How a digital
factory can transform company culture
Companies
are beginning to use digital factories as incubators of more agile ways of
working, often filtering the best attributes of the factory culture back to the
larger organization.
A digital factory often calls for a whole new
set of rules, including increased agility, new technology solutions, and
cross-functional teams. Those differences have often spelled success for
companies trying to develop and push out new digital capabilities quickly. In
this episode of the McKinsey Podcast, senior partner Rohit Bhapkar
and partner Joao Dias speak with McKinsey’s Barr Seitz about the challenges
leaders might face in building digital factories and how to set themselves up
for the best results.
How a digital factory can transform company
culture
Podcast transcript
Barr Seitz: Hello, and welcome to
the McKinsey Podcast. I’m Barr Seitz, global publishing lead from
McKinsey’s Marketing & Sales and Digital Practices, and I’m very happy to
be joined today by Joao Dias, a partner based in McKinsey’s Cologne office, and
Rohit Bhapkar, a senior partner in our Toronto office.
They are also the
coauthors of the article “Scaling a transformative culture through a digital factory.” For today’s conversation, we’ll
be discussing what a digital factory is, how senior leaders can overcome the
management challenges in setting one up and running it, and what it takes to
get started.
So, let’s dive in.
Joao, I’d like to ask you the first question. In your article, you make the
point that companies have had plenty of successes with small-scale digital
pilots, but they start to run into real problems when they try to scale those
digital programs across the business. Why is that? And why is setting up a
digital factory one way to address that issue?
Joao Dias: Thank you, Barr. The issue
that most companies face is that, when they start doing digital transformations
and digital projects, they realize that they need to break a lot of rules. They
need to break the rules on how to allocate people into the initiative, or how
to fund the initiative, or even what technologies to use or what project models
to use.
And it’s OK to do it in
a pilot. Oftentimes, the CEO and most senior people pay a lot of attention to
those pilots, and they help bend the rules or they just dictate that, for that
short period of time, it’s OK to do as they do. But a CEO or a senior-executive
team cannot spend all their time paving the way for it to happen.
That’s where a digital
factory comes in. A digital factory is basically an organizational construct
where you end up allowing for a number of rules to be different. Within that
digital factory, it’s OK to work in an agile manner. It’s OK to use a different
technology set. It’s OK to host a number of things on a quasi environment, for
example. So the digital factory ends up being the setting of a whole new set of
rules that allow people to work differently and give the senior team the space
to then just sponsor it and support it instead of fighting every single fight,
every single day.
Barr Seitz: Rohit, what exactly is a
digital factory? Can you explain what one looks like, how it operates, and
maybe give an example of a digital factory in action?
Rohit Bhapkar: Building off what Joao was
talking about, one element is the culture and the operating model of the digital factory. This is generally a place
where teams will work in very different ways than they may work in the rest of
the organization. You can think of a digital factory as a construct of ten to
50 teams, squads, pods, whatever the name is. Usually each of these teams will
be eight to 12 people, and they’ll be working on projects that build the
digital capabilities of the organization.
As an example, a common
thing for one of these teams to be working on is digitizing a customer journey like credit-card onboarding or small-business
account opening. What you’ll have is a cross-functional team that comes
together for a period of time to reimagine and build something really new for
the bank. The team will generally have people from the digital factory, so
people like designers, developers, product owners. And it might have some
people from the legacy business, which helps with the whole culture change—so
people from risk and operations and other parts of the business that are
relevant to reimagining this journey.
The teams will work in
what we call agile sprints. Every couple of weeks, they build some new part of
the journey. They test it with customers, they refine, and they iterate.
Once they have
something that they feel is worth testing in the market, they’ll create what we
call an MVP, a minimum viable product. That will then be tested with a subset
of customers and then eventually become the new way of credit-card onboarding
or small-business account opening for the bank.
Another common element
I see is the factory can be a place where some people maybe go work every day,
and other people come a couple of days a week because they’re part of a project
team. Or maybe people do a rotation through the factory. The factory can often
be used as a tool for the broader organization to slowly transform itself, as
well, over time.
Joao Dias: One exciting thing I find in
digital factories is that yes, there are a number of things that are common
across digital factories, but they are also very different. I’ve seen in a
banking client of mine in Europe where they ended up having multiple branches
of these factories because they thought it was important to locate the
factories relatively close to the businesses that they were supporting. And so
you would have factories in multiple cities, in multiple locations, all of them
operating under the same rules and the same set of operating principles but
located in different places.
Another client of mine,
a much smaller organization, a very lean private-equity-owned institution, they
ended up creating a digital factory that is very similar to the organization
itself. It’s also very lean, very small, located in one of the floors of the
main building. You can see how the factories end up mimicking the organizations
that they belong to.
