it’s vital not to overlook the critical role that human factors like culture, leadership, and organization play in the ultimate success of an IoT project. In fact, of the four factors that survey respondents identified as the most important for successful IoT initiatives, three are all about people and relationships. The top factor, cited by 54 percent of respondents, was strong collaboration between IT and business units; this was followed closely by an organizational culture that focuses on and values technology (cited by 49 percent of respondents), and IoT expertise and knowledge both internally and through external partnerships (48 percent). In addition, survey respondents whose organizations had completed successful IoT projects described the use of close partnerships at every project stage – from strategic planning through to post-rollout – as a fundamental part of their overall success.

internet of things

And speaking of the human factor, it’s also interesting to note here that the success of an IoT project seems to be very much a matter of perception. IT executives, who prioritize things like technologies, expertise, and vendors, are more likely to consider projects successful than are business executives, who place greater importance on strategy, business cases, processes, and milestones. Thirty-five percent of IT executives who responded to the Cisco survey considered their IoT initiative to be completely successful, while only 15 percent of business executives said the same.

Support is critical.

With 60 percent of survey respondents emphasizing that IoT initiatives are much more difficult to implement in reality than anyone at their organization expected, it’s clear that a successful IoT project needs all the help it can get. Some of the main challenges that need to be overcome across all stages of implementation include time to completion, insufficient internal expertise, data quality, integration across teams, and cost overruns. Organizations that have been the most successful in implementing IoT initiatives have turned these challenges into opportunities by seeking out and engaging in strong partnerships throughout the process, as described above, in order to reduce the learning curve and bridge critical knowledge and skills gaps. Many survey respondents described the potential of these partnerships with other vendors as an important way to create connected solutions, share data, and consequently bring significant new value to industries.

Failure is a teaching tool.

One of the biggest shifts in mindset that has happened as a result of the digital revolution is embracing failure—not avoiding it. To succeed in the fast-paced world of digital transformation, businesses must become less risk-averse and use stalled or failed initiatives as a learning experience to feed and improve future efforts. Happily, the majority of businesses working in the IoT realm seem to be on board with this idea: 64 percent of survey respondents agreed that unsuccessful IoT initiatives actually had the unexpected benefit of accelerating, rather than slowing down, their organization’s level of IoT investment.

The benefits are significant.

If IoT initiatives are so hard to implement successfully, are they really worth pursuing? The answer to that is a resounding yes, as indicated by the benefits that survey respondents described as resulting from successful IoT projects. Nearly three-quarters (73 percent) of all respondents said that they had been able to use data from completed IoT projects to improve their business in some way; globally, the top three benefits named by respondents were improved customer satisfaction (70 percent), better operational efficiencies (67 percent), and improved quality of products and services (66 percent). Perhaps not surprisingly, these benefits can also help businesses boost their revenues: 39 percent of survey respondents cited improved profitability as the top unexpected benefit that IoT projects brought to their organization.

digital transformation

A Look at the ABCs of Digital Transformation

Digital transformation can be confusing, especially if you don’t know the jargon. To help those needing to boost their digital vocabulary, research and analysis firm Econsultancy recently developed a fun digital transformation alphabet to guide digital beginners through some of the most important terms of the digital age. Do you know your digital ABCs? Read on to find out!

A is for Agile.

A project management methodology that has become popular with businesses undergoing digital transformation, agility involves teams working collaboratively and using data to drive key decisions in a continuous test-and-learn process.

B is for Benchmarking.

Setting an organizational benchmark is the first step for businesses embarking on digital transformation. Progress can’t be evaluated unless there’s a starting point against which to evaluate it. Typical benchmarking tactics include a capability audit, skills assessment, or a comprehensive review of business strategies.

benchmark stats

C is for Customer Focus.

In the digital era, the customer is by far the most important driver of digital transformation. Most companies’ digitization efforts are strongly focused on creating a better customer experience.

D is for Data.

Data is one of the most valuable resources of the digital age, offering the potential for rich and detailed customer insights when properly mined and analyzed.

