Whitepaper written by Michael Rosen and Daniel Lambert

Innovation is accelerating. As much as 75% of the current companies that are part of today's S&P500 index may be replaced within 10 years from now. 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 whitepaper 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% of the current companies that are part of today's S&P500 index may be replaced within 10 years[1]. “The pace of change will never be as slow again as it is today”. This sentiment has been attributed to Hans Ericsson, formerly of Ericsson, Gordon Moore of Intel, and several others, but whoever said it, it is none the less telling. 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.

Several innovative vectors are behind the acceleration of innovation, as shown in Figure 1[2] above, including IT driven, biomedical, energy, transport, smart cities, environmental and materials innovations. Cognitive systems, chatbots, blockchain, robotics, 3D printing, Internet of Things, ephemeral content, 5G communication, facial recognition everywhere, artificial intelligence and virtual reality among others are all IT driven innovation accelerators that are now affecting our everyday lives. These innovation accelerators are built on the 3rd platform technologies of cloud, big data/analytics, social network business and mobility platforms.

Innovations influence each other. For example, the use of Internet of Things is moving into a second phase, where the data from various external devices is used for both future business intelligence analyses and for immediate automated real-time actions influencing other innovations like self-driving vehicles, robotics, smart street lights, solar pavement, drones, climate monitoring, smart food labels, Nano probes, online DNA mapping, Nano particle cancer treatment, to name just a few. Furthermore, automated real-time action will self-improve dramatically with the accelerated use of Artificial Intelligence and Machine Learning, which is influencing many other breakthrough innovations and will most likely be the single largest contributor of upcoming innovations. As mentioned by Erik Brynjolfsson and Andrew McAfee, “Machine Learning systems are often excellent learners. They can achieve superhuman performance in a wide range of activities, including detecting fraud and diagnosing disease. Excellent digital learners are being deployed across the economy, and their impact will be profound.[3]”

Digital Transformation: Current and Future State

From 2017 to 2020 inclusively, direct Digital Transformation investments should increase by 27% per year and reach $6.3 trillion in 2020[4]. Corporations are embracing digital transformation at very different paces. In 2015, 46% of American corporations were lagging at either the Digital Resister maturity stage or at the Digital Explorer maturity stage. At the other end, only 21.4% of American corporations in 2015 are executing proper digital transformation or are digital disruptors according to an IDC survey[5]. For most corporations, there is still a long way to go.

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Figure 2 - IDC's Digital Transformation Maturity Model

Figure 2[6] illustrates IDCs Digital Transformation MaturityScape, which maps the transformational maturity of organizations along five phases. In the ‘managed’ phase, a Digital Transformer company is an organization that has integrated, synergistic business and IT management disciplines. They can deliver digitally to all their inside and outside stakeholders and they can deliver product/service experiences on a continuous basis throughout a lifetime relationship with their customers. The most mature Digital Disruptor companies are aggressively disruptive in the use of new digital technologies and their business model affects their entire market. Their business innovation is based on their strong ecosystem awareness and constant and perpetual feedback from their customers.

New Challenges Triggered by Digital Transformation

Legacy culture, processes that are not customer-driven and ill-aimed financial incentives are major obstacles hampering digital transformation of large corporations. Unavoidably, this results in a new set of challenges that manifest themselves once an organization begins its digital journey[7]:

1. New Set of KPIs Required

To communicate effectively with employees, investors and partners, a new set of KPIs that capture the capabilities of a digital enterprise are in order. They are:

  • KPIs associated with innovation rates to allow greater Leadership Transformation;
  • KPIs focused on customer advocacy for enhanced Customer-Driven Omni-Experience Transformation;
  • KPIs measuring on data capitalization to insure Information Transformation;
  • KPIs aligned on business operations for maximum Operating Model Transformation; and
  • KPIs gaged on the workforce representing Work Source Transformation.

2. New Organizational Structures

Siloed organizational structures lead to obsolescence. A corporation’s customer journey often starts with a Digital Special Projects Team that reports to the CEO and is exploring one or several digital initiative(s) in a structured and formal way. Once an organization becomes a Digital Player, as defined in Figure 2, an Office of Digital Transformation will usually be put in place, which should be reporting again to the CEO and providing governance around the company’s digital strategy. Finally, an organization that has reached the Digital Transformer stage becomes an Embedded Digital Business. Here, digital resources are embedded into the various business units that are digitally transforming and which is orchestrated by a central group that provides common core platforms and digital expertise.

