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Is Your Organization Ready for Digitization?

Posted By David Brousell, August 05, 2014 at 9:00 AM, in Category: The Adaptive Organization

Any time a new, pervasive technology is injected into an organization, something transformational happens. We’ve seen it with enterprise resource planning systems, customer relationship management systems, mobility platforms and devices –– the list goes on.

What happens is that the technology changes the way people work, or how a business process functions, or even how an enterprise behaves. But the pattern of the change isn’t always smooth or linear. It can advance and retreat, and then advance again. The pattern almost always depends on an organization’s make-up and culture, and how it is led.

This scenario is playing out today with the so-called digitization trend, a powerful movement that will affect manufacturing companies both internally in how they operate and make products, and externally in how they interact with their customers and markets.

Technically speaking, digitization occurs when an object, image, document, or an analog signal is converted to digital form. But it is a lot more than that, and it is its effect that is most important. Gartner’s Mark McDonald summed up that effect when he said in 2011 that digitization is the “degree to which an enterprise’s products and service value and revenues are realized through technology.”

Today, businesses are realizing more and more of that value through investments in digitization, but the trajectory is anything but smooth or predicable. A recent McKinsey survey on digitization, for example, says that many organizations are not realizing the full benefits of digitization due to an array of organizational issues.

Chief among these issues, McKinsey says, is a difficulty in scaling digital efforts across the enterprise and achieving the large financial impact that is expected from digitization. Another key issue is accurately understanding the value from digitization. “When asked about the funding of and impact generated from digital projects, just 7 percent say their organizations understand the exact value at stake from digital, and only 4 percent of respondents report high returns on their companies’ current investments,” McKinsey says.

Large companies, the survey showed, also have to contend with “unsuitable” organizational structures and “inflexible” business processes when they attempt to digitize. In addition, many companies suffer from a lack of human talent related to implementing and running digital projects –– in particular, those with analytical skill sets –– as well as policies for measuring the return from digitization and incentivizing employees. 

Nevertheless, businesses are pushing ahead with the digital way of doing things, and they expect, McKinsey says, not only that spending will increase on digital projects but that a “large portion” of future growth will be driven by digitization.

“More than three-quarters of executives say the strategic intent behind their digital program is either to build competitive advantage in an existing business or to create new business and tap new profit pools,” the McKinsey report says.

But before a satisfying return is achieved from digitization, many companies will have to take a hard look at their cultures, their organizational structures, and their policies and procedures to make sure all is aligned with their digital strategies, which, for many, will end up being the only business strategy they will be able to embrace in today’s increasingly connected, technology-intensive business environment.

One of the most encouraging findings in the McKinsey survey is that 41% say their CEOs are now directly responsible for their organizations’ digital agendas. This is a good thing, given the often daunting organizational issues revealed by the survey.

Digitization is now clearly a leadership issue.

Written by David Brousell

Global Vice President, General Manager and Editorial Director of the Manufacturing Leadership Council

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