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The answer to how to scale your digital transformation

What is a Digital Factory?

A Digital Factory is the “construction site” where change happens. It comprises dedicated, cross-functional teams that work together on change-the-business programs. They resemble factory workers in that they employ reusable tools and repeatable processes to build specific “products” in the form of new experiences, services, or solutions. The secret to the Digital Factory’s success is that its small teams, working closely with the business side, function as a start-up accelerator. As one business-unit leader recently told us, “It’s like having my own start-up.”

Management of the teams is “mission based”: they are given clear goals (missions) and the autonomy to deliver on them as they see fit. These missions are unlike traditional projects, in that they are end to end in scope, clear on the expected outcome, and add value that can be explicitly tracked.

The exact composition of each team varies by what the team is tasked to do, but teams typically comprise ten to 15 people. The lead DF team prioritizes daily tasks. Importantly, each team is dedicated full time to its own mission and has light reporting lines to keep relevant people informed.

A single center of excellence functions as a nerve center or control tower, supporting the DF with expertise and guidance on particularly complex areas, such as deep learning analytics, standards for cybersecurity, coding practices, and agile methodology; coordinating resources; and ensuring execution quality. An operating committee tracks the Digital Factory’s work, unblocking issues and providing funding based on progress.

Five principles that make a Digital Factory work

Different transformation models can vary, depending on the company’s situation. Enterprise-wide agile transformations, for example, can help those that are under such intense competitive threat that they need to quickly and completely reinvent their business structure. Launching new “sidecar” digital businesses, on the other hand, is a model that can help established companies learn how digital companies operate and generate new revenue streams.

The Digital Factory helps companies transform their existing businesses, not completely reinvent and replace them. For the North American bank mentioned earlier, the Digital Factory was attractive because it was a workable model for digitally enabling its businesses at scale—something it knew it needed to do—while continuing to run a very successful legacy company.

That makes the Digital Factory a practical option for many incumbents. What makes it successful, however, is that it directly addresses the key issues that tend to derail digital transformations (see sidebar, “The slow death of a digital project: A story from the front lines”). Through our work helping some 50 companies establish successful Digital Factories, we have distilled their successful practices into five principles that address the key blockers to transformation.

1. Clear missions

Often the goals of a digital transformation are articulated at such a high level that it can be difficult to translate them into concrete initiatives. Confused teams then focus on “looking busy” rather than on impactful outcomes. To truly change the company, organizations need to reshape project portfolios into clearly defined missions that link directly to corporate strategy. The word “mission” is important, because it elevates and signals the importance of purpose.

In our experience, the best missions exhibit the following qualities:

  • Clear and strategically grounded. Everyone should be crystal clear about what the mission is and how it supports the business’s overall strategy.

  • Valuable and measurable. Each mission should focus on outcomes whose value is measurable, not output or activity.

  • Holistic in scope. The mission needs to be broad enough to have real impact. Teams therefore need to have the mandate and obligation to solve problems across organizational siloes.

The bank was very practical about developing its missions. Within an hour, the senior leadership team aligned around clear missions to launch their Digital Factory: one mission was to reduce loan-approval times from ten days to five minutes. It was clear, grounded in strategic customer insight, and valuable, and the mandate was designed to ensure that all functions required to deliver on the mission were within its scope.

2. Purposeful collaboration with embedded functions

One of the biggest advantages of the DF is how its change-the-company teams interact with run-the-company functions—in particular, control functions such as legal, risk, compliance, and procurement. While most companies accept the need to be cross-functional in the digital world, they rarely put in place the necessary processes and align them at the leadership level to be successfully applied at scale.

Digital Factories are deliberate and thoughtful, not just about who should be on each team, but also about the process for allocating people to teams when they’re needed. When a multinational bank was creating its plan for developing a five-minute loan, the CIO and the heads of lending, digital channels, risk, and compliance met in a room for two days. Together, they worked out who should be on the team, for how long, and what resources they needed. They determined what kind of people would be part of the full-time core team (developer, designer, product owner, architect, marketer) and which control-function experts (risk, regulatory, legal, and so on) they would need to support them. These people were responsible for quick decision making, guidance, and mining their departments for additional input, as needed. They still reported to their functional leads, but they were responsible for delivering on the missions to which they were assigned.

Leadership recognized that teams didn’t need these particular experts all the time. In this case, when the mission was to develop a process to approve loans quickly, expertise in fraud was important. But fraud-management expertise was needed primarily at the beginning of the mission, and only at key times thereafter. During the “off” time, the fraud experts could be allocated to other mission teams.

Importantly, no company risk or compliance procedure is altered to give a “free pass” to the mission. If more lengthy approvals are needed, it is the assigned functional lead’s job to make sure that teams plan for them so there are no surprises later on. This dramatically facilitates a mission’s speed without compromising quality.

