How to Build a Digital Factory

Set up an operating model that complements your business


Jimmy Soh

3 years ago | 8 min read

A digital factory is a cross-functional unit within an organisation that incorporates a modern style of working and utilises advanced digital platforms to drive transformation throughout the business.

For companies to advance digitally effectively, management has to consider restructuring their organisational structure to embrace digital transformation; this can be done by adopting a suitable operating model that caters to the strategy, constraints, and structure of the company.

I’ll be sharing at a high level on the approach and considerations for setting up a digital factory within your organisation. The three broad steps are:

  1. Address the pre-requisites
  2. Ensure a strong foundation
  3. Consider a suitable digital factory type

Each company is unique in its own way, which makes the setup a complex and dynamic one. The intent of this article is to list the broad approaches to be used as a guideline to steer complex decisions and ensure that adequate grounds are covered.

Address the pre-requisites

The first step is to understand the big picture and the current state of the company so that gaps can be assessed and addressed when deciding on a suitable model for the digital factory.

Understand the vision

There are various reasons for setting up a digital factory. Some objectives and goals include:

  • Promote digital culture across the organisation
  • Obtain inspiration and ideas on new digital approaches
  • Achieve full digital transformation internally

While the objectives may include a mix of the above, it’s important to prioritise and get answers to some of the following questions:

  • How much change to the existing organisational structure would leadership envision?
  • What’s the timeline and budget appetite like — long or short term initiative?
  • How would the digital factory integrate into the business?

The answers to the above questions would form an overall direction of where the organisation is intended to go aid your decision in setting up a suitable operating model later.

Assess current organisation state

Understanding the current state of your organisation is essential to assess the gaps and provides you with the estimated amount of effort and resources required to bridge the gaps. Some examples of considerations include:

  • Talent, skills, and culture: Majority of employees are not digitally savvy with a strong traditional culture
  • Structure and size: Decentralized management across multiple regional offices with more than 100,000 employees in total
  • Ability to spend: Company is currently making losses and is tight on budget

Here are some key questions to consider:

  • How to acquire and upskill the relevant employees and resources for the digital factory?
  • What would the new leadership structure and reporting lines be?
  • How do we measure progress and growth?

The answers to the above questions would provide you with an idea on the resources, efforts and timeline required to set up and run the digital factory.

Evaluate constraints

Every organisation faces its own sets of challenges, which requires adjustments to existing archetypes of operating models to suit your company.

In the design of your digital factory, you may have to cater to factors such as:

  • Lack of stakeholder support and alignment—you may have to look at setting up the factory as a separate entity rather than having to require buy-in from all the stakeholders to advance together
  • Lack of access to technology tools, platforms, and skills—you may have to explore partnerships with vendors or internal departments to purchase new tools and acquire capabilities
  • Lack of budget (common constraint)—you may have to explore methods e.g. partnerships, bite-sized/agile approaches, etc. to streamline and optimise costs and maximize value to gradually gain stakeholders trust for subsequent funding

Understanding the implications of the constraints allows you to ask certain questions on how to make things work:

  • How else can I gain access to the required technology and infrastructure capabilities for the digital factory?
  • How do I eventually gain the trust and buy-in of the key stakeholders?
  • How do I structure my digital factory in a way that complements the business while not burning a hole in the pocket?

The above questions provide you with a practical approach to tailor a digital factory that is well-suited for your company’s unique situation.

Ensure a strong foundation

As mentioned in the introduction of this article, digital factories utilise modern digital platforms and tools coupled with new ways of working to accelerate their delivery of digital solutions to support the business.

There are three key foundational building blocks to building an effective digital environment:

  • Modern IT infrastructure and tools to streamline delivery
  • Agile delivery culture
  • Cross-functional skill sets

Having the above foundational building blocks catered to would allow the unit to ship innovative and relevant products quickly and efficiently.

Modern IT infrastructure

Digital factories have to be able to ship products quickly yet ensure that the products are of proper quality and can scale easily.

The infrastructure is an important component because a good architecture design can allow you to cater to multiple apps across departments and teams with proper security and performance measures, e.g. multi-tenancy and access controls, self-healing and resiliency, etc. as digital factories may often have to support various teams within the organisation.

A modern IT infrastructure with proper governance is also better equipped to support Agile delivery models in the form of rolling deployments, containerisation, segregation of concerns, failover and rollbacks, etc. The infrastructure complements the delivery approaches to enable Agile teams to ship products quickly at any time of the day with minimal impact on other applications and services.

Agile delivery culture

Bearing in mind the constraints, you may have to constantly prove business value in bite-sized pieces, and show progress. The Agile delivery model is a popular approach to allow you to ship products quickly to prove value and gain further funding and buy-in for subsequent phases.

Furthermore, there are many uncertainties today which means that constant feedback is required to deliver a solution that is relevant for the users and stakeholders.

