We’ve come a long way from the second industrial revolution, but it continues to hold lessons for today’s cyber-physical world.

The late 19th century saw industrial factories undergo a massive technology shift as electric power replaced steam. However, these factories did not immediately receive a productivity shock. This came when they also took the opportunity to radically rethink their organizational design. By rethinking ways of working, pioneers like Henry Ford reduced the time taken to build a car from 12 to 2.5 hours.[1]

Today, we see history repeating itself. Forward-thinking firms – from Starbucks to GE – are harnessing digital technologies to redesign their operations and seize a competitive advantage. Organizations that redesign their organizations to adapt to digital while investing significantly in technology achieve a significant competitive edge.

Digital organizations combine digital capability with digital dexterity

Redesigning the organization for digital means combining digital capability with digital dexterity. As well as building digital capabilities in areas such as customer experience or internal operations, organizations also need to be nimble and flexible – dexterous – to respond to ever-changing technology advances, emerging competitive disruptions, and changing customer needs.

According to our research, enterprises that excel in both qualities – capability and dexterity – outperform their competitors on key performance indicators that include profitability, customer satisfaction, innovativeness and growth. However, our research also shows that only 7% of organizations have capability and dexterity in their DNA. These organizations share five key attributes:

1. Identify expertise as needed – Find and utilize the most relevant expertise regardless of geography, function, level or other organizational boundaries

2. Establish partnerships – Not only understand the importance of outside expertise in digital initiatives, but are able to quickly identify and establish partnerships

3. Respond to customers’ individual needs and preferences – Have embraced digital as a tool to zero in on and respond to individual customers’ needs and preferences

4. Detect emerging trends – Have a finger on the pulse for new technologies, business models, and market changes being driven by digital within their industry and neighboring ones

5. Possess the ability to self-organize quickly – Can quickly bring together its organization around new digital initiatives or opportunities.

Developing digital capability and digital dexterity must be intentional

To build these attributes and seize this performance edge, organizations need to drive change along four dimensions: 

  • Digital-first Mindset: Digital organizations seek and prioritize digital solutions first and foremost. Unless your default position is that all layers of an organization will seek a digital solution regardless of constraints, ideas will simply remain untapped opportunities.
  • Digitized Practices: Digital organizations institutionalize new work practices in three ways:

1. Digitizing and automating core operational processes

2. Informing key decisions based on data and analytics

3. Encouraging collaborative ways of working and learning

  • Empowered Talent: Digital organizations raise their digital IQ for the entire firm and develop opportunities for their workforce to be engaged. Because a digital organization sees its workforce in broad terms – including internal and external participants – these qualities enable it to be dexterous on all fronts:

o   Employees will be perpetually on the lookout for new technologies

o   Customers will demand more digital solutions as technologies advance

o   Partners will want more opportunities to participate in the firm’s ecosystem

  • Data & Tools Capability: Digital organizations have – and provide access to – real-time customer and integrated operations data, and they use collaboration tools to drive innovation and share intelligence across the organization.

Many traditional brick-and-mortar organizations have pushed their digital agendas forward.  They now have the foundational capabilities that allow them to engage in new ways with customers, exploit big data and operate faster and better.  However, while they have changed the way they do business, new entrants, disruptive technology or fast-changing customer needs can expose a company’s inability to adapt quickly.  To ensure they stay relevant in this environment, organizations need to have the agility to respond to disruption or even disrupt their own core business. As well as capability, they must have dexterity to flourish in the digital age.

[1] History.com, “Ford’s assembly line starts rolling”, Accessed November 2015