"We must fundamentally redesign our organizations in order to create the institutions needed for the digital age."
—Mimi Brookes, CEO, Logical Design Solutions
For digital-savvy organizations, the first wave of the Fourth Industrial Revolution (4IR) – when technology began to coalesce the physical, digital, and biological spheres – is already history. Progressive businesses have since embraced a second wave built around redesigning our organizations to survive and thrive in the new digital era.
This is accomplished by a focus on business purpose and stakeholder capitalism, as well as attracting and retaining individuals who value their roles beyond the paycheck. Breaking down silos and replacing them with agile capabilities and less formally structured jobs is the hallmark of this second wave.
These first and second waves of the 4IR have made the urgency of change apparent by envisioning the building blocks of our new organizations and redefining our role as individuals in these institutions. This includes our ability to continually learn, grow, develop, and thrive in fast-paced and rapidly changing environments.
Now a third wave – that of Institutional Innovation – is unfolding. This is a sea change that creates sustainable organizational models where new behaviors, such as systems-thinking, problem-solving, and experimentation dovetail with innovation, imagination, and the rise of cognitive human work. New ways of working, both collaboratively and creatively, a strong movement towards autonomous teams, and novel models of leadership focused on the common good are emerging.
In concert, these third-wave dimensions create the novel interactions, innovative work environments, and ground-breaking social contracts needed to create sustainable value and improve individual performance in a newly constructed institution. Heavily instantiated structures must dissolve, as the lines between functions dissipate, and collaborative, participative, positive-sum, flexible, and bottom-up “pull” models emphasize scalable learning over efficiency, and talented workers over processes and organizational routines.
The organization of the future will be unlike anything the business world has seen previously. The era of functional siloes, matrix structures, and bureaucracy has come to the end of its life cycle – an outcome accelerated by the pandemic, massive demographic shifts, unprecedented technological breakthroughs, decreasing transaction costs, and a quantum leap in high-speed communications.
Competitive advantage is increasingly short-lived today. Long-standing institutions risk stagnation and must seek to surpass the digital upstarts that have already threatened their market leadership through bold and innovative exploits that threaten a once-revered establishment with roots going back more than a century. Companies now need to reinvent themselves and their offerings again and again. This is the dawn of an era that may be described as a business-digital ecosystem driven by human value and purpose. Novel approaches to commerce are essential now and time is truly of the essence.
To succeed in the future, a company will need to rediscover the imagination that led to its foundation. It will have to demonstrate an intractable sense of purpose, an obsessive focus on speed and agility, and a culture that thrives on new learning experiences. The worker will be central to the organizational ecosystem through the evolution of new work practices and social contracts that accelerate digital transformation. A cohesive human-machine approach to problem-solving must evolve, even as the organization learns on multiple timescales. Knowledge will flow rapidly within these business-digital ecosystems as what were formerly the edges of digital become the core.
We are learning that culture and purpose drive new ways of working and that people with diverse ideas and perspectives are the basis of innovation and growth strategies. Advanced digital technologies will continue to accelerate in non-linear and combinatorial patterns as we race into our digital futures.
However, it’s not easy to transform an organization from the inside out – to lead with culture, to prioritize workers and customers as equal stakeholders, and to experiment, incubate, and innovate new employment strategies that anticipate the changing needs of the workforce.
So where should an organization begin this transformation process?
First, we must align and optimize an organization’s capabilities, culture, structure, processes, technology, people, metrics, and talent practices. Historically, companies tend to manage innovation within a single dimension. However, the strategic introduction of a new product or new technology is not always accompanied by the necessary operating model or work design changes.
Second, we must implement wholesale changes in traditional business models and prepare for extraordinary organizational disruption. The speed and magnitude of these changes will accelerate exponentially, as hybrid and remote work continues to flourish and rapid advances in areas such as artificial intelligence (AI), decentralized knowledge networks, big data, quantum computing, blockchain and the industrial internet of things (IIoT) change the business landscape forever.
