Originally published by CIO

In “Designed for Digital: How to Architect Your Business for Sustained Success,” Jeanne Ross, Cynthia Beath and Martin Mocker offer a contemporary digital model for enterprises. Those who can obtain it will have the ‘right to win’ and who cannot will increasingly find themselves subjected to wave after wave of digital disruption.

Interestingly, the authors not only argue for the importance of architecture, but they also argue for a revised theory of management. This makes the book relevant to IT professionals and business leaders interested in digital transformation.

The environment has changed

The book’s authors say that enterprises today are being bombarded by digital technologies. As a single mnemonic, SMACIT stands for social, mobile, analytics, cloud and IoT. The authors claim—as we are all seeing—that digital technologies have become a game changer because they deliver three business capabilities—ubiquitous data, unlimited connectivity and massive processing power.

If there is a potential for a business disconnect in crossing the digital chasm, it happens at this point. CEOs and CIOs must work together to enable the business advantage that can be created through digital technologies. They need to enable their enterprises to reimagine and change their corporate value propositions for customers.

A great example is GE. When GE Aviation built jet engines that could stream data about a jet engine’s condition, GE’s CEO asked what advantage all the data provides GE. After thinking about it, GE moved from selling jet engines to selling a service that keeps planes flying—completely changing their value proposition to customers.

The corporate goal increasingly needs to be figuring out how to reimagine existing products and services. Doing this will create better customer experience and new features that increase revenues and customer satisfaction. The authors say that digital offerings are information-enriched solutions wrapped in seamless, personalized customer experience. In sum, digital technologies can improve operational excellence and introduce new revenue streams at the same time.

The authors suggest the conundrum for legacy businesses is piecing together culture, insights and competencies to convert a successful predigital company into an agile, innovative digital player. According to MIT’s Center for Information Systems Research, roughly three-quarters of legacy businesses are either locked in silos or have their businesses connected with ‘duct tape’ and ‘band aids.’ The reality is most legacy businesses will not cross the digital chasm. They are not, in the words of the authors, designed for digital.

For these legacy organizations, the interactions between people, process and technology limit their ability to learn, discard, enhance, reconfigure and scale up. This is similar to what Gary Hamel suggested, that the practices of management need radical change. Hamel believes it is time to challenge long-standing management orthodoxies that constrain innovation. This is a dilemma the authors work to address in their book.

Part of the problem is that successful companies cannot afford to dump the value propositions that made them successful. In many software businesses, for example, a software licensing model has proved a tough habit to kick. At one employer of mine, that went private, the goal was to change their business model, but investor financial goals made it impossible for them to compete against new age software companies. Ian Mitroff said the problem is that the seeds of failure are found in initial company success. The list of companies for which this is true is large and getting larger. The problem is that incumbent enterprises become comparably more risk averse than new entrants (“Dynamic Capabilities”, David Teece, page 21).

According to the authors, successful businesses wanting to sustain their market position need digital business design—people, process and technology—to define value propositions and deliver offerings made possible from the capabilities of digital technologies. They say that digital business design distinguishes what is stable (core competencies, enterprise processes and master data structures) from what is changing regularly (digital offerings, team goals, apps and skills). At its core, the aim should be to make a company agile so that it can create an innovative and constantly evolving portfolio of digital offerings in response to rapidly changing technologies and customer demands.

This may be a big step for many companies because it says that all companies are digital, software companies, and they need—as Vijay Gurbaxani has suggested—to ‘codify knowhow’ into their digital business offerings.

Building a digital business

The authors extend the work of David Teece who argued that business capabilities need to be dynamic. In the digital age, business capabilities clearly need to be instantiated digitally, but the authors suggest there is more work to it. Success demands five things:

1. Shared customer insights. Organizational learning about what customers will pay for and how digital tech can deliver to their demand.
2. An operational backbone. A coherent set of standardized integrated systems, processes and data supporting a company’s core competencies.
3. A digital platform. A repository of business, data and infrastructure components used to rapidly configure digital offerings.
4. An external development platform. A repository of digital components open to external parties.
5. An accountability framework. Distribution of responsibilities for digital offerings and components that balances autonomy and alignment.

The authors provide details on each of these and real company examples that can act as templates for how to become a digital business. They say, “digitized does not equal digital.” Digital companies deliver digital offerings. In developing digital offerings, they apply digital technologies to create customer solutions.

Shared customer insights

Shared customer insights are about leveraging business capabilities to provide a solution to a problem that a customer invariably hasn’t articulated. The important business capability that successful digital businesses have is the natural ability to experiment with potential offerings. They actively learn what customers want.

To do this, digital businesses configure people, processes and technology to incorporate digital offering experiments into their DNA. They start by creating shared customer insights that help the company find the intersection between solutions the company can deliver and solutions the customer will pay for. They then use this to test and learn. Their environment requires an evidence-based culture. The best example of this approach among legacy businesses is Brian Cornell, the CEO of Target. He is constantly validating collected data. This tension to understand what data means is critical to business leaders in the digital age.

