Digital Business Design
Transforming to become digital is risky. Companies must deliver value propositions that demand skills they have not yet acquired, processes they have not yet embedded, and technologies they have not yet implemented. Here are the key points to keep in mind:
- Becoming digital involves being inspired by the capabilities of digital technologies.
- to develop digital offerings (information-enriched solutions that engage customers in a seamless, personalized experience). How can ubiquitous data, unlimited connectivity, and massive processing power expand your customer value propositions?
- Developing a constantly evolving portfolio of digital offerings requires business agility. Established companies are not designed for agility. For the most part, they have been structured for efficiency. Can you make changes to your people, processes, and technology that don’t start with restructuring?
- To design for digital, companies can focus on five building blocks, each configuring people, processes, and technology for the rapid delivery of digital offerings. Which building blocks do you have in place? Which will be particularly challenging for your company?
- Digital business design is a senior executive responsibility. Who is taking charge of digital business design in your company?
- Perhaps some established companies will be able to sustain success without transforming to become digital. More likely, mapping out a future based on that hope is even riskier than the transformation we are describing. To minimize your risk of digital disruption, you need to design a business that can respond to unknown future technologies and customer demands. Designing your business for digital takes time. You’d better start now. We hope this book will help guide your journey.
Building Shared Customer Insights
Digital offerings must find the point of intersection between what digital technologies can do to redefine your company’s value proposition and what your customers will value. To find that sweet spot, you’ll need to configure people, processes, and technology in ways that encourage a test-and-learn approach to developing digital offerings. People must learn new habits guided by new processes and enabled by new technologies and data. To support your efforts to build shared customer insights, this developed the following key points:
- Shared customer insights emerge from constantly conducting experiments that test what digital offerings the company can develop and what customers value. What mechanisms (labs, contests, venture funding sources, innovation roles, customer engagement processes) can you develop to encourage employees to test, learn, and share ideas for digital offerings?
- A test-and-learn environment requires an evidence-based culture—people who hypothesize, experiment, collect data, measure results, and use outcomes to guide next steps. Do you have an evidence-based culture? What can you do to increase your company’s ability to test and learn?
- Digital experiments should be guided by a vision, but your vision will evolve based on the outcomes of your experiments. This is how you will zero in on successful digital offerings. Is everyone in your company aware of the value proposition you envision for your (digital) company? Does everyone know the successes and failures you’ve encountered in your attempts to deliver that value proposition?
- Shared customer insights are valuable for identifying early digital offerings. They are just as important for constantly enhancing and evolving your portfolio of digital offerings over time. The habits you create for shared customer insights are a long-term asset. They will make you more agile, and they will help you focus on critical requirements for your other building blocks.
Building an Operational Backbone
research indicates that, although companies have been engaging in digitization transformations since the late 1990s, the majority of companies do not have an operational backbone that will support their digital transformation. In fact, their legacy systems and processes are likely to be an impediment. This developed the following key points:
- Digitized does not equal digital. SMACIT and other digital technologies can contribute to digitization—applying technology to optimize business processes and operations. The goal of digitization is operational excellence. Digital technologies are essential to becoming digital—innovating to create customer solutions. The goal of becoming digital is profitable digital offerings.
- Digitizing involves building and maintaining an operational backbone (a coherent set of enterprise systems, data, and processes that ensure operational efficiency and quality transaction and master data). The operational excellence that results from digitizing is table stakes for becoming digital. That is why we refer to an operational backbone as a digital building block.
- Building an operational backbone invariably requires unlearning entrenched organizational habits, disrupting existing power structures, and installing disciplined business processes that capture critical master and transaction data. Big, old companies have embarked on long, painful transformations to try to implement a backbone.
- Because it’s so difficult to implement an operational backbone, most companies do not have one. They should start now to simplify their business, narrow their focus, and lower their standards if necessary to quickly implement some core operational capabilities.
- An operational backbone is never complete. Business changes, coupled with new technologies, provide constant opportunities to enhance technologies and re-optimize critical business processes. In addition, companies are still learning how to take advantage of the data generated within their operational backbones. As they do so, they will identify needs for more and better data, which will lead to further process improvements.
- Is your company’s organizational backbone “good enough” to support your digital transformation? If so, are you continuously adopting new digital technologies, as appropriate, to update key systems and processes? If not, what are you going to do about it?
Building a Digital Platform
Currently, most companies with established, non-digital business models are allocating most of their resources to digitization—getting better at what they already do. Since they will likely rely on traditional sources of revenue for the foreseeable future and their digital businesses will depend on efficient core business processes, the investment in the operational backbone is wise.
But long-term success is dependent on digital business capabilities, so companies should allocate resources to learning how to componentize offerings and build a digital platform. In most industries, the pace of the shift from traditional products and services to digital offerings allows time for learning how to adopt new systems and processes that will accelerate development of digital offerings. That said, building and using a digital platform requires a very different organization, so companies need to get started on their digital platform building block. If they wait until they have an urgent need for digital offerings, it will be too late.
