Digital Economy Success Factor #4: Organizational Leadership
(Part 4 of 4, originally published on HBR.org)
For several years now digital has been an appendage to “business as usual.” But recently, digital transformations have reached the tipping point where digital has become “business as usual”; the tail has become the dog. Digital is not just part of the economy — it is the economy.
It’s an economy of limitless opportunities for some and disruption and displacement for others. Many firms — such has Kodak, Blockbuster, Sears, and Blackberry — were unable to adapt, while others are thriving. According to MIT Sloan research, the companies that are adapting to a digital world are 26% more profitable than their industry peers.
How are these thriving firms reinventing themselves, their supply chains, and their marketplaces? For an upcoming MIT symposium on the topic, we’re focusing on four main themes: customer expectations, product enhancements, collaborative innovations, and organizational forms.
Companies must rethink their structures and culture to better deal with new market environments and business models. The hierarchic organization that prevailed in the 20th century’s production-oriented industrial economy will not work in the more global and fast-changing digital economy. The companies that are most successfully adapting are making a cultural shift from “Mad Men” to “Math Men,” where decision making is increasingly based on data rather than on the frequently wrong opinions of senior executives. These companies are adding data scientists to enhance organizational learning. They’ve made some decisions faster by relying on algorithms, and they are introducing artificial intelligence, robotics, and other advanced technologies as appropriate.
Thriving companies also acknowledge the dark side of the digital economy and that more resources and a greater strategic emphasis on cybersecurity will be required to address the increasing number of attacks, the growing expertise of hackers, and the thriving black market for stolen data and malware. Luis A. Aguilar, former commissioner of the SEC, has warned that boards that choose to ignore or minimize the importance of cybersecurity oversight do so at their own peril.
The digitization of the economy is one of the most critical issues of our time. Digital technologies are rapidly transforming both business practices and societies, and they are integral to the innovation-driven economies of the future. But there is another dark side: technological revolutions are highly disruptive to economies and societies. This was the case during the Industrial Revolution, and it is the case today.
While technologies advance rapidly, organizations and skills advance slowly, and the gap between swiftly evolving technology and the slower pace of human development will grow quickly in the coming decades as exponential improvements in artificial intelligence, robotics, networks, analytics, and digitization affect more and more of the economy and society. Inventing effective organizations for the digital economy is the grand challenge for our time, and the companies that are already adapting are leading the way.