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How CIOs can embrace digital native company practices for their product development

Adopting these digital native company practices can help traditional organizations accelerate business growth.

In brief
  • Simply investing in digital technologies isn’t enough. Companies must rethink their operating models to implement an innovative digital mindset and culture.
  • Whether your business is starting or well along in its digital product development journey, these are four actions executives can take.

In today’s digital-first environment that is rewarding digital native companies with outsized returns, every firm needs to operate like a digital native if it wants to thrive.

EY defines a “digital native company” as one conceived, shaped and grown online.

The imperative to invest in digital technologies is clear to executives of traditional companies. However, the inherent challenges of the digital landscape, combined with the complexity of old-school processes and legacy systems, have many traditional companies struggling to fully realize their goals.

Start with why you want to invest in digital technologies

As firms begin to pursue their digital ambitions, they take two predominant paths to move from doing digital to being digital:

  • Creating new digital products to increase revenue, by embedding digital products or software into the core business, developing a separate business focused on digital products, or white-labeling an existing third-party digital or software product into the market
  • Reimagining traditional businesses and innovating on existing processes using digital platforms to deliver frictionless user-friendly solutions

This article focuses on steps traditional companies can take to reimagine their operating model, leadership teams, talent management structure and culture with a view to adopting a digital native company mindset that breeds digital product development success.

“We are not organized in the right way to reap the benefits of digital.” – CEO of a steel manufacturer


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Reorganize the enterprise to optimize digital product development

 

Three insights emerged from our research that can help traditional companies establish effective digital product development functions.

 

1. Restructure your operating model to achieve your goals

 

Deploy an operating model that best reflects the company’s level of digital product maturity

 

Where a traditional company sits on the product maturity scale will drive the type of operating model it should deploy and how strongly product development needs to be integrated with other functions.

 

Startups tend to be very product-centric. They have a lean corporate structure, with product teams that not only focus on driving product and revenue growth but that are also responsible for managing support functions.

 

As organizations scale, the operating model shifts to become more customer centric. Leadership becomes more centralized and independent departments manage support, allowing product teams to focus more exclusively on product development. However, this transition can yield poor results if centralized functions (marketing, finance, etc.) begin to drive product decisions rather than empowering the product teams. This can be a potential pitfall for traditional companies that already have firmly established support organizations that may be inclined to influence fledgling product teams.

 

Organizations with product maturity apply a federated approach that provides the right balance between autonomy and a centralized structure through shared services. Products become decoupled from one another, operating independently but with common processes, taxonomies and reporting structures. Product teams and functional support share ownership of profits and losses (P&L), while functional support ownership is shared between independent departments and resources embedded in the product teams.

 

Specific functions will play different roles, with their level of integration into product development dependent on product maturity.


Leverage an operating model that enables scale, scope and learning

Digital native companies set up their operating models to support three key goals:

  1. Build the capacity to scale products and features rapidly based on the number of users through enabling technologies and partner ecosystems, allowing firms to capitalize on successes
  2. Broaden the scope of their offerings by supporting the development of multiple products and capabilities in parallel, reaping the benefits of adjacent products and enhancing customer stickiness and lifetime value
  3. Foster learning to develop internal processes so that, as the product environment grows in scale and scope, the company realizes efficiencies and cultivates an integrated landscape rather than one that begins to buckle under the weight of non-standardized tools, development methodologies and misaligned roadmaps

How EY can help

Digital native companies usually start with one marquee product that initially draws a small number of users but then must scale to meet growing demand. Over time, companies develop related products and capabilities in parallel to expand their product portfolio. While they are scaling their marquee product and expanding their offerings, they need to create an environment that enables continuous learning and institutes development procedures to support an appropriate level of standardization across products and teams. Leveraging this mindset is key for traditional companies to not only find success with their first product but also to set themselves up for future wins. To realize changes, companies should follow these steps:

 

  1. Develop a blueprint for the vision, break down the silos and take a data-first approach to scale at speed
  2. Adopt a platform mindset, avoid process overkill and leverage enabling technologies to expand scope
  3. Cultivate an experimentation mindset to support continuous learning and leverage those insights to propel accelerated progress

 

2. Instill digital leaders with the right set of skills

 

If companies want to be successful in moving from doing digital to becoming a digital company, there needs to be a fundamental shift in leadership approach. Our research suggests that 9 in 10 executives are feeling disruption or the need for reinvention from digital business models, while 7 in 10 believe they lack the skills, leadership or structure to adapt.

