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Six Questions Your Organization Needs to Address to Thrive in the Digital Era

On May 2018, an interesting new book was published on the exciting topic of digital transformation: “What’s Your Digital Business Model? Six Questions to Help You Build the Next-Generation Enterprise.” The authors are two researchers from MIT’s CISR (Center of Information Systems Research): Prof. Peter Weill and Dr. Stephanie Woerner.

On the innovation@work blog of the MIT Management Executive Education, Prof. Weil presents the six questions, detailed in the book.

Raz Heiferman & Prof. Yesha Sivan present the six questions shortly – issues discussed quite in detail in their Hebrew e-book “Doing Digital.”

Question #1: How big is the digital threat and opportunity? Prof. Weill explains that organizations should ask themselves what percent of revenue would they lose if the organization didn’t change anything in the next five years. MIT CISR recent research showed the average loss of revenue for most companies would be 28%—jumping to 46% for companies in the $7 billion-and-up revenue range. To illustrate, Prof. Weill shared the example of WeChat, a digitized social platform used frequently in China to perform daily activities (like buying food, banking, travel, renting an apartment) and how it’s challenging conventional banks. Prof. Weill pointed out that these types of digitally-born companies are a “massive threat to the financial services industry” and could force the bank to become a commodity back-end service provider while WeChat and others capture the relationship with the customer.

In their e-book Heiferman and Sivan discuss, quite heavily, the risk of disruption and present the concept of Digital Darwinism (Chapter 3). Like in Biology, organizations which are digital immigrants (companies born before the digital era), will face strong competition from companies named digital natives (companies born in the digital era). MIT’s research shows how significant this risk will become if digital immigrants organizations don’t embark quickly on the digital journey and start to transform themselves into digital businesses.

Question #2: Which business model is best for your enterprise? To illustrate this question, Prof. Weill told the Aetna story. The insurance giant has made a strategic, broad shift in its business model, changing from insurance provider to a company that “helps build a healthier world.” Aetna’s goal is to create an Amazon-like experience and become a destination for its customers.

In their e-book Heiferman and Sivan discuss (Chapters 3 and 5) the concept of the need to transform the business models due to the risk of disruption. Chapter 6 in the book “Doing Digital” is fully devoted to the topic of business models, digital business models and business model innovation (BMI). They emphasize the need of organizations to create their future by using digital technologies to rethink their business models and transform them into innovative digital business models suited for the digital era.

Question #3: What is your digital competitive advantage? Prof. Weill posits that there are three sources of competitive advantage: content (what is consumed by customer), experience (how it is packaged), and platform (how it is delivered). To discover its competitive advantage an organization should determine if they are great—relative to all competitors—at one, two, or all three of these capabilities. Prof. Weill adds most companies that were “born” pre-digital may be great at only one of the three and should start digitally transforming that one capability, and then tackle the other two. However, he says, some companies (say who answered 50% or above to question #1) can’t wait and need to act quickly on all three. “The more you need to be world class, the higher the risk for your transformation not working. Or, the more organizational change and partnering you’ll need to do to create a competitive advantage.”

In their e-book Heiferman & Sivan discuss, in Chapter 6, the topic of digital business models and provide a detailed description of the three sources of competitive advantage. This chapter is based on their previous article “Optimizing Your Digital Business Model” published in 2012. Those three new sources of competitive advantage in the digital era should be discussed and extended to meet the customer’s expectations.

Question #4: How do we use the technology we have to connect all of the other technologies? Digital technology is fundamentally about connectivity – linking the customer and the company to meet more of the customer’s needs. For example, providers are battling to become the GoTo source of added value services to the home – whether it is digital lighting, cameras, locks, entertainment, environmental, or all of these together. Weill says the big question is: Who are you going to trust with your data and to help you to manage your home? The goal of these providers is to be the single GoTo entity that manages all the others.

In Chapter 2 of their e-book, Heiferman & Sivan provide examples of some innovative digital technologies that organizations must consider to implement. Some of these technologies can improve the customer experience dramatically (e.g., artificial intelligence, big data analytics, chatbots, RPA, and much more). Organizations must understand that their current digital state (what we call digital transformation 1.0) will not be enough to compete in the new era. They must move to digital transformation 2.0, as explained in Chapter 2.

