An Operating Model for the Digital Enterprise

Published 10 February 2023

Abstract

Over the years TechVision has described the technical and architectural elements of a modern Digital Enterprise. As organizations have “transformed” their businesses to be largely digital, we’ll now focus on the various components and organizational models that make up and sustain a successful digital enterprise. The report covers the organizational construct, which details how to form a cohesive organizational structure where the value chain and support functions are linked and properly placed within the organization. It also covers digital governance, which explores how processes and activities are managed and governed, with a particular focus on a digital governance framework.

The report also addresses key areas such as decision rights and management rhythm, including how important decisions are made and the processes that are used to manage performance. A people model framework is also discussed, including the types of skills that the organization wants to attract, how talent will be curated, created, and cultivated. As digital morphs into every aspect of business, this report looks at how organizations can best map their business models into adaptive and sustainable digital programs.

The report ends by exploring business partnerships, identifying organizations that are digital partners rather than transactional suppliers, and finally, a location footprint is also covered, including where work and assets are located and the reasoning behind those choices.

This comprehensive overview of the key elements of a digital operating model offers insights and guidance for organizations looking to improve their digital performance.

Authors:

Gary Zimmerman

Principal Consulting Analyst

[email protected]

Executive Summary

The last few years have seen a quantum shift in the way people work, collaborate, and travel. The pandemic compelled organizations to overhaul their business strategy and goals. Organizations had to migrate to digital technologies seemingly overnight to support their remote workforce and ensure business continuity.

Every organization today must become a technology business, no matter what product or service you offer. This shift is inevitable, and with it comes the concept of IT-business alignment: that IT enables business and business drives IT efforts. Neither is less necessary and both are revenue-generating.

The Digital Enterprise

For years, TechVision has spoken about digital transformation and various IT architectures required to successfully make the transition. We now speak in terms of a digital enterprise, an organization that completely integrates digital tools and technology into all aspects of its operations to increase employee productivity, create a better customer experience, deliver better products, and improve the efficiency and effectiveness of the business.

Overall, there’s an accelerated need for businesses to adapt and innovate to stay competitive in the current environment. Digital enterprises can quickly respond to changes in the market and customer behavior, as well as implement new technologies and business models, and are more likely to succeed in this next normal.

Business Alignment

To unlock digital value, business and IT teams need to work closely together to understand each other. What is the impact of change for IT? And what does the business need? Once those conversations are happening, the organization start to see the fruits of digital transformation.

Alignment between business and IT is achieved when the questions posed below are answered and the concepts articulated are aligned:

Why: Very few people or companies can clearly articulate why they do what they do. This isn’t about running a profitable company—that’s a result. Why is all about your purpose. Why does your company exist? Why do you get out of bed in the morning? And why should anyone care? That translates into a question, “Why do we play in this market and how do we intend to succeed?” That question is answered through the business strategy.

How: Some people and companies know how they do what they do. Whether you call them a “differentiating value proposition” or a “unique selling proposition,” the “hows” are often given to explain how something is different or better. The how drives the next question, “What is the role of technology and what does IT do to support the business in achieving its goals?”

What: Every single company on the planet knows what they do. This is true no matter how big or small the company is, or no matter what industry they belong to. Everyone can easily describe the products or services their company sells, or the job function they have within the company. This leads to the question that drives this report, “What does IT need to do on a day-to-day basis to successfully deliver on the strategic goals?”

A digital enterprise is an organization that uses technology as a competitive advantage in its internal and external operations, and the investments in efficiency and differentiation link technology to the business strategy.

Business Strategy, the why

Every enterprise has plans to increase value for its stakeholders and its strategy considers several factors including the market, competitors, and the business environment, as well as the company’s structure, strengths, and weaknesses. In addressing the why, leaders develop a clear sense of their strategic ambitions—where to play and how to win—and the business models they wish to employ, including target customer segments, channels, pricing, and delivery models. The first step in operationalizing the strategy is to identify and assess the capabilities necessary to be successful.

Digital Strategy, the how

Digital strategy focuses on using technology to improve business performance, whether that means creating new products or reimagining current processes. It specifies the direction an organization will take to create new competitive advantages with technology, as well as the tactics it will use to achieve these changes. This usually includes changes to business models, as new technology makes it possible for innovative companies to provide services that weren’t previously possible.

Digital Operating Model, the what

An operating model addresses all the work that needs to be done including the support functions as well as the value chain steps. But a full operating model will do more than lay out what work needs to be done. It will address:

Organizational construct: how the activities in the value chain and the support functions link together into an organizational structure.
Digital governance: how processes and activities that cut across the structure of the organization are managed and governed (particularly information links)
Decision rights: how the most important decisions in the organization are taken
Management rhythm: what meetings and with what frequency are used to set objectives, make plans, and manage performance
People model: the types of people that the organization wants to attract, how these people will be paid and incentivized, what they will be held accountable for and the values that should guide their behavior.
Business partners: which organizations are partners rather than transactional suppliers and what sort of partnership relationship is required with each.
Location footprint: where the work and assets are located and why.

In this report we dive deeper into each of these topics to explain the meaning and implications of addressing the fully digital operating model.

Conclusion

A digital operating model is essential because it provides a clear framework for how digital initiatives are managed and executed. Without a digital operating model, digital initiatives may be managed in an ad-hoc manner, leading to fragmented and inconsistent approaches, business fragility, and strategy misalignment.

An effective digital operating model provides several benefits, including:

Improved efficiency: The model helps organizations streamline digital processes, reducing redundancies and improving overall efficiency.
Better alignment: The model aligns digital initiatives with the organization’s overall goals and objectives, ensuring that efforts are focused and effective.
Increased agility: The model enables organizations to respond quickly to changing market conditions and customer needs, improving overall agility.
Better decision-making: The model provides a clear framework for decision-making, ensuring that decisions are based on data and informed by best practices.
Better customer experiences: The model helps organizations create consistent, high-quality customer experiences, improving customer satisfaction and loyalty.

In summary, a digital operating model is essential for organizations that want to effectively manage digital initiatives, stay competitive, and improve customer experiences. It provides a clear framework for decision-making, enables better alignment with organizational goals, and supports agility and efficiency.

While critically important to building a successful and sustainable digital program, developing a digital operating model is not easy. In fact, it can be one of the hardest things that you do as you transform your company into a digital enterprise. As we have discussed, there are a lot of moving parts required to create and maintain an effective digital operating model and we’ll look to unwrap this in this report.

These concepts and recommendations can generate resistance that ranges from just general fear and uncertainty to cultural issues. Creating and supporting a digital culture is key to success. That may mean tweaking incentives, evaluations, management style, and objectives. For example, you can’t tell people to innovate and experiment and then punish them for failure.

Cost concerns also arise. Sometimes there’s even shareholder and investor pushback this is going to cost too much. Why should we change? Tell me what I’m going to get? This might an area of resistance as you look at the business and your work differently.

Digital literacy is another concern. A lot of people don’t have the skills to operate in a digital enterprise. This is really an important part of the transformation; making sure that people are continually expanding their digital literacy and doing so in a way that doesn’t force them into a classroom. Amazon recently announced they’re going to spend over $700 million in digital literacy training for their employees. They see the value of continually developing the skill sets of their people. You should too.

Leadership is a big part of this because a lot of what I’ve been talking about is a change in thinking, a change in culture, a change in skill sets. These changes will require a constant and consistent leadership presence.

Many of the aspects of the digital operating model are things that your organization may already have in place. That makes this job much easier. You should evaluate whether those aspects are being effective and whether they can still be effective as you evolve your digital operating model.

Introduction

The last few years have seen a quantum shift in the way people work, collaborate, and travel. The pandemic compelled organizations to overhaul their business strategy and goals. They had to rush instantly to migrate to digital technologies to support their remote workforce and ensure business continuity.

The concept of aligning IT and business is rooted in the longstanding reality that the tech side and the business folks were unable to bridge their knowledge, skills, and communication gaps to really work in tandem to support successful service delivery. So, how should we be thinking about alignment?

Think about quantifying what business and IT bring the company—when they work alone and when they work together. The lynchpin is the understanding that when IT and business work in tandem (as partners) both will achieve more. The most successful organization create a unified team, using the best of all available skills and resources so that each employee gets to work smarter. And every customer gets a better experience.

The Digital Enterprise

Automated, Personalized, and Seamless Experience is a given.

