Building organizational capability to accelerate digital operating system success
Productivity gains, operations refinements, overall equipment effectiveness upticks, building organizational capability: It’s a given that manufacturing can never stand still.
Currently, the drive to digitalize operations are generating the bulk of organizations’ CI requirements as companies plan and implement their digital operating systems.
In reality, automation technologies such as programmable logic controllers (PLCs) built into factory equipment and supervisory control and data acquisition (SCADA) linked to ERP systems have been operational for over a decade. More recently, that infrastructure has been built upon by newer, advanced technologies such as data analytics, the transferal of platforms into the cloud, and machine learning systems as forerunners of artificial intelligence.
But there are inherent risks and hurdles in transitioning to a digital operating system. In practice, operational teams in plants and factories are struggling to transform. Traditional systems and processes cannot easily manage the new complexities. More acutely, a mismatch between the new capabilities and an organization’s design often means that learnings, new skills creation, and outputs are suboptimal. Organizational design is still steeped in traditional structures, and leadership’s intention to leap into a modern, matrix-oriented or network environment has not yet been actioned.
And so new ways of working are not occurring comprehensively, and the benefits of a mature digital operating system (DOS) are not being fully achieved.
True digital transformation results in a new, enterprise-wide role for technology, which changes from facilitating operations to being at the heart of the business. This requires a metamorphosis or an orchestrated progression to a stage of digital sustainability. Such a transformation also necessitates building organizational capability to harness the full benefit of new technologies.
Building organizational capability is clustered around five beacons
|1. Mission.||Capability starts with direction and desire. Digital technologies have significant business impacts when the workforce is committed and engaged, and understands why it needs to perform and where value must be driven. Alignment throughout the organization means that decision-making has a lodestar.|
|2. Purposeful focus.||Digital changes the way the business operates – but not the reason the business exists. Identifying how to better achieve key outcomes for customers will highlight the fundamental objective of transformation, and where digital should be prioritized to elevate core capabilities.
General Electric (GE) is an illustrative example. The company has a 125-year legacy of global industrial manufacturing leadership, with 2020 revenues of some $80 billion. But it recently re-envisaged the future of industrial corporations in the context of stagnant or falling productivity levels in almost all industrialized countries over the last two decades. Rather than continuing to focus on products, GE is shifting to data and analytics to fuel its growth, by improving customer operating equipment efficiencies and crystalizing co-created innovation opportunities. GE now has a cluster of Group companies surrounding a newer entity, GE Digital. From producing electrical installations, engines, aircraft components, and multiple other heavy duty industrial applications, it is now “an industrial company inside a digital company”, according to the Chief Human Resource Officer of GE Digital, Jennifer Waldo.
|3. Connectedness.||Internally as well as in a wider ecosystem, digitally progressive companies consistently seek to pool resources towards a synergistic gain. This democratization of data and breakdown of boundaries may be disruptive, but it facilitates collaboration toward rapidly scalable innovation.|
|4. Agility.||Digital organizations are able to plan, decide and execute – fast. They are also prepared to take calculated risks in the interest of accelerating both the learnings process and speed-to-market. Agility is a form of resilience, too, an organizational capability which is a protective shield when facing a threat.|
|5. Openness||The paradigm of the digital age is that information is readily available and easily accessible. The understanding that an organization’s policies, procedures, values and brands should be transparent engenders internal and external stakeholder trust – in turn an enabler of closer customer and societal relationships.|
Successful digital operations require solid foundations
There are clear threads linking the five internal capability ambits described above.
- Culture as digital driver
High-performance behaviors, in support of business strategy, result from an attuned culture. Culture is difficult to pinpoint, but it permeates the enterprise and its operations. To embed digital transformation, mindsets must alter 180 degrees to embrace the fact that change is a constant, and that disruption – from the marketplace, from competitors, from the extrapolating advancement of technologies – is an inevitable reality.
- Organizational design for digital
Structure dictates flows. And flows are the crux of digital operations and networked value webs. The design of the enterprise’s structures is a foundation for building organizational capability. Progressive organizational design envisages collaboration, and removes boundaries which inhibit connections and flows between production and customers, throughout the value chain.
As such, digital both enables and requires the reorganization of its talent and technology resources in a delayered structure. Matrix models have now commonly replaced traditional hierarchies. By hybridizing divisional and functional reporting, they improve efficiency and the efficacy of decisions for the enterprise as a whole as opposed to one area or division.