Third, we need better methodologies for managing ongoing large-scale change, as learning and adaptation are constant. Long instantiated vertical structures and siloes conflict with the horizontal structures needed in digital-first organizations. Engagement and cultural changes without the context of new work and new ways of working will have limited sustainable value, even as human and machine work allocation becomes integral to organizational design.
As we embrace this organizational and work transformation, we will witness human talent evolving in concert with advances in technology, and traditional “push” business models giving way to “pull” as capital, talent, and knowledge start flowing rapidly across geographical and institutional boundaries.
Superior organizational design highlights agility, accountability, continuity, and business integration. The traditional focus on hierarchical spans of control and specific job descriptions will dissipate as the contemporary model of institutional innovation gains traction.
This organization of the future will manifest several key characteristics:
A tangible sense of purpose. Emanating from business strategy and modeling, a sense of purpose is driven by a common understanding of the company’s aspirations; in other words, a clear mission and shared vision of what the organization is striving to be. Today, we must redefine the very purpose of our corporations – why they exist; who they serve; how they give back; how they clean up after themselves and on what timetables; how they contribute to social harmony and unwind practices of inequality; and how they shape better, safer, more satisfying, and creative human work.
Adaptation to rapidly shifting sources of value. The ability to learn flexibly and efficiently and to apply that knowledge across situations are key components for success in an increasingly complex and volatile business environment in which sources of value are prone to rapid and unpredictable change. As technology changes work and cultural norms undergo seismic shifts, we have the opportunity to change the way we think about work and leadership by opening new avenues of both human and machine potential. By adapting to shifting sources of value, we will inspire purposeful learning, engagement, and empowerment throughout the workforce.
Accelerated decision-making. Clarity on the overarching goals and objectives of the business, coupled with an agile and accountable organizational structure, lends itself ideally to an accelerated decision-making process. This in turn will increase collaboration, reduce costs, and increase speed-to-market.
Data-rich technology platforms. Organizations that are structured to facilitate the mining of data-rich technology platforms are perfectly positioned to succeed. A data ecosystem and infrastructure that enables the interaction of different stakeholders and the resolution of operational issues will also support dataful platforms. These will be contextualized as key insights during decision-making moments in new work.
Rapid organizational learning. The organization of the future will foster learning at all levels by actively supporting reskilling while also promoting connectivity and engagement. Part of becoming future-ready means that the organization must place accessible, meaningful, and essential learning high on its list of strategic priorities. Even as algorithms unlock complex patterns and insights with unprecedented speed, business leaders must also leverage human capabilities to expand learning on multiple timescales.
Systematic Ingenuity. Harnessing the collective ingenuity of an organization represents a different approach to transformation – one that brings institutional innovation to life. Creativity must be cultivated as a new normal. This means infusing a mental model of the company’s purpose in the mind of every worker. Each human affiliated with the day-to-day operation of the business must see the purposeful value of their role in bringing this mental model into reality through the rules, protocols, and processes that fulfill the overarching business strategy.
Ongoing investment in scarce talent. Human capital will be a key resource for companies competing in the third wave. By establishing a link between the organization’s strategic priorities and talent needs, the organization of the future will know exactly where to invest in reskilling and upskilling the existing workforce, as well as attracting and retaining scarce new and tenured talent.
This white paper will focus on the continued journey of organizations from the second to the third wave of digital transformation and discuss some of the crucial elements of institutional innovation as a framework, including the integration of the digital-first operating model driven by human ingenuity, coupled with a new social contract needed to engage and unleash the next generation workforce.
"When we look at the past, we can see many, many world-changing things were possible at the time, which people did not realize. We know this. What we forget to tell ourselves is that this must be true for us in the present as well."
—John Armstrong, Philosopher
In the era of Institutional Innovation, seemingly far-fetched concepts we imagine today may transpire as the new normal for future organizations. Initially, non-proprietary or open-source knowledge flows between business ecosystems will gain momentum as institutions face growing competitive pressure and shrinking returns. Competitive advantage will no longer rely on stocks of knowledge, but rather on having access to flows of knowledge to enable up-to-date information. Success will not be defined by scale but by the ability to learn and innovate iteratively, continuously, and rapidly. Organizations that drive accelerated learning will be more likely to create significant economic value on a sustainable basis. To survive and flourish, leaders will need an agile mindset to systematically innovate, so that their organizations can harness the full potential of the digital infrastructures evolving around them.
