IDEO is a pioneering organization of design thinking (DT). They were forerunners of the user-centric design movement in the 1990s. This was even before the term ‘Design Thinking’ became a boardroom lingo. They have carved out a niche for themselves in terms of the quality of consulting and education when it comes to DT. Here we shall take a look at the IDEO Design Thinking Process. We shall also see how it can help us in creating user-centric products and services. Finally, we shall contrast it against an equally popular alternative: Stanford D.School’s design thinking process. This will give us an insight into the subtle differences between the two major schools of DT. 

What is Design Thinking ?

One of the most challenging tasks in business is creating something that works well for the firm, its customers, and other stakeholders. It’s a very narrow path to success. Design thinking is an approach where we try to create or optimize products. The main goal of design thinking is to make something that is extremely user-centric. Unlike other methods of new product development, here in DT, the focus is not on finding a correct solution. When we use the standard research and development process we strive towards making a perfect product. On the other hand, the goal of the design thinking process is to improve the products little by little every time. At the very core of these improvements is a relentless pursuit of customer satisfaction.

However, we have to keep in mind the firm’s profits as well as the technical feasibility of these improvements. Therefore, IDEO says that there are three concurrent goals of any design. These are: 

1. Economic viability – whether the changes are profitable for the firm?

2. Consumer desirability – what do the customers want?

3. Technological feasibility – is it possible with current technologies to incorporate these improvements?

These goals are extremely important to the success of any product or service. A lot of times we may have a product that may be extremely good at one of these three areas, but poor at the other areas. These kinds of products are not successful in the long run. The IDEO design thinking process prescribes some simple steps as discussed in the next section. 

IDEO Design Thinking Steps

IDEO university has pontified the six steps of the IDEO design thinking process: 

1. Frame a question 

2. Gather inspiration 

3. Generate Ideas 

4. Make Ideas tangible 

5. Test to learn 

6. Share the story 

You may see some variations of these steps on different websites. However, this is the correct form of the design thinking process as provided by the IDEO university. I shall be taking the example of Airbnb to explain these steps.

Frame a question 

One of the core principles of design thinking is customer-centricity. Framing the question is one of the most important steps of this entire IDEO design thinking process. In this step, the first question that we ask is who is our customer. It is also important to go beyond the traditional rhetoric of segmentation targeting and positioning we need to take a deep dive into the understanding of customers. This is especially important because we are trying to optimize a product or launch a new product in the market. Therefore we need to understand who is our target customer.  

The second question that we need to ask is regarding the customers’ needs. It is imperative that we understand that needs may not be manifested easily. Many companies run customer surveys to understand the explicit needs of the customer. Leading firms understand the value of going beyond the explicitly specified needs. Pin rightly said by Henry Ford that if he would have asked his customers that what did they want. He would have simply said that they wanted faster horses. Therefore we need to go deeper and understand that what are the pain points of the customer.  

In the case of Airbnb, the founders saw that in spite of traffic on their website few people were booking the rooms. They wanted to know the reason behind this. It could be due to some problem that the customers were facing. 

Gather inspiration 

The second step of the DT process is gathering inspiration. Phones that capitalize on the design thinking process also put in a lot of effort to understand the customer. We have got different means and mechanisms to gather inspiration for innovation. The first source of this inspiration can come from customer journey mapping. Customer journey mapping is a process by which we follow a customer in their shopping journey. On one hand, we can put ourselves in the shoes of the customer and try to replicate the entire purchase process. We can also follow a customer and see that what processes and touch-points they go through. When we close we follow our customers that can also give us some insights about the customers’ pain points.  

The founders of Airbnb put themselves in the shoes of the customer. Consequently, they were able to appreciate the problems that the customers faced on their website. Images that were displayed for the hotel rooms were not up to the mark. Of them were shot by smartphones. The rooms were badly lit. Therefore many users did not end up booking the rooms.  

Generate ideas 

Once you have the pain points of the customer you can try to find solutions to these pain points. There are two things to keep in mind in this regard. A lot of times we just try to find the first possible solution. Then we stop and that solution and don’t look for a better solution. It was a more robust approach would be to keep looking for an answer till you are satisfied.  You can try one of the three types of brainstorming to come up with fresh ideas.

The team at Airbnb wanted to find a solution to this problem. Obviously one of the easiest solutions would be to set up some rules and regulations. The room owners may be asked to upload better-quality pictures on the website. However, this solution may not work well. One of the reasons for this not working is that the owners may not be an expert in photography. Secondly, there would be no benchmark or reference point for them to target.  

Make ideas tangible 

This concept comes from the field of research and development. When we are trying to do R&D for a new product we design models and test them. These models are smaller or scaled versions of the original design. Therefore we can develop these models quickly and at a lower cost. These scale models are also known as prototypes. Once these prototypes are ready we can test them to find out the best one. 

The team at Airbnb decided that day should intervene and optimize the photographs for some of the hotels. This small-scale testing of their idea is just like a prototype. 

Test to learn 

Once our prototypes are ready we have to test them. For example, car companies make prototypes for their vehicles. These prototypes are crash tested to see whether they would stand the force of an accident or a collision. Once you have this data, you will know that what are parameters that you have to optimize. After which you can then build new prototypes that are better than the previous ones.  

In the same vein, the team at Airbnb also decided to test out their idea about the photographs. They visited live locations and took high-quality photographs with digital cameras. After they uploaded this photograph for those properties they started analyzing the data. This and instant increase in the number of booking for these properties. Therefore they were able to find support for their proposed changes. Dekho now ask each of the hotel owners to try to put a photograph that was similar to their photographs. The users had to simply light the room well and they would have to click photographs using proper angles and good quality cameras.  

Share the story 

This is the final step of the design thinking process proposed by IDEO. What’s the storyline for your solution are ready you have to share it with the relevant people inside the organization. This story should not just inform them about the potential solutions. It should also inspire them to serve the customer’s needs.  

Therefore the Airbnb founding team communicated their success story to the property owners. They shared the output of their experiment and asked them to improve the quality of photographs for their listings. In no time the company saw a massive increase in the number of bookings. Therefore by applying the principles of design thinking Airbnb was able to improve its market share. 

