Tony de Bree
In order to understand the principles and trends in digital transformation of organizations and the organization of the future, we first have to understand why traditional organizations economically exist in the first place. In other words ‘why organize something’?
The main reasons for creating large organizations were basically:
– economies of scale as you were handling scarce physical resources. In our current age, we do not have economies-of-scales anymore as we are leverage intangible assets like information, knowledge, skills and experience and virtual networks and ecosystems;
– the fact that only a limited number of people were (well) educated and thus you needed people with brains supervising people that delivered their labor;
– you made sure everybody was in the same buildings so that people would not escape oversight and control;
– infrastructure in different forms (including technology and ICT) could only be purchased by large organizations;
– by ‘owning’ all of their ‘resources’ large organizations could afford globalization, large scale outsourcing and servicing clients worldwide because of the cost of technology.
Overall it made sense to ‘organize’ your activities as the total costs of the organization, the ‘organizational costs’ (the total costs of ‘organizing’, ‘managing’ and ‘coordinating’ of activities that did not make a measurable contribution to the customer value for the customers) were lower than the revenue streams generated by ‘organizing’.
Organizational costs can be reduced to practically zero.
Because of ICT and the price of networking, newcomers including Fintech and other startups can actually start with much lower organizational costs than incumbents in any industry. And that is why many startups can write interesting business plans as I am doing currently with a number of startups inside and outside Financial Services. On top of that, the level of education is much higher than it was before, so that hardly any ‘oversight’ required. New entrants can nowadays leverage ICT to benefit from Globalization and the Theory of Comparative Costs, thus having an increased competitive advantage in costs (money, time and energy), agility and flexibility over for instance large Financial Services companies (including multi-business line Banks and Insurance companies).
Startups including in Fintech can build there agile, flexible virtual organizations quickly, using highly trained professionals and artists from all over the world without ‘owning’ these resources. They are ‘agile’, ‘Lean and Mean’ and customer-centric by nature and right from the start. If the management is clever, they will always stay like that! And that is a huge advantage over traditional organizations in Financial Services with their ‘Legacy Management’ (click here) and their traditional Legacy-culture.
Summary
One of the most important trends overlooked by many management consultants and senior managers in Boardrooms around digital transformation is the digital transformation of their own organization! Of large dinosaur-companies and large traditional organizations in general. The challenge for the senior management of these organizations is simply the choice between ‘deorganizing’ and fast, or perish.
The author, Tony de Bree, is a trusted digital transformation, strategy & change advisor, internet entrepreneur, keynote speaker and published author with 26 years of experience in Global Transformation and Change in Banking & Finance.