E is for Education.

Digital training for non-digitally focused roles is becoming a high priority for companies now that digital technologies no longer operate in isolation, but rather serve as the foundation for broad business operations.

F is for Failure.

Getting comfortable with risk, and consequently with failure, is an essential part of digital transformation. Playing it safe is no longer an option for companies that want to stand out from the pack.

G is for Governance.

governance

The pace of technology is moving much faster than the legislation and regulations that govern it. In order to ensure that innovation occurs in an environment that still protects public interests, a new system of governance will need to be developed. This is emerging as one of the most critical questions of the digital era.

H is for Hurdles.

Incumbents seeking to digitize themselves usually face a number of common hurdles, including legacy technology and systems, lack of in-house skills and expertise, and resistance to organizational change.

I is for Innovation Labs.

Innovation labs, essentially mini-startups operating within a larger business, are a popular strategy with incumbents looking to test drive digital transformation on a smaller scale before rolling it out across a company.

J is for Job Descriptions.

As roles evolve and new needs emerge, job descriptions are changing faster than ever, as are traditional hierarchies and reporting structures.

K is for KPIs.

Digital success can be difficult to measure, but clearly defined key performance indicators can help companies ensure they are staying on track in new and uncertain digital territory.

L is for Long-term Value.

Integrating new technology is not about creating a short-term fix, but rather about building long-term value. Digitally transforming business must look beyond their month-end targets and think instead about the longer-term potential for digital initiatives.

M is for Management (of change).

management

Change is hard for large, long-established organizations. In order for a transformation to be successful, inspired and committed management is an absolute must-have.

N is for Norms.

A company’s norms, such as dress code or office organization, have a significant impact on that company’s culture. If the ultimate goal of digital transformation is to change the organizational culture, changing the norms might be a good place to start.

O is for Outsourcing (versus insourcing).

Businesses that lack some of the key skills needed for their digital transformation are increasingly turning to outsourcing as a way of harnessing critical expertise. However, developing in-house talent can foster intracompany collaboration.

P is for Personality.

Digital transformation success stories of recent years have made it abundantly clear that leaders’ personalities play a critical role in guiding and driving organizational change.

Q is for (digital) Quotient.

Global research firm McKinsey coined the term “digital quotient” to describe a company’s level of digital maturity, skills, and capabilities.

R is for Roadmaps.

Digital transformation doesn’t happen without a plan. Leveraging the metaphor of digital change as a long-term journey, many companies are creating “roadmaps” to guide their transformations and help them achieve key goals.

S is for Structures.

Organizational structures are changing as digital transformation disrupts established hierarchies and breaks down barriers between business units.

T is for Talent.

Talent is at a premium in today’s digital marketplace. Given the high demand for (and short supply of) highly-skilled workers, industry experts estimate that talent shortages may continue to be a challenge for digitally transforming companies over the next few years.

U is for User Testing.

management

Companies cannot afford to wait until a product is perfect before launching it. Instead, user testing has become a more accepted phase of product development. It is part of an agile system in which lessons learned directly from users can be quickly integrated into future iterations.

V is for Vocabulary.

If you want to change your business, you need to change the words you use to describe it. (This ABC guide is a good place to start!)

W is for Workspace Design.

Workspace design has proved to be an important element of successful digital transformations. Features like open-plan offices and informal meeting areas help encourage the sharing and exchanging of ideas. This can lead to surprising innovations.

X is for (user) Xperience.

One of the main drivers of digital transformation is the creation of a better and easier user experience. Indeed, this is such an important element that user experience designers, or UX designers, are currently among the most sought-after employees.

Y is for Yardsticks.

No two digital transformations are alike. However, companies may still find it beneficial to chart their digital progress against that of similar organizations.

Z is for Zany Job Titles.

Just as job descriptions are changing, so too are job titles. But while the titles may be zany, the responsibilities they encompass are very serious indeed.

 

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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.

business

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.