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Digital transformation has played a crucial role in organizations in the past few decades. However, there is also a debate about its impact on firm performance. Most notably, there is increasing scrutiny of the investments into information technology infrastructure. Research in strategy reveals that an organization’s digital capability significantly impacts the firm’s financial performance. Firm performance is one of the key reasons why digital transformation is important.

Is Digital Transformation Essential?

One way of looking at a firm’s capabilities is through the Resource-Based View (RBV). Jay Barney (1991) proposed in his seminal paper that firms need to be inimitable to have a sustainable competitive advantage. Inimitable means that your products or business processes are unique. Your competitors cannot easily copy them.

One of the ways to achieve this is by making your ‘resources different from competitors. For instance, if you can manufacture a commodity, say paper, 20% cheaper than any competitor. It will provide you with an opportunity to outsell your competitors. This unique resource can be new technology, a new process, or process improvement. Thereby it provides your firm a competitive advantage, making your business sustainable in the long run.

Digital leaders are the firms that are proactive in going digital. These firms have a digitalization strategy framework that helps them become inimitable(to some extent). Consequently, they perform better. The digital leaders were found to provide a higher operating margin (18%) than the laggards (10%); they were also found to render a higher profit margin (11%) vs. the laggards (7%) by Bock et al. (2017).

Why Digital Transformation is Important in Business Environment Nowadays?

Now let us also look at why digital transformation is important  in business environment. Especially in 2021, where we are witnessing an increasing use of AI and IoT.

Digital transformation (DT) is the process of upgrading the business process of a firm using information technology. There are several ways in which DT can be beneficial. Most notable are:

1. Develop digital capabilities
2. Increase process efficiency
3. Turbo-charge the decision support system

Develop digital capabilities

Digitalization helps a firm develop resources. These resources form a part of the digital capability of a firm. We develop digital capability through transforming the organization in various spheres. It is a commonly misunderstood concept. DT is relegated to the technology sphere only. However, it should also include skill development, alignment of organizational goals, and individual ownership of the change management process.

⚪ CASE STUDY: IKEA ‘S FORTE (WAS ALSO THEIR WEAK POINT)

Sometimes, your USP can also be a roadblock in the path of your success. The same was the case with IKEA. IKEA is a gold standard when it comes to furniture companies. Their biggest innovation was a novel business model. Their business was simple, provide people with semi-finished furniture in a retail space that is highly attractive. This helped them sell products at cheaper prices than the competitors. However, there was a catch: not everyone is comfortable in assembling an item of furniture. An average Joe may find it fairly complicated.

The solution: acquisition of TaskRabbit.

TaskRabbit is a gig platform. On one side of the platform are people who are ready to do tasks. While on the other side are customers who need these jobs done. These tasks can range from something that is menial like waiting for days to get the new iPhone to something that is skill-based like plumbing work. IKEA acquired a 100% stake in TaskRabbit in 2017. They claimed that this acquisition provided them with a new digital platform. They could now connect their customers with potential taskers. Therefore, the consumers have the option of getting their furniture assembled professionally at their homes.

Increase process efficiency

Process improvement is another goal of digital business strategy. There is immense value trapped in processes.  DT helps in unlocking the business potential trapped in these processes. Firstly, it helps in connecting the information silos. Traditional systems are not built around the concept of data analytics. Therefore, it is a challenge to integrate the data and use them fruitfully. Secondly, DT helps in providing a collaborative platform. Individuals and teams can work together, share data in real-time, and solve problems. Modern brainstorming techniques do not require you to even meet face to face. Thirdly, and most importantly, we can use DT to analyze the processes and ascertain the bottlenecks, low-efficiency processes, and wasteful activities.

⚪ CASE STUDY: SIEMENS – THE FUTURE OF MOBILITY

Siemens AG is a German multinational corporation that needs no introduction. However, many of us may not be aware of their subsidiary, Siemens Mobility, although it has been a core business unit for more than a century. They provide technology products for public transport systems. Most notably, they make rail coaches, railway management, and automation products. They also provide end-to-end solutions like turnkey projects to leading railway corporations across the globe. Some of their recent challenges find a parallel in firms across different industries. Firstly, there is increasing pressure to make technologies more efficient. Secondly, regulators push for sustainable assessment through the life cycle of products. Thirdly, there are traditional requirements of innovation to improve the safety, comfort, and reliability of products.

Solution: Robotic Process Automation

Some tasks are routine. They are rule-based and repetitiveness. These tasks are prime candidates for automation. Siemens lab in Brazil came up with the preliminary technology. It was further developed and adopted by Siemens. For instance, your firm may be spending money on menial tasks like data entry. Also, on tasks like data migration from one system to another. Automation of these tasks can be the key to saving time and money. Further, automation of tasks frees up your resources to be utilized towards other needs like innovation. Automation also helps reduce energy consumption and reduces the carbon footprint of the firm.

Turbo-charge the decision support system

Thirdly, and finally, DT enables a powerful decision support system for the organization. Modern information infrastructure has provided the platform and tools such as cloud, social media, mobility, and analytics. On one hand, these systems help us in gathering valuable insights. These insights are pertinent to both long-term strategies as well as short-term optimization. Further, it helps us in providing inputs and tools for research and innovation. Over the years, we have seen an increasing trend. Digital strategy is now at the core of the business strategy. It is also critical to value chain optimizations.

⚪ CASE STUDY: DIGITAL TRANSFORMATION AT ZARA

When we think of DT, we often imagine some large technology firm. At least on the surface, some firms may appear to be not driven by technology. However, as true managers, we need to dive deeper and look at the submerged part of the iceberg. Zara is a global apparel brand, driven by the concept of fast fashion. However, it faces threats from an even faster fashion! The threat comes from no other than the land of dragons. Chinese manufacturers have reduced the time to market for a new design to weeks, unlike traditional brands that take months. This has been the concern for Inditex, the parent company of Zara as well as brands like Massimo Dutti and Pull & Bear.

The solution: AI and IoT to assist in strategic product development

Inditex has invested heavily in recent years into modernizing its information infrastructure. Firstly, they have developed an in-house integrated online retail platform. The Inditex Open Platform helps them manage the operations across 6000 stores. It provides personalization, convenience to order online and pick at the store, the option to book a fitting room online, and other features. Meanwhile, Inditex has also invested heavily in big data, AI, and IoT acquisitions. They are using the Jetlore AI platform to predict consumer behavior. Further, they have implemented Tyco, which uses RFID chips for inventory management.