Question #5: Do you have the crucial capabilities to reinvent your enterprise? Prof. Weill says this is a difficult question to answer and shares the example of DBS, a Singapore-based bank, which has made a remarkable digital transformation. By focusing on the three capabilities in question #3, DBS was able to improve the customer experience significantly and was awarded “the best bank in the world for 2018” by Global Finance magazine. “DBS is becoming digital to the core. It has automated many processes, encouraged and enabled people to innovate, and moved heavily into the cloud.” Prof. Weill says the bank’s goal is to make banking more fun for customers. DBS has made it much easier for customers to conduct business with the bank, saving more than 250 million customer hours and one million employee hours. DBS has also embraced new ways of digitally inspired thinking, including a partnership that offers banking services at cafés throughout India attracting more than 1 million customers in the first year.

In their e-book, Heiferman & Sivan devote Chapter 5 to innovation and they stress the importance of companies to implement innovation as a new organizational skill. The companies have to introduce innovation processes and make sure that innovation becomes part of their DNA. This chapter discusses Design Thinking and Blue Ocean as vehicles to promote innovation.

Question #6: Do you have the leadership to make transformation happen? This is perhaps the most difficult question, says Weill. As an example, he mentions BBVA, a Spanish-based bank that operates globally. By answering and acting on these six questions, the bank has made a massive digital transformation with strong results. Today, it is #1 in customer experience in its eight-core markets and digital accounts for 36% of all products and services sold. Digital transformation requires a strong vision with leadership often making hard decisions. The leaders must get the entire organization, including every person, onboard. Every employee has to play a role in the new digitally transformed enterprise. Most important, they need to feel like part of the team and believe that their contributions matter.

In their e-book, Heiferman & Sivan devoted several chapters to discuss this important issue (Chapters 13, 14 and 15). The question of leadership is one of the most important questions and challenges of digital transformation. There is no one model of who should lead the journey and what are her or his skills and characteristics. At the end of the day, the transformation challenge is an issue of people and not a technological one. The examples given by Prof. Weill are indeed examples of organizations that the CEOs understood the challenge and the importance and were heavily involved in defining the vision, leading the journey and making sure that this transformation is one of the most critical challenges of the organization for future success. And they did it! DBS and BBVA are a showcase of digital transformation.

We hope that your organization understands the above six questions and have the right answers. Good luck!

A New Study by PWC Strategy& on Digital Champions in Operations

Strategy&, the strategy division of PWC has published recently a new global study “Global Digital Operations Study 2018 – Digital Champions”. This new study is focused on understanding how companies and their leaders have built an integrated ecosystem to provide value to customers based on end-to-end solutions. The study is focused on the industrial sector but can provide inspiration and guidelines to many other business sectors.

The integrated digital industrial concept, named Industry 4.0 (or Industrie 4.0 in Germany, one of the leading countries that promote this concept,) deals with the adoption of digital technologies and how they affect the processes and products in the industrial sector. As we can see, these technologies have a profound impact on all the related processes – product design, supply chain, production and operation processes, customer delivery, accounting, and invoicing processes. The digital technologies are now embedded directly into the product, augmenting it into a physical-digital product. These technologies are the foundation for new innovative business models.

We are now in the stage of transforming from the Digital 3.0, which was focused mainly on automation and the single machine view, to the Industry 4.0 concept which has a much broader view, a systemic view. Industry 4.0 is focused on digitalization of end-to-end processes, integrating the different parts of the human and machine automation, data collection from all the processes, and using that data to support real-time decision processes while providing new and exciting customer experiences. Industry 4.0 is the realization of the digital transformation of the industrial sector.

Industry 4.0 requires deep collaboration between all the stakeholders, executive management commitment, a clear business strategy for the digital era, and more. Companies that don’t understand this deep paradigm shift will, probably, face the risk of disruption.

