In depth: Changing lanes – the platform-service strategy
New Zealand Expert
By Ilan Oshri; Julia Kotlarsky;Srikanth Iyengar, CIO
To remain relevant, firms require a nimble technological platform that allows its business components and data to be easily re-combinedIlan Oshri, Julia Kotlarsky and Srikanth Iyengar
Firms that wish to survive and thrive in 2019 and beyond should take their lead from eBay, Uber and Airbnb.
All three – and other digitally-born insurgents besides – have built their businesses on a platform-service strategy. It’s an approach that takes advantage of digital business processes and services to create an ecosystem of suppliers, end-users and customers.
A digital platform approach eschews typical infrastructure investment and has the potential to transform the way organisations do business. But its adoption needs to be handled with care. Why? Because transformation demands a cultural shift among business leaders who must rethink the role of IT and challenge conventional understanding of how the business makes money.
To appreciate how this is likely to play out across multiple industry sectors, consider the insurance market.
For many years, insurance has struggled to cope with increasing regulatory demands, legacy systems and slow business processes that depressed the sector’s profitability, pushed up costs and frustrated customers. In addition, insurance has witnessed a major threat from the emergence of born digital FinTech firms, the agile insurgents threatening staid incumbents.
The sector sought remedy for these challenges. Firms have offshored back- and middle-office operations. More recently, some have chosen to deploy automation and artificial intelligence solutions to improve pockets of inefficiencies.
The truth, however, is that neither approach is likely to deliver sustainable competitive advantage. Why? Because such selective ‘hole patching’ ignores one fundamental issue: the need to transform business processes that are currently embedded in a legacy IT infrastructure.
Instead, insurance companies need to first dis-entangle those processes from their IT infrastructure. They need to re-design their old business processes into digital business service components and innovate to deliver value to their customers. Some service components will be delivered in-house, others by external service providers.
In such a setting, the digital infrastructure on which services are delivered is a ‘black-box’, allowing for the reconfiguration of services and data according to market needs. It will offer a variety of routes to enhance competitiveness: starting with innovating back-office operations, such as claim processing, using robotic process automation as a service.
Indeed, simple manual data entry can be easily automated, reducing errors and inconsistencies in reporting which is imperative for regulatory compliance. Elsewhere, chat bots built on natural language processing and sentiment analysis are both improving customer interactions and generating new leads for the firm, thus directly affecting front-office operations.
Using analytical tools on big datasets to develop a refined market segmentation strategy per customer is another area where advanced technologies, consumed as a service, can bring benefits.
For the insurance industry, the list of opportunities goes on. And it doesn’t take a great leap of imagination to visualise how this model might apply to other industries.
Implicit in this new approach is a necessary mentality shift among IT leadership – from championing ownership of technology hardware and software to championing access to the latest IT services
While the benefits of digital platforms are clear, adoption is slow. There are several reasons for this. First, the platform approach requires that organisations decouple technology infrastructure from the business itself. Implicit in this new approach is a necessary mentality shift among IT leadership – from championing ownership of technology hardware and software to championing access to the latest IT services.
Finally, moving to digital platforms ultimately means overhauling the firm’s business models, and possibly challenging existing assumptions about the nature of interactions with the market and its consumer base.
Ownership of IT assets has long been justified as the best way to maintain control and to retain the ability to innovate across the IT value chain. Now, however, there is pressure to reduce IT expenditure and explore alternative solutions that seek to reverse stagnating innovation.
While concerns persist, IT executives should consider the positive impact of digital transformation in three key areas: business processes, data management and a firm’s overarching business model. Let’s take each in turn.
Established organisations typically embed business processes into an IT infrastructure that has evolved over time and now includes a mixture of legacy systems, multiple databases and outdated technologies. Because the two are intertwined, firms find it difficult to modernise and streamline business processes without having to re-configure the IT infrastructure. That’s why the digitalisation proposition is attractive: it offers greater flexibility and less dependency on extensive investment, maintenance and future development of internal IT assets.