How Digitalization helps your business?

Criticisms of Digital Transformation

Although there are benefits of digital transformation, it is not bereft with criticism. There are some areas of concern raised by executives. Also, academic researchers have raised some issues as well.

• Some academics consider Digital Transformation as a fancy repackaging of older concepts of Information Systems. Eric Abrahamson points out the provocative marketing used by consultants and management gurus who use fashionable terms to lure managers. According to his perspective, the mere overselling of leaders vs laggards concept may be one such example.
• Many C-level executives wrongly believe that DT is a panacea for modernizing their firms. Erich Greenbaum criticizes this approach in his article. One drawback of such a false notion is the pressure it puts on the firm to ‘metamorphize’ into something new. A more suited approach that works well for medium and smaller firms is to work on smaller, manageable technology upgrades.
• Many of us have the wrong idea about DT. We perceive DT as a technology problem. However, Frankiewicz and Chamorro-Premuzic argue that DT is people’s problem at its core, not a tech problem. The problem is that we have designed transformation processes around tech, which makes it very difficult to think otherwise. They propose that we look at organizational transformation as skill development. Additionally, we should focus on employee empowerment.

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The success of organizational change hinges heavily on leadership. What are the roles that the leaders must play to make it successful? Change management can be best understood as a set of six images of change managers. This framework helps us take a fresh look at change leadership. Therefore, it also answers how leaders can manage change.

The need for organizational change

There are two opposing schools of thought about the drivers of change. The first school of thought posits that the need for change comes from within an organization. The second school of thought positions changes as a response to the external environment.

Why do we need organizational change?

• Firms operate in a dynamic environment. If you do not change, you will lag behind your competitors.
• New technologies make changes necessary. The digitalization of organizations has an important cause of change in the past two decades.
• Mergers and acquisitions. Firms need sea change after M&A.

Palmer’s Simplified Understanding of Organizational Change

Palmer and Dunford (2008) have argued that there is a ‘sheer sprawl’ of literature on change. This untidy spread of literature makes it difficult to understand and practice change management. They identified two broad approaches to managing change. We can visualize change management as controlling the change. We can also think of management as shaping the change. Further, these broad approaches can be classified under the type of outcomes they produce:

1. Intended
2. Unintended
3. Partially intended

Three Types of Outcomes

If the organization achieves the objectives of the change, then it is called intended change. Most of the discussion around change management has been under this assumption. Secondly, we may get unexpected outcomes. These outcomes may be favorable or unfavorable to the organization. Firms need to adapt to change on course and maneuver these unintended and partially intended outcomes. One of the early proponents of the adaptive, emergent strategy was Henry Mintzberg.

Therefore, we can now categorize the different approaches taken by change managers as a permutation of these possibilities. This gives us a total of six images of change managers. These six images are summarized in the table below:

Palmers Six Images of Change Management

Change management is one of the most challenging managerial roles. The managers need to don different hats during the course of change management. Palmers et al, studied this process and proposed that there is a total of six different roles of a change manager. 

1. Director – The change manager is responsible for ‘direct’ organizational resources towards the new paradigm. In simpler words, a change manager has to orient people towards the organizational goals. They also have to motivate people to imbibe the rationale for the changes.
2. Navigator – A navigator as the name suggests, maneuvers the project. It is just like ships and planes cannot be run on auto-pilot all the time (at least as of now). The ships need constant input from the captain to navigate different types of situations. Similarly, a change manager ensures that the objectives are met regardless of the changing dynamics inside and outside the firm.
3. Caretaker – There are a lot of internal and external factors which cannot be controlled. The concept of caretaker comes from the fact that not all variables are under the control of managers. Therefore, the caretaker is also one of the images of change managers. As a caretaker, the managers ensure that the change process follows its course in the face of changing environment.
4. Coach – The coach works with the team members. Changes are daunting processes. The job of a coach is to make this less daunting. They sit down and discuss the perspectives of their employees and provide valuable feedback and suggestion.
5. Interpreter – We have discussed that it is important to align individuals to the organizational goals. It may require interpretation of the objectives in form of tasks. Further, the teams and individuals need to set goals for themselves. The change manager acting as an interpreter legitimizes the objectives through a set of goals.
6. Nurturer – Finally, we come to the sixth of the images of change managers. Think of nurturer as the gardener who shapes the plants. Plants need to be watered, fertilized, cleaned, and pruned. Similarly, organizations also require constant nurturing to shape them according to the vision.

What do Change Managers do?

Firstly, there may or may not be a designated ‘change manager’ in an organization. Change manager could be just a responsibility of a manager. However, there are organizations that have dedicated change managers. These managers look at planning, strategizing, and implementing the change process. This process involves the following activities:

1. Brainstorming ideas
2. Development of change blueprint
3. Delegation of responsibilities
4. Implementation of change process
5. Managing and directing change
6. Financial estimation and analysis
7. Communicate to the lower and upper levels
8. Resolving conflicts

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Target invested heavily in the digitalization of business. It has been one of the driving forces behind the steady rise from a stock price of $53 in 2006 to $204 in 2021. Digitalization strategy framework can go a long way in ensuring sustainable competitive advantage for firms. However, successful transformation requires relentless effort, dedicated funding and unending support from top management. According to a report from Forbes, about 84% of digitalization strategy fail.

Executive Summary

Digitalization is crucial to the going concern of contemporary businesses. Typically, it has been shown that digital leaders reap higher benefits from digitalization. However, with the right approach, any organization can lead a successful digitalization strategy. The key points that drive success are:

• Development of a digitalization strategy framework
• Commitment from executives
• Focus on developing internal competencies
• Change management

What is Digitalization Strategy? Is it same as Digitization?

The two terms digitization and digitalization are seemingly similar. However, they are not the same. Digitization refers to the transition from analog format to digital. For instance, adopting online forms rather than a physical printed form for opening a bank account. On the other hand, digitalization refers to the act of transforming your business model on to a digital platform.