There’s no online vs offline in business these days; it’s just business. And your customers expect the same brand experience with your business – be it online, on-premises, in an app, or on the phone. You’re continuously delivering the capabilities necessary to provide that seamless experience. A key to achieving this seamless experience is a capability called Intelligent Process Automation.

Intelligent Process Automation (IPA) gives teams the power to efficiently delegate manual processes, removing tedious tasks that slow down work. At its core, Intelligent Process Automation is an emerging set of new technologies that combines fundamental process redesign with robotic process automation and machine learning. It is a suite of business-process improvements and next-generation tools that assists the knowledge worker by removing repetitive, replicable, and routine tasks. And it can radically improve customer journeys by simplifying interactions and speeding up processes. IPA frees everyone in the organization to work on high-value projects that drive innovation, growth, and revenue.

Agile and Responsive Management Creates Speed-to-Value

Agile and responsive management are two approaches that Digital Enterprises use to focus on delivering value to customers quickly and efficiently. Agile management is a methodology that prioritizes flexibility and adaptability in the development process. It emphasizes collaboration, customer involvement, and iterative development, which allows for rapid prototyping and testing. Responsive management, on the other hand, focuses on being responsive to changes in the market and customer needs. It prioritizes communication, speed, and flexibility in decision-making.

When these two approaches are combined, they create an environment where teams can quickly identify and respond to customer needs and adjust the product or service as necessary. This allows for faster delivery of value to customers, as teams can quickly pivot and make changes as needed. Additionally, by involving customers in the development process and being responsive to their feedback, teams are more likely to deliver a product or service that meets their needs. Ultimately, Agile, and responsive management can create speed-to-value by allowing teams to quickly respond to customer needs and deliver a product or service that meets those needs.

Platforms, APIs, and Microservices Define the Architecture

Platforms, APIs, and microservices play a crucial role in defining the architecture of a digital enterprise. Platforms provide a foundation for building and running applications and services. APIs enable communication and data exchange between different systems and applications. Microservices allow for the development and deployment of loosely-coupled, independently-deployable services that can be combined to form a complete application. Together, these three components form the backbone of modern digital enterprise architecture, enabling organizations to build flexible, scalable, and efficient systems.

No-code and low-code development platforms such as Zapier, Microsoft Power Automate (formerly Microsoft Flow), and Salesforce Lightning help streamline development, workflow, and business process management. These platforms make it easier for developers and non-technical users to create custom applications, speeding up the development process, and allowing for faster delivery of business solutions. As a result, no-code and low-code development platforms have become increasingly popular, especially for tasks such as creating custom forms, automating workflows, and integrating with other systems.

Data centricity comes of age

Digital organizations are going from treating data as an application byproduct—where it is stuck in cloud instances and other siloes—to treating data as the product. Data-Centricity allows enterprises to integrate disparate data sources with virtually no overhead and deliver data to stakeholders with context and speed. Data-Centricity powers decision making, innovation, and customer experience in the digital enterprise.

As data centricity comes of age, organizations are recognizing the importance of managing data as a strategic asset andare taking steps to improve their data management practices; creating a data value chain that is trustworthy, interoperable, secure, time-bound, and shareable.

Enterprise Security is proactive and user friendly

Digital enterprise cybersecurity becomes proactive and user-friendly. This shift is driven by the increasing complexity and sophistication of cyber-attacks, and the need for organizations to be better prepared to defend against them. Key aspects of the changing landscape of enterprise cybersecurity include:

Proactive security: Enterprises are adopting a proactive approach to security, using advanced technologies such as artificial intelligence, machine learning, and big data analytics to identify potential threats and vulnerabilities in real-time, and to automatically implement countermeasures.
User-centered design: Cybersecurity solutions are becoming more user-friendly, with a focus on making them easier to use and understand for non-technical users. This includes intuitive interfaces, simple configuration options, and clear explanations of security measures.
Automation and orchestration: Automation and orchestration are part of the digital enterprise cybersecurity landscape, enabling organizations to respond to security incidents more quickly and effectively, and to automate routine security tasks such as patch management and vulnerability scanning.
Integrating security into DevOps processes: Digital enterprises are integrating security into DevOps processes, creating a DevSecOps approach that ensures that security is considered and implemented throughout the development lifecycle, from service brokering, to code creation, to deployment.
Collaboration and information sharing: Collaboration and information sharing are becoming increasingly important in the cybersecurity landscape, as organizations work together to share threat intelligence and coordinate responses to security incidents.

The changing landscape of enterprise cybersecurity towards a proactive and user-friendly approach helps organizations to better defend against cyber-attacks, improve their security posture, and ensure that their data and systems are protected, and risks are mitigated.

Disruption, innovation, and change are normal

Disruption, innovation, and change have become the norm in business due to the fast-paced nature of technology and the global economy. Nothing demonstrates that more than the continuing global impacts of COVID-19. Enterprises are continuing to adapt in ways they never anticipated a short while ago. Some of the key impacts include:

Distributed workforce: The pandemic has led to an increase in remote work, with many companies shifting to a distributed workforce model. This has required businesses to adjust to new ways of communicating and collaborating remotely, as well as ensuring that employees have the necessary tools and technology to work from anywhere.
Contactless commerce: The pandemic has accelerated the shift towards contactless commerce, with businesses increasingly offering online and contactless options for ordering and paying for goods and services. This includes options such as online ordering, curbside pickup, and contactless payment methods.
Resilient supply chains: The pandemic has highlighted the importance of resilient supply chains, as disruptions to global supply chains have affected businesses of all sizes. Companies have had to find new ways to secure essential goods and materials, as well as make their supply chains more flexible and adaptable to changes in demand and disruptions.
Digital differentiation: The pandemic has accelerated the shift towards digitalization, with companies increasingly turning to digital channels to reach customers and sell products. This has led to increased competition in the digital space, with companies needing to differentiate themselves through their digital offerings to stand out.

Business Alignment

Alignment achieved when the questions posed below are answered and the concepts articulated are aligned

How: Some people and companies know how they do what they do. Whether you call them a “differentiating value proposition” or a “unique selling proposition,” Hows are often given to explain how something is different or better. The how drives the next question, “What is the role of technology and what does IT do to support the business in achieving its goals?”

Figure 1 – The strategy cascade

Business Strategy, the why

A capability represents a discrete set of objectives, processes, technologies, applications and information, and talent that collectively generate value for an organization. Capabilities are the fundamental elements that provide an organization’s capacity to achieve the desired outcome. They can be thought of as describing the organization’s potential. Taken together they form a model representing all the functional abilities a business needs to execute its business model and fulfill its mission.

A portion of your organization is made up of Non-Core Activities: entire areas such as accounting, forecasting, regulatory compliance, many IT functions, or HR. These activities are not adding customer value, are not sector specific, and are not likely a differentiator of your organization. In these areas, you can increase efficiency or decrease costs, but further IT investment in these areas is unlikely to add to your competitive advantage.

Your Core Activities are industry-specific and are areas where you possess relative strength. These activities are generally described as a customer value chain. A value chain is the full range of activities – including design, inbound logistics, production/operations, outbound logistics, marketing/sales, and service – that businesses conduct to bring a product or service from conception to delivery. However, in many of these areas, you are competing head-to-head with other firms and are not necessarily superior to them.

Now contrast these with your Differentiating Areas, your company’s ability to develop and promote distinctive products, services, and branded experiences on a consistent basis. These are the activities where you really differentiate from other companies, and thus they are the areas that provide competitive advantage. These might be superior product quality, customer focus, innovation, or size and buying power.

While it is more complex than just digital investments, capital allocation within the digital enterprise focuses on three directives:

Reduce costs or streamline non-core capabilities
Maintain competitiveness and increase efficiency of core capabilities
Invest in extending differentiating capabilities and strategic initiatives (future capabilities)

Digital Strategy, the how

Today, technology has integrated with business to become something more than hardware or software. As digital technology becomes more pervasive, and companies move further in the journey of digital transformation, digital strategy and business strategy will be the same thing. For now, it is still useful to use the term “digital strategy” to focus the effort behind digital initiatives.

A Digital Strategy typically consists of 4 main parts.

