Building a Digital Organization: Strategic, Cultural and Leadership Imperatives

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Digital technologies are ubiquitous, but our understanding of what makes an organization digital, and the ways in which a digital organization is different, is still in the early stages.  This paper seeks to develop a framework for understanding the nature and scope of digital organizations. The extent to which an organization is digital, and needs to be led (strategically and culturally) as such, depends on the degree to which it meets certain criteria.  Digital technologies influence the strategy in broader and deeper ways including through new business models. They also enable a digital firm to address strategic dilemmas (such as value creation or value capture and cost minimization or differentiation) implicit in traditional strategy literature as distinct processes. Leveraging the full potential of digital technologies requires that strategy, culture, and leadership are adapted and aligned to the emerging digital context including the new rules of marketplace competition and nature of the external environment. Building an effective digital firm raises the performance bar for culture and leadership to meet.  This series of four papers discuss various ways in which digital technologies influence strategy, digital culture, and digital leadership and the ways in which these management areas present new opportunities and pose challenges for digital firms.

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Digital technologies play an important role in the functioning of economic systems, and in recent years, their impact on personal, social, and ethical domains has been transformational.  Externalities, such as the pandemic, accelerated the adoption of digital technologies, and, as MicroSoft CEO, Satya Nadella, observed, “We have seen two years’ worth of digital transformation in two months” [i]. It is estimated that Covid-19 has accelerated timelines for digital adoption three to four years forward[ii]. It is to be expected that the impact of digital technologies on organizations – and thereby on the economic and social systems –will continue apace, even accelerate, as new technologies emerge, and firms move higher up on the learning curve with regard to technology usage and best practices.

In view of this inevitable march of digital technologies, it is important to examine, if organizations that use or plan to use digital technologies in a significant way need to be understood and potentially managed differently so that they can be more effective and value-adding to various stakeholders.  This is important, as estimates suggest that around 66% to 84% of digital transformation efforts fail to deliver the expected value[iii]. Further, seven out of 10 companies in a survey[iv] reported minimal or no impact from AI. It was also noted [v], that only 10% of the companies obtained significant financial benefits from AI technologies. In addition, the growing difference between leaders and laggards is also an area of concern. In a different survey[vi], it was found that the top 10% of digital companies were growing revenues at five times the speed of laggards.  Digital firms, once they are large enough, can give rise to a hub-economy[vii], which in turn has implications for monopoly and market inequalities.  In addition, there are well-known issues of privacy, ethics, bias, data economy, surveillance capitalism, and the growing role of digital technologies in contributing to economic inequalities.

Whilst the contributions and potential of digital technologies are undeniable (and not covered here, as they are obvious), various concerns cited above indicate that the economic and social efficiencies of digital organizations (a broad term that includes non-digitally born/native firms as well) have an unexplored upside, and also a downside that needs to be understood and managed. This may, however, require understanding digital organizations differently as a separate category of firms with distinct implications for competition, marketplace, strategy, change management, organization design, culture, leadership, and HR practices.  The purpose of this four-part series of papers is to set out a framework and ideas with regard to these implications.

• The first part deals with the context, definition, and features of digital organizations. It discusses ways in which digital technologies bear upon the nature of resources available to firms, and their implications in terms of marketplace competition. The definition and nature and scope of digital organizations are discussed next.
• The second part deals with how digital technologies – and digital resources that they enable – influence the strategy process and make it different. Traditional strategy literature, with some exceptions, implicitly posits value-creation and value-capture, cost minimization and differentiation, and strategy formulation and strategy implementation as distinct processes. Digital technologies provide a way to reduce this “gap”.  This section discusses ways in which strategy in a digital context differs from our traditional understanding of strategy frameworks.
• The third part covers the cultural aspects of digital organizations. The core idea is that a strategy that leverages digital may also benefit from a culture that is digital. This section defines “digital culture”, and discusses the need to understand the cultural aspects of a digital firm separately. It also covers ways in which digital culture is similar and different from general organizational culture and its’ specific features that need to be considered if the potential of digital technologies is to be realized.
• The fourth and final part of this paper discusses digital leadership. The available research, case studies, and anecdotal accounts stress the importance of a digital mindset to effectively lead firms in a digital economy, and in the implementation of digital transformation. This section develops the idea of a digital mindset in detail, and what it means in practice. This section also discusses leadership behaviours that become salient in a digital context. This section also discusses the need for C-suite and the Board to be digitally savvy and the challenges involved in providing oversight to digital initiatives at the highest levels.

It is generally known that there is a growing divide between digital and non-digital economies, and between digitally skilled and unskilled workforce. It is also being recognized that the digital economy is contributing to furthering of economic and social inequities and that the divide between leading firms and laggards is increasing.

There is however another divide, which is also important and is growing. This divide relates to our general understanding of the digital world itself. Whilst most of us relate to digital at an intuitive level through familiarity or use of specific technologies, there are differences in what we mean by digital and our understanding of how these technologies relate to organizational working, their non-technological implications, and changes in the nature of (digital) organizations itself.

The paper hopes to provide a baseline understanding of the above, so that richer conversations on digital organizations — separately from specific technologies, uses, and business models — can take place.

References

[i] Cheng, J. Yo-Jud., Frangos, Cassandra., and Groysberg, Boris, (2021). Is Your C-Suite Equipped to Lead a Digital Transformation. Digital Article. HBR.Org,

https://hbr.org/2021/03/is-your-c-suite-equipped-to-lead-a-digital-transformation (Accessed 22 Sept 2022)

[ii] Huber, Celia., Sukharevsky, Alex, and Zemel, Rodney. (2021). “5 Questions Boards Should Be Asking About Digital Transformation”. HBR Digital Article. June 21, 2021. Reprint. H06F38.

[iii] Barry Libert, Megan Beck, and Yoram Wind, “7 Questions to Ask before Your Next Digital Transformation,” Harvard Business Review Digital Articles, July 14, 2016 (https://hbr.org/2016/07/7-questions-to-ask-before-your-next-digital-transformation) (Accessed 22 Sept 2022)

[iv] Ransbotham, Sam., Khodabandeh, Shervin., Fehling, Ronny, LaFountain, Burt., and Kiron, David. (2019) “Winning with AI: Pioneers Combine Strategy, Organizational Behaviour, and Technology”. MIT Sloan Management Review. October 2019. Research Report in collaboration with BCG.

[v] Ransbotham, Sam., Khodabandeh, Shervin., Kiron, David.,  Candelon, Francois., Chu, Michael., and LaFountain, Burt. (2020) “Expanding AI’s Impact With Organizational Learning: Findings from the 2020 Artificial Intelligence Global Executive Study and Research Project”. MIT Sloan Management Review. October 2020. Research Report in collaboration with BCG.

[vi] Daugherty, Paul R. and Wilson, James, H. (2021). Radically Human. How New Technology is Transforming Business and Shaping Our Future. Harvard Business Review Press. Massachusetts: Boston.

[vii] Iansiti, Marco and Lakhani, Karim R. (2017). Managing Our Hub Economy. Harvard Business Review. September – October 2017.