Reimagining your Business by Rewiring your Organization

By:

Jebb Lewis

Cato Rasmussen

Introduction 

We will again start this paper like we do all our papers, stressing that transformation is a result of making fundamental changes (vs a goal on its own). Specifically, we think of digital transformation as; making use of technology to radically change business performance and/or the reach of an organization. Having said that, it is important for leaders to identify and understand what makes their business viable, and what it will take to be best positioned (strategy) to gain desirability (market) and viability (business performance), before specifying and applying digital solutions. In a truly digital business, new technologies are the enablers that deliver and capture value from new business model designs, and change cost structures from functionally focused vertical process design to business capabilities focused horizontal end to end business process designs, that will fulfill the needs for ecosystem flow through. This of course will need a new technology architecture, hence digital transformation. 

In a world where we are experiencing an acceleration of innovative business models and disruptive solutions, contributing to the growing number of digital ecosystems, there are few industries or organizations not impacted. Creative idea based designs of new business models in combination with taking advantage of digital advancements has become necessary to survive, never mind thrive in modern ecosystems.

Forces outside the organization have an unprecedented, more frequent, and increasingly forceful impact on businesses and staff. More so today than ever before startups can disrupt and challenge a whole industry (Music, Taxis, Hotels).

The only way to face disruption, is to prepare for it! That, in our opinion puts the priority on innovation and on leadership doing the right things (business model and value proposition innovation); more so, than management doing things right, (executing the existing business model). Thus leadership, becomes the driver to support the organizations reframing of its: 

• purpose, 
• strategy, 
• approach, 
• methodology and tools 

toward value creation, delivery, capture and measures.

In this paper we address the importance of designing the organizational changes needed to prepare for a more extensive use of technology as equal members of the organization, performing business tasks that support the doing of business, in addition to traditional administrative reporting. This topic is for senior leaders and managers engaged in preparing the organization to join or build a digital ecosystem, to become or stay, desirable to customers, clients and partners.

Innovative Spirited Organization

In the battle between established (newly or long established) and startup companies, startups certainly have a head-start when it comes to innovative disruption. Though established, and particularly larger established companies have people, skills and patents, they have also typically “found” their market, and are focused on designing repeatable scalable operational processes to drive down costs, improve customer experience, yield, cash flow … pushing a culture that leaves very little time and/or space for new innovative initiatives. Startups, on the other hand focus 100% of their time on innovation and disruption! This differentiated focus is supported by their financial realities. Whereas, established companies are required to generate profits from sales of products and service, and/or raise funds from capital markets (Loans/Bonds) to fund the growth and scaling of their existing business model; startups, often have cheaper/easier access to funding, and as a result are often better funded than established companies. This, allows them to move extremely fast. When you then cross-reference this with recent data that shows that the average age of a fortune 500 company continues to fall (from 60 years old in in 1950s to 20 years old today), one must question if incremental change to improve the statuesque is enough; vs, a primary focus on innovation. What is it about startups that is enabling them to overcome established companies at an ever-quickening pace?

After having supported many of the largest companies in the world, we believe established companies are unable to respond to business pressures (internal and external) quickly enough, due to their approach, methodologies and toolsets; which, as mentioned above are geared towards supporting the existing business model. There are business elements that companies have control over, and those can be maintained or changed by internal initiatives (See Strategyzer business model canvas)! On the other hand, there are elements of the business environment companies do not have control over and that are driven by outside forces such as key trends, Industry forces, macro economic forces, technology forces.… 

In todays state of continuous disruption and market pressure, organizations must embrace divers and complementary approaches to change, in preparation for disruptive market changes that may impact and/or involve any/every part of the organization.

The dilemma however, is that traditional organizations, with their people, patents and established market/s, have optimized their business, focusing on operational execution of their existing business model. Traditional best practices, general industry business models, best in class surveys and known methodologies are primarily inwardly focused supporting feasibility. On an organizational and cultural level, these seem to be incompatible with the startup innovators’ and disruptors’ approaches, methodologies and tools. Startup companies, focus on desirability! This implies a more outward focused prototyping of ideas vs internal feasibility studies (R&D) that prototype products.. We believe that it is imperative that organizations take action and embrace the differences, to realize the opportunity for implementing complementary approaches. To that effect, we have revisited the hierarchies in traditional organizational structures and, we have explored whether a redesigned organizational model will have a positive impact on an organization’s ability to prepare, be responsive and even drive innovation and disruption with superior operational business performance.

We have embraced the idea of complementary organizational change approaches, and we are exploring the idea of adopting a two sided organizational model as an option. There is a saying that best fits the traditional organization :“When solving problems, dig at the roots instead of hacking at the leaves”. On the other hand, an innovation organization searches for new ideas, and those pop up amongst the leaves. Rather than treating these sides of an organization as conflicting, why not approach them as complementary on a business sustainability level, and look at a two sided organizational model? For example; one side, responsible for business innovation and disruption (responsible for forward thinking business strategies and identifying the right things), and the other side being responsible for operations, scaling and reusable processes (focusing on doing things right). Rewiring the organization, replacing the tradition board of directors, with a business governance board, as illustrated below. 

The corporate governance board has two levels, as indicated by the blue frame in the picture above. The upper level is the highest seniority approval authority i.e. setting business priorities and agreeing to funding etc. The level below heads up coordination between the lead innovation side and manage operation side.

