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Perspectives

The Last Word: The 50-Year Journey to Digital Business

2016-10-12


To make good on the promise of the digital age, established companies must master a veritable Rubik’s Cube of thorny challenges. The solution lies in understanding three key historical precedents and four perennial seasons of change.

Over the past nearly 50 years, the idea of radical change in IT has been rebranded several times, with monikers changing over time from DP, MIS, IS or decision support systems, to re-engineering and, most recently, avoiding getting “Amazoned.” Today, the term in vogue is “becoming a digital business.”

As described in my last Cognizanti article, it is more realistic for traditional legacy organizations to aspire to become digitally enhanced businesses (DEBs) rather than make the leap to full digital status.1 But no matter what you call it, the transformational challenge for established businesses boils down to the following:

  • Radical change does happen, but it rolls out over the timespan of a decade, and not by throwing new technologies at the business to see if they stick.

  • Radical change begins with critical alterations to the business and operating models.

  • Over 80% of radical change, in my estimation, actually occurs in increments and is the result of long-term vision, persistence, assimilation and adoption, usually forced by competition or economics. The resulting benefits typically emerge from an evolving witch’s brew of inter-related existing technologies, upon which new tools, applications, capabilities, behavior and business models are applied.

  • Existing businesses that have been dramatically enhanced by the current avalanche of social, mobile, analytics and cloud (the SMAC Stack) technologies, in addition to the Internet of Things, exemplify some of the most radical business and operating model changes so far.

The most dramatic changes I’ve seen involved broad and profound business model transformations:

  • A cyclical-industry manufacturer: When this company realized it could not gain on the competition in favorable economic times, it spent a decade using leading technologies and processes to reduce its break-even by over 30%. It applied big data analytics to better forecast demand, improve supply chains and rationalize piece parts. These efforts drove totally new product engineering, manufacturing engineering, shop floor, fabrication, robotics and materials-handling approaches. At the end of the next recession, the company was the only major player left standing. 

  • A transportation company: This company understood that the key to its success was based on end-to-end performance guarantees and economics based on cross-industry transactions, assurance of on-time delivery and real-time alternative sourcing. Therefore, it rebuilt its business model to establish a digitally based cross-industry platform that integrated with the systems of a galaxy of specialty logistics stakeholders. The company also realized that information about and insights revealed by the transactions would be as important as the shipments themselves; therefore, it worked to become a master of analytics and has gone on to industry domination.

  • A consumer-focused financial advisory services company: Rather than build a supermarket of financial products, this company rebuilt its business model around the vision of how a specific class of consumers work and live. It spent over a decade building the enabling infrastructure, client life experience services, business partner extensions, consumer-friendly analytics and seamless interactions that ultimately became a hub for its clients. Today, this company’s services are embedded in the lifestyles of all targeted clients.

In every case, change pivoted around a new business model, took over a decade to complete, and demanded relentless incremental changes that ultimately resulted in radical changes in capabilities.

Looking back on enterprises that have successfully made radical adaptations, as well as my conversations2 with well-placed industry observers, three lessons emerge.

Lesson 1:

Focus efforts on a specific vision and the essential purpose of enablement.

In most cases I’ve seen of successful digital change, someone (typically in a leadership position below the CEO) emerges as a passionate visionary and leader, with an overall business-based idea for what the enterprise could become. All efforts were then related to that vision. The initial vision doesn’t need to be anything more than a drawing on a napkin, and it usually requires major adjustments over time as reality shapes the journey. The visionary (or visionaries) nurtured the acceptance and adoption of the vision over time, as well as the enabling capabilities to make it a reality.

The visions were broken down into typically one-, three- and five- to 10-year horizons. Within each of those horizons, each company determined what the enabling capabilities or essential purpose would be and then delivered on them. The manufacturing company in the example above established that “group systems technology analysis” was the process it would commit to mastering in the first year. The process – which enabled the company to substantially reduce its manufacturing costs by lowering its piece parts from over 100,000 to about 15,000 – became the foundation of the next decade’s focus.

Once companies established the enabling capabilities, they developed the what, how, who and when, as well as the sequence of priorities. The economic issues – costs and investments required, ROI, budgets, shifts in resources, cash flow and financing – could then be more realistically determined and achieved.

It may sound like motherhood and apple pie, but does your enterprise have that clear vision of a new business model, the enabling capabilities, the priorities and economics, and is it executing toward those changes?

Lesson 2:

Continuously balance and adjust the Rubik’s Cube of persistence and enablement.

The faster track to a radically beneficial new business model requires constant re-adjustment of three sides of a cube. The first dimension includes the elements of relentless persistence and passion related to the corporate vision, horizons and enabling capabilities. Despite setbacks, re-assignment of individuals and inadequate resources, the level of momentum and passionate belief that the people involved are making a difference must be sustained at a believable level. Over- or under-hyping can be fatal.

Secondly, the enabling capabilities must be broken down into incremental steps, resources, timeframes and outcomes. How many times have you seen an unwieldy scope kill a good idea or heard the phrase “we tried to boil the ocean.” For the manufacturer, appropriate increments were determined by engineers, using techniques of modeling and load balancing. The financial services firm, meanwhile, applied its sixth sense to determine how high it could jump in response to the elevated expectations of its relentless CEO.

The third dimension relates to the differences between the existing and future state, as well as the changes anticipated for people, processes, behaviors and models. We hear a lot today about bi-modal IT.3 One mode is quick, light and agile, while the other is careful, methodical and industrial-strength. These modes are dissimilar in almost every manner. It would be naive to expect worthwhile light and agile innovations to automatically go mainstream and be broadly institutionalized.