Barr Seitz: Are there any sectors that
are in the lead when it comes to developing digital factories? And why is that
the case?
Joao Dias: Let’s also be clear that the
digital factory is a construct that serves the purpose of initiating and
conducting the digital transformation of a business. It’s not the only
construct for that. We see some sectors that are more developed, and
particularly in some companies that are more developed, they end up doing
the digital transformation in a much more organic way because their corporate
centers already operate in a very agile way. They already have this set of
rules applied to the normal company. So they don’t need to create this construct
on the side. And we’ve seen that, for example, in banking, in some institutions
in Europe.
Some other sectors,
like pharma or energy, they tend to be a little bit behind because the customer
behavior and the economic pressures are different compared to some of the other
sectors. They tend to be in a phase where they do more pilots. Sectors like
retail and consumer goods and media have been in the forefront of this for a
long time, and you’ve seen them for a while having large-scale digital factories
or even embedded in the organization.
Barr Seitz: If that’s the case, are the
digital factories that banking, for example, is putting together applicable in
terms of lessons that can be used for other sectors, such as pharma?
Rohit Bhapkar: As we’ve been talking about,
a big component and a big reason for doing a digital factory, creating a
digital factory, is the culture. The cultural challenge any large, complex,
incumbent organization has as they attempt to digitally transform, there are
similar challenges whether you’re a large bank or whether you’re a large telco
or whether you’re a large oil and gas company. And so I do think the
digital-factory construct is an important one to think about across all of
those. All of the institutions are going to have to think about how do they
recruit, attract, inspire, and retain a new kind of digitally native talent if
they’re going to succeed going forward?
They’re all going to
have to think about, when they do attract those people, how do they work in a
way that is very, very different than the way they’ve probably worked for the
last 20, 50, 100 years as an organization? This is around being more agile,
being more customer centric, leveraging data and analytics in a different way.
In the factories I’ve
seen that work very well, as Joao pointed out earlier, they challenge all of
the norms of the organization, all of the existing rules around talent
management, around operating model, around ways of working. They’re willing to
try things and have them fail and then pivot. That kind of mind-set and that
kind of environment is required for any organization that’s looking to go on
this journey, sort of irrespective of what sector they’re in.
Barr Seitz: I want to dig into this point
that you both have brought up on the idea of culture and how a digital factory
can be an incubator for developing it. Rohit, you talked earlier about this
idea of a digital factory being a place where you can infect the larger
organization.
It’s an interesting
visual, this idea of a culture farm around the factory, and, in fact, it
highlights one of the main purposes of a factory. So, Rohit, could you talk
more about how to set up a digital factory so that it really can be an
incubator for digital culture?
Rohit Bhapkar: On the first point of how to
start one, there are a couple of common things to have in place. One, you
need leadership buy-in at
the top of the organization, that this is an important piece of an overall
transformation and that they’re going to be supportive not only in helping
invest in and fund the factory but also in helping ensure that the factory is
successful. So you need alignment and top-leadership support.
The name “factory” is
interesting. With some of my clients, when we’ve chosen that name versus
calling it a lab or an innovation center or something like that, the reason
they liked “factory” is because they wanted the stuff that is produced in this
construct, in this team, to actually be meaningful and real for customers,
employees, and shareholders.
Having them work on
things that are aligned with the business strategy and key objectives and top
priorities of the business is a second, very important piece of this. If
they’re just the lab that’s working on stuff that nobody will ever see or use,
it may be a sexy idea at the beginning, but then it will fizzle out and it
won’t infect the rest of the organization, as you put it.
Communication is a very
important thing to think about in any transformation, especially one like this.
How do you make sure people who maybe aren’t spending time in the factory
understand what is going on there, feel a sense of pride and ownership for what
is happening there, rather than maybe envy for what is happening there?
Using these kind of
rotational ideas, where people are going to come spend four months, six months,
a year working on a project in the factory is very important. Exporting the
best ideas from the factory to the rest of the organization is very important,
recognizing that the factory will be a test bed for some new ideas and maybe
new tools and new types of capabilities, and the ones that really work and we
think have relevance at scale, exporting those.
Joao Dias: Some organizations are very,
very purposeful about that. So they will have organized programs for the senior
group of the company to come and see and to sponsor elements of the digital
factory and spend time there and discuss it. One traditional implication that
I’ve seen in many clients is the expansion of agile operating models beyond the
digital factory. People see how effective those are, how they help colleagues
collaborate, how they help colleagues focus on the end product that they want
to achieve instead of the internal bureaucracies. And so they realize that that
is a big unlock for the new culture of the organization, and they start
exporting it.
But there are others as
well. Things like the design thinking that often comes
into a digital factory, and having new skills such as understanding customers
and what they want and how to design solutions for them.