The lead innovation side is focused on search, test and approval of new business models and feeding the funnel of future digital portfolio value propositions. The manage operation side is focused on the execution of business model/s and any and all future business models coming from the innovation side. Thus the manage operation side can focus on operational excellence (facilitating the operational back-bone). Culturally these two sides are totally different! As an example; In the manage operation side every staff member has a job description and KPIs. Failing to meet the KPIs defined in the job description, will be considered as failure. For the lead innovation side, job descriptions are not “set in stone” the same way, and work-loads are idea creation based. If an idea, after being tested is scrapped it is not defined as failure, but experience, and considered to be a lesson learnt. Hence, the two sides should be kept separate and it will be up to Governance to create synergy from of the two sides. 

Lead Innovation - Testing and Design

It is still quite common for larger organizations to have their own research and development group/s. It is our belief (right or wrong is irrelevant) that R&D groups are mainly focused on science and technology creation (vs adoption). It can take years to come up with new technology, and by the time the technology is ready, it may end up satisfying the FEASIBILITY of the idea, but as desirability (market) is seldom tested and viability (business) not calculated for, it ends up reinforcing the statistic (72% of all new products fail). 

"If you wanna hire great people and have them stay working for you, you have to let them make a lot of decisions, you have to be run by ideas, not hierarchy. The best ideas have to win, otherwise good people don’t stay." - Steve Jobs

The motivation behind a complementary two sided organizational model with a leadership led innovation side, focused on idea testing and business design, is to test market DESIRABILITY. In many ways the leadership led innovation side, is the opposite of a traditional R&D group. It is driven by business strategic objectives! Its foundation should be based on imagining possibilities and designing compelling value propositions, while searching for viable business models. Many, if not most innovators design new disruptive business models (Airbnb, Uber and others), making use of available technologies vs creating the technology themselves. 

As alluded to above, managers all the way up to the top - CEO at established organizations have grown up in a system that is based on operational measurements, executing against an existing business model. Meanwhile, innovative lead organizations are searching for business models. As said previously, culturally these two organizations are different and it is our belief they should be kept separate. That is not to say that the outcome from innovations transferred to the operational side are not complementary. The implementation of the two-sided organizational model should be part of the overall business architecture (Business Architecture is addressed in a later paper). The lead innovation side need to be designed, while the managed operation side optimized, and the overall organization rewired.

Our hypothesis is: a two-sided organizational model will enable companies to excel at both innovation and operations simultaneously. Maintaining relevance, being resilient to change and generating customer value will bring financial benefits, creating a better base for sustainability.

Entrepreneur and Innovator

Time has shown that entrepreneurs and innovators need each other, and that they rarely exist in one person. In this, we believe lies the key ingredient for the innovative side of the two-sided organizational model. Entrepreneurial leadership that motivates and leads the innovators and provides and builds the culture for curiosity and learning (by failure), as well as challenging creative and innovative people to do what they were not given the latitude to do in the operational side (traditional) of the organization. The Entrepreneur is typically responsible for securing proper funding, and designing compelling value propositions. The innovators are accountable for the function of imagining possibilities. The two, entrepreneur and innovator aim to filter, prioritize and objectively agree on what ideas have the greatest business potential. To adopt a term used in financial trading, the leadership and innovation organization’s responsibility is to determine “risk/reward” scenarios visualized with designed business models. 

Established organizations and large companies probably have vast numbers of innovators already employed in their companies. However, with established job specifications, processes and KPIs in place, being innovative is considered dangerous, as processes are not designed for the purpose of innovation. As mentioned before, in established organizations, failure is an outcome of not meeting job descriptions and measurements, while in an innovative organization “failure” is regarded as learning and seen as positive. 

An innovative organization’s processes and KPIs are designed from a different perspective, to produce experimental ideas, expose these ideas, test the hypothesis and learn. Based on the learnings, ideas can be prioritized and form a pipeline of innovative business models.

An innovation led organization is not a “fun factory”, but a hard working and focused organization that needs to fill a pipeline of ideas and business models.

Summary

We have put the focus on the basic differences between innovative start-up companies and established companies and why it is so difficult for establish companies to make the fundamental changes which lead to transformational results.

In an organization, culture is like an immune system; new and foreign “things” get rejected! Traditional established companies, tend to focus on operationalizing the existing business model; whereas, in innovative organization, the introduction of new ideas is not foreign, it is part of the DNA and culture.

It is clear that most established companies struggle to make fundamental change that culminates in transformational results. More often than not; established companies get less out of technology than what was intended. This is primarily because established companies have not clearly stated their business objectives prior to initiating technology projects. The result of this is, the cultural phenomenon taking over, as those involved are driven by short term KPIs written in job descriptions.

To overcome the gaps between:

• Business strategy and technological execution;
• Traditional and established operational management and innovation leadership; and
• The over managed and under led dilemma.

We have introduced the idea of the two-sided organizational model.

We will address further elements of rewiring the organization in our upcoming paper on Business Architecture. That will be the next topic in our Business Change Framework with Transformational Results. 

To introduce the approach process, we will:

1. Identify (the methodology for identifying elements to be fundamentally changed)
2. Understand (the methodology for building contextual understanding cross functionally)
3. Visualize (the tools for designing and visualizing i.e. business models)
4. Optimize (the documentation and initiatives need for optimization)