Digital transformation is not possible without organizational transformation

Image source @ Visual China

Text | Mu Sheng

At present, digital transformation has become the hot word of the times, and the impact of digitalization on the business society seems to be no less than the previous wave of the Internet. However, compared with the trend in full swing, the enterprises with significant digital transformation results are still a minority, at least there is no destruction and decay trend that swept the industry when the Internet boom hit. The company's enthusiasm for transformation seems to have hit a hidden "wall" - the organization. In other words, their boundless enthusiasm in the IT field is "locked" by the organizational self-imposed steps.

So we can't help but ask a series of underlying questions – what exactly is digital transformation? What is the relationship between digital transformation and organizational transformation? In the overwhelming view, we need to be discerning to go from falsehood to the truth and go straight to the essence. This time, Professor Chen Chunhua, Professor Peng Jianfeng and Dr. Mu Sheng, the top domestic scholars of organizational management who deeply understand business trends, gathered to discuss and present their unique understanding of this hot topic. The first part of the dialogue, "Digitalization should do "incremental" for the industry, rather than absorbing "stock"" has been released, and this article is the second part.

01 Digitalization and organizational transformation are indispensable

Question: Earlier, several teachers also talked about organizational transformation in digital transformation. So, what is the relationship between digital transformation and organizational transformation? Can digital transformation penetrate organizations and lead to organizational transformation? Can organizational transformation unleash the desire for data and drive digital transformation? In practice, which transformation should be the mainstay?

Chen Chunhua (hereinafter referred to as "Chen"): Digital transformation is first of all a business transformation, and then it will need organizational transformation to support it. Digital transformation must be the transformation of the whole value chain of the business system, and it is embodied in the organizational system, that is, to achieve management reconstruction, that is, the organizational transformation of the enterprise. In the enterprises I've observed, digital transformation can penetrate the organization and lead to organizational transformation, or digital transformation must be accompanied by organizational transformation. In practice, business transformation is the mainstay.

Midea's unique "end-to-end" digital transformation of the whole value chain is specifically to realize the "end-to-end" management reconstruction of the consumer end driven by the production end on the basis of digitalization, and the two value chains of products and orders. Midea first empowered business systems with the help of digitalization, then completed digital intelligent manufacturing, then began to transform and empower supply chains and channels, and finally completed the "end-to-end" synergistic symbiosis of the whole value chain. That is, product production starts from the customer placing an order to put forward consumer demand, rather than just starting from the factory for production, and realizing the huge transformation of "demand" to drive "production".

Zhang Xiaoyi, Chief Information Officer of Midea, pointed out that "Midea's digital transformation context is very clear - digitally connecting all aspects of the whole value chain such as R&D, planning, manufacturing, procurement, quality, logistics, customer service, etc., opening up the junction of manufacturing and life, realizing the comprehensive collaboration of the whole value chain "end-to-end", and pushing manufacturing and life to a new height." ”

Mu Sheng (hereinafter referred to as "Mu"): In fact, the case of the United States mentioned by Teacher Chen should be carried out simultaneously with the transformation of the organization. In other words, it should be the digital transformation of the business to lead the transformation of the organization, and the digital transformation of the organization transformation to land the business. Because, it's hard for me to imagine that business systems have changed but organizational systems have not changed. In particular, the digital connection of so many functions has almost changed the way the organization operates in a fragmented way, and it must be a new organizational model. Therefore, the relationship between digitalization and organizational transformation is not a question of who is in charge and who is complementary, but an interdependent fish-water relationship.

I would like to emphasize the previous point that this organizational transformation is not a simple adjustment with the business system, but a transformation from a pyramid organization to a platform organization. The organization agile and flexible that digital transformation is to be achieved can only be achieved through organizational transformation.

Peng Jianfeng (hereinafter referred to as "Peng"): Agreed. Digital transformation and upgrading requires top-level design, systematic thinking, and overall advancement. Naturally, the digital strategy of enterprises needs organizational support, and it is impossible to achieve digital transformation and upgrading without the corresponding transformation and change of the organization. While digitally transforming, enterprises should think about a series of "organizational questions": for example, how to move from a pyramidal hierarchical structure to a customized, process-oriented, and flat mesh structure? How do organizations disintermediate, decentralize, and decentralize? How do you build an agile, efficient, flexible organization? How do you get your organization on the right direction, but always full of energy?

Chen: No organizational system is separated from corporate strategy and business, and in the same way, digital transformation itself requires enterprises to determine digital strategies and design corresponding business models and organizational support models. Specific to an enterprise, the organizational model will have different characteristics, but agility, flexibility, and synergy are their commonalities, which is what I call "water-like organization".

