In this era of elusive growth across industries and digital disruptors at every turn, traditional players are developing disruptive business models to compete. We’re seeing insurers selling directly to consumers, bricks-and-mortar retailers launching curated subscription services, and banks providing value beyond financial transactions. Yet many businesses struggle because they do not fully align their operating models with these new disruptive business models. Unlike the disruptors they’re trying to emulate, incumbents frequently fail to achieve the flexibility to pivot fast with changing customer needs, markets and technologies.
Accenture Strategy research shows that most leaders realize that business, IT and operations must work together in very different ways to be effective and compete in this new market environment. Eighty-one percent of executives expect to manage multiple operating models in parallel in the future, and 75% acknowledge that digital operating models must be flexible, dynamic and customer-centered. The key is in the implementation. To generate the most value, digital operating models need to integrate business, operations and technology into autonomous businesses-within-the-business called “domains.”
Domains are the new value driver for traditional enterprises. They boost agility so that companies can be truly disruptive in new areas while also supporting their traditional lines of business. Think of them as independent lines of business. They design, deploy and support a given product, service or customer journey, drawing resources, assets and capabilities from across business, operations and technology. Domains are of sufficient size to provide end-to-end delivery of a product or service, with full accountability and without relying on other areas of the business.
Accenture Strategy’s analysis shows that companies with digital operating models organized into domains can improve incremental growth in revenue by between 10% and 20% and income by 15%, with slight variation due to industry dynamics. Selecting and structuring domains well is critical to realizing this value. Companies must consider the combinations of customers, channels, products and services, and revenue models in the enterprise. These combinations produce different requirements for speed, agility, security, skills, technology and cost that must be addressed. Domains are ideal for digital initiatives that cut new ground.
Take, for example, an entertainment company that wanted to improve the guest experience with new technology. Instead of building the solution on legacy systems, the company stood up a separate digital business consisting of a set of domains that worked solely on this program. Vertical teams consisted of a cross-section of operations, business and technology personnel and assets. Each domain was organized around a specific product or customer experience. For this new digital business, the company met its three-year performance goal for consumer adoption in less than six months. It gained more than $200 million in additional revenue and about $64 million in additional EBIT in the first year thanks to a pivot to this digital operating model.
Domains make traditional players more agile and competitive in markets dominated by disruption — but only if companies go beyond organizing and implementing domains in select pockets of the business. To realize lasting benefits—and to become wholly agile—companies must scale domains within the business. Our client experience suggests that traditional enterprises should scale domains to at least 25% of business units, products and services, or customers to achieve the full benefits of digital transformation and avoid stalling at the pilot stage. Key to this is senior leaders’ involvement in planning the elements of the domains and determining the minimum viable experience that must be delivered.
A digital operating model with domains brings companies the adaptability for which digital disruptors are known. To move from old to new, companies must make changes in governance, process, organization, culture and workforce. Here are four things to consider:
- Define domains with precision. Guided by the business strategy, business model and customer expectations, companies must have a comprehensive view of how to bring together capabilities, assets and authority from across a disconnected enterprise. This is not merely changing the organizational structure. It is changing the entire operating model.
- Be deliberate about leadership. Companies should create a new role, a domain owner, who is responsible for the end-to-end functioning of the domain. This leader understands the intersection of business, operational and technology interests, and oversees new financial and investment models related to the domain as well as having P&L accountability.
- Diffuse culture shock. Domains bring different groups together for the first time. Culture shock can occur without actions to unlock entrenched thinking and support open dialogues and difficult conversations, new forms of collaboration such as design thinking, and agile ways of working with small, nimble teams empowered to make decisions.
- Build the workforce of the future. The interplay between business, technology and operations across domains calls for new digital skills. These will require upskilling of current employees as well as gathering new talent. This will allow organizations to access individuals with blended skills and harder-to-find digital technology expertise, often for specific projects, in a labor-on-demand model.
To survive, traditional enterprises must act as living businesses with the flexibility at speed and scale to remain relevant no matter what disruptions await. Lasting success depends on the right agile and adaptable operating model.