Putting in place an operational backbone

Implementing an operational backbone is the essence (rather than the starting point) for digitization. It is important because it remains the foundation for expanding and accelerating innovation. Digitization enhances operational excellence which has shifted from a good idea to a must-have. The need for speed requires companies be highly efficient, to minimize time and cost.

Operational excellence is no longer a source of competitive advantage. It is table stakes. In “Competitive Strategy,” author Michael Porter argued for efficiency and effectiveness strategies. Geoffrey Moore has asserted more recently that “without innovation, offerings become more and more like each other. They commoditize.” (Dealing with Darwin, Geoffrey Moore, page 5)

So why start by putting time into improving operational efficiency? The answer is that legacy ‘tech debt’ limits legacy business from leveraging their innate competitive advantages against startups. The source of the problem is that business leaders have created systems, data and processes to respond to the objectives of their business silos. They have failed to consider how their systems and processes might eventually need to be coordinated with other parts of the business.

For this reason, many legacy businesses, as their first digital step, wire together siloed systems with duct tape and band aids to put together their companies. To play in the digital economy, it is critical that these companies replace their dysfunctional systems and processes with an operational backbone. This is the first step.

The goals of the operational backbone are as follows:

• Support seamless end-to-end transaction processing
• Provide reliable, accessible master data—the single source of truth
• Provide visibility into transactions and other core processes
• Automate repetitive business processes

Taking this step positions a legacy company to become a digital business. It also allows companies to scale digital offerings, but it doesn’t make them innovative. The authors suggest here that business complexity is the enemy of operational excellence. According to David Seidl, VP for Information Technology and CIO at Miami University, “I think for a lot of organizations the first step is realizing you have way more data than you realize, that you don’t have a lot of what you want where and how you need it and that you’re not collecting it well, let alone managing, governing or allowing access.”

Establishing a digital platform

While the operational backbone—delivers operational excellence—in particular reliability and transparency, the digital platform delivers new sources of top-line revenue. Companies do this by applying SMACIT to create and deliver digital offerings. Fundamentally, these offerings are about enhancing the customer value propositions. A digital platform, for this reason, has as its goal to delight customers by enabling experimentation, rapid innovation and continuous feature enhancements for business offerings.

Digital companies build, buy, configure and reconfigure business, data and technology components to generate and enhance digital offerings. And importantly, they do so rapidly. According to the authors, moving from monolithic code to components represents a critical change for enterprises. Components enable speed and agility because, like Lego blocks, they allow people to quickly assemble solutions from parts that already exist.

To put this all together, the authors suggest organizations use a digital platform to keep track of all the components they create, through the creation of a catalog.

To be clear, the digital platform needs a catalog but the platform itself is the repository of architected API-enabled components. The aim of the digital platform is to provide easy access to the data, business and technology components needed to create digital offerings. A digital platform, therefore, is a repository of business, data and infrastructure components used to rapidly configure digital offerings.

The components, for those that are not technologists represent “slices of code that perform specific tasks.” With them, developers can configure offerings by calling upon existing components. To make components reusable, developers API-enable these components—this enables components to exchange data with other components. For this reason, in a well-designed digital platform, each component provides an API that allows pre-defined, plug and play connections between otherwise independent components.

At the heart of the digital platform is a repository of data components. These components store, manipulate, analyze and display data. According to Sharon Pitt, CIO of the University of Delaware, “I’m not sure how much it’s about the data as the people who input that data and use it. Focus on accuracy, consistency, integrity and accountability is needed. And I would add that data governance is a key part releasing data via an API layer. Users, patrons and consumers need to know what the data is before calling it and perhaps misusing it.”

Ken LeBlanc, former CIO of Iron Mountain, further suggests that “the first step should be focused on refining and optimizing legacy business processes and reaching agreement on what differentiated capabilities make the company relevant.”

The next component of the digital platform is infrastructure components. This provides technical services components to adapt the services embedded in the cloud platform to specific needs of the company offerings and customers. This includes authentication, access control and connectivity for smart devices. These bridge between business components and cloud services.

Finally, the repository of business components provides functionality required for multiple digital components. This include dashboards, rules for alerting customers and employees, onboarding processes for establishing new relationships and bots that provide support to customers.ADVERTISING

In sum, the digital platform is a repository of cloud services that provide hosting and performance management of applications. With this, a digital offering is software that includes code unique to that offering. Here unique features for a customer segment as well as API calls to reusable components needed from repositories. Clearly, as digital offerings grow, a company will maintain a catalog of digital offerings. The digital platform can and should continuously evolve.

What’s different?

The essence of designing a digital platform is deconstructing the company’s existing and imagined digital offerings into data, business and infrastructure components. The digital platform, for this reason, should house repositories of API enabled data, infrastructure and business components so the company can quickly configure and commercialize digital products and services. Put simply, the digital platform exists to enhance digital offerings with new digital technologies.

The authors are clear that legacy businesses for the most part are still in the early stages of building their digital platforms. According to MIT CISR’s research, 74% of legacy businesses have begun the process. But designing and building a digital platform requires leaders to recognize and invest in their longer-term needs before those needs are apparent.