Insights and Analysis: understanding the needs and priorities of the people who are at the core of your digital revolution including your customers, stakeholders, employees, and executives. Analyze internal performance and sales data to understand where the biggest value is.
1. External Digital Analysis: The process of evaluating and understanding the digital landscape and trends outside of an organization. This includes analyzing the digital presence and activities of competitors, identifying market opportunities, and tracking the latest technological advancements in the industry.
2. Customer Experience Mapping: to identify areas where the customer experience can be improved and to create a seamless and positive customer journey.
3. Digital Value Chain Analysis: to identify areas where they can improve efficiency, reduce costs, and create new sources of value for customers. This can help organizations to create a competitive advantage and drive growth in the digital economy.
A Digital Framework: creating a framework that allows the company to address digital goals and objectives.
1. The Iteration Model: a systematic approach to digital execution that involves continuous improvement and iteration. The model is based on the idea that digital execution is an ongoing process and that organizations should continuously evaluate and adapt their digital strategies to keep pace with changing technology and customer needs.
2. Big Idea / Mission / Vision: The big idea is a concept that encompasses the mission and vision of a company, as well as its overall strategy and purpose. It is the overarching idea that guides the company’s actions and provides a clear sense of direction for employees and stakeholders. The big idea helps to align everyone within the company towards a common goal and ensures that everyone is working towards the same objective.
3. Digital Objectives: By setting clear and measurable digital objectives, organizations can track their progress and assess the impact of their digital initiatives. This helps organizations to continuously refine and improve their digital strategy and achieve their overall business goals.
4. Unique Value Proposition: The clear statement that explains what makes a product or service unique and valuable to customers. It is a key component of the digital framework as it helps organizations to understand what sets them apart from their competition and how they can create value for customers.
The Digital Scope: addressing the company’s approach to key areas of Digital and outlining the purpose, objectives and key initiatives and challenges of each value stream.
1. Content creation: The creation of digital content, such as videos, images, and text, used to engage customers and support the marketing and sales process.
2. Digital platform development: The creation of digital platforms, such as websites, mobile apps, and e-commerce platforms, used to engage customers and deliver products and services.
3. Data collection and analysis: The collection and analysis of customer data, such as purchase history, behavior, and preferences, used to support personalization and targeted marketing.
4. Marketing and sales: The use of digital channels, such as email, social media, and search engines, to reach and engage customers and drive sales.
5. Delivery and fulfillment: The delivery and fulfillment of digital products and services, including the use of digital channels to support customer service and support.
6. Customer engagement and loyalty: The engagement and retention of customers through digital channels, such as loyalty programs, gamification, and community building.

By analyzing the digital value chain, organizations can identify areas where they can improve efficiency, reduce costs, and create new sources of value for customers. This can help organizations to create a competitive advantage and drive growth in the digital economy.

Execution & Governance: Prioritizing the plan, considering which needs are the most urgent and important as well as current resources, timelines, and budgets.

A good digital strategy diagnoses the challenges that an organization faces, describes an overall approach for solving the challenges, and lists a coherent set of actions that the organization will take. Ideally, a digital strategy helps an organization implement its overall business strategy by saying, in effect, here are the big-picture digital things that we will and won’t do to serve certain audiences and achieve certain objectives. As mentioned in our “Innovation Governance” report, this digital strategy is the genesis of the Innovation Spectrum.

Digital Trends

While there are many emerging technologies that are impacting different industry segments, we are highlighting a few in this section that have more universal application. These include:

The Metaverse

Over the next few years, the metaverse will likely graduate from tech toy to tool as companies build business models around the capabilities afforded by an immersive internet experience. Innovative companies are likely to reduce costs, increase customer engagement, and pioneer entirely new offerings in the budding market.

The immersive internet for the enterprise refers to a new type of internet experience that seeks to enhance virtual collaboration, communication, and engagement in the workplace using immersive technologies such as augmented reality (AR), virtual reality (VR), and mixed reality (MR). These technologies allow for a more intuitive and natural interaction with digital content, enabling workers to collaborate, communicate, and engage in virtual environments in a way that is like in-person experiences. This leads to increased productivity, creativity, and better decision-making. It has applications in various industries, including manufacturing, construction, training and education, retail, and entertainment.

Trustworthy Artificial Intelligence

While the value of artificial intelligence is now undeniable, the question has become how best to use it – and that often boils down to how much workers and end users trust AI tools.

As enterprises find more use cases for AI, the need for trust in the technology grows as well. Trust in AI is built through successful deployment and demonstration of its capabilities. Here are a few factors that contribute to building trust in AI as enterprises discover more use cases:

Data Transparency – enables end users to understand why data is being collected and how it will be used.
Explainable algorithms – sheds light on how decisions are made to users, employees, and others impacted by AI systems.
Reliable AI – helps people understand the bar for accuracy so that can hold AI accountable for meeting established standards. For example, Google is not releasing its AI Chatbot, Sparrow yet because it currently has a 92% accuracy rate.

As more use cases for AI are discovered, trust in the technology grows and enterprises become more confident in their ability to leverage it to drive business results.

The Metacloud

To simplify multi-cloud management, enterprises are beginning to turn to a layer of abstraction and automation that offers a single pane of control.

A metacloud overlay strategy involves using a unified management layer to manage multiple cloud environments. The purpose of a metacloud overlay is to simplify the management of a multi-cloud environment and make it more efficient, secure, and cost-effective. Here are a few key benefits of using a metacloud overlay strategy:

Simplified management: A metacloud overlay provides a single management console for all cloud environments, making it easier to monitor, manage, and optimize resources.
Interoperability: A metacloud overlay enables interoperability between different cloud environments, allowing data and applications to move freely between different cloud environments as needed.
Cost optimization: A metacloud overlay can help to optimize cloud costs by providing cost-management tools and automating processes such as resource provisioning, scaling, and de-provisioning.
Security: A metacloud overlay can help to ensure consistent security across all cloud environments, reducing the risk of security breaches and improving data protection.
Agility: A metacloud overlay can help to increase the agility of an organization by providing a flexible and scalable environment that can quickly respond to changing business needs.

By using a metacloud overlay strategy, organizations can effectively manage their multi-cloud environment, reduce complexity, and ensure that resources are used in an efficient and cost-effective manner.

Web3 and Decentralization

In an environment of ever-increasing mistrust, blockchain and Web3 could power “trustless” systems that decentralize data to rebuild trust.

Enterprises deploying decentralized architectures and ecosystems aim to distribute data, processing, and decision-making across multiple nodes or entities rather than relying on a centralized authority. Decentralized architectures offer several benefits in an enterprise setting, including:

Increased security: Decentralized architectures reduce the risk of single points of failure, making the system more secure and resistant to cyber-attacks.
Improved scalability: Decentralized systems can be scaled more easily, as processing and decision-making are distributed across multiple nodes, reducing the strain on any single node.
Enhanced interoperability: Decentralized architectures allow for greater interoperability between different systems, enabling seamless data and process integration.
Better data privacy: Decentralized systems can offer better data privacy, as data is stored and processed across multiple nodes, reducing the risk of unauthorized access.
Increased transparency: Decentralized systems increase transparency, as data and processes are distributed across multiple nodes, making it easier to track and audit activity.

Deploying decentralized architectures and ecosystems can be challenging for enterprises, as it requires a significant shift in the way data, processing, and decision-making are managed.

The Culture of the Organization.

Just as there is no universal strategy, there is no standard digital culture. Still, a digital culture typically has five defining elements:

It promotes an external, rather than an internal, orientation. A digital culture encourages employees to look outward and engage with customers and partners to create new solutions. A prime example of external orientation is the focus on the customer journey; employees shape product development and improve the customer experience by putting themselves in the customer’s shoes.
It prizes delegation over control. A digital culture diffuses decision making deep into the organization. Instead of receiving explicit instructions on how to perform their work, employees follow guiding principles so that their judgment can be trusted.
It encourages boldness over caution. In a digital culture, people are encouraged to take risks, fail fast, and learn, and they are discouraged from preserving the status quo out of habit or caution.
It emphasizes more action and less planning. In the fast-changing digital world, planning and decision making must shift from having a long-term focus to having a short-term one. A digital culture supports the need for speed and promotes continuous iteration rather than perfecting a product or idea before launching it.
It values collaboration more than individual effort. Success in a digital culture comes through collective work and information sharing across divisions, units, and functions. The iterative and fast pace of digital work requires a far greater level of transparency and interaction than that found in the traditional organization.

