Digital Manifesto: Principles and Practices for Orchestrating an IT Value Chain
312
Digital Manifesto: Principles and Practices for Orchestrating an IT Value Chain
312Hardcover
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Overview
Product Details
| ISBN-13: | 9781604271348 |
|---|---|
| Publisher: | Ross, J. Publishing, Incorporated |
| Publication date: | 01/01/2018 |
| Pages: | 312 |
| Product dimensions: | 6.00(w) x 9.00(h) x 0.90(d) |
About the Author
Read an Excerpt
CHAPTER 1
THRIVING IN DIGITAL MARKETS
We tend to underestimate the future, demonstrated by this internal memo from Western Union (1876): "This 'telephone' has too many shortcomings to be seriously considered as a means of communication."
The telegraph was invented in 1792. It took almost 100 years for its successor, the telephone, to arrive. Today, the pace of one technology being replaced by another is exponentially getting faster, dramatically impacting both our working and private lives. Food and clothes are only two examples of what may be next in line to be transformed by the miniaturization of sensors and the internet. The transformation that many traditional or analog products go through is well demonstrated by observing the automobile.
Since the introduction of the anti-lock braking system (or ABS) in 1978 by Mercedes-Benz, the car has slowly become less automotive and more IT-motive — including motor management systems, cameras, lasers, radars, heads-up displays, and other high-tech equipment. Many systems are dedicated to improving the safety of both the driver and others who are using the roads, while increasingly complex motor management software is used to comply with (or even circumvent) stringent pollution laws and their requirements. In the near future, cars will be equipped with car-to-car communication allowing them to react to each other's behavior and interact with a larger traffic control infrastructure. After that, the next logical step of riding in fully autonomous cars could be just around the corner.
For farmers, IT holds the promise of sleeping in instead of getting up at 5 a.m. to milk and feed the cows. The newest generation of milk robots allow cows to be milked whenever they feel like it — a cow just has to walk up to the machines. They recognize each individual cow by the tag she is wearing before feeding her and disinfecting her udders prior to milking her. Data regarding her health and the quantity and quality of milk she produces is stored and is accessible to the farmer whenever and wherever he wants. Business intelligence tools transform the data into actionable information, such as the producible number of cheese wheels or cartons of milk from an individual farm's milk production, for both the farmer and the downstream factory. As a result, the farmer can spend his time on exceptions, like calling the vet, and initiatives to further improve productivity and quality.
Movie and game rental company Blockbuster is on the other side of the equation. It was unable to compete effectively with the disruptive business model of Netflix. The latter streams movies over the internet, removing the cost of renting local floor space and employees. Unable to transform itself in time, the former rental giant had to file for Chapter 11 bankruptcy protection with a debt of $1.46 billion.
IT used to be a utility — today it is a game changer. More specifically, closed customer data and software are the jokers stacked in an IT team's deck. The former is relatively scarce in a world that is dominated by a small number of ecosystems — for example, Apple, Google, Amazon, and Microsoft — while the latter has become so powerful that it is reshaping the job market even now. However, there are a few snags. For starters, technology itself is abundant and has to be combined with business capabilities to become a strategic differentiator. This in turn requires the IT team to act less as a faithful servant (business, tell me what to do) and more as a business partner (business, this is what I suggest we should do). In native digital and hybrid markets, business and IT domains may even have to fuse to create a frictionless operating model.
Equally important is not to get carried away by technology-related buzzwords. The Internet of Things (IoT), social media, big data, and the cloud are all very important trends, but they are no reason to forget everything from the past. Agile Scrum is taking the development world by storm, but there are still plenty of cases where waterfall development is preferable. Similarly, the business IT alignment paradigm from Henderson and Venkatraman remains the best choice to collaborate with the business for the stable, efficiency-driven part of the IT portfolio. The need to differentiate can also be observed at company and industry levels. A manufacturer of roof tiles relies far less on IT for its financial success than Google. Or, consider a start-up company versus an established company: the first starts with a clean sheet while the centuryold company has a mountain of legacy to consider.
The world is too complex and diverse to think only in black and white. It consists of many shades of grey, too. The digitalization of markets and business models requires companies to execute certain things less, and others more. These practices are embodied by the following six principles:
• Less defensive, more offensive
• Less inside, more outside
• Less uniform, more differentiated
• Less static, more flow
• Less isolation, more cohesion
• Less cost, more value
The similarity to the Agile Manifesto is obvious, as is the following concept applicable in this book: "while there is value in the items on the left, we value the items on the right more." Every year, product life cycles become shorter, products more complex, and markets more uncertain. This requires companies, regardless of their industry and age, to invest in capabilities embodied by the items on the right.