Institutional Innovation will unlock the unlimited potential of ourselves and our organizations. It will pave the way for a new leadership paradigm that heralds unprecedented change and guides the workforce towards opportunities to flourish even as technological advances drive seismic shifts across all organizations. At its heart, this movement is about empowering people, rather than the rise of machines.
This involves reimagining the organization – how it will be designed and how it will be managed in the evolving business ecology. At a time when AI is transforming how we work, it means focusing on those skills that are uniquely human. Higher-level cognitive tasks that are beyond the scope of machines and can afford workers the opportunity to explore ways of working that challenge the imagination, extract value, and provide a competitive edge.
We must combine four important pillars in the organizational framework to realize institutional innovation. As shown in Figure 2, these pillars embrace strategic transformation, operating model evolution, work design modification, and employee experience modeling. While some are familiar with business concepts, they must assimilate the new contexts and new ideas in organizational redesign that are the essential components necessary for companies to compete in the Fourth Industrial Revolution.
This foundational framework forms the basis for institutional innovation and requires every corporate problem-solving initiative to consider the ripple effect across each element and its respective dimensions. For example, the transforming business strategy must focus on an enabling infrastructure that clarifies the organization’s true purpose, aligns company principles, defines reinvention, and reinforces cultural changes. The evolving operating model will optimize efficiency by automating existing processes, instituting streamlined operating rules, designing new protocols, and establishing forward-looking measures.
Work and job design modifications will realize effective value delivery by embracing emerging capabilities, behaviors, upskilling, and novel work practices. Finally, employee experience modeling will organically augment the customer experience by pursuing new value creation, the cultivation of talent, flexibility, and the expansion of the mobile metaverse. These tasks must operate in concert with one another. For example, job or work design modifications should not be considered without the overarching context of the transforming business strategy, the evolving operating model, or the employee experience.
The organization of the future must be inspired by a CEO-driven business strategy that is focused on transforming organizationally, operationally, and behaviorally. This in turn will create value through technology-enabled productivity and innovation while at the same time supporting the new digital business environment. Business leaders must model the future state for people to show what “good” looks like in the digital world. There are four key dimensions to enabling this business strategy:
The company of the future must demonstrate an intractable sense of purpose beyond profit. It must seek to become recognized as a force for good. A company that engineers a strong association with environmental, societal, and governmental integrity will already have a competitive edge in the future. The purpose is intrinsically linked to sustainable development. Those who seek to protect consumers will also protect the future of their brand. This approach will not only attract top talent, but also engage in constructive dialog with regulators, more trusting relationships with customers, and greater credibility with investors.
As digital tracking and reporting of transactions becomes ever more pervasive, business transparency becomes an imperative. Purposeful companies will seek to develop a solid and long-lasting business identity that fully engages stakeholders with an impeccable moral compass. Trust and respect will become the ultimate currencies and social enterprise a strategic cornerstone.
"Part of why predicting the ending to our AI story is so difficult is because this isn’t just a story about machines. It’s also a story about human beings, people with free wills that allows them to make their own choices and to shape their own destinies."
—Kai Fu Lee, Author of AI Superpowers
The organization of the future will demonstrate an obsessive focus on speed and agility. It will run primarily on new, digital-first operating models. These will include unprecedented interconnectivity speeds, the free flow of information, lower transaction costs, increased automation, greater mobility, pronounced stakeholder focus on environmental, social, and governance concerns, and the rise of non-traditional career aspirations. Even as we are seeing new challenges to existing business hierarchies and internal bureaucracies, principles for disruptive innovation are being dismantled. As a result, leadership and promotion opportunities exist for those who have moved beyond long-held management thinking on control and predictability.
