Managing scale and agility in digital platforms

Have we set up the right internal governance to enable operational agility and scale in execution?

This article is part of the Digital Platforms hub

Platform organizations need to set up governance mechanisms that enable distributed innovation at scale while ensuring centralized strategic coordination. While leveraging shared services and internal platforms, governance mechanisms may be structured based on the division of rights and responsibilities (as well as negotiating leverage) between the services sponsors and the individual business units.

These governance structures may fall into three broad categories:

DISTRIBUTED GOVERNANCE

The individual business units retain decision-making power and the shared service sponsor is largely responsible for supporting evolution of the shared service. Distributed governance may lead to redundancy and lower cross-Leverage.

CENTRALIZED GOVERNANCE

Decision-making oversight is the prerogative of the shared services sponsor. Future roadmap guiding the evolution of the service is managed centrally. Individual business

units craft their execution plans based on the direction and strategy set by the shared service sponsor. Centralized governance maximizes coordination, standardization,

automation, economies of scale, and funding continuity, but may reduce organizational agility.

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CONSULTATIVE GOVERNANCE

Decisions are made in a consultative fashion with the individual BUs and the shared service sponsor.

A common choice involves starting with centralized governance and evolving towards consultative governance as the shared services mature. This ensures standardization and establishment of a core roadmap, which may then be increasingly informed by organizational needs as the core services mature and as internal standards get more widespread. The timing of this transition involves a trade-off between standardization and agility.

From a governance perspective, shared services are designed to provide services to internal stakeholders as “users”. Shared services often run their own P&L, especially when they are also externalized for ecosystem consumption. This should not be conflated with the traditional idea of centralized services, where a single central organizational unit, typically at the company headquarters, centralizes a particular activity across the organization.

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Frequently Asked Questions

What criteria guide platform organizations in choosing governance structures for shared services, considering size, complexity, and goals?

Determining the optimal governance structure for shared services within platform organizations involves a careful evaluation of various factors, including organizational size, complexity, and strategic objectives. This assessment helps platform organizations weigh the trade-offs between distributed, centralized, and consultative governance models. For example, larger and more complex organizations may benefit from centralized governance, which maximizes coordination, standardization, and economies of scale. However, this approach may sacrifice some degree of organizational agility. On the other hand, smaller or more agile organizations may opt for distributed governance to empower individual business units and foster innovation, albeit at the risk of redundancy and lower cross-leverage. To navigate these trade-offs, platform organizations may follow specific criteria or best practices, such as conducting thorough stakeholder consultations, assessing governance maturity, and aligning governance structures with overall strategic priorities.

How do platform organizations shift to consultative governance as services mature, addressing challenges and aligning with strategic objectives?

Examples of platform organizations that successfully transitioned from centralized governance to consultative governance can shed light on the challenges and strategies involved in this process. For instance, a platform organization may initially adopt centralized governance to establish standardization and a core roadmap for shared services. As these services mature and internal standards become more widespread, the organization may gradually transition to consultative governance, allowing individual business units to provide input into decision-making processes. Challenges during this transition may include resistance to change, organizational inertia, and ensuring alignment between business unit needs and overall strategic direction. Successful organizations address these challenges by fostering open communication, promoting collaboration, and providing training and support to stakeholders involved in the transition. By balancing standardization and agility, platform organizations can effectively evolve their governance structures to meet changing organizational needs.

How does leadership shape governance and collaboration in platform organizations, balancing centralization, agility, innovation, accountability, and transparency?

Leadership plays a crucial role in shaping governance mechanisms within platform organizations by fostering collaboration, alignment, and accountability. Leaders are responsible for setting the tone, vision, and strategic direction for shared services and ensuring that governance structures align with organizational goals. They empower stakeholders to make informed decisions by providing guidance, resources, and support. Additionally, leaders promote transparency and accountability in decision-making processes to build trust and credibility within the organization. For example, leaders may establish clear communication channels, decision-making frameworks, and performance metrics to track progress and ensure accountability. By actively engaging with stakeholders, fostering a culture of collaboration, and leading by example, leaders drive effective governance within platform organizations and enable operational agility and scale in execution.