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Too many people are talking about digital as if the binary world began yesterday. Are companies really in the grip of digital transformation? Didn’t that start in 1995? There are more fundamental shifts going on than “digital”: the trend towards business platforms that enable other businesses; the layering into the economy of services businesses that are not dependent on assets; the creation of the gig economy; speed; oh yes, and mobility too, being detached from a central bureaucracy, going it alone or at the very least shouldering the expectations of entrepreneurship even when you are in work.
We need a framework to help understand how to respond to these changes – digitization does not hack it.
Digital transformation or BPR 2.0?
The new economy has too many contours and turns to be drawn simply so here are some examples – in effect they are business process redesigns.
One aspect of the new economy is the new asset utilization model. We call it “asset light” businesses but in reality it means layering a new friction lowering service into an existing asset base.
Example: A company wants to bring new efficiencies and higher levels of customer care into the corporate jet rental market, challenging incumbent jet charter companies; they create an online platform that provides certification data, performance data, location and availability data for 1,000 of the 4,000 jets globally available for hire.
Customers can use the platform to self-serve their rental requirement, taking cost out of the service layer; they can improve their own experience by selecting transport that is entirely suited to their needs and budget, without aggressive intermediary sales. They feel good. That’s the service Sentient provides and has done for 8 years. Its platform provides the data and transaction engine to utilize jet stock more efficiently.
That model is now active within taxi rides, room renting, tool hire, and many more areas where services improve the efficiency of assets and the level of customer service.
However, to execute the management teams need to know how to construct the platform, how to engineer trust online, how to gain market traction, how to scale the business at low marketing cost etc. There is no “network effect” here – just the platform that encompasses the data, the transaction engine, service delivery, trust engineering and user experience at a high enough level.
A second example: Platforms as a process model. A bank wants to develop a platform that brings together lenders and borrowers. They want to challenge the new crowdfunding and P2P lending startups by bringing the sector expertise to bear. With expert knowledge of key market segments, the bank can launch highly specialized platforms such as loans for working capital in periods of surge for, say, construction equipment or logistics. Knowing the historical patterns of machine utilization and lending records it can automatically gauge the needs of the client and price the risk with a premium for quick decision making.
To make this kind of project work, the bank needs to switch IT people, who have traditionally had an infrastructure role, to a much more dynamic business role and to convert agile methods to the new inter-disciplinary team-based working practices that go with devops. It will also need to build teams around APIs and make decisions about Cloud. Designing an API is a new skill but far more difficult is marketing it and maintaining it, and then migrating it to a microservices environment and giving autonomy to the business. These skills are in short supply.
It will also be looking at switching revenues from product sales to recurring service charges. Most likely, too, the bank needs people in traditional sales roles to start working on social, and to build trust through significant investment in community or data mining, provide UX that’s the equal of any site on the web.The bank also needs people to move into these new roles quickly, maybe people in the gig economy who know how to hack the Internet for growth. It needs to get comfortable with using a contingent workforce on a vital project.
The idea of digital transformation in no way covers the extent of change companies like this face. Many of their decision processes militate against these new methods. So this is business process redesign and re-engineering.
How’s The Future Look for Business Process Redesign?
It would be short sighted to think of this as a journey from one type of organisation serving distinct markets to a more digital one serving roughly the same. Winners are serving totally new markets (Alibaba in finance, Apple in health), or layering services into industries where service has not been developed by incumbents (the asset light model).
This is not a journey with a destination. It is increasingly about pursuing and serving changing customer needs. Customers will continue to shift the goalposts as each new experience expands their opportunities for a more varied, interesting productive, creative lifestyle.
Over the next ten years we are going to see:
- More super platforms – digital giants straddling the globe. The four knights will be at least eight: Apple, Google, Facebook, Amazon but also Alibaba, Tencent, CitiGroup, perhaps Xiaomi and Lenovo, and a few wildcard possibilities (SAP building super platforms for inter-enterprise procurement, billing and payment), a Goldman Sachs buying up asset light businesses to create a super-service platform, a telco that gets money (Telefonica?)
- The gradual decline of complex, global, supply chains in favor of direct commerce to end-users (Alibaba predicts a $1 trillion cross-border market by 2020 but it is already looking like being bigger than that). Couple that to more onshoring and more craft-based or small batch production and you reduce the need for large scale capital investment
- The completion of an alternative financial infrastructure (based around crowdfunding, as crowdfunding becomes more information rich, graduates to bond-like markets, and spawns derivatives to spread risk and create liquidity but based too around Chinese tech platforms that are all now banks)
- Born global small businesses that need support to reach into distant markets with good information and strong credit controls
- In these circumstances the gig economy’s experienced players can look up and see a faster route to scaling the freelance lifestyle and offering up services for fees + equity in the multiplicity of new enterprises that will form around onshore batch production, crowdsourcing and crowdfunding.
- Marketing becomes more influenced by the Searls’ VRM paradigm – people connecting back into the production system and letting manufacturer and service providers know what they want and at what price.
Set against these megatrends are the mini-ones, the shifts in business models and the development of a service economy with recurring revenues. What to do about it? How to keep your strategic framework clear?
The Decision Model Framework
We’ve made several forays into the new strategic framework at Gigaom. The essence of that work is that decision processes have to change, away from the linear business model to an options’ portfolio. Nick Vitalari and I began that thinking in The Elastic Enterprise. Good strategy has these components:
- It builds knowledge of disruption processes so leadership really gets a sense of a new future unfolding ahead of consumer transitions, just the way Tencent and Baidu are doing in China.
- It is active and current rather than complete, a lesson from Alibaba and Amazon, meaning it also builds quickly and iterates, using bimodal or trimodal IT planning, that frees business up to drive application platforms.
- It anticipates the pivot points by exploring options (possibilities not putative probabilities), a strength of Fujitsu in IT services.
- It seeks the utility position – can I withdraw from competition by being the platform, Uber’s strength at the outset.
- It expands options and keeps them open rather than closing them off as “unworkable” or “non-core”, a lesson from water services company ET Water.
- It works off a real options estimate of possible returns, ie it budgets multiple options into the core project rather than taking one line from the future and drawing it back to the present through discounted cashflow (a practice that is more common in sunk capital projects in the secondary sector but hasn’t yet permeated services)
- It is participatory in that it draws customers in as members, just like Lego (and Mattel which draws in inventors) because leaders know that downstream revenues are dependent on there being committed users
- It sees leadership or the brand as a powerful source of attraction to third parties, a feat Google has managed to sustain for a decade and which is beginning to work for telco infrastructure provider Ericsson and CEO Hans Vestberg
- Leadership is inter-generational – i.e. brings in the next generation and makes decisions that the organization can jive with for a decade (see GE and early hires like Beth Comstock who pushed the industrial giant the way of crowdsourcing)
- It is headed somewhere – i.e. it has a purposeful narrative rather than a destination (think Autodesk)
Is there enough information here to kickstart a BPR 2.0? No, not in 1200 words. But the Decision Model Canvas in this earlier Gigaom report is a good second base. Are there gaps in the thinking? Yes:
- We need to figure out how leadership becomes truly inter-generational or put another way, how the burden of leadership is shared with those who will take in on next.
- We need simple real options planning frameworks – ways to calculate the benefits of creating and maintaining multiple options, some of which will never play out; it’s not enough to claim we can do all the business math through lean iterations
- We need to break the tradition of disruption analysis and renew it – there are multiple disruption pathways
- We need to be open about the need to re-engineer processes – leaders back away from it, skills are in short supply
- We need to find ways to upgrade the gig economy into a participatiory, committed workforce.