Governance (Go) of the DaWoGoMo Transformation Model (2/2)

Changing Decisions rights will impact two types of costs, which are the costs, a manager should consider during digital transformation.

Work Costs: expenses associated with performing tasks and completing work within an organization. This includes factors such as labor, resources, time, and effort. Some types of Work costs include

1. Coordination Costs: When there are differing opinions or paths to follow, coordination becomes challenging, leading to increased work costs. Coordinating tasks, aligning strategies, and resolving conflicts require time and effort.

   
   

2. Operational Costs: Conflicts can result in operational inefficiencies, errors, and delays. These costs arise from the need to rectify mistakes, rework tasks, or address issues caused by conflicting decisions.

   
   

3. Opportunity Costs: Conflicts can lead to missed opportunities for growth, innovation, or market advantage. When decision-making is hindered by conflicts, organizations may fail to capitalize on emerging trends or fail to seize potential opportunities.

   
   

4. Bargaining Costs: Conflicts often involve negotiations and bargaining between parties. These costs arise from the time and effort spent on reaching agreements, resolving disputes, or finding compromises.

   
   

5. Decision Costs: Conflicting opinions and preferences can increase the complexity of decision-making. Decision costs include the time, effort, and resources required to gather information, analyze options, and reach consensus.

   
   

6. Workforce Costs: Conflicts within organizations can impact employee morale, job satisfaction, and productivity. These costs may manifest as increased turnover, absenteeism, or decreased engagement.

Agency costs: refers to the social and private costs that arise when the interests of workers or agents are not fully aligned with the interests of the owner or organization. Digital technologies can play a role in reducing agency costs by enabling better observation, monitoring, management, and governance.

1. Agency costs can manifest in various ways, such as in capital structures, dividend policies, and executive compensation.

Pic Credit: Advanced Digital Transformation, Coursera

In Digital Transformation Journey, both these costs need to be balanced. There is a trade-off between Work costs and Agency costs i.e. if the work costs are reduced, the agency costs increase and at the same time if more authority is given to employees to make decisions, this autonomy increases the risk of agency costs with employees acting in self interest.

Digital technologies have the potential to reduce both work costs and agency costs simultaneously.

Pic Credit: Advanced Digital Transformation, Coursera

One real-world example of a successful digital transformation is DBS Bank, which focused on building excitement around digitization and implemented a governance transformation. By merging their technology and operations divisions and restructuring their customer journey lab, DBS Bank was able to increase work capabilities, align work with organizational goals, and reduce both work costs and agency costs.

Note: This is the notes from the course Advanced Digital Transformation