- Componentization of digital offerings is what’s so different about digital. To build a digital platform that can support rapid innovation of digital offerings, you need to think of your business in terms of components. Do you have any digital offerings that are not componentized? Can you decompose those offerings into components that can be reused in future offerings?
- Your operational backbone and your digital platform have very different design requirements. Are you architecting a digital platform with repositories of digital components?
- The digital platform is distinct from, but works with, the operational backbone. Individuals responsible for the operational backbone will need to make data and processes accessible to your digital offerings. Do you have people responsible for linking the operational backbone and the digital platform?
Building an Accountability Framework
research suggests that established companies are very early in their understanding and application of accountability frameworks that are essential to digital success. But they are learning! Their traditional reliance on organizational structures to allocate responsibilities will surely die hard. But once they adapt to an environment in which they see a problem or opportunity and immediately empower a team or individual to own that mission, they are unlikely to look back. Here are the key lessons:
- To build and use a digital platform, some people in your company will have to fundamentally change the way they work. Essentially, your company will have to act more like a software company, and that means assigning ownership for living assets. Have you adopted Agile methodologies? Do you assign and empower owners for living assets?
- To avoid chaos, as you empower teams, you need an accountability framework for your digital business that balances the autonomy of individual teams with alignment across them. This will require identifying distinct missions for your teams. Have you identified missions for your individual teams that minimize team interdependencies? Is someone taking responsibility for constantly tweaking your accountability framework to respond to organizational learning about what works?
- Facilitating innovation requires fully resourcing your innovation teams. If your innovation teams have to survive on a shoestring, they will not generate new value propositions or digital offerings. Mini-CEOs can eventually accept responsibility for covering the costs of their components and offerings, but they need start-up resources. Have you made a financial commitment to generating digital offerings?
- Because companies have limited experience with the management principles that support empowerment and componentization, companies should start small and allow for organizational learning. Have you established a few autonomous teams and a process for learning how to make them effective?
- Managers in digital organizations rely more on coaching than hierarchical decision making to optimize business outcomes. Are you investing in helping your people to become great coaches?
- Building your accountability framework may be the hardest building block of all. Find the biggest obstacles to your company’s ability to manage living assets. Start experimenting to learn how to get your accountabilities right.
Building an External Developer Platform
The external developer platform is just one of five digital building blocks. It probably should not be your first. But bypassing the opportunities that an ExDP offers poses a different competitive risk. And regulations like the open banking requirements in Europe and Australia may force development of an ExDP before a company is quite ready. For most companies an ExDP is likely to be a critical building block. Here is a summary of the key points:
- Unless you can provide the best solutions to your customers’ every need in a timely manner all by yourself, you will have to tap into the creativity of outside parties as you generate digital offerings. That’s why you will need an external developer platform (a managed repository of components that is open to external partners). Do you already see a need for an ExDP? What benefits will it contribute to your business?
- You have two options for your external developer platform. One makes business and data components available for external parties to use in developing digital offerings; the other provides an industry platform that serves as a marketplace for distributing multiple companies’ digital offerings. Is your company positioned to deliver on either of these options? What kinds of experiments might help you identify how to drive value from one or both types of ExDP?
- While an external developer platform will push you to professionalize other building blocks, it relies on having a certain maturity level in the other building blocks. This is why most established companies should not initiate a digital transformation by designing an external developer platform. Are your other building blocks ready (mature enough) to contribute to an external developer platform?
- The owner of your external developer platform will take responsibility for working with partners to identify the opportunities and deliver value. This will require business and technical savvy. Who in your company should take ownership for your ExDP?
Designing Your Company for Digital
A surprising number of companies cite the visit of their senior executives to Silicon Valley as the moment they got religion around digital. We are not sure such a trip is the only or best way to get religion. But it is clear that inspired senior leaders are a prerequisite to a successful transformation journey. If a trip to Silicon Valley helps inspire them, take the trip.
But don’t expect the trip to Silicon Valley to provide much more than a sense of urgency. It’s easy to start flailing when the only thing that’s clear is that becoming digital is a competitive necessity. Most leadership teams underestimate the task at hand. So take a pilgrimage, read a book, hold a leadership team conference, bring in an inspirational speaker—do something to ensure that your leadership team is ready to commit to becoming digital. Then start ticking off the following six items in the to-do list for becoming digital:
- Choose metrics that inspire people.
- Assess your building blocks.
- Roadmap your journey.
- Establish ownership for each building block.
- Communicate your vision and your journey.
- Commit for the long haul.
We hope this book has given you the inspiration and confidence to redesign your company for rapid delivery of digital offerings that customers are willing to pay for. It’s time to put this book aside and design for digital!