For the study, PWC Strategy& experts have interviewed and met 1,100 executive managers of leading industrial global companies. The study was focused on understanding their point of view on the Industry 4.0 concept and implementation. One of the main findings of the study was that there are quite a few companies that have fully adopted and implemented the Industry 4.0 concept. They deserve the title of Digital Champions. The study found that the Digital Champions excel in four categories: Customer Solutions; Operations; Technology; People. They have successfully developed four ecosystems to support each of those areas.

The link to this interesting study.

In our e-book “Doing Digital”, published on the E-vrit application (desktop and mobile), we refer in Chapter 8, paragraph 8.2, to the seven sectors that most probably will face disruption in the coming years. We quote a previous PWC Strategy& study, named “Seven Surprising Disruptions” and present the industrial sector as a candidate for disruption if companies will not adopt the Industry 4.0 concept. Leading industrial companies like Philips, Siemens, GE, and others have already adopted that concept.

To our book: Doing Digital

We recommend all industrial companies to start their digital transformation as soon as possible. If not, they are taking the risk of being disrupted and being too late to recover.

A New Article Published in Cutter Business Technology Review

We are happy to update that our new article “Agilifying You Digital Business – 6 Steps to Get Started” was published by Cutter Consortium on the issue of Cutter Business Technology, Vol 31, Number 7, 2018 named “Architecture + Agile = The Yin & Yang of Organization Agility”. This issue contains some articles dedicated to the many faces of agility.

The issue of transforming the organization to an agile organization has become in the last couple of years a strategic issue. The business landscape has become very dynamic and competitive and organizations are having hard time to establish their long term strategic plans. The new competitive environment forces organizations to move from the concept of sustainable competitive advantage to transient competitive advantage, a term coined by Prof. Rita McGrath from Columbia Business School in her famous book “The End of Competitive Advantage”.

Our article presents 6 steps that we recommend organizations for their transformation into agile organizations:

  • Recommendation #1: Appreciate the Mental Challenge of Agility as “Building Flexible Buildings”
  • Recommendation #2: Develop & Share “Visions” of What to Expect from Agility
  • Recommendation #3: Build “Abilities”, that allow for “Visions”
  • Recommendation #4: Initiate “Actions” that Build “Abilities”, that Allow for “Visions”
  • Recommendation #5: Master the Interplay among Leadership, Culture, Business Architecture, and Digital Architecture
  • Recommendation #6: Shift to Deadline-Driven Smaller Projects

We kindly invite you to download the full article from Cutter Consortium’s web site (requires registration).

When the Physical Meets the Digital

How Wanda Group, China’s largest shopping center network, succeeded to combine the physical and digital worlds and bring new value to its customers

This post is based on an article written by Prof. Howard Yu, a professor of business administration and innovation at the Swiss IMD business school.

The article presents the exciting case study of the Wanda Group, China’s largest real estate developer that specializes in shopping centers. The company is known for her excellent business performance and for understanding how to leverage digital technologies to support the group’s accelerating growth.

The shopping centers are facing competitive challenges from the e-commerce giants, like Alibaba and others, and therefore have to reinvent themselves to remain competitive in a world where the boundaries between the shopping experience in shopping centers and e-commerce are blurring quickly.

Wand Group operates a huge network of shopping centers that host and combine shopping, cinema, and children playing grounds, hotels and office spaces. Recently they have expanded into amusements parks, film production, sports, technology and internet.

To remain competitive, they decided to implement a two path action plan: improving the customer experience in their shopping centers and leveraging the power of digital technologies. Prof. Yu’s article shows how this business giant succeeded in this two path action plan and to continue to grow in this competitive business landscape.

Regarding improving the customer experience, they were one of the first shopping centers in China to include restaurants and by 2017 they have become the world’s largest cinema chain operators. Their shopping centers include spacious indoor playgrounds within the plazas where children can play on traditional slides, swings, ball pits and educational arcade equipment.

Regarding their digital systems, Wanda’s Group rapid expansion capabilities, is supported by their IT backbone that has enabled the company to carry out informed decision making, streamline operations, codify its knowledge and operate at scale.

Here is Prof. Yu’s article.