In this era of constant disruption and unexpected outcomes, it is more important than ever that the enterprise operating model is the anchor for the business by demonstrating how value is created by the organization and by whom. It is the top challenge for achieving digital transformation and must be constantly adjusted to demonstrate how people, processes, and technology are organized to achieve strategic objectives.
While the business strategy defines what the business wants to be and where it will compete, the operating model is enabled by a clear understanding of which capabilities must be built, refined, or purchased.
The traditional bureaucratic top-down organizational hierarchy inhibits adaptive change, even as companies reinvent themselves and join larger business ecosystems with diversified product and service offerings. New work models, such as hybrid, must also encompass new roles, jobs, teams, and support systems. People analytics coupled with worker persona development are intrinsic considerations of new organizational design. Digital fluency, data intelligence, and problem-solving skills are becoming essential attributes of the modern worker’s resume.
"As we face the third wave of digital transformation, the redesign of our institutions and organizations will be central to realizing our growth strategies."
—Mimi Brooks, CEO, Logical Design Solutions
Work design will take on a new definition as we leverage the opportunity to create purposeful human work in the cognitive economy. Companies will determine how work and jobs should be designed for the future by using both the business strategy and digital-first operating model as key foundational pillars. These new work models will be designed to work in tandem with machine learning technologies that are intended to advance human-computer collaboration.
While a clearly defined business purpose represents the why of work, and operating models that are nimble, simple, and agile constitute the how then work and job design must embrace the what by inspiring commitment, focusing on connectivity and collaboration, and revealing previously untapped human potential. For even while fostering a powerful sense of identity that informs its priorities and ways of working, the organization of the future must also strive for work practices that appeal strongly to sought-after talent.
As work moves inexorably towards experience and skills-based job structures, rigid hierarchies and traditional organizational design begin to take a back seat to agile practices that demand far greater flexibility and pursue work activities that cannot be constrained by siloed functions. Unlike a functional hierarchy, people management then becomes separated from work management, as workers are assigned to project tasks that embody cross-functional deliverables designated by the flow of work. In this way, reskilling and upskilling become a worker’s prerogative, while agile ways of working, cost containment and rapid outcomes become viable for project managers.
Business agility will assume prominence in every successful organization’s culture, leadership, strategy, and governance. In the future, businesses that reduce organizational complexity and embrace agility will adapt faster, manage changing priorities, change course rapidly, and place a particular emphasis on employee work experience. Rapid response teams will be used to relay quick, informative strategies that are designed to quickly steer the company towards operational success through faster turnaround times, transparency, and higher employee engagement.
Work design sits between strategic planning and the actual execution of the task. It embraces each aspect of the activities and processes involved in attaining a particular goal, including the use of automation and the definition of the human skills required, which in turn feeds the process of job design. Work location, level of effort, broad goals and accountabilities, and future-focused job descriptions are all part of the endeavor, while the use of tools like Organizational Network Analysis (ONA) can facilitate the process of work design and envision how work will happen by visualizing the flow of information and essential communication points.
"Business needs to move to adopt much more scalable pull platforms. When we talk about pull platforms, often people focus on one level of pull, which is what we call access. It is simply, if I have a need, I can make a request, get the resource or the information I need when needed."
—John Hagel, Author of The Power of Pull
We have learned with certainty that we must design, build, and continuously improve our digital workplace, with an augmented employee experience at its center. Change and innovation must be organizational capabilities. New value creation must be a key focus of the employee experience. Speed, quality, and value must replace time, scope, and cost.
In the organization of the future, human work will naturally be more ambiguous. Teams will be small, cross-functional, and cross-cultural and the worker experiences will be driven by data and learning on-the-fly.
To support this digital workplace, policies will be rationalized and simplified. Data will need to be transparent, clean, and secure. Project-based and gig workers need access to many of the critical tools and insights afforded to employees. Vendors will need to open their systems and platforms for seamless ecosystem interoperability to create smart, dataful employee experience platforms critical to human work.