At this point, the authors take a moment to recognize the difference between the starting points for legacy businesses and startups. Legacy businesses typically focus on their operational backbone to ensure reliability and efficiency of core business processes. Digital startups have focused on the digital platform first.

An example is provided here of customer onboarding and employee onboarding. They should combine reusable business components in a digital platform or end to end processes in an operational backbone. In designing a digital platform, organizations must define data, business and infrastructure components and design them for reuse. They must rethink what they want to offer customers in terms of components. According to Zack Hicks, CEO of Toyota Connected Enterprise, “our job isn’t to tell them what to do. Our job is to remove the obstacles that are in the way. The PMs can hire and do as much as they want if they are profitable. This of course requires a rethink of governance.”

Building an accountability framework

The authors suggest that command and control management approaches have helped companies implement optimized enterprise processes. However, they do not build time-responsive digital business offerings. The development of a digital platform requires distributed responsibilities for digital offerings and components that balance autonomy and alignment. It requires, like Gary Hamel has suggested, empowered teams that establish metrics, define processes, assess outcomes and adjust their own activities to meet goals that contribute to larger, company-wide goals.

The authors suggest that digital offerings depend less on standardized process and more on rapid processes. For digital offerings to be created in a market-responsive fashion, leaders need to count on people to reimagine what is possible. What is needed is the distribution of responsibilities for digital offerings and components that balance autonomy and alignment. This also requires:

• Moving from project managers to component owners
• Moving to mission from structure
• Metrics not directives
• Experiments not major launches
• Continuous release not scheduled release
• Fully resourced teams, not matrixed management
• Collaboration not hierarchy
• Trust, not control

For these organizations, their software components become living assets. They require a dynamic environment. This makes empowerment and accountability critical. It demands agile software methodologies. What is demanded is an accountability framework that balances autonomy and alignment. This allows for evolving accountabilities as customers evolve and change. According to Suresh Kumar, former CIO of Bank of New York Mellon, a component owner is like a mini CEO. They have total responsibility for the success of their product.

Building an external development platform

For many businesses, a winning strategy involves becoming an ecosystems driver. These organizations “find ways to partner with providers of complementary products and services and then integrate those offerings…into a seamless experience.” (“What’s Your Digital Business Model,” Peter Weill and Stephanie Woerner, pg. 158)

In this approach, companies find value by extending their digital platform to support an ecosystem of partners. The value of this business strategy is that ecosystems exhibit a virtuous cycle. To facilitate this, the authors suggest there needs to be an external development platform that is a repository of digital components open to external partners. This allows partners to use the company’s internally developed components in the partner offerings. Examples of external development platform include Apple’s Developer Platform and App Store.

To work effectively, the external development platform should provide a catalog and description of each component. APIs should enable a component to complete a task that it was programmed to do. With this, the aim is to enable partners to quickly write new code on top of their existing software components.

For this reason, the components should be modular, plug and play rather than a heap of traditional monolithic code. The authors give the example of DBS Bank which has provided 200 API enabled digital components including credit card management, loan eligibility, etc. SoCash has developed, on top of these API enabled components, an app that allows its customers to withdraw cash from a merchant cash register.

The roadmap for digital transformation

The authors suggest that organizations that figure how to assemble the digital building blocks—shared insights, the operational backbone, a digital platform, an accountability framework and an external development platform—will win in their respective markets. It is important to recognize that the building blocks will change people, process and technology.

The authors are clear that simultaneous development allows companies to take advantage of interdependencies between building blocks. There is no single roadmap that will be optimal for all companies. Instead, successful companies will focus upon capability building initiatives that enable them to make steady progress without the risk of overwhelming organizational change.

It seems clear that it is not possible to quickly instill digital culture and develop digital capabilities in a company that was not born digital. Instead, established companies must accumulate digital capabilities over time. Part of this can involve unlearning old habits and learning new ones. This is like the notion of rooting out orthodoxies suggested by Gary Hamel although much of this was perceived by Teece as radical competency destroying innovation. The capabilities that matter these days are digital.

Successful companies focus initially on developing one or two of the building blocks depending on industry and market competition. Three companies are provided as templates and examples of possible journeys—Schneider Electric, Royal Phillips and DBS Bank.

Overall, the authors recommend that your roadmap do the following:

1. Fix the operational backbone
2. Don’t put off your digital platform for long
3. Synchronize your customer insights and digital platform development
4. Start assigning accountabilities
5. Don’t rush the external development platform
6. Keep learning and building

Designing your company for digital

Digital technology changes the competitive landscape. Its capabilities require companies to rethink their customer value propositions. To win, companies need to reimagine what is possible needed by customers and then redesign your organization so to remain relevant. The authors suggest that now is the time is now to get inspired, that it’s time to put your building blocks in place.

This can start via road mapping the journey. With this, you should establish ownership for each building block. And then you need to communicate your vision and journey and commit to it for the long haul. The question, are you ready to become a digital economy leader?