The core elements of strategy, trends, and culture vary in degree from industry to industry and from company to company. The degree of risk-taking that’s appropriate at a technology firm will not be the same as the degree that is appropriate at an industrial goods company. And even within an organization, the desired levels of risk-taking will vary; the strategy team, for example, should embrace risk to a much greater degree than the finance team. Encouraging risk-taking is intended to foster thinking outside the box without being reckless or breaching regulation or company policy.

Collectively, these elements provide the direction for your Digital Operating Model. Thus, they work as guiding principles that help define a set of key objectives and principles for designing or adjusting your operating model to ensure that it is adaptable and fit for purpose.

Digital Operating Model, the what

In its simplest form, an operating model is a value delivery chain: a sequence of steps that describe the main work of the organization. Let’s take this report as an example. You, the reader, are the beneficiary to whom this report is intended to deliver value. If you are reading this report through the TechVision Research website or as a reprint the value chain is shown in figure 2.

Figure 2 – Research report value chain

Of course, as the author of this report, I am directly involved only in the steps colored in blue, which includes a part role in step 4 (editing) and in step 6 (social media marketing). The same is true for other organizations involved in this chain: TechVision engages in part of the chain, and social media and other marketing services in other parts.

So, the operating model of an organization covers those parts of the value delivery chain that the organization engages in as well as how the organization interacts with the other participants.

Our definition of an operating model is simple but comprehensive: An operating model represents how value is created by an organization – and by whom within the organization.

Reevaluating traditional digital operating model constructs

In the past, many traditional technology operating model constructs stood in the way of innovation, agility, and collaboration. IT organizations often had top-down organization structures, with all technology functions rolling up under a single leader such as the CIO or CTO. Some talent served in specialized roles (e.g., IT service desk, application maintenance and support, network and infrastructure, and security), while others were grouped by skill set and assigned to various project teams. Applications were mostly developed in-house; infrastructure was managed in on-premises data centers. The historical IT function typically emphasized efficiency, consistency, security, and reliability.

The traditional model works well when the CIO’s mandate is to provide back-end tools and infrastructure. Today, the technology leaders’ mandate extends to delivering on the digital strategy.

As digital becomes part of the fabric of an enterprise, and infrastructures move to the cloud, the challenge for leadership teams is not to redesign their IT unit or merely introduce practices such as agile and DevOps. It is to establish the basis for coordinating and integrating knowledge that is distributed across the organization and required to build capabilities and products underpinned by IT. As the knowledge for success with technology can no longer be corralled into a distinct organizational unit, it becomes necessary for organizations to rethink their organizing model. CIOs need to work with their colleagues to create a new frame of reference and an organizing model that will enable their company’s digital aspirations.

A Full Operating Model

Organizational construct: how the activities in the value chain and the support functions link together into an organizational structure.
Digital governance: how processes and activities that cut across the structure of the organization are managed and governed (particularly information links)
Decision rights: how the most important decisions in the organization are taken
Management rhythm: what meetings and with what frequency are used to set objectives, make plans, and manage performance
People model: the types of people that the organization wants to attract, how these people will be paid and incentivized, what they will be held accountable for and the values that should guide their behavior.
Business partners: which organizations are partners rather than transactional suppliers and what sort of partnership relationship is required with each.
Location footprint: where the work and assets are located and why.

The importance of a well-designed (full) digital operating model is increasing as technology becomes further integrated into the business and thus becomes essential for the business to realize its strategy and to remain cost competitive in the marketplace whilst continuously innovating its products and services and delivering high-quality customer experiences.

It is highly complex for the IT/digital organization to fulfil its role and enable the business to deliver because the digital operating model is under constant pressure to change. This is driven by

New technologies and new vendors being introduced,
Constantly changing business demands and need for swift adjustments,
And an endless focus to drive down IT-related costs.

Due to the rising complexity of the technology landscape, it is becoming increasingly challenging to design the optimal digital operating model. As changes are introduced in one place, there are often dependencies on other dimensions in the digital operating model, which are left untouched as the dependency is not clear. This leaves many organizations with IT operating models that are not fully in sync or optimized and thus with increased and uncontrolled costs, slow time-to-market process for new services and a general potential to deliver higher value to the business.

The task of refining and managing the digital operating model may seem overwhelming. But by addressing it as a full model enables you to approach the exercise holistically and ensure that dependencies are fully understood. This can help adapt the model and improve the value from IT on an ongoing basis.

Six Key Characteristics

In our view, the following characteristics are essential to the success of future operating models:

Integrated networks rather than functional silos. A piecemeal transformation that makes incremental changes to discrete parts of the organization will be too slow and too narrow to deliver on what’s needed. Future operating models should be built around integrated, collaborative interactions within companies and their external partners, rather than in functional silos. That represents a systemic shift.
Multiple business models rather than a single business model. It’s no longer enough to create and support just one winning business model. Instead, future-oriented operating models should enable organizations to explore, test, and scale a range of different business models simultaneously. That capability solves what we call the “plurality dilemma”: the challenge organizations face in rapidly adapting to a future that will keep changing at unprecedented rates while optimizing how they operate today.
Dynamic internal and external relationships rather than rigid functional capabilities. This element involves reframing the capabilities you’ll need and how you manage them. The future operating model provides the right mix of deep expertise and cross-functional generalists. Depending upon where a company’s future value proposition lies, it may be better to outsource some skills that traditionally have been handled in-house.
Adaptive and expandable scale rather than slow and big. To succeed in the future, enterprises must be able to experiment, pilot, test, and scale new products, services, and experiences much faster than they do today. The future operating model cedes some control, meaning you can move at the speed of the market. That approach — which is vastly different than the traditional model — involves managing product life cycles from rapidly developing and launching new offerings tailored for specific markets all the way to the end of those products’ lives. In many ways, enterprises need to think and act more like pure software companies.
A growth mindset rather than a fixed mindset. In today’s challenging and very fluid environment, the mounting pressures to avoid mistakes can create a culture of “safe” incrementalism at best, and toxic risk-aversion at worst. A growth mindset, as described by Stanford University psychology professor Carol Dweck, is nurtured by creating a supportive environment where employees are encouraged to take thoughtful risks, make mistakes, and learn from them. Such an environment is necessary to shift a company’s culture from a fixed “what-is” to a “what’s-possible” mindset. Don’t let your company’s culture inhibit employees from developing growth mindsets; after all, a truly agile organization is made up of individuals who are adept at thinking and behaving in agile ways.
Agile innovation rather than waterfall innovation. Genuine innovation involves more than just product R&D; it also involves innovating business models, processes, ecosystem partnerships, and more. The future operating model allows the whole organism of the business to change — and to keep changing — so it can continually innovate at speed and scale.

Digital Governance

Often, organizations endlessly debate digital issues without first deciding who should make the final decision and who should provide input. As a result, the decision ends up getting made by the highest-paid person in the room, regardless of whether that person has the knowledge and perspective to make the best decision.

Because it is frustrating and ineffective to work this way, teams may simply retreat into their respective silos and avoid talking to each other. When that happens, teams are certain to duplicate each other’s efforts, overlook pieces of the puzzle, expose the organization to unnecessary risks, and miss opportunities to be more strategic and efficient.

“Digital governance is a discipline that focuses on establishing clear accountability for digital strategy, policy, and standards.” – Lisa Welchman, author – Managing Chaos: Digital Governance by Design

To get control of your digital resources, you need digital governance. People who govern digital resources establish rules and norms that keep a company’s online operations consistent, on brand, efficient, and effective – and that keep the company out of trouble.

Governance enables IT professionals throughout the company and even outside the company to work together and do whatever job they’re supposed to do the way they’re supposed to do it.

Effective digital governance avoids these issues and delivers the following:

Digital Strategic Alignment. Ensures a linkage between business and digital plans, defines, maintains, and validates digital value propositions and aligns digital and enterprise operations. The main concern relates to the linkage of enterprise business and digital plans with operations. The governance must ensure that the digital services and developments are fully aligned with the organization’s business strategy. Lack of alignment between the digital strategy and the business strategy can cause adverse business issues.
Digital Value Delivery. Deals with the execution of the value propositions through the delivery cycle, makes certain that digital initiatives deliver the promised benefits vs. the strategy. The governance must ensure that the maximum business value is obtained from the digital systems.
Risk Management. Ensures risk awareness by senior officers in the organization, a clear transparency and understanding of the organization’s desire for significant risk and compliance requirements and embedding of risk management responsibilities in the organization. The main concern is to do with embedding accountability to mitigate significant risks. All digital-related risks must be sufficiently controlled or mitigated, including the risks of investments as well as operation.
Digital Resource Management. Ensures optimal investment and proper management of critical digital resources: applications, information, infrastructure, and people. The governance must ensure that the digital capabilities and resources are always sufficient to meet the current and future business objectives through appropriate sourcing of new and use of existing digital resources.
Performance Measurement. Tracks and monitors the contribution of digital efforts to achieving the organization’s strategic objectives. Its scope covers the use of resources, performance of processes, and delivery of services. This will demonstrate how digital governance adds value to the business.