The remainder of this chapter is dedicated to the concise introduction of the six principles and a map to guide the reader through this book.
To stimulate the mind, every chapter includes statements like the ones in Table 1.1. These invite the reader to form an opinion before and after reading the chapter. They cover both the book as a whole and the six principles. Some may seem cryptic now, but I will help you decode them as we go along (see Table 1.1).
1.1 CAPABILITIES TO LEAD IN A DIGITAL WORLD
The environment in which we live and work today is more uncertain and complex than ever before. To survive, let alone thrive, companies have to boost their capability to sense and act on both foreseen and unforeseen events quickly and decisively. According to Rita McGrath, the downfall of Sony, BlackBerry, Blockbuster, Circuit City, and even the New York Stock Exchange can be attributed to failing to do so:
"Their downfall is a predictable outcome of practices that are designed around the concept of sustainable competitive advantage. The fundamental problem is that deeply ingrained structures and systems designed to extract maximum value from a competitive advantage become a liability when the environment requires instead the capacity to surf through waves of short-lived opportunities. To compete in these more volatile and uncertain environments, you need to do things differently."
Of the 500 largest companies in 1957, less than eighty were still part of the S&P 500 forty years later. Some were taken over by other companies, but most shrunk or simply went bankrupt.
Even today, Facebook, Twitter, LinkedIn, and other young multibillion-dollar companies aren't exempted from these economic forces. Yahoo was one of the pioneers that turned the internet into a billion-dollar business. Today, it is no longer an independent company — Verizon bought it in 2016 after a months-long bidding process. Facebook had attracted a huge teen following, an important demographic group for marketeers, at its inception. However, privacy concerns in combination with Mom, Dad, Aunt Edna, Uncle Jim, and the rest of the uncool lot joining Facebook are affecting engagement with this age group. Consequently, they move on to apps like WhatsApp, Snapchat, or others to communicate with their peers. For now, between today and a couple of years from now, a start-up introduces a new value proposition, starting a new cycle. Technology is therefore both a key enabler of new business models, and at the same time, a major source of strategic risk.
Data follows a similar path. The continued miniaturization of sensors, CPUs, and other components turns dumb products into smart ones. This, too, is a potential source of billions of dollars in revenue for both IT service providers and the companies that are using their solutions. Downsides include bankruptcy for companies ignoring the IoT and big data altogether, and waste for companies that are unable to effectively realize the potential value represented by these buzzwords. Combine data with advanced algorithms and you have a tool to automate knowledge-intensive work, create robots maintaining other robots, and autonomous driving trucks, cars, and airplanes. However, until artificial intelligence becomes mature enough to dynamically solve myriad situations, bothforeseen and unforeseen, weaknesses in either data set or algorithm could result in dramatic distortions in the value chain or in a car ending up in the ditch.
It is important to note that the changing role of technology does not equal asking the CFO to double the IT budget or adopt every new technology entering the market. The success of Apple's iPad doesn't come from any introduction of a new disruptive technology — it is a winner because Apple combined easy access to a wide variety of books, music, games, and movies with a good looking, high quality device. Additionally, the iPad actually provided so much more functionality than the average e-reader that it created a new market. Consumers did not know they had the need until Apple launched the product. As a result, the iPad sold more than three million units in its first 80 days, making it the fastest selling electronic device at the time. Coming in at number two, a considerable distance back, was the DVD player with 350,000 units in its first year.
In their book Blue Ocean Strategy, Kim and Mauborgne describe the creation of new (uncontested) market spaces as a means to break away from traditional competition models. They argue that the traditional fighting for competitive advantage, battling over market share, and struggling for differentiation has resulted in a bloody red ocean of rivals fighting over a shrinking profit pool. The authors argue that tomorrow's leading companies will succeed not by competing head-to-head with competitors, but by fulfilling a new demand in an uncontested market space, creating a blue ocean — an ocean that will, in most cases, be full of technology and data.
The need for technology and business departments to act quickly and decisively is amplified by the infusion of IT into our day-to-day lives. Today, there are four billion people using mobile phones — approximately 450 million of them have internet on their mobile phones, and that number is expected to grow rapidly. We can consume information 24 hours a day, purchase a book at 3:00 a.m., and read a memo from a colleague at the breakfast table. IT is not only changing business models, but also the way we spend our free time (e.g., checking our Facebook account, playing mobile games).
