At MIT CISR, we define digital organizations as those that, in addition to digitizing their operations for greater efficiency, deliver value propositions in the form of profitable digital offerings.[foot]Digital offerings are information-enriched customer solutions wrapped in seamless, personalized experiences, as described in J.W. Ross, M. Mocker, and C.M. Beath, “Rethink Your Approach to Digital Strategy: Experiment and Engage,” MIT Sloan CISR Research Briefing, Vol. XVIII, No. 10, October 2018, https://cisr.mit.edu/publication/2018_1001_DigitalStrategyEvolves_RossMockerBeath[/foot] As these digital offerings exist at the intersection of a digitally inspired solution and customer desires, their success hinges on a company’s abilities to (1) sense and (re)interpret changing customer needs, (2) recognize the potential of (new) technologies to address those needs, and (3) leverage the capabilities of those technologies to develop revenue-generating offerings. Already, companies are developing the first two abilities at scale.[foot]For an example, please refer to N. van der Meulen and C. M. Beath, “Mars’ Recipe for Creating Value One Hundred Times Faster,” MIT Sloan CISR Working Paper No. 450, July 2021, https://cisr.mit.edu/publication/MIT_CISRwp450_MarsCreatingValue_VanderMeulenBeath.[/foot] A tougher challenge, however, is finding or developing enough talent with the specialized skills (in areas such as artificial intelligence/machine learning, software engineering, and cybersecurity) to realize these offerings. In the past, companies might have resorted to contractors or freelancers to fill such digital skills gaps,[foot]K. Dery, N. van der Meulen, and I. M. Sebastian, “Employee Experience: Enabling Your Future Workforce Strategy,” MIT Sloan CISR Research Briefing, Vol. XVIII, No. 9, September 2018, https://cisr.mit.edu/publication/2018_0901_DigitalTalent_DeryVanderMeulenSebastian.[/foot] but this isn’t desirable when dealing with digital offerings. That is because digital offerings require constant experimentation and direct learning with the company’s end customers to provide opportunities for competitive differentiation.
Since efforts to upskill and reskill take time, the only remaining option for many companies is to recruit new talent with specialized digital skills. This is already difficult in a tight and highly competitive labor market, but even more so for large, established companies. These companies carry a considerable legacy of systems, data, and processes (which is unappealing to potential candidates); may not yet be familiar with agile and empowered ways of working that digital talent has grown accustomed to; and typically lack clear career paths, mentoring, and growth opportunities for those with specialized digital skills.
One way to overcome these challenges and become more attractive to digital talent is to create a new digital entity, either as a unit inside the parent company or as a legally separate organization, that is free from the parent’s legacy, has the decision rights to operate as a startup, and offers competitive salaries and benefits.[foot]This approach represents Pathway 4, one of four pathways to digital business transformation described in P. Weill and S. L. Woerner, “Future Ready? Pick Your Pathway for Digital Business Transformation,” MIT Sloan CISR Research Briefing, Vol. XVII, No. 9, September 2017, https://cisr.mit.edu/publication/2017_0901_DigitalPathways_WeillWoerner.[/foot] The digital entity’s appeal to potential new hires lies in its distinction from the parent company and its ability to disrupt the status quo. Yet, if the digital entity is to develop profitable digital offerings at scale and serve as a digital role model for the parent company, then the digital entity and the parent company will also need to be strategically, operationally, and technologically aligned. This research briefing describes how Toyota Motor North America has navigated a need to digitally disrupt itself while maintaining organizational alignment, and how supporting its executives in holding multiple leadership roles concurrently across its digital entity—Toyota Connected—and related Toyota entities has helped to introduce new digital offerings and new ways of working throughout the global Toyota organization.[foot]The authors studied Toyota Connected from 2018 through 2021 and conducted fourteen interviews with ten senior executives from Toyota Connected and Toyota Motor North America.[/foot]