For enterprises that are developing or reviewing their digital governance capabilities, we recommend starting with understanding the governance framework.

Figure 3 – the Digital Governance Framework

Digital Governance Framework

A digital governance framework specifies who has decision-making authority and who provides input for digital strategy, digital policies, and digital standards. That’s it. It doesn’t attempt to define the substance of strategies, policies, or standards. That comes later, after the framework is in place.

Starting with this step shows teams that you are approaching digital governance issues in a thoughtful, systematic, and transparent way. It highlights that digital governance is complex and that no single team has the background to make all the decisions. It surfaces areas where teams differ in their perspectives that need to be resolved to improve governance performance.

It also reminds teams that if they want to be responsible for a particular type of policy or standard, they will also be responsible for gathering input, negotiating language that will work across the organization, and keeping the language up to date. When teams realize that this authority comes with obligations and accountability, they may be less likely to claim responsibility for areas that are outside of their expertise.

The Governance Team

The structure of a digital governance team can vary depending on the size and complexity of the organization, but generally it will consist of the following roles:

Digital Governance Lead: This person is responsible for the overall strategy and direction of the digital governance program. They provide vision, guidance, and direction to the team and stakeholders.
Data Privacy Officer: This person is responsible for ensuring that the organization’s data privacy practices are compliant with regulations and industry standards.
Data Security Officer: This person is responsible for the security of the organization’s digital assets and information. They develop and implement security policies and practices to prevent data breaches and other security incidents.
Digital Assets Manager: This person is responsible for the management of the organization’s digital assets, such as websites, applications, and databases. They ensure that the assets are secure, accessible, and up-to-date.
Technology Compliance Officer: This person is responsible for ensuring that the organization’s technology practices and systems are compliant with regulations and industry standards. They also provide guidance on technology policy and procedure.
Content Manager: This person is responsible for the development, management, and maintenance of the organization’s digital content. They ensure that the content is accurate, accessible, and up-to-date.

The activities of a digital governance team include:

Developing and implementing digital governance policies and procedures
Ensuring compliance with data privacy and security regulations
Managing the organization’s digital assets and content
Providing guidance and support to stakeholders on digital governance best practices
Conducting regular audits and assessments to monitor the effectiveness of digital governance practices
Responding to security incidents and data breaches
Staying current on technology trends and changes in digital governance regulations and standards.

The governance team can also have sub-teams made up of contributors from business units and key service providers and partners.

In summary, a governance team plays a critical role in setting the direction and ensuring the effective operation of adigital organization. Its job is to enable the business units to self-govern, not to act as a choke point for progress.

The Governance Process

The digital governance process should be ongoing, with regular reviews and updates to ensure that the efforts remain compliant with strategy, policies, and standards. The process also continues to improve its digital governance practices.

Done right a review is a conversation. You want to understand what people are trying to do so that you can help them go about it in the most efficient way in alignment with your strategy.

Digital Policies

Digital policies are for managing the risk of operating online. When deciding whether a draft should become a policy, ask yourself whether forgoing the policy would expose the organization to significant risks or whether the policy is about improving quality or enforcing personal preferences. If the draft is about improving quality but not about managing risk, then it’s likely either a standard or a guideline, not a policy. (More about digital standards and guidelines in the following sections.) If it’s about enforcing personal preferences, then it needs further thought. It’s probably not a good candidate to become policy, and it may not be important enough to become a digital standard or guideline.

Examples of digital policies

Intellectual property: How the organization balances protecting its intellectual property while encouraging innovation.
Privacy: The steps employees must take to protect the privacy of customers, partners, participants, and other employees.
Security: The steps must employees take to keep digital properties and records secure.
Brand: The steps necessary to protect and contribute to the value of the brand and to establish certain main principles of conduct for employees, partners, and contractors.

Digital Standards

Digital standards are for specifying minimum requirements for quality and effectiveness. While digital policies manage the risk of operating online, digital standards articulate the minimum criteria that digital components must meet to serve the organization in a professional and secure manner.

An example of a digital standard.

Network and infrastructure: These include standards about domains, hosting, security, server software, and server hardware.
Publishing and development: These standards are about information organization and access, tools, and development protocols.

It may feel tempting to try to enshrine every best practice in writing as a digital standard. Don’t do that. If employees aren’t using good digital practices in their work, then they probably need some combination of training, coaching, and workload accommodation, not a stack of standards imposed from above.

Instead, only write digital standards for the very most important things that employees need to do to ensure a minimum level of digital quality and effectiveness. And then be prepared to spend weeks or months in working with employees to implement those standards.

Digital Guidelines

Digital guidelines are for providing advice and tips. Guidelines often draw upon digital best practices and practical experiences from doing digital work in the organization’s industry. They are often somewhat aspirational.

Whereas employees are expected to comply with digital policies and digital standards, an organization’s digital guidelines can be more like advice. You’ll often find that digital guidelines are the most fun to write. Employees have digital challenges, and they ask for guidance. Digital guidelines are a way to help motivated employees achieve better results.

Success Metrics

The final framework component is success metrics: measurements of the impact of everything you’re doing across teams, strategies, processes, policies, and standards. For more see our report “Integrated IT Governance Programs for the Digital Enterprise.”

Decision rights

Today’s organizations need to move faster than ever before. Covid-19 exposed which companies in an industry could change direction quickly and respond to new consumer, employee, regulatory, and supply demands, turning adversity into opportunity. “Agility” is the management word of the decade for sure. But to move with agility in a complex organization requires leaders to be confident that important decisions are being made at the right level and location across the enterprise.

Unfortunately, the decisions are often made using an overly simplistic choice of centralized or decentralized. Work and decisions often become centralized at a corporate level for a variety of good reasons – to drive common strategy and policy, to consolidate work for efficiency and scale, to leverage scarce talent through centers of expertise. But when the wrong work is pulled away from the value chain, it often becomes disconnected from the needs of customers in the drive for consistency. Programs and staff grow. Efficiencies are lost in the cost of overhead. Shadow functions pop up in the markets and business units when leaders become frustrated with bureaucratic colleagues at the center.

There needs to be a way to get the strategic guidance, orchestration, and investment that only the enterprise layer can provide while empowering local teams to make good, fast decisions that are right for their market but in alignment with the whole. Center-Led decision making, an idea championed by management consultants Amy Kates and Greg Kesler, gives us a third way to approach decisions. Here’s how the approaches should be used.

Centralized: Some work and decisions need to be placed at the enterprise level, often when the strategy requires policies or controls to enhance risk management and protect the brand. Highly regulated industries typically have more centralized oversight functions. But every function has some work that needs to be mandated, such as what financial reporting system will we use, what IT infrastructure will run our networks, what ethics and values will guide our behaviors. It is a small, but powerful set of drivers that should be centralized. Many of the governance decisions fall into this realm.

Decentralized: In any system, there is some work where driving common process and standards in the name of scale and efficiency adds little value. Translating content into local languages or adhering to local laws are some classic examples. Decentralized work means that leaders are free to make decisions without escalating to a center and can freely define their own processes and ways of working. It makes the most sense where speed creates value and variation poses little risk to performance outcomes and strategic objectives.

Center-Led: The idea of center-led is “freedom in a framework.” Global policies, standards, and guidelines are set, but execution within those parameters is determined locally. A common strategy is created by governance team and is broadly communicated. The decision-making process is clear, and a rhythm of conversations is set to ensure voices are heard from across the system. The governance team orchestrates, coordinates, provides resources, and facilitates alignment and connection.

As you think about technology’s role in the delivering on the business strategy, design the organizational construct to optimize decision making. The goal is faster, better decisions because the right people, the right data and the right process are leveraged to make those decisions.