Technology overcomes many boundaries, enabling companies to tap into new markets and enriching the private lives of billions of people. We are part of a global ecosystem — with all of its opportunities and challenges. To thrive as a company in this world, companies need to invest in the capabilities reflected by the six principles described in the following sections.
1.1.1 Less Defensive, More Offensive
The lack of scarcity inhibits technology from being a sustainable strategic differentiator by itself. It requires a specific mix of business and technological capabilities to create value propositions that are both attractive to customers and difficult to copy by the competition. Entrepreneurs show the way by launching a constant stream of new business models that leverage advances in sensor technology, powerful but energy efficient processors, and clever software to enter or even create new markets like e-health and smart homes. While market dynamics ensure that most of these companies will vanish before ever reaching maturity, Google, Facebook, Twitter, Box, and Salesforce demonstrate the inherent business potential of technology.
Some digital or hybrid start-ups create completely new markets while others disrupt existing ones. For instance, the introduction of fitness tracking devices from companies like Fitbit and Garmin did not replace any analog substitute. This is very different from the impact that 3-D printing has on the manufacturing industry. Here, the commoditization of 3-D printing is democratizing the production of physical products. Customization and build-to-order take on a whole new dimension now that printers and materials have become cheap and durable enough for individuals to design and produce their own products.
The longer the history of a company and its stability in the market, the wider and deeper the canyon that has to be bridged when game-changing technologies turn up on the horizon. To make matters worse, adopting a new strategy and the associated operating IT model takes time. Depending on the industry or market, there is little or no time when nimble start-ups enter the market with their new and disruptive business models. The first principle is therefore primarily about the right mindset. To be more than a mere utility provider, the IT team of established companies has to be open minded, curious, proactive, and constantly ready to adapt to change. Less defensive, more offensive represents the attitude and skills required to lead in digital markets. The performance management framework, IT business model, and concepts from the other principles are instrumental in nature. By themselves, they cannot change a shy introvert into a confident extrovert.
1.1.2 Less Inside, More Outside
The one thing that did not change between 1950 and 1989 — the year that the worldwide web was invented by English scientist Tim Berners-Lee — was the number of customer segments IT had to service. While the business consisted of multiple functions, the demand profile was homogeneous, stable, and moderately complex. Technological breakthroughs including the internet, wireless networks, and ongoing transistor miniaturization dramatically changed both the number and diversity of IT's customer segments. They enabled the business customers to become IT customers.
Digital and hybrid markets elevate technology to the heart of the business model. To be considered a business partner, the IT team has to do more than supply customer relationship management or e-commerce applications — this is something any external vendor can do. Only by adding tangible value (e.g., smoothing a cross-channel experience, turning a dumb product into a smart one) will the business refrain from removing the internal IT team from the equation.
The fun does not stop here, however, as the value chain, as a whole, digitalizes. The complexity and diversity of today's products require companies to specialize. Only as part of an interdependent network of business partners can a company produce and service an end-to-end value proposition from a customer perspective. Due to the strategic impact of these so-called key partners, the business expects effective collaboration tools, end-to-end actionable business intelligence, and flawless data exchange between devices (e.g., machine to machine, IoT). This effectively turns the key partners of the business into a VIP customer segment for IT.
Today's customer segments of IT are both internal and external, along with being heterogeneous, dynamic, and highly complex. With both the upstream and downstream parts of the digital value chain crossing company boundaries, less inside, more outside represents the ability to manage multiple heterogeneous customer segments. Only when IT embraces the fact that it happens out there instead of within the four company walls, indistinct technology can be turned into a company asset. No more hiding behind the business's skirt, but embracing the marketing and business concepts required to thrive in hybrid and digital markets — markets that all have their own demand profile affecting the positioning of IT and its value propositions.
(Continues…)
Excerpted from "Digital Manifesto"
by .
Copyright © 2018 J. Ross Publishing.
Excerpted by permission of J. Ross Publishing, Inc..
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Table of Contents
Preface,
About the Author,
Acknowledgments,
WAV™ Page,
Chapter 1 Thriving in Digital Markets,
Chapter 2 Less Defensive, More Offensive,
Chapter 3 Less Inside, More Outside,
Chapter 4 Less Uniform, More Differentiated,
Chapter 5 Less Static, More Flow,
Chapter 6 Less Isolation, More Cohesion,
Chapter 7 Less Cost, More Value,
Chapter 8 The Digital Manifesto,
Appendix Introduction,
Appendix A Make-or-Buy Revisited,
Appendix B Wanted Alive: Architect Who Looks Beyond TOGAF,
Appendix C Glossary of Terms, Concepts, Methods, and Technology,