02 Digital transformation is key

Question: It is now more accepted that in order to share the capabilities of enterprises, it is necessary to build a middle office, and the middle office is a strategic place for digital transformation. What exactly is the middle office? How should companies build a middle office?

Peng: The future direction of organizational change and the mainstream organizational model are platform + independent management (project) + ecology. As an important manifestation of the organizational platform, the middle office is undoubtedly a strategic location. The organization should build three major capabilities: the ability to concentrate on the allocation of core resources (including talents, technology, capital, public relations, etc.), professional empowerment capabilities, and risk control capabilities. Without a strong digitally-based middle office, these capabilities are difficult to develop and share with organizations. If the front line calls for artillery fire, your headquarters platform must gather resources to empower the front line, thereby improving the front-line integrated combat capabilities.

MOO: Right. The middle office is actually a module for enterprises to achieve capability sharing. On the one hand, this should be an organization module, the English translation is Middle Office; on the other hand, this should be a digital systems module, the English translation is Middle Platform.

Specifically, there should be a business middle office and a data middle office, the former to achieve the ability sharing of each functional line, which is the general operation of organizational design; the latter through data and algorithmization to achieve the effect of this ability sharing, which is the dividend of the digital era. The reason why the middle office is called a "strategic place" is because it is a bit like a leverage solution, and if the middle office is done well, the digital transformation is also a bit of a solution.

Chen: I agree with both teachers. In a sense, the middle office can be understood as a distribution center for organizations to share capabilities, and it is also the basis for front and back office and collaboration between departments. In traditional organizations, the most difficult thing about internal management is front-office collaboration and collaboration between departments. Without these synergistic efficiencies, the system efficiency of the organization cannot be truly achieved. Without collaboration, it is impossible to truly empower the front office from the back office.

Problem: The purpose of the middle office construction is to provide shared capabilities for the front office, but the ability to standardize is often some distance away from the needs of the front office. This has led to the news that there was a period of time when a large factory was "building a middle platform" and a period of time when they said that they were "demolishing the middle platform." There is obviously a contradiction between the ability output of standardization and the complex environment of the market, how to solve it?

MU: You should be talking about Ali. Ali has always been regarded as the benchmark of middle office construction, and it is also the first enterprise to shout out the slogan of middle office. But for a while, they were rumored to be demolishing the middle office, which directly shook the confidence of many middle office users. I can also give another example. In 2021, ByteDance began to dismantle the original "big middle office - small front desk", classify and reorganize the business, and adopt the BU system.

Peng: The contradiction between background standardization and front-end personalized requirements will always exist, or it must be solved according to the big data, computing power and algorithm of the platform. Ali and Byte's so-called "dismantling the middle platform" are all adjustments under this contradiction, but I believe that such Internet companies will not give up the principle of solving problems through big data, computing power, and algorithms.

MM: Yes, it's their GENES. The digital middle office is a bit like a transformer, which regulates this contradiction based on the operational needs of the front office and the efficient matching of the resources and rules of the back office. They seem to be demolishing the middle platform, but in fact, they just dismantled the "big middle platform" part and put it in front of it, and established a "small middle platform" that matched the BU. Taking Byte as an example, while dismantling the big middle platform, they also refined some "personalized middle platforms", such as the camera middle platform set up by Douyin, the live broadcast middle platform and the market middle platform. The establishment of this middle office and the disappearance of that middle office are actually not important, they are all based on the adjustment of different stages of business, but the logic of business middle office and data middle office will not change.

Chen: For this question, I think we can understand it from another perspective, whether it is "building a middle office" or "dismantling a middle office", the core of which is to return to the basic function of the organization, that is, to serve the strategy and business of the enterprise. If we can deeply understand the business logic of a company and the development of business and strategy, we can understand the root causes of the organization's adjustment.

MM: Of course, organizations always follow the strategy, but in turn the organization can also influence the strategy.

03 Three necessary conditions for successful digital transformation

Question: Digital transformation seems to be an angel, bringing efficiency and more possibilities to enterprises; digital transformation also seems to be the devil, so that many professions have lost their living space. A few days ago, Cui Xiaopan, a virtual employee of Vanke's finance department, won the Best Newcomer Award at Vanke Headquarters in 2021, and it is said that the write-off rate of overdue documents due in advance that she urged was as high as 91.44%. This means that digital transformation has permeated our traditional professions. In the future, will finance, human resources, legal affairs, and even functions such as production, procurement, and research and development be completely broken? Are the three teachers pessimistic or optimistic?