Management rhythm

By management rhythm, we mean a single, cohesive system to communicate the long-range strategy of the business. Quarterly objectives and key results show how you are executing on that strategy, while monthly business reviews and ops reviews drive accountability for progress. Weeklies, one-on-ones, reports, and executive touchpoints then help to de-risk and optimize your execution against that strategy.

OKRs, or objectives and key results, are a technique for aligning on outcomes. They were made popular quite a long time ago at Intel and then at Google. They are particularly suited to iterating on the outcomes a business is trying to drive in a quarter.

Teams set objectives and key results that align with each other and align with the company’s objectives. The objectives are a statement of intention. What is it we’re trying to accomplish? The key results cover what is success in the next 90 days? What will we have more of or less of? Typically, there are three to five objectives, each with four to five key results. Why they are so powerful is because they define and give clarity on what’s most valuable to put focus and effort on in a quarter. At the end of that 90 days, it’s a technique that is very effective at showing what we learned, what got in our way, what’s changed outside in the world, what’s changed inside in our capacity, and what are the next 90 days’ outcomes that drive the highest value to the company and its customers?

OKRs are a way of aligning on what matters most right now and then iterating on that, because it’s not constant. Start-ups by their birth right are constantly calibrating a huge ambition with very little resource. Their capacity relative to their ambition is wildly mismatched, which is both the exciting and the horrifying part of being in a start-up. They don’t have unlimited time, money, and resources. So, if we had to make trade-offs of what mattered most, what would we trade in, what would we trade out? OKRs are a technique for larger companies to operate with the same notion of constraint, and that constraint helps drive choices.

The other thing that’s powerful and very different to what preceded them is that OKRs put an emphasis on what awesome looks like, as opposed to what would be safe and have the most predictable result. It flips it to saying, “Okay, in the next 90 days, what is the best possible outcomes we could achieve?”

People Model

There’s been a recent wave of high-profile layoffs in the tech industry as the staffing expansions necessary to cope with digital demands of the pandemic are contracting now that growth is slowing. But that doesn’t mean there is an abundance of talent waiting to be hired. Over the next few years, the talent tech crunch may continue to impact your bottom-line. Organizations that want to protect and pursue their digital strategy will require a differentiated approach to finding staff. To meet their talent goals enterprises will likely expand their conception of how technology work is planned and executed, and that begins with a Digital People Model.

The Digital People Model is a framework that outlines the skills, behaviors, and values that individuals need to succeed in the digital age. This model focuses on the competencies and traits that individuals need to be successful in today’s rapidly changing digital landscape.

Here are the recommended steps to building a digital people model:

Define Digital Skills and Competencies: Identify the digital skills and competencies that are essential for current and future success in your organization. This could include technical skills such as programming, data analysis, and cloud computing, as well as digital literacies like collaboration, digital communication, and problem-solving.
Assess Employee Skills: Assess the digital skills of your employees and identify gaps in their knowledge and experience. This will help you determine where to focus your training and development efforts.
Develop a Digital Talent Management Strategy: Create a strategy for developing and retaining digital talent, including initiatives such as mentorship, training and certification programs, and leadership opportunities.
Foster a Digital Culture: Encourage the adoption of digital behaviors and practices in your organization by creating a culture that values innovation, collaboration, and continuous learning.
Measure Success: Continuously monitor and evaluate the success of your digital people model, using metrics such as employee satisfaction, productivity, and engagement.
Be Flexible: Stay agile and flexible, as the digital landscape is constantly changing. Continuously review and revise your digital people model as needed to ensure it remains relevant and effective.

In today’s tech world, that last point, flexibility, is key. By organizing around skills, tapping into creative sources for finding talent, and providing a compelling talent experience, companies can meet their talent goals. Let’s discuss these in detail.

Flexible Skills

The traditional concept of a “job” is one of the key hindrances to meeting targets for growth, agility, diversity, equity, and inclusion. Many organizations are pivoting towards talent models that center on skills rather than job descriptions.

The Skills-Based Talent Model is a modern approach to hiring and managing employees. In this model, skills and abilities are given priority over traditional factors such as experience and education. The objective of this model is to identify the right talent for a job based on their skills and potential, rather than just their qualifications or work history.

The model is designed to help companies keep up with the rapidly changing technological landscape by hiring (or reskilling) individuals who have the skills necessary to adapt and excel in the industry. In this model, companies use assessments, testing, and job simulations to determine an individual’s aptitude for specific skills.

The skills-based talent model has several benefits, including:

Improved Hiring Decisions: The model helps companies make better hiring decisions by focusing on an individual’s skill sets and potential for growth.
Increased Productivity: Employees who are skilled in the areas required for their job are likely to be more productive and motivated.
Better Employee Retention: Companies that hire based on skills and abilities are more likely to retain employees who are passionate about their work.
Better Employee Engagement: Employees who feel they are being recognized and utilized for their skills are more likely to be engaged in their work and feel valued.
Flexibility: The skills-based talent model allows companies to build a flexible workforce that can adapt quickly to changes in the market and technology.

Overall, the skills-based talent model provides companies with a more effective way of finding, hiring, and managing employees, allowing them to build a strong, innovative, and productive workforce.

Flexible Sourcing

Organizations that develop a flexible approach to skills may find it easier to source talent for those skills beyond hiring. They can plan to outsource offshore (more about that later), train or retrain talent, or leverage other components of their ecosystem to fill their needs. Enterprises ahead of the curve are already crowdsourcing talent through gig workers or contractors to fill gaps and free up their internal resources to focus on the most challenging and interesting work.

Flexible Career Paths

Overall, tech workers look for job opportunities that allow them to grow, challenge themselves, and work in a supportive and fulfilling environment. Add to these the increasing worker needs for work/life balance, exposure to leading-edge technologies, and value-alignment, and it is easy to see that employees are looking for interesting work and flexible career paths and companies should adapt to meet these needs. Businesses should explore the following:

Lateral Moves: Contrary to conventional vertical pathways organizations should design career paths that allow for lateral progression between different technologies talent marketplaces and interests.
Talent Marketplace: Develop a “place” where employees can find short term projects or new teams that promote internal mobility and allows them to discover purposeful and meaningful work.
New Operating Models: IT organizations are not known for their flexibility to create experiences that allow employees to work in the right place and the right partnerships organization should consider instituting a few new modes of operations for technology work. Those may include:

Remote Work: Technology workers can work from their homes or any other location that has a stable internet connection and proper technology tools.
Collaborative Work: Teams of technology workers can collaborate with each other online or in-person to complete projects.
Flexible Work: Technology workers can have flexible working hours that accommodate their personal life or work schedule.
On-site Work: Technology workers may work on-site at a company or client location, handling various tasks and responsibilities.
Freelance Work: Technology workers can work as freelancers, offering their services to various clients and businesses.
Part-time Work: Technology workers can work part-time, dedicating a specific number of hours per week to a project or company.
Internships: Technology students or recent graduates can work as interns, learning the ropes of the technology industry and gaining practical experience.
Contract Work: Technology workers can work on a contract basis, working on specific projects or assignments for a limited period.

To be successful, companies will have to curate pools of talent using flexibility – in skills, sourcing, and career pathing.

Building and operating a digital people model is essential for organizations that want to remain competitive in the digital age. By focusing on the skills, behaviors, and attributes required to succeed in a rapidly changing technology landscape, organizations can attract and retain top digital talent, and foster a culture of innovation and collaboration. While traditional technical skills like programming, technical writing, and data analysis remain in demand, there are new specialties that you should consider as part of your digital people model, should your digital strategy demand it.

Emerging IT Specialties

Here are several emerging IT specialties that are gradually transforming the way organizations extract value from digital technology:

Digital adoption. Digital adoption means leveraging technology to its fullest extent and for its intended purpose. This is an essential process in digital transformation, which is built upon the implementation of new tools and technology. Facilitating software onboarding and training, for instance, allows organizations to utilize their tools more fully, in less time and at a lower cost.

Business relationship management. The Business Relationship Manager serves as the strategic interface between a business function and one or more business partners to stimulate, surface, and shape business demand for the function’s business assets and capabilities. The BRM is a connector, orchestrator, and navigator between their function and one or more business units, suppliers, and/or external customers.

Data science and analytics. Data science has become one of the most ubiquitous and valuable disciplines in the modern enterprise. Effective use of data can optimize business processes in nearly every area of the business. A few of the many applications of data and analytics include competitive intelligence, customer experience optimization, predictive analytics, and business process improvement.

