Innovation is accelerating. As much as 75 percent of the current companies that are part of today’s S&P500 index may be replaced within the next 10 years. Corporations are significantly increasing their digital transformation investments to catch up or stay up. More and more are becoming digital transformers as they are practicing a nimbler and agile architecture while integrating enhanced customer-driven digital capabilities to their arsenal. This article is a summary of a whitepaper that describes how organizations can use new, agile and innovative-driven architecture to successfully stay among the best in their industries.
Corporate lifespan shortened by the acceleration of innovation
The lifespan of companies that are part of the S&P500 Index is shrinking every year. It was 61 years in 1958, closer to 18 years now and it is expected that at the current rate, as much as 75 percent of the current companies that are part of today’s S&P500 index may be replaced within 10 years as mentioned in this report entitled “Creative Destruction Whips through Corporate America.” The challenge faced by all corporations is to grow at or above the pace of their industry. For most of them, the innovation necessary to create enticing and game changing value propositions for their customers and to enhance the long-term evolution of their products can often conflict with the short-term driven operational effectiveness of their current business units. Without successful digital transformation initiatives, most companies unavoidably fall behind the pace of change imposed by their smaller, newer and nimbler rivals, and eventually fade away.
Customer-driven digital capabilities
Legacy culture, processes that are not customer-driven and ill-aimed financial incentives are major obstacles hampering digital transformation of large corporations. To overcome these challenges, IDC has identified five key areas that any organization must address to be successful in their digital transformation: leadership, omni-experience, information, operating model and worksource. Digital transformation requires companies to create or strengthen capabilities among all five domains. Leadership and Worksource are key to an organization’s ability to transform itself. omni-experience, information and operating model are key to enabling new digital products, services and engagement across the ecosystem, and incidentally, are where most of the additional spending will be directed.
IDC’s Digital Transformation Capability Framework (shown in Figure 3 of the whitepaper) is organized around these five key areas, all of which are supported by underlying operational and infrastructure capabilities. Each area defines the high level (Level 1) digital capabilities that organizations need to develop as they transform themselves into a digital enterprise. These high-level capabilities will be decomposed into more granular level 2 to level 4 capabilities that enable value streams. Each capability requires bringing together data, technology, process, talent, and governance to implement, operate, and sustain it.
Providing value using digital capabilities
Because of their stability over time, their flexible relationships with other enterprise constructs, and their partitioned, plug-and-play characteristics, capabilities are especially useful for strategic planning activities such as evaluating and prioritizing different strategic options and planning initiatives to execute them. This is where “business architecture” can provide significant value to digital transformation efforts.
To illustrate this, we use the example of a retail organization that has identified a set of transformational strategies, including an omnichannel ecommerce strategy, and a curated merchandise lifecycle strategy. Once transformative strategies are identified, business architecture allows organizations to answer questions like:
- What should they do first?
- Which capabilities provide the most value to their customer experience?
- How will they measure progress and success?
While these questions will not be answered in this article, we will illustrate two different approaches that can answer these questions. Let’s start with the customer experience approach.
Focus on customer experience
We can elaborate on customer experience using a business architecture “value stream,” which illustrates the value exchange between the retail organization and a customer as they go through different stages of omnichannel ecommerce interaction including search, discovery, buy, fulfill and service.
Value streams can be high level for executive presentation, or very detailed to enable planning, as shown in Figures 4 and 5 of the whitepaper. A value stream is composed of value stages, each of which delivers some item of value to the external stakeholder (customer) and internal participating stakeholders. Each stage is enabled by a set of digital capabilities. For example, the discover value stage is enabled by five digital capabilities: customer management, gamification, recommendation, autonomic conversations and promotion optimization.
In addition to the specifics of our interaction and value, this tells us that to implement this value stream and improve the customer’s omnichannel ecommerce experience, we will need to have all of the capabilities identified as “enabling capabilities” across all of the stages. To complete the plan and answer the questions above, measurement should be used. For example, measurements can include business value (net benefit that will be realized by the retail organization), level of effort (resources required to provide the required level of capability), functionality level (degree of readiness of a capability about required functionality), and performance heat map (degree of execution of a capability).
Measurement tables of digital capabilities are an easy way to understand and prioritize the effort required to meet the organizations strategic goals. Measurement tables can quickly compare which capabilities will provide the most value, require the most effort, have the biggest functionality gaps, or the best or worse performance. This information allows organizations to make trade offs, manage dependencies, set expectations, and prioritize the projects needed to implement our ecommerce strategy.
A different and complementary method of planning can be based on gap analysis. In this example, the retail organization is focused on curated merchandise lifecycle to optimize sales, inventory, supply chain and operations. An initiative is planned to support the strategy.
Gap analysis reports are an effective way to orient each initiative making up your roadmap. For example, the gap analysis report shown in Figure 7 of the whitepaper describes gaps associated with curated merchandise lifecycle management including product design and development, product assortment and product lifecycle management. Each gap includes its current state, a description of the gap item, the aimed future state, the action plan for achieving it, and the capabilities that will be addressed by that plan.
The use of heat maps and/or of gap analysis help organizations make the best decision on what to do, when, and how to structure initiatives that have the most impact on strategic goals, while avoiding redundancy, and maximizing synergies. However, different organizations have different approaches. One organization might be more customer focused and want to use one or several value streams as the starting point. Another organisation’s culture might be focused on gap analysis and architects may avoid the use of a value stream. In both cases, business architecture provides the details that allow for the best decisions to be taken to execute a business strategy.
Every year, more and more corporations are responding to the acceleration of innovation by significantly increasing their digital transformation investments. To increase the odds of success of their digital transformation initiatives, corporations need to make better, information-based decisions, faster. This requires a nimble and agile architecture and a new digital platform composed of digital capabilities, prioritized based on strategy, customer-driven value streams and new KPIs. Their modular roadmaps need to focus both on their current and future state and must allow for quick modification using appropriate exchangeable use cases. By planning and delivering digital transformation using new architectural views and implementing autonomic and very personalized communication methods with their customers and partners, today’s corporations can succeed or disrupt in their markets. Those that don’t will likely be among the 75 percent that used to be part of the S&P500.
Mike Rosen is Research Vice President for Strategic Architecture at IDC, providing research and advice to CIOs, IT executives, and architects on using architecture for digital transformation and improved decision making. He is also a Founding Member and VP of the Business Architecture Guild.