Designed for Digital

1. Digital transformation requires building five essential organizational capabilities

To succeed digitally, companies must define data, business, and infrastructure components and design them for reuse.

Five building blocks. Digital transformation requires developing five key organizational capabilities:

• Shared customer insights
• Operational backbone
• Digital platform
• Accountability framework
• External developer platform

These building blocks are interdependent and mutually reinforcing. They enable companies to:

• Rapidly innovate and deliver digital offerings
• Achieve operational excellence and reliability
• Configure reusable components into new solutions
• Empower teams while maintaining alignment
• Expand value through ecosystem partnerships

Developing these capabilities involves reconfiguring people, processes, and technology. It's a long journey that requires sustained leadership commitment and organizational learning.

2. Shared customer insights drive innovation and value creation

Digital offerings are not just for start-ups.

Customer-centric experimentation. Shared customer insights emerge from constantly conducting experiments to test what digital offerings the company can develop and what customers value. This requires:

• Mechanisms to encourage idea generation and testing (e.g. innovation labs, hackathons, customer co-creation)
• An evidence-based culture of hypothesis-testing and rapid learning
• Processes to share insights across the organization

Companies should:

• Start with a high-level digital vision to guide experiments
• Tightly integrate product development, sales, and service processes
• Formalize knowledge sharing across the enterprise

This approach helps companies find the intersection between what they can do with digital technologies and what customers desire, leading to valuable digital offerings.

3. A robust operational backbone is the foundation for digital success

Digitized does not equal digital.

Operational excellence is table stakes. An operational backbone provides:

• Seamless end-to-end transaction processing
• Reliable, accessible master data
• Visibility into transactions and core processes
• Automation of repetitive processes

Benefits include:

• Increased profitability and customer satisfaction
• Greater agility and innovativeness
• Foundation for digital offerings

Building an operational backbone is challenging for established companies due to legacy systems and processes. Approaches to accelerate development:

• Reduce business complexity
• Narrow the scope of digitization efforts
• Lower standards initially to make faster progress

A robust operational backbone enables companies to focus on innovation rather than fixing operational issues.

4. Digital platforms enable rapid innovation and scalability

Componentization of digital offerings is what's so different about digital.

Reusable digital components. A digital platform is a repository of reusable business, data, and infrastructure components used to rapidly configure digital offerings. Key elements:

• API-enabled components for "plug and play" functionality
• Repositories for data, infrastructure, and business components
• Cloud-based foundation

Benefits:

• Accelerates development of new offerings
• Enables experimentation and continuous improvement
• Supports scalability

Developing a digital platform requires:

• Thinking in terms of components rather than monolithic systems
• Distinguishing stable elements from those that change frequently
• Balancing building components internally vs. acquiring externally

A well-designed digital platform positions companies for rapid innovation and digital growth.

5. Accountability frameworks balance autonomy and alignment

To build and use a digital platform, some people in your company will have to fundamentally change the way they work.

Empowered teams, aligned goals. An accountability framework distributes responsibilities for digital offerings and components to balance autonomy and alignment. Key principles:

• Component owners, not project managers
• Mission, not structure
• Metrics, not directives
• Experiments, not major launches
• Continuous release, not scheduled releases
• Fully resourced teams, not matrixed functions
• Collaboration, not hierarchy
• Trust, not control

Implementation approaches:

• Start small and allow for organizational learning
• Invest in coaching to develop new management skills
• Rethink governance to focus on defining missions rather than allocating resources

An effective accountability framework enables companies to innovate rapidly while maintaining strategic alignment.

6. External developer platforms expand ecosystem value

Unless you can provide the best solutions to your customers' every need in a timely manner all by yourself, you will have to tap into the creativity of outside parties as you generate digital offerings.

Ecosystem partnerships. An external developer platform (ExDP) is a repository of digital components open to external partners. It enables:

• Partners to use the company's components in their offerings
• Creation of an industry platform/marketplace for digital offerings

Benefits:

• Expands portfolio of customer offerings
• Generates new revenue streams
• Increases customer satisfaction

Developing an ExDP requires:

• Identifying strategically valuable components to expose
• Establishing governance for component access and use
• Managing partner relationships effectively

While not all companies need an ExDP immediately, it can become a critical building block for long-term digital success.

7. Successful digital transformation follows a strategic roadmap

There is no single path or target business design defining how to become a successful digital business.

Sequenced capability building. Companies should develop a roadmap to guide their digital transformation, focusing on:

• Fixing critical operational backbone issues early
• Developing the digital platform in parallel with customer insights
• Establishing new accountabilities as digital offerings emerge
• Waiting to build an external developer platform until other capabilities mature

Key recommendations:

• Sequence early development based on most pressing needs
• Develop habits for continuous learning and improvement
• Avoid trying to do everything at once
• Be prepared to adjust course as you learn

A well-designed roadmap helps companies make steady progress without overwhelming organizational change.

8. Designing for digital inspires new value propositions

Companies need to arrange all the pieces of the puzzle so their people will be able to learn how to effectively apply the capabilities of digital technologies to new value propositions.

Inspiration through design. Successful digital companies:

• Are inspired by the capabilities of digital technologies (ubiquitous data, unlimited connectivity, massive automation)
• Redesign their organization to deliver on that inspiration

This involves:

• Imagining new possibilities for customers
• Reconfiguring people, processes, and technology to enable those possibilities
• Creating a learning environment that generates ongoing inspiration

By focusing on both inspiration and design, companies can continuously evolve their value propositions to succeed in the digital economy.

Last updated: August 19, 2024