Barr Seitz: You’ve talked very eloquently
about how to export ideas from the digital factory into the larger business,
but what sort of things can a business put in place to make sure that these
ideas that come out of the factory, and are successful there, can really take
and have an opportunity to flourish in the broader organization?
Joao Dias: I see three common struggles
and three common themes that top managers end up having to take on themselves
to support the development of a digital factory and then, as you were saying,
the spread of it beyond. One is people. Finding the right leaders for the
digital factory, not only at the leadership or at the top of the
digital-factory level but beyond that.
That typically means
finding people from within who are really scarce, who are the ones who will be
needed in other parts of the organization, and therefore makes it a very
painful trade-off that needs to happen. Oftentimes, it also means going out to
the market and finding new blood to come in, which in some organizations can be
painful, as well, particularly organizations that are more used to developing
from within.
The second element is
mandate and power, if you will—making sure that the digital factory has the set
of governance opportunities or governance mandates to execute on what they need
to execute. And it goes from very high-level, critical, business-related stuff,
like being able to very quickly approve a new sales process that comes out of
that digital factory and spread it through the organization or launch a new
digital product online.
But also some more
mundane and simple decisions arise, such as being able to make changes to an IT
system and put it online live in very quick timeframes. Then the third one is,
well, it’s about money. These digital factories do require resources, and they
require funding to be allocated to this. If every single initiative within the
digital factory has to go through a traditional funding-request process of a
company, the whole digital factory is a nonstarter from the beginning.
So this whole notion of
allocating strategically, allocating resources for the digital factory and
protecting it, it’s an important decision that oftentimes is difficult for top
management to do. But in my experience, if you, early on, as a top-management
team, grind through these difficult trade-offs and difficult decisions, it
paves the way for the digital factories to flourish and then to expand beyond
it.
Rohit Bhapkar: A couple of things I’d push
folks to think about. One is being very clear about what is the culture change
we’re trying to create. We can talk a lot about culture and being faster, but I
think clarity from the top team on what is the culture shift we’re trying to
create is very important, and making sure everybody in the organization
understands that.
One of my clients
framed it as a series of four performance-oriented culture shifts they wanted
to make and then four what they called customer-oriented culture shifts they
wanted to make.
Then, as Joao alluded to,
it’s all about leadership. You have to have leaders throughout the
organization, at the top of the house and throughout middle management, who are
committed to helping drive the change and helping their people through that.
The factory can only do so much.
Another piece that the
factory can be a big help with is creating symbols or lighthouses of the change
we’re trying to create. If one of the things you’re trying to move is this idea
of velocity and building things faster and doing things faster, if the factory
can help show that it can be done, it will inspire others in the organization.
It will quiet those who say, “Oh, we’ve never been able to do things in a fast
way, and so why would we believe we can do it now?”
Barr Seitz: Rohit, I’m sure you would
agree that very few businesses have not already tried something in terms of a
digital transformation. Everyone’s launching pilots and trying experiments. How
would they pivot from what they’ve been doing to moving toward more of a
digital-factory model? And how would you advise them to start?
Rohit Bhapkar: There are a couple of
different ways I think about it. One is you can maybe start the factory as a
virtual factory, if you will, in that you tie together, like how Joao was
describing, a few of the different initiatives that are already going on under
the same set of rules and culture and operating model.
The times I’ve seen
where people have made really bold bets on this, it’s been around getting a
clear sense of what is the mission for the digital factory going to be. In a
banking context, you might say the digital factory is there to support the
migration of our customers in terms of digital sales, service, and engagement
and building the capabilities to support our customers.
In an energy company, you
might say, “We want to dramatically increase the level of automation and
monitoring that happens in our mines,” thinking a little bit about, OK, so what
is the talent we need to be able to start to deliver on those things; starting
to think about the number of people we’d need, how many of those can come
internal, how many can come external; starting to think about, as we talked
about earlier, the culture shift we want the factory to help create and what
does that mean for the setup; then, as Joao pointed out, thinking about the
ring-fenced funding and leadership for the factory and what it’s going to
require.
Barr Seitz: I really like that point
about how important it is to get a clear sense of what the mission is for the
digital factory to be successful. And it’s a good point for us to end on
because I’m afraid we’re out of time. Thank you, Joao and Rohit, for joining me
for this conversation.
Joao Dias: Thank you, Barr.
Rohit Bhapkar: Thank you, Barr.
Podcast September 2017
http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/how-a-digital-factory-can-transform-company-culture?cid=podcast-eml-alt-mip-mck-oth-1709&hlkid=d9d32cefcf5043dbbfd9a464398fbdaa&hctky=1627601&hdpid=7d132b9b-1b5b-45b5-92c3-5659ea725912
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