This collaborative operating model is particularly important for working with tech, which generally makes up about 60 percent of each working team within a DF. Successful companies approach the Digital Factories as a joint business–IT effort, with high levels of mutual accountability based on close collaboration between the CIO and the business-unit leaders.

If done right, the Digital Factory is a powerful engine to enable and accelerate not only the business but also the IT transformation agenda. That’s because the missions that Digital Factory teams work on have sufficient scale and clarity of focus for IT to develop next-generation capabilities such as automated testing, cloud-based applications, secure coding practices, and application programming interfaces (APIs) that can be put to immediate and practical use. In fact, we have found that a given company’s top ten most important missions will touch 70 to 80 percent of all IT infrastructure.

3. Balance of leadership guidance and team autonomy

The base unit of a Digital Factory is the team or “squad,” whose members work in the same place, testing and learning their way to the best answers.

For this agile approach to succeed, however, teams need a sense of ownership over the work they do. Leadership defines the mission and then gets out of the way. It’s up to the team to figure out how to deliver, including deciding on the technologies to use and how to implement them. The governing mindset for a DF team is “we’ll do what it takes” to make the program work.

That ownership mindset was clear in the bank’s five-minute loan team. One part of the mortgage process entailed checking consumer applications against a government agency’s database, a process that generally took two days to complete. The process had been in place for years, and teams had assumed that regulations mandated the two-day wait time. But when the team questioned that assumption and called the appropriate regulatory agency to ask if the process could be accelerated, they were pleasantly surprised to learn that the agency would work with them. As a result, the team built a simple API that enabled continuous file transfers between the agency and the bank, which made the response almost instant.

This ownership mindset is reflected in the attitudes and responsibilities of the team (Exhibit 2). As an example, the mission owner is responsible for delivering the mission. That includes determining what the product should be, making all prioritization and allocation decisions, assigning people, and ultimately owning the results—a very different role from the traditional project-management function. Similarly, a good developer on the team is willing to take on hard problems, not just fishing for “easy points” that he or she can deliver on time. These behaviors are supported by performance-management practices that differ from those of “business as usual” organizations, such as aligning incentives for all team members, including IT, with market outcomes. More important, however, is persistently developing and supporting a team-ownership culture. Daily check-ins provide for a high degree of transparency into what people are doing. If someone is not pulling his or her weight, that person can be quickly assigned to a different project.

Autonomy doesn’t imply lack of oversight. While there are no steering committees in Digital Factories, there is an operating committee that comprises senior individuals across business and technology as well as key control functions. This operating committee provides the vision and objective of the mission, serves as the clearinghouse for escalation issues, and reviews successful outcomes against original goals. It operates like the investment board of a venture-capital firm, holding the teams accountable while helping them remove any roadblocks.

The committee reviews missions against outcomes only, not activity or output. Instead of fixing budgets by project over several years, budgets are allocated in the way venture capitalists would do it—at stage gates, where evidence of actual production is reviewed based on the outcomes of sprints. At one financial-services company, the operating-committee members dedicated two hours to a “speed-dating” session, where each member met everyone else individually in order to understand and align on any required changes over the subsequent few quarters. Operating-committee members are expected to informally keep themselves updated on progress by visiting DF teams.

To ensure missions are continually aligned with the organization’s strategic imperatives, the operating committee also holds periodic planning events, typically quarterly business reviews (QBRs), in which leading stakeholders meet over a couple of days to assess the past quarter and plan for the next two. They determine resourcing needs and anticipate technical architecture and other issues that need to be resolved, eschewing process for more fluid discussions with relevant stakeholders on important issues. The operating committee validates the plans that come out of these sessions and ensures that they are linked to the company’s strategy.

4. Active business involvement and sponsorship

Many pilots or “incubators” fail because their “products”—solutions and processes—are never adopted by the company. That’s usually because the development process is divorced from the practical needs of the business.

While Digital Factories are ring-fenced to enable the required velocity, they exist to serve the needs of the business units. At large enterprises, DFs are embedded within individual business units, whereas at smaller enterprises, a single DF serves multiple business units. The DF operates as the execution engine for every business owner’s change agenda.

Business-unit leaders act as sponsors, determining which projects get done, setting the goals and agenda, and providing the funding for the Digital Factory’s work. The business unit also provides people to staff the missions, including the business owner, who personally guides the project in conjunction with the mission owner, and all the other stakeholders, who are physically present and embedded in the team. These steps help to align the goals of the business unit with the work of the DF.

It’s important to make sure that functional and business-unit leaders provide their best people, not just those who are available. In some cases, we’ve found that senior managers will not provide their best people for fear of losing their own influence. This issue must be tracked and managed, in some cases sending people back to their parent function.

Even as the DF develops and manages the products it builds, reporting lines are to the business. Teams work on products, but the product’s business-unit owners keep track of them on a long-term basis.

Article has been taken from McKinsey&Co please see the original article below:


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