The digitalization strategy is objective evaluation of a company’s business model and assessing the future. Subsequently, the digitalization strategy framework needs to be developed. Research shows that these transformations usually have the following properties:

1. Driven by proactive approach
2. Requires higher co-ordination between different levels of the organization
3. Long term orientation helps

We looked at recent publications that have talked about the digitalization strategy frameworks. The findings of these research are provided below. Overall, these papers have talked about the drivers of digitalization as well as the framework development process.

Digitalization Strategy Framework

Researchers from University of Cambridge, found out that there are factors that can drive the success of digital transformation. Their findings can be quite useful in developing a digitalization strategy framework.

Proactively initiate the transformation process

Firms that are proactive in adoption of technology are the leaders. Typically, they enjoy greater success from the technology compared to laggards. Given a choice, everyone would want to be a leader. However, larger firms have the advantage of accrued capital, organizational learning as well as human resource. Also, certain industries are better poised to take advantage of digital. For instance, industries like retail and manufacturing embraced digital platforms much earlier than industries like agriculture and energy.

However, the technology transformation need not be looked from this perspective only. Some research also show that companies can succeed regardless of their time of adoption of a technology. What matters is a proactive approach in assessing the market risk and acting accordingly. Certain process industries like biotechnology and energy have shown remarkable use of digitalization strategy framework and succeeded.

Integrate digital strategy with business strategy

Firms can improve their processes by optimization and upgradation. Information technology has been shown to be a powerful tool of modernizing a business. Some firms relegate technology to the specific departments and focus on other aspects of doing business. This process is not wrong. However, it diminishes the dedication required for success of technology transformation. The digitalization strategy framework suggests that business should adopt new technologies to improve efficiency, enhance customer satisfaction and increase profitability.

Incorporate IS experts in top management

Top managers who have a background in technology provide valuable insights. Particularly if they have experience in areas like information systems, data analytics, innovation and digital transformation. This knowledge is essential in providing a direction to the initiatives. They can also provide timely feedback about the issues in implementation and suggest appropriate course corrections.

Learning and Development

There is a sea of evidence that suggests that digitalization is often met with resistance.  One of the common reasons for this resistance is that the employees lack relevant skills. Top executives who overlook this critical aspect, pay dearly. We opened this discussion with the disturbing finding from Forbes. Digitalization strategy is successful only for one in eight cases. Nevertheless, appropriate attention to the learning and development may increase the chances of success.

Prescribed Actions for Digitalization Strategy Framework

Another powerful framework was developed by researchers from University of Augsburg, Germany. They have prescribed six action fields for the digitalization strategy framework. Their model talks about customer, value proposition, operations, data, organization and transformation management. We have modified the framework slightly for better explanation of the terms.

Customer Centricity

The customers are the core around which businesses revolves. At least that is what contemporary theories in marketing tell us. Long gone are the days when you made a product in your labs, pushed it to the market and prayed for it to be bought and enjoyed by the customers. Digitalization goes a long way in helping firms become more ‘customer centric’ from being ‘product centric.’

Clive Humby coined the phrase “data is the new oil.” However, in order to make use of data, we need infrastructure for data collection, storage, analysis and reporting. Organizations need to transform themselves into a data centric organization before, they can become customer centric. Modern customer relationship management also goes beyond the loyalty programs. It encompasses omni channel management. Firms also benefit heavily from customer experience management.

Unique Value Proposition

Digitalization strategy framework also provide a unique value proposition. Firstly, the digital platforms provide better integration with customers. Secondly, it increases the convenience for the customers. Thirdly, it helps in customization of products and services.

A firm may focus on any of these or all of these aspects. It is important to understand that traditional offline streams are not redundant. In fact, digital platforms help in creating a seamless management system across omni channels. Also, certain manufacturers are now able to provide fully individualized products. Customers can use mobile applications to select the features they want and then they can place order.

Operational Efficiency

Successful firms like Ryan Air and Toyota highlight the importance of operational efficiency. These firms have succeeded in hyper competitive markets, based entirely on improving operational efficiency and therefore product quality, reliability and customer satisfaction.

Digitalization in 2020s is helping firms integrate the hidden areas of manufacturing. IoT and centralized ERP systems are helping firms in gathering data in real time. The next big industrial revolution is the Industry 4.0. It will increase the connectedness of the organization. Therefore, it is highly recommended to have a proactive digitalization strategy for transitioning into industry 4.0.

Data Analytics

We have previously mentioned that data is considered to be the new oil. Consequently, we have witnessed a huge surge in the generation of data. Everyday we produce about 2.5 quintillion bytes of data. However, Gimpel et al (2018) argue that our decision making has not developed at the same pace as our data analytics systems have developed.

It is quite interesting to note that a major proportion of the executives believe that data analytics provides them with deeper insights. Analytics also plays a part in developing better products and services. It also helps them in managing customer relations better. However, at the same time, executives have not dedicated enough resources to develop the competencies required for collecting, processing, analyzing data and converting analysis results into tangible value.

Organizational Development

This brings us to the next point. Organizational development is pertinent to the success of Digitalization. Executives who want to develop a digitalization strategy framework must understand the challenges. One of the issues with executives is that they are looking for quick fixes. This results in poorly thought out strategy for the adoption of new technology.

The digital business processes are challenging to handle. Modern firms deal with fragmentation, uncertainty, resource requirements and external dependencies. Firstly, it is important to make the organizations agile. Not at a flavor of the month, but as a deeply enshrined value. You may also read our article on elastic digital workplace, which is said to be the workplace of the future. However, it is vital to chalk out a organizational change management strategy for the organization. Further, it should be centered around your digital strategy.

Digital Transformation Management

Finally, organizational transformation is all about execution. It requires transformational leadership and commitment. There are some crucial steps in this process:

1. Development of digitalization strategy framework
2. Change management
3. Learning and development management
4. Digital evangelism
5. Digital transformation project management

The success of any transformation depends a lot on the top management of the firm. The top executives need to demonstrate the importance of the digitalization projects. A new management title has been adopted by some companies, the DTO. The Digital Transformation Officer orchestrates these projects.

Academic References

Gimpel, H., Hosseini, S., Huber, R. X. R., Probst, L., Röglinger, M., & Faisst, U. (2018). Structuring Digital Transformation: A Framework of Action Fields and its Application at ZEISS. J. Inf. Technol. Theory Appl., 19(1), 3.

