Role of Org Structure in Digital Transformation of an Enterprise

Executive Summary

Conway’s Law (1967): Organizations which design systems are constrained to produce designs which are copies of the communication structures of these organizations.

The team structure of an organisation has a large influence on the IT maturity of the company. In order to digitally transform the enterprise, it is therefore essential to recognise this fact and structure the team towards desired outcomes.

How Org Structure Defines the Focus and Perspective of IT

Digital Transformation of an organisations go through four major milestones (or maturity levels) which can be understood through the person whom IT (CIO) reports to – CFO, COO, CDO and CEO.

Maturity Level 1: IT Reports to CFO

IT is primarily viewed as a way to cut cost and is itself viewed as a cost center. Such organisations will pursue IT projects that demonstrate ROI based on cost reduction.

Organisations at this maturity level compete in the market by offering lower price for their product or service.

Eg. Outsource low value IT operations such as infra maintenance to lower cost. Man power reduction (and therefore Opex reduction) through implementing IT automation projects.

Maturity Level 2: IT Reports to COO

IT is primarily viewed as a tool for operational efficiency and productivity improvement. Such organizations will IT pursue projects that demonstrate ROI based on productivity improvements, team efficiency improvements and gains in output.

Organisations at this maturity level often compete in the market by offering higher quality.

Eg. IT automation used to increase team output or enable a faster turnaround time for internal processes and services.

Maturity Level 3: IT Reports to CDO

IT is viewed as a business enabler and a profit centre. Such organizations will pursue IT projects that open up new markets and avenues that were earlier unreachable. These organisations are typically innovators and leaders in their respective industries.

Organisations at this maturity level compete in the market through innovation, they are the first movers into a new market segment.

Eg. Use big data to gain deeper understanding of customer requirements and interests. Or the use of AI technologies to address a new segment of customers that was previously not possible.

Maturity Level 4: IT Reports to CEO

These organisations have transformed completely and identify themselves fully as technology companies. IT is the business.

Organisations at this maturity level compete through their ability to leverage their strengths from a leadership position in one industry and rapidly project it into a new industry.

Eg. Tesla is viewed and valued not as an automobile manufacturer, rather as a tech company. They are not selling cars, but a tech innovator who produces a car. The innovation capabilities of Tesla is carried over to SpaceX and other companies.

Eg 2. Amazon started as online book store. Once they were able to profile customers based on their buying patterns, they quickly diversified into selling other products. The innovative IT practices used to host the Amazon Market Place was turned into a product as Amazon Web Services (AWS).

#TODO write about the importance of a single individual holding both CIO and CDO roles. Digital Transformation has separate goals and objectives from IT. IT is about efficiency and productivity, while Digital Transformation is about innovation and new business models. Digital Transformation depends on IT for implementation, many DT projects are held back because IT has different goals and priorities. Tight integration and collaboration between IT and DT teams are essential for success.