Most business leaders are now accustomed to the continuous need for organizational change. They are on a transformation journey to make their companies future ready—an ambidextrous state in which companies use digital capabilities to simultaneously delight customers through rapid innovation and reduce costs through greater operational efficiency. In 2018, MIT CISR identified four types of disruptive change (which we characterize as “explosions”) that companies must confront.[foot]P. Weill, N. van der Meulen, and S. L. Woerner, “Becoming Future Ready Requires Organizational Explosions,” MIT Sloan CISR Research Briefing, Vol. XVIII, No. 8, August 2018, https://cisr.mit.edu/publication/2018_0801_PathwaysExplosions_WeillVanderMeulenWoerner.[/foot]
The most challenging change to realize involves a company’s decision rights, which determine who has the authority and accountability for key decisions in the organization. In a recent MIT CISR survey, respondents rated nearly two-thirds of the 986 companies they represented as “not effective at all” to only “moderately effective” at changing decision rights.[foot]MIT CISR 2019 Top Management Teams and Transformation Survey (N=1311). The decision rights effectiveness measure is calculated as the mean of six items that cover decision rights changes for creating new customer offerings, improving the customer experience, defining the business model(s) of the enterprise, digital design and technology, operational excellence, and partnering across the ecosystem.[/foot] Such companies primarily rely on the CEO and the top management team to drive transformation results, with the rest of the company tied up in silos and hierarchical structures. Managers must make decisions such as what customer offerings to discontinue and launch, when to change processes, and how to improve the customer experience, despite being the furthest removed from the sources of data that inform these decisions: the customers, vendors, partners, regulators, and other parties that comprise the company’s ecosystem of stakeholders. This makes managers a decision-making liability— stifling efficiency and agility.
Future-ready companies, in contrast, make better and faster decisions by relinquishing their top-down (“command and control”) approach to decision making. These companies empower cross-functional teams. Managers don’t just hold teams accountable; they give them the authority to decide for themselves WHAT they will accomplish and HOW to get things done.[foot]We found that authority for setting the team mission and objectives (i.e., what to accomplish) typically falls to those who fulfill the role of strategist or business/product/solution/capability owner on the team, while authority for delivery and for operational rhythm (i.e., how to get things done) is the domain of technologists, delivery owners, and/or team leads. [/foot] With a deliberate commitment to empowerment, these companies can fully leverage employees’ unique skills and proximity to stakeholders. Teams can rapidly explore new (digital) opportunities. Compared to companies that fail to change their decision rights, are stuck in a “command and control” mindset, and don’t rely on employees to drive digital transformation results, we found that the empowered companies achieved[foot]For this analysis, we compared companies that were rated as “very effective” or “extremely effective” —which we classified as “empowered”—to those that were rated “not effective at all,” “slightly effective,” or “moderately effective” —which we classified as “not empowered”—on all of the following measures: changing decision rights, moving from a “command-and-control” to a “coach-and-communicate” approach, and having employees drive digital transformation results. Nearly 17 percent of the companies in our survey classified as “empowered.” Reported performance results are based on self-reported performance data (N=820), which we found to be moderately correlated with actuals based on most recently available Compustat data, as per Q3 2019 (r(232)≈.34, p<.01). [/foot]:
- 25.6 percentage points higher industry-adjusted net profit margins
- 10.4 percentage points higher industry-adjusted revenue growth rates
- 24 percentage points higher revenues from products and services introduced in the past three years