Muehlburger, M., Rueckel, D., & Koch, S. (2019). A framework of factors enabling digital transformation.

Zomer, T., Neely, A., & Martinez, V. (2018). Enabling digital transformation: An analysis framework. Présenté à 25th EurOMA, Budapest, Hongrie. En ligne https://cambridgeservicealliance. eng. cam. ac. uk/resources/Downloads/Monthly, 20.

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The year was 2004. The United States Army entered a complicated combat. The combat was very different from any other. They were facing the terror organization Al Qaeda. What was different in this case? Why did the US Army find it so challenging to wage a war against ill-equipped and seemingly backward organization? Read this article to find out more about organizational structure. A comparison of centralized vs decentralized organization shows us that which type of structure is better in specific situations.

Centralized and Decentralized Organizational Structure

An organized set of individuals, teams and business units constitutes a firm. These entities come together in providing products and services for the customers. A firm’s activities create product and services for the customers. Moreover, these activities require some management of roles and responsibilities. An ‘organizational structure’ is like a diagram that shows how these activities are orchestrated.

A centralized organization is one where there is top down approach. The higher-ranking managers have higher control over the lower ones. The ideation, strategy and execution trickles down this hierarchy. This structure is similar to how the armies have been traditionally organized.

On the other hand, decentralization is achieved when the decision-making authority is distributed to lower ranking managers. This gives them more autonomy to take decisions. Although, it helps in agility and increases innovation, there are some drawbacks as well. Decentralized organizations may increase the redundancy. There may also be miscommunication, conflicting objectives and inefficiencies.

Chart for Centralized vs Decentralized Organization

The above diagram shows the central organizational chart. The chart compares it to the decentralized organization. As you can see, the centralized organization has a central command of authority. On the other hand, the decentralized organization has a distributed command of authority.

Advantages of Centralized Organization

1. Centralized organizations are more efficient in terms of resource utilization
2. Higher coherence in terms of meeting organizational objectives. Employees are better aligned to the mission and vision.
3. Efficient structure of direction and authority. The decision making is centralized and it helps in staying focused due to a centralized chain of command.
4. Execution time is lower.
5. Reduced inefficiency in work, data and personnel.

The Disadvantages of a Centralized Organizational Structure

1. It reduces innovation in individuals.
2. Reduces the speed of response to external changes.
3. Higher tendency to please seniors rather than meet organizational objectives.
4. Inputs from lower level employees may never reach the top management.
5. May reduce the learning of low and mid-level managers. A major component of learning is through decision making and feedback. The autonomy for making decisions is lower in a centralized organization.

Advantages of Decentralized Organization

1. Increases creativity and innovation in individuals. Lesser control is shown to make people more creative.
2. Leads to higher motivation, job satisfaction and wellbeing in employees. Also, helps in training future leaders who are confident about their decisions.
3. This structure is very useful in tapping on to the expertise of individuals.
4. The perception of threat is faster. Decision making to combat the threats is also faster.
5. It frees the top managers from making smaller decisions. These small decisions may wear out the top management in a centralized organization. Therefore, they are free to focus all their energy on important decisions.

The Disadvantages of a Decentralized Organizational Structure

The disadvantages of a centralized organizational structure include the following:

1. Increased chances of miscommunication.
2. Possibility of conflicting objectives between different teams in the same organization.
3. Competition within teams inside the organization, leading to lower trust and information sharing between teams.
4. Duplicated projects, increasing redundancy.
5. Information silos, especially for tacit knowledge.

US Army vs Al Qaeda – a golden lesson in organizational design

The Al Qaeda was structured as a formidable force. Firstly, the organization was designed like a network of small teams. These teams defied the traditional army structure and hierarchy. This allowed them independence and spontaneity. As a whole, they were unpredictable bunch of guerrilla warriors. Extremely difficult for the allied forces to understand and fight. This type of organization is essentially a decentralized structure. It provides higher agility and ability to adapt better to the changes. It is relatively new way of looking at centralized vs decentralized organization.

Finally, the United States Army, adapted themselves into a new structure. They developed a hybrid approach. The book ‘Team of Teams’ talks about the history of this war and how this structure helped America register a victory against the formidable force. A team of teams is an organizational structure where organization works as a network of smaller, independent teams. They are connected with each other but function independently. This offers the middle ground between the centralization vs decentralized organization.

The Benefits of Team of Teams Structure

1. Higher trust in the individuals
2. Increased coherence towards the firm’s goals and objectives
3. Rapid decision making
4. Faster information dissemination
5. Higher adaptability

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Digital strategy can explain up to 73% of the variance in a firm’s profitability. Yet, only about 15% of the firms have digital strategy at the core of their businesses. Here, we take a look at digital strategy definition. Further, we shall see, how defining the digital strategy can help us visualize the objectives better.

Digital Strategy Meaning

Digital strategy is assessment, analysis and planning to use digital technology to meet the firm’s objectives. It helps us chalk out the roadmap for future. For instance, if your firm wants to adopt AI in your business processes, you may need to develop a roadmap for AI. Similarly, most businesses are developing elastic digital workplaces to reduce cost and increase employee wellbeing.

Defining digital strategy also helps in establishing a direction for your business. Strategy is like the rudder for a boat. Now, imagine a modern Yamaha motor powered boat, connected with GPS. Further, let us visualize that this boat is a smart boat. It has a navigation system. Now, do you see the difference in capabilities of the boat. On one hand, a manual rudder works in setting the direction of simple boat. On the other hand, a smart boat can offer better maneuverability. It can even have auto pilot. All thanks to the digital controls. A digital strategy for your business is analogous to this smart control, but for your firm.

Digital Strategy Definition Mckinsey

McKinsey developed the definition of business strategy as “an integrated set of action designed to create a sustainable advantage over competitors.” Further, they have emphasized that the definition is valid for digital strategy as well. A recent Mckinsey  Quarterly article suggested the following steps to defining the business strategy:

1. Assess the current situation
2. Ascertain the future scenario for business
3. Develop the pathways that will ensure success in these predicted scenarios

Digital Strategy Examples

Managers had a common misconception earlier. They thought that digital strategy was only for firms that had business model that was based on digital goods. However, digital strategy helps not just companies dealing with dealing goods or digital platform. It can be one of the competitive advantage for traditional companies as well

Domino’s Pizza

Dominos has nothing to do with ‘digital business’ per say. However, they are one of the pioneers of digital strategy. They developed their digital strategy definition way in 2008. Since then they have kept digital at the core of their transformation. Firstly, they focused on leveraging the website as point of sale.