To further decentralize decision-making and enable fluid, real-time operational flows, consider team-based structures. These also break from traditional hierarchies, and match the need for problem-solving, inter-disciplinary cooperation and agility. Teams are built around value processes and workflows, and people can be members of multiple teams.
But digitally mature organizations are progressing toward network designs. Core operations support – and are supported by – satellite units, including external entities. These looser affiliations allow for maximum agility, knowledge dispersal and collaboration.
Whichever model is preferred, the enterprise needs to shift toward becoming a learning organization, one in which key knowledge no longer resides with only a few individuals or small teams, and a culture of curiosity keeps it future-fit. The aim is fluidity and cross-functionality, and the goal is to embed high levels of responsiveness and a mindset of value-add initiative.
For an overview of how organizational design and advanced technology can enhance daily operations, watch this video by Dr Dino Petrarolo, TRACC specialist and CCi Asia-Pacific Senior Vice President:
- Building capable leadership
Culture – and transformations – start at and are led from the top. Leaders with a clear vision of how the organization will be improved by means of digital operations can then implement the required organizational capability and instill digitally attuned behaviors.
Leaders should also embrace their own development. Besides digital capabilities, they should deepen their change management skills, intelligence-gathering network, and emotional fortitude. These softer skills will help refine the C-suite’s role from giving direction to one of coaching and supporting talent, and empowering decisions.
- Developing talent
There are clear digital functions needed in today’s technology-based value chains: Chief Digital Officers, cyber-security experts, digital engineers, data analysts. Less clear is how these will evolve in the near future, as artificial intelligence gathers momentum and Industry 4.0 re-gears to Industry 5.0.
However, just as important is the digital upskilling of the full workforce. Building organizational capability must keep pace with technological advances in order to reap the full potential of digital systems. Talent and tools have always been symbiotic; the tools are now digital, and employees need to engage with the new mechanisms of creativity and productivity. On the factory floor, for example, are operators multiskilled, so that they are adept across a full system or process area?
New ways of thinking, new ways of working
A fully mature digital enterprise, with open networks and a digitally attuned workforce, represents the ideal transformative operating model goal for the vast majority of manufacturers today.
Think of logistics. Digital shouldn’t aim to disrupt the primary function of the warehouse and related systems, which is to get manufactured products to customers. Instead, digitized systems and technology applications create new opportunities, such as the use of real-time sensor data to better track shipments, and blockchain to secure end-to-end, single source transparency for all transactions. This new organizational capability drives performance improvements and adds value to the customer.
Dashboards can give management an instant overview of hundreds of operational performance indicators, and pinpoint deviations from targets as they occur – or, for example, track and highlight the identified, mission-critical KPIs. Factory floor and equipment sensors can aggregate performance data and automate information – including triggering preventive maintenance and cutting operating costs.
Strategy evolution toward value creation and resilience
Digital operations should be seen in the context of the relationship between organizational maturity and operational excellence. As the enterprise solidifies and extends its lean and continuous improvement practices, it widens and strengthens organizational capability. As a foundation for digital transformation, these reinforced organizational capabilities allow for greater likelihood of a seamless technology adoption. In a virtuous circle, the technology upgrades and take-up lead to further value chain capabilities, competitiveness and resilience.
Digital needn’t be disruptive
The proliferation of technology, and fresh cycles of advances, make it difficult to navigate digital transformation, and to prioritize investments.
To unlock the gains and opportunities of digital operations, focus on adding value – to customers in particular – and organizational agility. Understand that new technologies and skills must be holistically embedded – and the means to do so lies in capabilities rooted in existing lean and continuous improvement practices.
The transformation to a digital culture requires a change-mindset. But with careful planning, the orchestration of a phased, incremental approach, and the cultivation of organizational capabilities, digital operations will unlock value and add impetus to manufacturing.
‘Adopting a Digital Business Operating System,’ Jan Bosch, Chalmers University of Technology, Sweden, 2018
‘Reimagining the technology operating model’, Deloitte, 7 May 2020
‘Digital Doesn’t Have to Be Disruptive’, Harvard Business Review, July-August 2019
‘Transforming people and organizations for a digital world’ webinar, Korn Ferry, April 2017
‘Introducing the next-generation operating model’, McKinsey, 2017
‘Learning, Leadership, and Legacy: Coming of Age Digitally,’ MIT-Sloan Management Review, 5 June 2018
‘Spark and sustain growth by focusing on company culture’, Strategy+Business, 21 April 2020