You won’t find too many arguments in C-suites about the need to transform operating models to be more digital and competitive. But the questions you do hear often are “How?” and “How much?”
We have found there are four ways to transform to a next-gen operating model. In practice, they function more as a continuum than as discrete and separate paths. As we discussed in our article, “How to start building your next-generation operating model,” which model is right for your company depends on the state of digitization in your organization and the capabilities you can call on. Remember: your digitization operating model can shift as you build experience and capabilities.
Innovation outpost. The Innovation outpost is a dedicated unit separate from any functional unit or division. The primary benefit of this model is keeping the digital initiative away from the main business’s historical culture, decision-making bureaucracy, and technical infrastructure. Free from all those constraints, your most innovative talent can push the envelope and hatch new business models—your own in-house Internet start-up. With some careful monitoring, the innovation outpost can help your company leapfrog in capabilities.
One retailer, for example, chose the innovation-outpost approach to fix its ineffective online business. It focused on next-gen analytics, customer experiences rather than technology, and mobile. The unit’s work has created buzz in tech circles and attract better talent. And its innovations are being adopted across the company.
While the innovation outpost can help a company get going—even when all top executives aren’t convinced yet of the value of transformation—the innovations can have limited impact. And because it’s out of the mainstream, the innovation outpost doesn’t do much to launch the cultural changes across the organization that true transformation requires.
Fenced-off digital factory. This is the most common starting point. It concentrates digital talent and capabilities inside the business, but the factory works as a partner with business and functional units from the start. The factory cranks out needed applications and innovations, but it also serves as a model for the cultural transformation by demonstrating new ways of working and how to experiment, learn, and take risks.
One European bank has dedicated several floors at its headquarters to its digital factory. Each floor focuses on a separate digital project to create a reusable bit of technology, such as customer identification and verification or e-signatures. Each team in the factory develops products and services, then moves them quickly from prototype to deployment, before transitioning the product into the main business. After adoption, the team continues to monitor and iterate the product or service based on economic performance and customer feedback.
This path works well when you already have broad commitment to Digital Transformation.