Secondly, they heavily invested in transforming to an app-based food ordering service. Consequently, they launched a comprehensive iPhone app in 2011. The app-based ordering system was an instant success. This is where competitors like Pizza Hut lacked behind. Finally, they also surprised the world with first drone delivery of pizza in 2016.

Renault

The auto giant Renault is another excellent example of how to develop digital strategy definition. They were able to get an increase of 25% in their EBIT through digital transformation. In an interview to BCG, the Chief Information Officer Frédéric Vincent shared the details about the process.

Firstly, the company assessed the options they had with digital projects. Subsequently, they devised their digital strategy. They realized that they had data scattered over a large number of applications. In the first step, they consolidated the data and created a centralized data mart. Secondly, they worked towards improving their business processes. Consequently, they were able to achieve a lift of 50% in productivity.

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Organizing is one of the four important activities of a manager. However, what is the organizing function of a manager? Also, why is it important? Here we shall try to understand what is organizing in management and how to use it to improve managerial skills. 

POLC framework 

There are different types of managers, working in various departments and positions. Nevertheless, we can simplify the role of management in an organization. Consequently, we may understand the functions of a manager is through the POLC framework. This framework suggests that the roles of a manager can be described in four types of work: Planning, Organizing, Leading, and Controlling. In this article, we focus on the organizing work of the manager. 

What is Organizing in management? 

Organizing is the process of managing different resources to create value for the firm. Typically, managers bring together resources like finance, human resources, technology together to produce an output for the customers. This output could be a product or a service. In a more practical sense, we can also say that organizing is coordinating different teams, bringing people together, and empowering them with respective roles. All of this is done while keeping in mind the larger end goal. The subordinates typically focus on their tasks while the manager organizes these tasks to create the desired end results or objectives for the firm. 

Therefore, we can say that there are some key aspects of organizing: 

1. Co-ordinating with people 

2. Motivating them for the work 

3. Distribution of work 

4. Synchronizing the work 

Six facets of organizing 

Organizing can also be visualized in the form of six aspects as represented in the diagram below: 

Firstly, and most importantly, we should set our objectives. Objectives are statements that define the goals for the organizational activities. It could be to launch a new product in the market or it could be to act upon supply chain disruption. Once the objectives are set, we can proceed to develop the project management plan. This requires us to prepare the list of inter-dependent activities that are required to meet the objectives. Managers are expected to identify the set of activities that are required for the required objective. 

Specialization based work distribution 

Secondly, we need to assess, the type of work required. This will help us divide the work between the workforce. We can use the concept called ‘specialization of labor.’ Although, you may be aware of the basic concept, here is a quick recap. Specialization of labor looks at dividing the work so that individuals only work on a specific type of task. This type of work is called specialization of labor. The concept comes from the days of the pin factory. The father of scientific management, Adam Smith envisioned increased productivity if each worker did a specific type of work like only bending the pin. The second worker made the second bend, and so one. This was in contrast to the traditional system where each worker took the blank pin and made all the bends to create the pin.  

However, keep in mind that modern work distribution is very different. The pin-factory type specialization makes the workers get bored due to repetitive work. It causes fatigue and burnout. When we talk about specialization-based work, we mean work distribution based on the area of expertise. Modern management principles recommend that people bring in learning and expertise together and help each other out with ideas. 

Developing authority structure 

Once the work has been clustered based on the different areas of expertise, the work needs to be delegated. Delegation involves the transfer of authority for a particular task. The concerned managers are handed specific goals. Additionally, the managers are also given authority for the tasks. Authority is given in the form of different levels. These levels form the authority structure. We require authority structure to facilitate smoother workflow. It helps in increasing the efficiency and timely completion of the goals. You may follow these golden rules of goals to help you in fulfilling them. 

The table above summarizes the authority structure in an organization. Typically, we classify the authority in three tiers of management levels: top management, middle management and lower management. Further, we should note that authority is closely tied to responsibility. The higher the authority, the higher is the responsibility. Responsibility makes the managers accountable towards the completion of their goals. 

Coordination between teams 

Once we have the authority structure in place, we look into the relationship between and within teams. Firstly, coordination enables channels of communication between teams. Communication is key to align the entire firm along with an objective. It also helps in assessing the progress of work. Secondly, coordination also helps in developing channels of feedback.  

As a top-level manager, it is essential to coordinate between different departments. It is an innate tendency to have a myopic perspective. Mid-managers may be focused too narrowly on the fulfillment of departmental goals. At times, this perspective may conflict with the goals of other departments or the organizational goals. This coordination work is an essential part of what is organizing in management, especially top management. The manager’s role also requires them to be visionaries for the organization.

Goal management 

Goal setting is only the first step towards fulfilling the organizational objectives. We need to monitor the progress closely. This helps in prognosis of problems and also helps in fixing them in time. Here are some key aspects of goal management: 

1. Problem definition 

2. Specification of goals 

3. Goal setting 

4. Progress tracking 

5. Monitoring and guidance to lower levels 

6. Feedback and Reporting to higher levels 

The first step in goal management is defining the problem. In the case of mid-managers and lower managers, the problems are given by the higher level in the form of problem specification. This helps in defining the problem. Once the problems are defined, managers have to set goals. One of the well-known approaches is to set SMART goals. Further, the progress has to be tracked. The managers have the responsibility to guide their subordinates. On the other hand, they are also expected to report to their superiors. This is where the authority structure we had established earlier, comes into play. Another way to look at goal management is to look at it from people’s perspectives. Goal management is essentially managing people at upper and lower levels. 

Analysis and Feedback 

We cannot discuss contemporary management without referring to analytics. Analytics is the use of information to improve performance. We may use statistical tools to understand how we are performing with respect to key performance indicators or KPIs.  

Further based upon the analysis, managers are expected to provide feedback. This feedback helps in correcting any problems with the approach. Sometimes, work may need to be expedited to meet downstream dependency. All of these decisions have to be taken once the required information is available.  