Wanda Group is a great case study of the digital transformation journey of companies, as described in our “Doing Digital” e-book. Using digital technologies has helped Wand Group to expand quickly and become one of the world largest shopping centers operator.

Here is a link to our e-book.

Business Strategy for the Digital Age

Dr. George Westerman, a Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy, wrote an interesting article “Your Company Doesn’t Need a Digital Strategy”, published by MIT Sloan Management Review on its 2018 Spring issue.

As Westerman writes “…. the focus on technology can steer the conversation in a dangerous direction. Because when it comes to digital transformation, digital is not the answer. Transformation is….In the digital world, a strategic focus on digital sends the wrong message. Creating a “digital strategy” can focus the organization in ways that don’t capture the true value of digital transformation. You don’t need a digital strategy. You need a better strategy, enabled by digital

Technology by itself don’t bring value. The value they bring comes from the ability of organizations to do business differently, more effectively or optimizing the value in the eyes of the customer. As he writes ” Analytics is not about databases and machine language algorithms — it’s about understanding customers better, or optimizing maintenance processes, or helping doctors diagnose cancer more accurately. IoT is not about RFID tags — it’s about radically synchronizing operations or changing business models”.

Here is the link to the article.

In our book “Doing Digital” we referred to this article in chapter 3 paragraph 11 and emphasized how important it is for the organization to understand that digital technologies are enabling technologies and enable the business to reimagine and rethink the way they do the business.

The Digital Advantage: How Digital Leaders Outperform their Peers in Every Industry

Revisiting MIT and Capgemini’s Research After 6 Years

Capgemini, the global consulting company, published a new and updated research “Understanding Digital Mastery Today”. This is an updated version of an older joint research of Capgemini with MIT Center of Digital Business Initiative, published in 2012 and named “The Digital Advantage: How digital leaders outperform their peers in every industry.”

We referred to the 2012 research in our e-book “Doing Digital” published in Hebrew.

The main goal of the new research was to provide an updated view of the state of digital transformation by using the same research methodology and revisiting after 6 years some of the same companies that participated in the original 2010 research.

The updated report presents a cautious picture – the progress after 6 years is small and slow. In the customer experience area there was a real progress but in other business processes the progress was slow (if at all). Companies are still struggling with issues like defining a clear vision for the digital age, digital governance and IT-Business alignment.

The conclusion of the research to the slow progress made in 6 years of digital transformation is:

  1. Companies are facing difficulties in adapting the new digital technologies due the dizzying pace of the introduction of new digital innovations.
  2. Organizations might have been over optimistic in 2012 and now they understand better the challenges of the digital transformation.
  3. There are many business models disruptions in many industries which are challenging the current business models and value chains.
  4. The expectations of customers, employees and markets are rising and put a significant pressure on the organizations.

To summarize, to follow the digital journey, successfully, organizations should mobilize their leadership, culture, talents and processes to make sure they succeed in their transformation.

Here is a link to the Capgemini research.

Who Should Lead the Digital Transformation?

Prof. Gerald Kane, a professor of Information Systems at Boston College, published an interesting post in the MIT Sloan Management Review blog on August 2018. The blog deals with the question who should lead the challenging journey of digital transformation.

The post is based on a large research with 4,300 participants that asked managers, executives and analysts " Which functional area is primarily leading your company’s digital progress?" The researchers observed that digital transformation is more of an organizational and managerial challenge than it is a technological one. As organizations mature, they are less likely to report that IT leads this digital progress; 23% of respondents at early-stage companies name IT as the primary leader of digitalization efforts, versus 16% at maturing companies. When digital progress is led by technologists,
companies often end up with glittering technologies that either go unused or fail to meet the business’s objectives.

 

The findings of the research are summarized in the above table. One may see clearly that as the organization matures regarding its digital transformation, the CEO's or their office takes the lead. 41% of maturing organizations report that the CEO's office is leading the transformation.

Following are the links to Prof. Kane’s blog and to the full research

In our e-book (Hebrew) “Doing Digital&quot” you can find in chapter 10 our discussion on digital maturity and in chapters 13 and 14 our discussion on who should lead this strategic transformation.
Following is the link to our e-book