With radical business change, we need to think in terms of tri-modal IT, the third mode being made up of specialized people and processes that aid in the transition from present to future states. In successful enterprises, this mode emerges to link, integrate, adjudicate and migrate the work, behavior, expectations, products and processes of the previous modes. People and processes are seldom fungible; it takes unique capabilities to mold the essence of creative and agile innovation into the institutionalized and broadly positioned traditional IT.

Again, this may sound like motherhood and apple pie, but does your enterprise dedicate active efforts and resources to adjusting three sides of the transformational cube?

Lesson 3:

Follow the vision, not the season.

Multi-year or decades-long transformation journeys will inevitably transcend economic, regulatory and master business platform cycles. All too often, business-IT leadership confuses a change in these cycles with the vision of the new business model.

A veteran CIO once suggested to me that businesses and IT perpetually cycle through four seasons:

The Season of Innovation:

Technology, markets or competition force or provide opportunities for major innovation in aspects of the business model. During this time, resources are made available, incentives encourage innovation, and more organizational slack emerges to enable innovation.

The Season of Consolidation:

Often following a recession or business downturn, resources are downsized, innovation is curtailed, costs are lowered, and controls are tightened.

The Season of Yield:

After investments are made, the focus shifts to achieving greater returns. This may be after the implementation of a major system, such as an ERP or CRM, or a business geographic expansion.

The Season of Re-Platforming:

The enterprise sees the need for a significantly different or enhanced business and operating model. A major, visionary endeavor is funded, resourced and underway.

According to this CIO, the overall vision should not be confused with the season underway or soon to be encountered. This is especially important today. Many businesses experience a seasonal shift from innovation to consolidation, particularly during times of a global economic downturn.

However, there’s never been a greater need to continue pursuing the vision of becoming a more digitally-enhanced business, using the technologies and techniques described in this edition of Cognizanti. Business and IT leaders must use the season as a trade wind at their backs and as a vehicle to sustain the journey. In tight times, the focus of the digital efforts should be trained on cost reduction, complexity, resources required, time to market, as well as process optimization and workflow transfer to customers and partners.

Equally critical is the realization that the management styles, focus, enablement and skills relevant for each season differ dramatically. Few businesses have the luxury of changing their teams and skillsets to adapt to the next season. However, changes in emphasis, leadership styles, expectations and sources are required, as shown in Figure 1. Today’s business and IT leaders cannot afford to postpone their visions, be trapped in a season or rely on previous-season approaches and skills.

Business and IT leaders who can adjust and transcend seasons are the Vivaldis5 of leadership. 

As the aforementioned examples (and many other cases I’ve encountered) suggest, competitive advantage is seldom gained in good times. The rise of numerous game-changing technologies and the fall of economic indicators means the time is ripe to either seize competitive advantage or be at a disadvantage vis-à-vis more proactive rivals.

Business and IT leaders should focus on the lessons outlined above and move toward their visions of enhanced business models, with efforts such as:

  • Focusing SMAC and IoT efforts on cost, efficiencies and complexity reduction in the business and IT.

  • Using a portion of the savings, start low-resource pilots using technologies that power the digitally enhanced business vision. The goal is to build experiential learning and provide a base of possibilities as the economy improves.

  • As resources are reduced, focus the reduction on the elements of the legacy base and the replacement of the enabling capabilities of the digitally enhanced business.

Figure  1

Footnotes

1. “Enabling the Digitally Enhanced Business,” Cognizanti, Volume 8, Issue 1, 2015. This article suggests that the most commonly used examples of digital businesses are those that were designed and managed from the start based on new, digital technologies, processes, products and people. Legacy enterprises must modify their business models, operating models, products, markets, processes, skills and cultures over time to take advantage of what digital technologies can do. The article suggests a more realistic aspiration is to be a digitally enhanced business that makes the transition over time.

2. Over the past 49 years, I have had the opportunity to work with and learn from my work at IBM and Nolan Norton & Co. with over 200 major clients, and as head of research at Gartner. These lessons learned come from that work and the insights of outstanding thought leaders such as Drs. Nolan and Norton, Dr. Peter Keen and Dr. Marianne Broadbent.

3. Bi-modal IT is a term used by Gartner and many others to describe the need for two distinct approaches to managing IT: one for traditional, industrial-strength IT and another for more agile and rapidly adapting IT.

4. “Keep on SMACking: Taking Social, Mobile, Analytics and Cloud to the Bottom Line,” Cognizanti, Volume 6, Issue 1, 2013. This article describes master business and master IT platforms, which are the fundamental building blocks of today’s industrial structure. They both undergo disruptive and new cycles, through growth, full value, maturity and then obsolescence.

5. Antonio Vivaldi was an 18th century Italian Baroque composer whose most famous works were a set of four violin concertos. Each concerto was written to depict a season of the year. Business-IT leaders who can adjust to and function across seasons of business and IT are sometimes called Vivaldis; https://en.wikipedia.org/wiki/Antonio_Vivaldi.

Author

Bruce J. Rogow is a Principal at IT Odyssey and Advisory in Marblehead, Mass. Known as the counselor to CIOs and CEOs on IT strategy, Bruce has for the last 15 years conducted independent, face-to-face interviews with thousands of C-level executives. Previously, he spent five years as Executive Vice-President and Head of Research at Gartner Inc. Prior to that, he was Senior Managing Principal at Nolan, Norton & Co. Bruce can be reached at Bruce@ITOdyssey.com.

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The Last Word: The 50-Year Journey to Digital Business