 

Traditional leadership thinking suggests that skills are an important foundation for leadership. However, industrial-era capabilities will only enable leaders to do digital. Traditional leaders will need to augment fundamentals with digital-era capabilities that enable them to think digitally. Under a digital leadership model, competencies are designed to enable agility, resilience and transformation through people and technology. To help traditional leaders make the leap to digital leadership, 72% of companies are developing leadership programs specifically focused on digital.

 

As leaders learn digital competencies, they will be able to reorganize talent structures to reflect a global digital workforce, identify and adopt market-leading disruptive technologies, leverage digital capabilities as a core competency rather than as a bolt-on, and use their digital leadership mindset to drive business strategies and structures.

 

Matching leader to transformation

 

Digital leaders can come from the business, from IT or from outside the organization, depending on the needs of the business. However, traditional companies must understand the difference between traditional corporate IT and technology, which includes the product and software engineering function. The knowledge, experience and processes in back-office corporate IT functions do not necessarily translate into those skills needed for digital technology projects that are typically more software engineering-oriented. Strong chief information officers (CIOs) can likely drive operational efficiencies using digital but may not have the necessary experience to build digital products.

 

Whether the chief technology officer (CTO) should come from outside or within the organization depends on the organization’s level of digital product maturity and which operating model it chooses. For companies that do not have mature digital organizations, it is critical that the CTO possesses not only strong technical and sector knowledge but also the ability to drive cultural change. For companies beginning their digital journey, the CTO will not only be responsible for managing the technology organization but also for representing it to other C-suite members (and potentially the board), educating them on the role and opportunities of digital within the business.

 

When a company is looking to start a new digital line of business, there is a natural tendency for business leaders to drive the efforts. When companies reach a sufficient size where they possess a large portfolio of digital products, the product management organization becomes embedded into each business unit, while product engineering will become part of the technology organization.

“Our digital team needs to become an innovation engine like a digital native company.” – CIO, health insurance company

Background and experience notwithstanding, companies will want to appoint a digital product leader with the following six attributes:

  1. Fluency in digital speak
  2. Ability to connect the dots with business and define solutions for key business problems
  3. Partnership enabler with the ability to create an ecosystem model
  4. Trusted advisor with the ability to counsel the C-suite and board on digital issues and their impact on top and bottom lines
  5. Data-driven decision-makers who understand the need, sources and value of data and analytics
  6. Talent managers who can develop talent in nontraditional areas through nontraditional techniques

3. Establish digital-first, data-driven talent and culture

Digital talent management requires specific changes across many areas – from skills development to leadership – leading to an appropriately balanced team necessary to drive a thriving digital product development organization. Our research suggests that there are five key priorities for building an organization for digital talent.

In addition to these priorities, both leaders and workers need to lean into key behaviors that will help to build the right talent and culture to be a digital organization.

“You can’t just hire an innovation team and expect success. You need to embrace a user- and product-led approach.” – Senior Product Manager, innovation-as-a-service (IaaS) company

Four actions traditional company executives can take

It’s not enough to simply invest in digital technologies. Companies must fundamentally reimagine their operating models to support an innovative digital product development mindset and culture. Whether your organization is at the beginning or well along in its digital product development journey, you will want to consider taking the following four actions.

Ayleen Lau, Shashi Shrimali, Sai Avasarala, Dan McCarthy, Andy Youn, Michael Rath, Mitch Parse and Thomas Kuklenski also contributed to this article.

Summary 

Traditional and non-digital native companies are investing in innovation and product development, but they must adapt their operating models, enhance leadership capabilities and implement the right talent structure to maximize their return.

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