The agile delivery culture helps to ensure that solutions are delivered quickly and iteratively whereby value can be assessed early, and adjustments are made subsequently to better cater to the market and ensure quality and relevance.

Cross-functional skill sets

There are various types of digital products and services produced by digital factories, e.g. digital marketing, data analytics, IoT solutions, digital platforms and ecosystems enablement, etc.

Each of the digital products requires a different combination of skill sets. Depending on the nature of your business, you would have to think about the combination of skill sets that you would have to acquire via internal/external hiring, and/or upskilling existing employees to cater to the nature of digital products the factory is likely to deliver.

There are some cases where it makes more sense to upskill employees—provided that the nature of business is much more complex, e.g. insurance, health, and banking sectors. Having digital trained employees coupled with inorganic digital hires would ensure that the products and solutions delivered are relevant to the business.

Types of digital factories

There are several ways to set up a digital factory within the business. I’ll attempt to categorise them into the three types below:

  • Digital accelerator—Internal within the business unit
  • Digital incubator—External of the organisation run in parallel to disrupt sideways
  • Digital hub—Internal within the organisation shared across business units

The choice is dependent on the answers to some of the questions listed in the pre-requisites above. In addressing the constraints of your company, you may also find yourself adopting a blend of two types e.g. properties of digital accelerator and hub, to achieve your objectives. The types are not set in stone and serve as guidelines.

The digital accelerator

Typically a sub-unit within a business unit, e.g. department or division, whose main goal is to help the business unit catch up with the rest of the organisation digitally.

Some of the benefits include:

  • Speed and autonomy – decision making is concentrated on the head of the division or department
  • Relevance – solutions delivered cater specially to the business segment
  • Budget – easier to manage the budget for headcount and purchases as it’s parked under the unit

The potential downsides include:

  • Governance – when each division has its own accelerator, there can be many variations of practices which can be difficult to manage across the company
  • Cost – when decision making on purchases are decentralised, solutions cannot be streamlined and there is likely a lack of reusability, which leads to increased costs
  • Resources – given that each unit has to source for talents on their own, they are not leveraging on the best of the organisation’s departments, e.g engineers, designers, etc.

This approach is often used when there’s a decentralised organisation structure whereby each division has vastly different goals compared to the rest of the divisions and has different urgencies to digitalise.

The digital incubator

A unit that is set up outside of the organisation in the form of a subsidiary, partnership, etc. Whose main objectives is to create and incubate a new product/solution that’s meant to disrupt the main organisation’s product.

Some of the benefits include:

  • Clear separation and independence—if the new product fails, there is a fail-safe that’s able to ensure business as usual (BAU); doesn’t affect BAU
  • Positive competition and superior solution—when two units compete in a positive way, competition can drive both teams to work harder to deliver results
  • Speed and a new culture— not bounded by the organisation’s existing legacy processes, culture, structure, and systems; can have a culture of its own

Some downsides include:

  • Integration challenges—if successful, large efforts are required to migrate and transition processes and data into the new unit
  • Cost—unless there’s a cut off time stated, running two units in parallel can incur high costs
  • Change management—if successful, employees would have to find a way to be upskilled to handle new ways of working or be made redundant

This approach is applicable to organisations that are bogged down with too many legacy processes and structure such that transformation is futile and not viable; while at the same time, the business has to continue running.

The digital hub

A centralised digital team within the organisation that supports all the business units across the organisation—an evolution or spin-off of the conventional IT department.

Some benefits include:

  • Optimised cost and governance – having resources, systems and processes managed centrally provides the chance for reusability and streamlining
  • Increased collaboration and innovation — given the digital hub serves various business units, the employees of the hub are more exposed and experienced in innovation; therefore, they can possibly propose and implement innovative ideas that benefit the organisation as a whole via co-creation
  • Promotes digital culture across the organisation—with constant engagement with the digital hub, business units gradually get exposure to the new ways of working (upskilled digitally) while retaining their existing culture

Some of the downsides include:

  • Inferior solutions—having to balance interests across departments would have to compromise on solutions due to tradeoffs; capable resources are mostly placed in prioritised projects or overworked with multiple projects
  • Takes time — can be a cumbersome process having to transition and evolve the IT department and subsequently evangelising the entire organisation to become digital
  • Lack of control and autonomy — decisions e.g. project priority, solutions, are largely managed by the digital hub entity

This approach is viable for organisations who don’t wish to disrupt the company culture too drastically and achieve sustainable transformation in the long-run at a low cost.


There is no one-size-fits-all approach to building a digital factory. You’ll have to ask the right questions and use those answers as inputs to establish a suitable digital factory type for your company. It’s important to bear in mind the foundational building blocks to ensure that your factory is built on solid grounds that enable your business to sustain in the long-run.

Originally published on medium.


Created by

Jimmy Soh

In perpetual beta—playing at the intersection between digital technology and business.







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