Chen: I have a positive attitude towards digital transformation and encourage and support the digital transformation of enterprises. The fundamental value of digitalization is to empower everyone, so it is not digitalization that brings challenges to people, but digitalization that brings new possibilities to people. As long as we really improve our learning ability and creativity, with the help of digital technology, there will be a lot of innovation and creative value will be released, so I am optimistic about this and welcome to see it come true.

Mu: I agree with Teacher Chen's positive attitude, and at the same time blow cold wind to practitioners. Digital transformation will first impact the business unit, and then immediately impact the functional system.

The business of the enterprise is actually the pursuit of the three-stream consistency of business flow, talent flow and capital flow, that is, according to the promotion of the business flow to configure the talent flow and capital flow. So, what is this configuration principle? If human and financial personnel and finance cannot come up with their own professional knowledge, digital departments may use data logic to penetrate the profession. Similarly, in the business system, if a link lacks professionalism, the data logic must be able to summarize better professional laws and complete the substitution of people.

There is a saying in "The Three-Body Problem", "The civilization of the high-dimensional world destroys you, and it has nothing to do with you." The reality may be so cruel, a large number of functions in the enterprise may not be so professional, they will show their original form under the "glare" of digital transformation. On the other hand, truly professional people, they can control the data and algorithms, as Teacher Chen said, to release the value of their own innovation and creation.

Peng: I am optimistic about the future prospects of digitalization.

First of all, although the success rate of digital transformation and upgrading is low and it is difficult to promote, as a major trend, enterprises must follow the trend. This is like the introduction of ERP by enterprises in that year, there is a saying that "the introduction of ERP is to find death, not to introduce ERP and so on". Even at the beginning, the effect of promotion was not good, and some companies became martyrs. But the trend has become a reality step by step.

At the same time, from digitalization to digital intelligence, the replacement of the work and skills of traditional functional departments is inevitable, but the design of the underlying logic of digital intelligence is still people, digitalization is ultimately serving people, and people still play a decisive role. No matter how smart robots are, they can never be compared to human innovation and entrepreneurship, and they can never be compared to flexible response and adaptation to uncertain environments.

Of course, digitalization is a double-edged sword, used well, is an angel, not used well, is the devil. This is something I've always been wary of.

Chen: It is true that as the two teachers said, in fact, it is people who really play a role. We don't worry about machines thinking like people, but about people thinking like machines, which is the main reason for my optimism.

MM: If digitalization is the trend, then humanity is the key to harnessing that trend. The "creativity" and "beauty of goodness" in human nature are the two biggest chips that embrace the digital age.

Question: Finally, if the trend of digital transformation is irreversible, can the three teachers summarize what you think are the three success factors related to digital transformation?

Chen: The first is to start from the business. When we talk about digital transformation, we are not digital for the sake of digitalization, but at the core of it is to create value for customers. For enterprises, creating value for customers is directly reflected in the business side, so digital transformation should also be based on the business side.

The second is to have a special budget. Digital transformation requires investment, it requires continuous investment, and it is difficult to truly achieve digital transformation without a dedicated budget.

The third is a culture of synergy and symbiosis. Digital transformation can be said to be a change in the logic of enterprise development, but also a change in the way enterprises build new internal and external capabilities, so it is necessary for enterprises to be able to carry out extensive cooperation with internal and external stakeholders and create new symbiotic value. Without cognitive changes, symbiotic ideas, and a culture of synergy, it is unlikely to succeed. The creation of a new culture also means that digital transformation requires the personal participation and promotion of the top leader of the enterprise, which is the responsibility of the top leader.

Peng: First, entrepreneurs and senior leaders attach importance to and personally promote it.

Second, it is necessary to increase investment in digital funds and talents, and to be willing to invest and continuously invest in digitalization.

Third, it is necessary to have top-level design and strategic planning based on digitalization, and to select suitable software partners to jointly develop and optimize software platforms.

Mu: First, entrepreneurs have a high level of digital awareness. This is the real motivation, and the transformation needs that are not based on high-level cognition are all short-lived and belong to the "find a special medicine" type of speculation. This condition cannot be forced, the entrepreneur understands that there is, and if it is not understood, there is none.

Second, the strategy is excellent. Excellent strategy allows enterprises to have more room for growth, things are big, the pattern of people can be large, and enterprises can accommodate more drastic reforms.

Third, the organization is in place. That is to say, enterprises must transform platform-based organizations, only in this way can employees want to work together, and platform-based organizations and digital transformation are a perfect match.