The future employee work experience will be entirely different from that of earlier industrial revolutions. Skilled workers will be in high demand and therefore far more selective about their place of employment. They will demand and expect to receive extreme flexibility in their working arrangements. The movement towards remote and hybrid work will continue and centralized offices will have to adapt in order to become collaboration spaces for the purposes of knowledge transfer and organizational innovation.
Business Agility will assume prominence in every successful organization’s culture, leadership, strategy, and governance. This is a sea change from the days when agility was the exclusive domain of information technology development groups. In the future, businesses that reduce organizational complexity and embrace agility will adapt faster, manage changing priorities, change course rapidly, and place an emphasis on employee work experience. Rapid response teams will be used to relay quick, informative strategies that are designed to create value and quickly steer the company toward operational success through faster turnaround times, transparency, and higher employee engagement.
So what will it take to transform a rigid, complex, and bureaucratic organization into an agile and adaptable business leader as the third wave evolves? Redesigning to streamline hierarchical organizational structures – including roles, processes, rules, and layers – and replacement of outdated technologies are two of the most obvious imperatives. After all, at the dawn of the 4IR, technologies were built for stability rather than agility. In the future, it will be essential for almost instantaneous changes to be implemented without any loss of business stability.
Organizations will use productivity technology to surround the augmented worker with new and exciting work experience possibilities, as the early metaverse, combining social media, augmented reality, virtual reality, and cryptocurrencies, will become ubiquitous and frictionless to access. Employee wellbeing, particularly healthcare, hygiene, and safety, will receive far greater digital focus, while initiatives such as remote teambuilding will assume new prominence as companies seek to use the digital workplace as a means to increase collaboration amongst hybrid workers. A seismic shift in work practices will continue to place emphasis on the development of digital distance coaching.
"The rapid pace of change has outpaced many of the policies, strategies and practices designed in an earlier era to govern work, pay and employment relations. Closing this gap is essential to building an economy and world of work where all can prosper."
—Thomas Kochan, author of Shaping the Future of Work
The future organization will require a multitude of new human-centric skills, including not just the ability to collaborate virtually in cross-cultural settings, but also to demonstrate both adaptive and computational thinking, as well as assets like social intelligence, a design mindset, sense-making, and advanced cognition.
Business leaders must develop the mindsets, behaviors, and organizational knowledge that drive human ingenuity, while also cultivating the skills that are needed as the digital workplace evolves. Exponential technological innovation and growing concerns about income inequality and job security pose massive challenges to our existing social contracts with the workforce.
Traditionally, social contracts are statements that lay out the company’s plans, actions, and priorities related to employees’ health and safety. For example, worker “benefits” as we typically know them are seen purely as medical because companies have to provide them in the event of a medical emergency.
Today, we have the opportunity to rewrite our social contracts for workers to align them with an organizational paradigm shift that anticipates a rapidly evolving future of work influenced largely by technological, societal, and marketplace changes.
Figure 4. Rational for New Social Contracts
As seen above, the rationale for initiating new social contracts is largely influenced by five principal reasons:
Designing the organization of the future starts with the workplace itself, which will continue to evolve as a hub that supports hybrid work even as companies determine where and how work will get done efficiently and effectively, while at the same time future-proofing technological support and strategizing on how to succeed in the race for exceptional talent.
We must redesign our organizations to build the new institutional model, and in so doing, we will design new human work and purpose, capable of surviving and thriving in the new economy where massive changes still lie ahead of us. We must also strive to bring an augmented employee experience into the 21st century. This includes engaging workers in work redesign, building an educational ecosystem to reskill and upskill the workforce, and fostering work environments that encourage and reward innovation and experimentation. We must enhance internal mobility and offer flexibility for workers to deal with family priorities. These are just a few of the worker policies and programs we’re likely to prioritize, as engaging a decentralized workforce in a tight labor market continues to challenge business leadership.
Developing agile approaches that realize both scale and responsiveness will dovetail with sustainable business practices and the activation of new business models that funnel through the operating model to job/work design and to a fulfilling employee experience that embraces large-scale digital business transformation, while at the same time cultivating the cultures, mindsets and behavioral changes necessary to succeed.