As the digital economy accelerates the pace of business model disruption, so processes need to adapt and change. Embeddedness limits a firm’s ability to redesign both the free-standing and integrated components of the business processes. By contrast, separating the technological infrastructure from the business service components allows the firm to rapidly innovate, choosing whether to redesign in-house or contract processes from a service provider and combining them into a seamless service.
For data to be of value, the business needs to be able to analyse unstructured, as well as structured, data at scale and at speed. This is the classical definition of big data. Unfortunately, traditional data management struggles to meet these basic criteria for big data analytics because the data created and used within the business process is often embedded within the IT infrastructure. In contrast, digital platforms that separate service components from physical IT infrastructure, are designed to offer analytical examination of each business process as well as the combination of business components as part of the value chain.
For any business, success depends on knowing its customers: who they are and what they want. In the digital age, the answer to these questions tend to change rapidly. Uber, for example, has launched multiple services such as bike-sharing, ride-sharing, taxi-cab and food delivery services. In each case, it has altered its approach to money making by meeting the needs of its customers.
IT executives should consider the positive impact of digital transformation in three key areas: business processes, data management and a firm’s overarching business model
Uber is not alone in creating new markets at speed, reshaping how revenues are created and appropriated. To remain relevant, firms require a nimble technological platform that allows its business components and data to be easily re-combined. This is where digital platforms become particularly attractive, as they support flexibility, integration of business processes and data without the need to own this IT infrastructure.
We began by looking at the insurance industry but the benefits of the platform-service strategy are being applied elsewhere. Take the automotive industry. Here, various service components are provided as a service, adding value to customers and generating additional revenue for car manufacturers. Services include predictive maintenance, driven by powerful data analytics, and online showrooms that combine virtual reality with artificial intelligence.
These technology-driven solutions directly affect front-office operations and thus require executives to re-evaluate assumptions about how the firm is making money, namely the firm’s business model, and its flexibility in reconfiguring business service components to exploit new opportunities. Recent figures suggest that firms adopting smart automation solutions have seen 50 percent productivity gains in the respective areas.
Overall, only a few very large multinational firms have sufficient scale to consider managing their own in-house IT assets in such a way that it would be compatible with digital business services offered by external service providers. By contrast, the majority of firms would soon realise that insisting on maintaining their own IT resources hampers their ability to manage data. Consequently, this would limit business process flexibility.
While digital platforms do not offer a ‘silver bullet’ solution to a firm’s efficiencies and competitiveness challenges, they provide a tool – nowadays a necessity – for dealing with those challenges. The digital transformation journey is not going to be easy but embarking on it is an inevitability. Some firms will realise this sooner than others.
Dr Ilan Oshriis a professor at the Graduate School of Management at the University of Auckland. He is the author/co-author/editor of 20 books on technology, sourcing and work and has extensively published on the future of work in both academic and managerial journals. He has acted as a consultant to numerous organisations in Europe, the United States and Asia. He is also the co-founder of the European and Chinese global sourcing conferences and a regular speaker in trade and academic events.
Dr Julia Kotlarskyis a professor at the Information Systems and Operations Management group at the University of Auckland. Julia’s research and consultancy work revolves around sourcing and innovation of knowledge-intensive business services. Julia has published15 books on technology, sourcing and work and has written extensively about these topics in both managerial and academic journals. Julia isthe co-founder of theEuropean and Chinese global sourcing conferences and a regular speaker in trade and academic events.
Srikanth Iyengar is Group Chief Executive – Europe, Conduent. A highly regarded industry executive, Srikanth has a strong track record of driving growth and operational excellence. He joined Conduent from Capgemini, where he was a member of the Group Executive Committee and Group Sales Officer, responsible for annual global sales bookings of more than Euro 13B. He also had direct oversight of Capgemini’s strategic global accounts, with annual revenues in excess of Euro 2B. He was a board member of Capgemini Canada and the company’s Innovation Exchange Steering Committee. Srikanth is based in London and was previously a member of the Confederation of Indian Industry (CII)’s India Business Forum in the UK, and of the International Association of Outsourcing Professionals (IAOP)’s Regional Advisory Board. The views expressed in this article are the author’s personal views and not necessarily the views of Conduent.