Artificial intelligence. Artificial intelligence (AI) takes data and analytics to the next level. For the most part, AI refers to machine learning or deep learning, techniques that, in essence, allow computers to “learn” from data and build models that emulate cognitive tasks. Image recognition, voice recognition, and speech recognition are a few common applications of AI, though we are seeing more emerge every day.

Intelligent process automation (IPA). IPA is the product of the convergence of AI and related technologies – including computer vision, cognitive automation, and machine learning – with RPA. Bringing these technologies together catalyzes richer automation possibilities, unlocking even more business value for enterprises.

Adaptive cybersecurity. Adaptive Security is an approach to cybersecurity that analyzes behaviors and events to protect against and adapt to threats before they happen. An Adaptive Cybersecurity posture navigates the challenges of scarce talent, remote work, and explosive connectivity with automated, artificial intelligence (AI)-enabled, and crowdsourced threat detection. It uses coordinated development, security, and operations (DevSecOps) strategies and a Zero Trust access and authentication framework. With an Adaptive Security Architecture, an organization can continuously assess risk and automatically provide proportional enforcement that can be dialed up or down.

Site reliability. The role of Site Reliability Engineering in an organization is to keep the organization focused on what ultimately matters to customers: making sure the platforms and services customers rely on are available when customers want to use them. This is different from DevOps, which is more about faster deployment cadence with a wide range of implementation styles available. As digital services become more decentralized (clouds, edge, Web3, IoT, etc.) the ability to effectively deploy, monitor, and manage infrastructure, network, and platforms requires specialized skills to keep them running.

Blockchain. Blockchain technology continues down the path toward broad adoption as organizations gain deeper understanding of its transformational value, within and across their industries. Blockchain is to trust what the web was to communication. The ability to understand, participate, and contribute in various networks requires a grounding in behavioral incentives, consensus algorithms, and cryptography.

Business Partners

Many companies choose to develop capabilities through partnerships. They open themselves to an external ecosystem of digital specialists, to take advantage of other firms’ expertise and investments in assets (such as cloud infrastructure or analytics engines), which are hard to build internally. Of course, working with a group of external partners can be a challenge for companies that might not have a history of strong collaboration even among internal units. Partnership management thus is itself a key capability that will require coaching for the relevant managers.

Future-ready organizations view partners as extensions of themselves. These relationships feature porous boundaries and high levels of trust and mutual dependence to share value and let each partner focus on what it does best. For example, Amazon encouraged the formation of new delivery start-ups by launching a last-mile delivery program that offered top-performing employees seed money, leased vans, and training. While these delivery-system partners are self-employed, Amazon views them as both an extension of their logistics ecosystem and a new form of homegrown partnership.

Footprint

The location (footprint) of technical work and assets refers to the geographic distribution of these resources and the reasons for their placement. In the digital age, many companies have a global footprint, with technical work and assets located in different regions to tap into talent pools, reduce costs, and better serve customers.

There are several factors that influence the location footprint of technical work and assets, including:

Talent Pool: Companies may choose to locate technical work and assets in regions where there is a strong pool of technical talent. This allows them to access the skills and expertise they need to grow and innovate.
Cost Savings: Companies may choose to locate technical work and assets in regions where the cost of labor, real estate, and other resources is lower. This helps them reduce costs and increase profitability.
Customer Demands: Companies may choose to locate technical work and assets in regions where their customers are located. This allows them to better serve customer needs and build stronger relationships.
Government Incentives: Companies may choose to locate technical work and assets in regions where the government provides tax incentives, subsidies, or other benefits to attract investment.
Logistics and Supply Chain: Companies may choose to locate technical work and assets near their suppliers or distributors to reduce the costs of transportation and improve supply chain efficiency.
Political and Economic Stability: Companies may choose to locate technical work and assets in regions that offer political stability, low crime rates, and strong economic growth.
Legal and Regulatory Environment: Companies may choose to locate technical work and assets in regions that have favorable legal and regulatory environments, such as those with strong intellectual property protections.

The location footprint of technical work and assets is an important consideration for companies in the digital age, as it can have a significant impact on their ability to grow, innovate, and serve customers. Companies must weigh these factors carefully and develop a strategic plan for the placement of their technical work and assets to ensure long-term success.

In addition, the pandemic has opened the concept of hybrid working, and enterprises have a unique opportunity to break away from a location-based business model. Hybrid working is more complicated to support than fully remote. For example, when it comes to collaboration, remote workers miss out on the spontaneous collaboration they would get working near their colleagues. Keeping split teams connected and motivated is demanding. CIOs will need to reassess their workspace investments and resources to meet the demands of current and future hybrid working needs. Ensuring that services provided are permanent and scalable is an example. They will also need to refresh policies around security and confidentiality.

Organizational construct

I put this last in the operating model section because people want to jump right into sketching out lines and boxes because they believe that’s building a digital operating model. Drawing lines and boxes should come after the other aspects of the model (governance, decisions, management, people, partners, footprint) have been considered. Otherwise, the resultant organizational construct may end up ineffective because the other dimensions were short-changed.

That said, there are a few common structures that organizations use (deliberately or not) to organize their employees for digital work, and there are some variations on this idea. For example, some organizations have a centralized digital team, while other organizations have a distributed digital team or a hybrid team. These models can be useful for identifying the current state (e.g., “Where do the employees with the most digital skills and responsibilities currently sit?”) and for discussing structural changes (e.g., “What arrangement would help the organization create and implement a digital strategy the most effectively?”).

The personnel within these structures also need appropriate roles and skills to support the organization’s digital objectives. Organizations that do digital well often organize themselves into product teams. In this arrangement, each digital product manager ensures that a particular digital product (such as a website, social media account, or CRM) not only meets the organization’s objectives but also serves users’ needs. Digital product managers collaborate with team members and stakeholders to create and maintain their respective digital products. The digital product managers in turn report to a division chief who oversees the vision and execution for digital products at the organization.

No single structure works best for all companies. As shown in figure 4, some companies spread digital processes throughout their organizations from the start. Others created a standalone unit first to get it up and running. A middle ground that creates a digital center of excellence while also building some digital capabilities in business units or functions may be appropriate for other companies.

Figure 4 – Integration of digital execution

We describe these patterns as follows:

Fully Integrated

A fully integrated digital unit where business units lead the charge and are individually responsible for digital topics has both advantages and disadvantages.

Advantages:

Decentralized decision-making: By having each business unit individually responsible for digital topics, decision-making is decentralized, leading to increased agility and speed.
Alignment with business goals: By having digital initiatives within each business unit, they are better aligned with the goals and objectives of each unit, leading to more effective implementation.
Closer alignment with customers: With digital initiatives within each business unit, the organization is better positioned to understand and respond to customer needs.
Increased accountability: With each business unit individually responsible for digital topics, they are directly accountable for the success of these initiatives, which can drive innovation and better decision-making.

Disadvantages:

Lack of consistency: Without a central team or structure responsible for digital initiatives, the organization may lack consistency in its digital efforts, leading to potential duplication of effort and confusion.
Difficulty in coordinating across business units: With each business unit leading the charge, there may be challenges in effectively coordinating across units, leading to potential breakdowns in communication and collaboration.
Dependence on individual leaders: The success of the fully integrated digital unit depends on the capabilities and leadership of individual leaders within each business unit, which may not always be available.
Increased risk: Without a central structure overseeing digital initiatives, the organization is at an increased risk of making mistakes or pursuing ineffective initiatives.

Overlay Structure

An overlay structure with dedicated digital roles embedded in each business unit, in addition to a dedicated team coordinating activities across business units, has both advantages and disadvantages.

Advantages:

Decentralized decision-making: By having dedicated digital roles within each business unit, decision-making is decentralized, leading to increased agility and speed.
Alignment with business goals: By having digital roles embedded within each business unit, digital initiatives are better aligned with the goals and objectives of each unit, leading to more effective implementation.
Cross-functional collaboration: The dedicated team coordinating activities across business units promotes cross-functional collaboration and knowledge sharing, leading to increased efficiency and effectiveness.
Closer alignment with customers: With digital roles embedded within each business unit, the organization is better positioned to understand and respond to customer needs.