Some Frequently Asked Questions about organizing:

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We witnessed one of the most tragic pandemics recently and have been made aware of the importance of developing resilience. Moreover, the only way to survive shocks in the environment is through resilience. Let’s take a deep dive and understand why is resilience important in business? 

Business resilience 

Business resilience refers to the ability of businesses to overcome the shocks in the business environment and bounce back. Further, we can say that it is the ability to get back to normal operations swiftly and efficiently.  

The major goals of business resilience building are: 
1. Early identification of threat
2. Proactive threat confrontation strategy
3. Minimizing the financial damages
4. Recovery planning

What are the benefits of resilience in business? 

Organizational attitude towards resilience has a direct impact on its sustainability. Although many business shocks are unpredictable, the response systems can still be proactively put in place. The firms have a choice to get overwhelmed by the shocks or be empowered to fight back. The resilient firms have the following advantages: 

1. It enhances chances of survival of the firm. 

2. Reduces the financial impacts 

3. Improves the morale of the workforce 

4. Poises the firms to grab new business opportunity 

5. It reduces the uncertainty and unpredictability.  

Some Common business shocks 

How to plan for business shocks? 

Business shocks are inevitable. However it is not impossible to overcome them. Being proactive is quite useful.  

Step 1: identify the key business risks 

Business risks can come in all shapes and sizes. We have highlighted some common risks in the table above. They may have different levels of severity save probability. Also, the severity would keep changing over time.  

Nevertheless, the key here is to ensure that organization is poised to monitor the external environment for any signs. These signs may not be evident in an early stage. While, in some cases it may have sudden onset with no time to ‘detect’ it. For instance, for events like earthquakes, we may only have post facto responses.  

Step 2: prioritize the risks based on their severity and probability 

Resilience strategy can go haywire if we do not have a priority. Random allocation of resources dilutes the focus of the firm. This can prove to be detrimental as well. Therefore, once the business risks are identified, we need to sort them according to two factors: the severity and probability. The severity of events depicts their impact on the firm. On the other hand, their probability is the chance of them occurring in future.  

The most important event should be one with high probability and high severity. We should also note that the chances of an event happening is taken based on past occurrences. However, for infrequent event, it is not possible to predict when it will happen. Infrequent events follow a poisson’s distribution. We can only predict the cumulative probability of their occurrence within certain time domain.  

Here lambda (λ) is the Poisson’s parameter. It represents how infrequent is an event. As you can see from the graph that for λ = 1, the cumulative probability graph is steeper than for λ = 10. This means that there are higher chances of an event occurring for events with yellow color. There is almost a certainty (probability close to one) for k more than 3. On the other hand, the blue curve represents an infrequent event, the probability of an event is around one for k greater than 17. If we consider k is the time in months, then these curves simply represent how likely events marked in yellow and blue are about to occur in the future.  

Step 3: Risk mitigation planning 

The next step in working with resilience planning is develop a mitigation strategy. It is easier said than done. Firstly, we may not know what business shocks may happen in future. Almost none of the businesses predicted the extremely rare phenomena like Covid19. Although it was evidenced in epidemiology literature as early as 2013 that there may be an outbreak of new corona virus. Such warnings were never picked up in mainstream media as it was too far-fetched at the time.  

However, we can develop a mitigation strategy for the type of shock, as seen in table 1 above. All geo-political shocks have direct impact on few known areas of operations: 

1. Reduced demand 

2. Supply chain disruption 

3. Increased cost of goods sold 

Developing the culture for resilience 

We cannot overemphasize the importance of developing a culture of resilience. Culture is the key to organizational attitude. One is the key concepts in resilience culture is how risk is perceived by the employees. Nevertheless, the employees must be encouraged to be open towards perceiving impending threats. Additionally, any early warning signs raised by employees must be considered by the managers seriously. This can ensure the early identification of potential threats. Time is a key factor in the resilience process.  

Secondly, organizational communication channels should be friendly. This has two benefits. Firstly it reduces the information gap between teams. It has been seen during Covid19 that different teams from the same firm resounded with different sets of assumptions about the pandemic. Sometimes strategic business units started from scratch while their peers were already dealing with supply chain disruptions.  

Thirdly, a key tenet of organizational learning is knowledge transfer. Although it’s not possible to pass on tacit experiences from dealing with business shocks, we can ensure the strategic response system is developed. We can codify some of the knowledge into ‘response manuals’. These manuals will be a boon for future events. 

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We have been doing focusing only on the profits or the single bottom line. It has been like this for a very long time. However, can we really continue doing business this way? Researchers have been pointing out that our sole responsibility to increase shareholder’s value limits sustainability. Here we take a look at the triple bottom line examples. Additionally, we highlight some cases that demonstrate how we should think about the triple bottom line. 

What is the triple bottom line?

Bottom line refers to a firm’s net income. Consequently, the bottom-line approach or single bottom line approach looks at optimizing the profit. The central driving force of this approach is profit and profit comes from continuous growth. On one hand we have create immense wealth for the nations. However, we have also been exploiting the planet for resources that drive this growth. Additionally, we have also neglected the humanist approach towards the wellbeing of people connected in this process chain. 

However, things have been changing since the turn of this century. We are entering a phase of business enlightenment. We have lived under the darkness of ignorance. Only recently we have started to look beyond the shareholders and owners. The triple bottom line posits that a firm look at the three Ps. This expanded vision would help make the business sustainable in the long run. The three Ps are: 

1. People 

2. Profit 

3. Planet 

Triple Bottom Line Examples 

Novo Nordisk 

The best example of the triple bottom line is the firm that pioneered in using this in their annual reports. Denmark based pharma Novo Nordisk started using triple bottom line in the year 2004. It was way before any other firm. They specifically mention their stand on the three aspects of the triple bottom line very clearly.  

This disclosure helps the firm in communicating its commitment to sustainability. You may read more in their annual report 2019. Key takeaways: 

1. Sections/chapters for ‘consolidated social statement’ and ‘consolidated environmental statement’ in the annual report.  

2. Maintaining the focus on delivering performance while managing the social ane environmental impact of their products. 

3. Commitment towards zero environmental impact 

Microsoft 

Microsoft is one of the largest corporations in the world. They have also been highly regarded for their efforts towards sustainability. Moreover, Microsoft’s corporate social responsibility is an excellent triple bottom line example. Microsoft uses the Global Reporting Initiative’s guidelines for their annual reports. Read our detailed article on Microsoft Corporate Social Responsibility here.  

