The digital organization — how should we restructure ourselves?

The invention of the steam engine took humanity to the next level. Work was no longer bound by the physical strength of horses. We had a machine.

We started building factories with a single huge steam engine in the center. Drive belts would route the energy to the machines. Machines that needed more power were huddled as close to the engine as possible on several floors.

When the electronic engine was invented it was possible to have several smaller engines in the factory. Yet the layout of factories did not change. Even new factories were still built with the old layout of one huge engine. Productivity did not improve.

Only when new owners came a long some 30 years later did the factory layout evolve. Each workstation could have its own dynamo that was directly controlled by the worker. Factories were now rearranged based on flow of materials and products. Only then did electronic engines make their impact on productivity.

History repeats itself. As MIT’s Erik Brynjolfsson writes: “Companies do not do well if they spend a lot of money on IT projects unless they also radically reorganize to take advantage of the technology.”

Software is eating the world. Everything is turning digital. Yet organizations tend to stay the same.

How should we reorganize as we digitalize?

1. Create diverse, interdisciplinary teams

Digital innovation happens by combining people with different skills and backgrounds and having them work together as a team.

Separating business and IT into separate parts of the organization is a recipe for disaster. It’s the classic example of an organizational structure that’s way past its time.

Pick a volunteer from each organizational silo to form an interdisciplinary team. Facilitate the team’s self-organization and give them some leeway.

2. Experiment

The digital world is unpredictable and fast-paced. Customer preferences and needs fluctuate. Don’t assume you have the right answer. Instead, make everything you do an experiment.

Develop your business through experiments. Develop your organization through experiments. Run several experiments simultaneously. Get feedback fast, scale up the experiments that work and dampen the ones that don’t.

Failing must not result in people losing face or being discouraged by it. Calling something an experiment makes it OK for it to fail as long as we learn from it.

3. Shorten feedback loops

It’s easier to get real-time feedback from a web service than a physical product. We need to take advantage of this opportunity. Don’t let your organizational boundaries slow this down.

Make your decisions based on data, not opinions. If you notice you’re arguing over opinions, design an experiment. Get data, then talk.

When building a new digital product or service, cut all the corners you can. Just hack it together so you can get data and feedback. Are you worried that you’ll have problems scaling it later? Don’t. That’s a good problem to have. Let’s try to get to that.

4. Make organizational structures fluid

The need for reorganization is constant. When an opportunity arises we need to respond to it. When an experiment succeeds we need to scale it. When an experiment fails we need to try something different.

Make reorganization lightweight. Make it constant. When change is the norm, it’s no longer an issue.

That’s it. What are your thoughts on how we should reorganize as we digitalize? Share your thoughts on Twitter.

I learned about the steam engine story from The Second Machine Age.