Disadvantages:

Lack of centralization: Without a central team responsible for digital initiatives, the organization may lack consistency and efficiency in its digital efforts.
Potential for duplication of effort: With digital roles in each business unit, there is a risk of duplication of effort, as different units may be working on similar initiatives without realizing it.
Difficulty in coordinating across business units: The dedicated team coordinating activities across business units may face challenges in effectively collaborating with business units, leading to potential breakdowns in communication and collaboration.
Dependence on individual leaders: The success of the overlay structure depends on the capabilities and leadership of individual leaders within each business unit, which may not always be available.

Center of Excellence

The Center of Excellence (CoE) organizational model is one that concentrates the digital capabilities of an organization and coordinates across business units to provide services.

Advantages:

Centralization of digital expertise: The CoE model allows for the centralization of digital expertise and resources, making it easier for business units to access and utilize these capabilities.
Cross-functional collaboration: The CoE model promotes cross-functional collaboration and knowledge sharing, leading to increased efficiency and effectiveness.
Standardization of processes: By providing services across business units, the CoE can help standardize digital processes, leading to increased consistency and efficiency.
Focus on digital transformation: By having a dedicated team focused on digital initiatives, the CoE model can help drive the overall digital transformation of the organization.

Disadvantages:

Resistance to change: The CoE model may face resistance from business units who are used to operating independently, leading to potential breakdowns in collaboration and communication.
Dependence on a single team: The success of the CoE model is heavily dependent on the capabilities of the team and its ability to effectively coordinate across business units.
Overhead costs: The CoE model can lead to increased overhead costs, as the organization must maintain a dedicated team and infrastructure.
Slower decision-making: The centralized structure of the CoE model may lead to slower decision-making and less agility, as decisions must be made at the CoE level rather than within the business units.

Functionally Separate

A standalone digital unit reporting directly to the CEO with dedicated digital competencies and products, and with profit and loss (P&L) responsibilities has both advantages and disadvantages.

Advantages:

Autonomy and flexibility: The standalone unit is free from the constraints of the traditional organizational structure, allowing for more agility and speed in decision-making and innovation.
Focus on digital transformation: The unit is solely dedicated to digital initiatives, allowing it to fully focus on developing digital competencies and products.
Closer alignment with business strategy: Reporting directly to the CEO positions the unit to have a direct influence on the overall business strategy.
Increased accountability: With P&L responsibility, the unit is directly accountable for its financial performance, which can drive innovation and better decision-making.

Disadvantages:

Risk of isolation: The unit may become isolated from the rest of the organization, leading to a lack of integration with other functions and potentially hindering cross-functional collaboration.
Competition for resources: The unit may face competition for resources and investment from other parts of the organization.
Resistance to change: The rest of the organization may resist the changes brought about by the unit, leading to a potential breakdown in communication and collaboration.
Dependence on a single leader: The unit’s success is heavily dependent on the capabilities and leadership of the CEO, who may not always be available.

To determine which structure suits their circumstances, executives should consider several dimensions:

The level of disruption faced by the business. Firms facing a high degree of disruption tend to react too slowly if they entrust digital efforts to existing business units.

The level of digital maturity. The earlier a company is in its evolution, the more likely it is to need a bit of separation and autonomy for digital. The requisite skills are often distinct in digital, so when bringing in new talent such as data science experts, it’s better to initially cluster them in a centralized group. More digitally mature companies, by contrast, generally have more integrated digital operations.

The culture’s openness to change. A relatively open culture can more easily pursue an integrated approach. Companies with a more resistant or slow culture will probably fare better with a separate unit or at least a central unit complementing the business units to ensure progress. Even separate digital units, however, should link to the priorities of the business units and functions. Business units might have their own digital resources, but a separate entity could help coordinate across the units, or the business units could seek expert advice from the digital group about what their digital priorities should be. Without a connection back to the business units, a separate digital entity risks creating exciting proofs of concept that never get moved to the next stage.

Different value chains may need different operating constructs. Beyond the organizational considerations, the value chains themselves may require different operating constructs. As shown in figure 5, most enterprises are supporting a mixed set of technology/process models.

Figure 5 – Typical technology/process models

Business Support value chains (accounting, forecasting, regulatory compliance, many IT functions, or HR) tend to involve longer term planning horizons due to the lead times related to nature of the changes required (regulatory requirements, license/hardware upgrades, etc.) and therefore you may need more of a functionally separate operating construct to support products that are monolithic, developed using waterfall techniques, support a full product release, on dedicated hardware, etc.

At the other end of the spectrum, value streams supporting customer journeys should be fully integrated, if the required skills are contained in the unit. Having resources, decision making and technical skills closer to the customer is a requirement for agile digital businesses.

Structures may change over time. For most companies, having some dedicated focus through a separate or semi-integrated digital unit makes sense early on—but probably not over the longer term. A good digital group could even render itself unnecessary, once their mission is accomplished and all functions and businesses have integrated digital into their activities. Keep in mind that depending on your situation, technical debt, and strategy, full integration may be aspirational.

Conclusion

An effective digital operating model provides several benefits, including:

Improved efficiency: The model helps organizations streamline digital processes, reducing redundancies and improving overall efficiency.
Better alignment: The model aligns digital initiatives with the organization’s overall goals and objectives, ensuring that efforts are focused and effective.
Increased agility: The model enables organizations to respond quickly to changing market conditions and customer needs, improving overall agility.
Better decision-making: The model provides a clear framework for decision-making, ensuring that decisions are based on data and informed by best practices.
Better customer experiences: The model helps organizations create consistent, high-quality customer experiences, improving customer satisfaction and loyalty.

However, developing a digital operating model is not easy. In fact, it can be one of the hardest things that you do as you transform your company into a digital enterprise. As we have discussed, there are a lot of moving parts required to create and maintain an effective digital operating model.

Cost concerns arise. Sometimes there’s even shareholder and investor pushback this is going to cost too much. Why should we change? Tell me what I’m going to get? This might an area of resistance as you look at the business and your work differently.

Digital literacy is a concern. A lot of people don’t have the skills to operate in a digital enterprise. This is really an important part of the transformation; making sure that people are continually expanding their digital literacy and doing so in a way that doesn’t force them into a classroom. Amazon recently announced they’re going to spend over $700 million in digital literacy training for their employees. They see the value of continually developing the skill sets of their people. You should too.

About TechVision

World-class research requires world-class consulting analysts, and our team is just that. Gaining value from research also means having access to research. All TechVision Research licenses are enterprise licenses; this means everyone that needs access to content can have access to content. We know major technology initiatives involve many different skillsets across an organization and limiting content to a few can compromise the effectiveness of the team and the success of the initiative. Our research leverages our team’s in-depth knowledge as well as their real-world consulting experience. We combine great analyst skills with real world client experiences to provide a deep and balanced perspective.

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TechVision Updates will provide regular updates on the latest developments with respect to the issues addressed in this report.

About the Author

Gary Zimmerman is an experienced executive known for helping companies deliver new offers and expand markets. Accomplishments include launching four companies, 20+ products, building high-performance organizations, and generating millions in sales.

His experience at Neustar, Respect Network, and Sovrin allows him to provide a broad perspective on a variety of subjects including self-sovereign identity, blockchain, enterprise data management, and the data brokerage industry. His experience both enterprise and startup product development give him a unique perspective on innovation.

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An Operating Model for the Digital Enterprise

Abstract

Executive Summary

Introduction

The Digital Enterprise

Automated, Personalized, and Seamless Experience is a given.

Agile and Responsive Management Creates Speed-to-Value

Platforms, APIs, and Microservices Define the Architecture

Data centricity comes of age

Enterprise Security is proactive and user friendly

Disruption, innovation, and change are normal

Business Alignment

Business Strategy, the why

Digital Strategy, the how

Digital Trends

The Metaverse

Trustworthy Artificial Intelligence

The Metacloud

Web3 and Decentralization

The Culture of the Organization.

Digital Operating Model, the what

Reevaluating traditional digital operating model constructs

A Full Operating Model

Six Key Characteristics

Digital Governance

Digital Governance Framework

The Governance Team

The Governance Process

Digital Policies

Digital Standards

Digital Guidelines

Success Metrics

Decision rights

Management rhythm

People Model

Emerging IT Specialties

Business Partners

Footprint

Organizational construct

Fully Integrated

Overlay Structure

Center of Excellence

Functionally Separate

Conclusion

About TechVision

About the Author

Architecture

Artificial Intelligence

Identity

Privacy

Security

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