We can also take a leaf from their workbook. They are quite innovative when it comes to working on sustainability. Here are some of their future plans: 

1. Use advanced technologies like artificial intelligence for environmental preservation.  

2. Optimizing their products to use less energy 

3. Investing in smarter mobility 

Amazon 

Amazon is another interesting case when it comes to the triple bottom line. Firstly, it is the world’s largest retailer. Secondly, they have a huge logistic footprint across the world. Thirdly, they are also one of the market leaders in terms of cloud computing. All of these factors make them in a position that is filled with responsibility towards their stakeholders. You may want to read more about Amazon Corporate Social Responsibility in our detailed article.

Some of the ways in which Amazon looks at the triple bottom line are: 

1. Reduction in packaging waste 

2. Optimization of their delivery fleet 

3. Reducing water consumption linked to their services.  

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Eco computing is about reducing the impact of computing on the environment. However, are we not saving the environment already by replacing physical services with digital? Why do we really need eco computing in the first place? Also, how can organizations benefit by switching to eco computing? 

IT is an eco-enabler

The impact on the environment is measured through the carbon dioxide footprint. This CO2 footprint summarizes the net use of resources. For example, if we are running an office, then we are using certain resources like electricity, water etc. Overall, information and communication technologies lead to saving the resources. Therefore, they are lighter on the environment. 

Different ways in which it has reduced the carbon footprint: 

•  Reducing the need of physical travel by replacing the meetings with video conferencing. Also work from home reduces the commutes. Thereby saving on fuel, cost and time. Some of these benefits are enjoyed by the individual. However, firms also benefit. 
• Minimizing the use of paper. We all know that paper usually comes from trees. Consequently, less use of paper means that we need to cut down fewer trees.  
• Less demand for infrastructural electricity. Going digital and working remotely has other benefits as well. Firstly, we need less electricity for heating, cooling and lighting the office. Secondly, we need lesser energy for running equipment. Thirdly, the need for other support resources is also reduced. 

In spite of the benefits of computing, there is still a lot of room for improvement. 

The environmental impact of computing 

The power consumption of computing may seem trivial at individual level. However, the aggregate power consumption is quite high. In fact, the power consumed by IT systems is around 10% of the total power consumption of the world. Let us put things into perspective. There are only four countries in the world that account for more than 10% power consumption in the world: USA, China, Russia and Japan. 

Alternatively, we can evaluate the ecological damage using carbon footprint. The computing systems also accounts for around 2.5% of the total carbon footprint. Again, the number may seem difficult to interpret. The airline industry has a carbon footprint of around 3%. We have plenty of discussion regarding the negative impact of air travel. However, there is little discussion around eco computing. 

Finally, IT also creates huge amount of E waste. Some of the common pollutants present in the E waste are: 

• Metals like Arsenic, Cadmium and Mercury.  
• Plastics 
• Other non biodegradable materials. 

Challenges towards the eco computing 

There is a general consensus towards sustainable use of technology. We are not putting in enough efforts towards eco computing. Here are some of the challenges: 

• People are not aware of the impact. 
• It is also difficult to link people’s actions towards information technology to the outcomes. 
• Corporate commitment is lacking for eco computing 
• Senior management participation is also lacking. 

Implementing Eco computing in your organization 

There are several ways in which you can implement eco computing in an organization. Firstly, we can focus on the procurement process. New acquisitions can be evaluated for ecological considerations. Secondly, we can also optimize the existing processes. This will also reduce the environmental impact. Thirdly, we can also focus on developing a work culture that promotes environmentally friendly practices.  

1. Procurement practices  

2. Process optimization 

3. Work culture  

Procurement practices 

All technologies have a finite product life. We need to replace old IT devices every few years. This can be a great place to start the process. We can keep some simple concepts in mind to develop a greening strategy for IT procurement: 

• Follow eco standards for computing devices – certain ratings like Energy Star come handy in evaluating products that meet energy saving requirements. Also, power supply for servers and desktop computers have energy ratings. The best rating is the gold, followed by silver which is followed by bronze. Although prices are very steep for the gold rated; therefore, silver seem to be sweet spot. Also, the benefits are higher for systems with higher usage than idle times.  
• Total Cost of Energy (TCO ) – the computing infrastructure have two types of costs. Firstly, the acquisition cost. This cost is also a fixed cost. On the other hand, we also have cost of running these devices. This is the variable cost. The total cost of ownership considers both these factors. When we keep TCO as an evaluation criterion for procurement rather than the upfront cost, we tend to save more money. 

Process optimization 

We can also look into the processes to find places where we can cut down the environmental impact. An easy way to think about this would be through the 3R: 

1. Reduce – Train and educate staff about the benefits of saving energy. Put stickers that encourage people to switch off the computers before leaving. If you want to take things further, you may even incentivize such behavior. Alternatively, you may also penalize non-conformers. Even a simple mail from the seniors can provide good feedback. 

2. Reuse – Older computers can be reused in two ways. Firstly, you can repurpose them for auxiliary tasks. Older workstations are competent enough for regular tasks like working on word processors and spreadsheet programs. Secondly, you may take help of 3^rd party to resell the older devices. These land up on someone’s desk who may not have the privilege to purchase a new device. 

3. Recycle – finally, recycling can be a great way of looking at eco computing. Firms typically have an e-waste management strategy. You can connect with local authorities or seek help of vendors that specialize in e-waste. One major difference between reusing and recycling is that products that are deemed as not suitable for use are recycled. If they have a work life left and are being replaced due to obsolescence, then they should be reused.  

Work culture 

Senior executives can promote work culture favoring eco computing. Culture has very strong impact on the behavior of the individuals. It can play a major role in shaping computer usage. It is a myth that screen-savers save energy. In fact, it is just the opposite. Develop a work culture where you need lesser space, lesser cooling or heating. Also encourage employees to work from home.  

Another way to promote eco computing is to adopt work from home. There has been an increase in adoption of this practice since the Covid19 outbreak. This trend is expected to continue. However, firms also need to prepare themselves to cater to the infrastructure requirements. An investment into cloud computing saves energy and offsets costs.   

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