3. New Strategic and Modular Roadmaps

Corporate roadmaps need to be less tactical, less siloed and less short-term driven. Incorporating use cases allows roadmaps to be modular. Use cases can be swapped in and out as they emerge while the corporate ecosystem changes. Roadmaps also require spanning across three horizons:

  • Current Horizon, where a roadmap is conceived with use cases that can be deployed today or rapidly with their underlying technology to support them,
  • Incubation Period, where a roadmap will include use cases that should be incubated and tested before full implementation, and
  • Future Horizon, where a roadmap imagines all the possibilities.

4. New Data-Centric & Action-Driven Platform

A new platform is needed that enables the rapid creation of externally facing digital products, services, and experiences, while aggressively modernizing the internal IT environment in parallel.”

In the new platform, everything is connected to everything else. Data comes in to your organization through connected assets, connected processes, or through APIs. This data circulates through the core, which pulls out insights that circle back into the organization as improved internal processes. Data also comes in through ecosystem engagements like Bots, mobile devices, AR/VR, connected products, etc. Again, this data circulates through the core which turns the data into actions to be taken when engaging with the ecosystem.

At the core of the platform are the algorithms, code, and models that enable your organization to glean the insights and actions from the data. The core is supported by three other sets of services, Integration and Orchestration, Development, and Engagement which together make up the new platform.

5. Customer-Driven Digital Capabilities

Finally, a digitally transforming corporation will also need to create or enhance its customer-driven digital capabilities, planned and enabled by business and enterprise architecture[8], as described in the next section of this white paper.

Customer-Driven Digital Capabilities

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, where most of the additional spending will be directed.

Figure 3[9], illustrates IDC’s Digital Transformation Capability Framework, which is organized around these five key areas, all of which are supported by underlying Operational and Infrastructure capabilities. Each area shows the high level (Level 1) digital capabilities that organizations will 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, such as those shown in Figure 4. Each capability requires bringing together data, technology, process, talent, and governance to implement, operate, and sustain it (A different organization of these capabilities could categorize them instead under the Strategic, Customer Facing, and the Supporting tiers, as described by the Business Architecture Guild’s Guide to the Business Architecture Body of Knowledge® (BIZBOK® Guide)[10]).

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Figure 3 - Digital Transformation Capability Framework

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.

The remainder of this document uses 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 to answer questions like these:

  • What should they do first?
  • Which capabilities provide the most value to their customer experience?
  • Which capabilities provide the most synergy across their different strategies?
  • What are the gaps between existing capabilities and what is needed for the new strategies?
  • What should the specific initiatives and projects be to implement the capabilities and strategies?
  • How will they measure progress and success?

While these questions will not be answered in this whitepaper, we will illustrate two different approaches from a high level that can answer these questions. Let’s first start with the customer experience approach.

Focus on Customer Experience

One technique to examine and define customer experience is with a “value stream”, as illustrated in Figure 4. This 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.

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Figure 4 - Retail Omnichannel eCommerce Value Stream

While the value stream shows a nice high-level presentation of the exchange, there is much more detail to it, as shown in Figure 5. A value stream is triggered by an inside or outside stakeholder to the company. In this case, the triggering stakeholder is a customer. A value stream delivers a Value Proposition, made of a combination of product(s) and service(s) with specific features and benefits. Each value stream is composed of value stages. Each Value Stage has an entry criteria and exit criteria. For each value stage, internal stakeholder(s) contribute in providing value for the company and to the triggering stakeholder.

Figure 5 also shows the enabling digital capabilities (typically level 2 or 3) of each stage of the example Omnichannel eCommerce value stream. For example, the Discovery value stage is enabled by five digital capabilities: customer management, customer experience gamification, recommendation, autonomic conversations, and promotion optimization.

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Figure 5 - Omnichannel eCommerce Value Stream Details

In addition to the specific 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 listed as ‘Enabling Capabilities’ across all of the stages in Figure 5. Okay, that’s good to know, but not enough to create a plan with. However, all the enabling capabilities for the omnichannel eCommerce value stream can be measured across a variety of factors as shown in Figure 6. In this example, measurements 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 with regard to required functionality), and performance heat map degree of execution of a capability). Now, we have enough information to understand the scope of the challenge and start planning.

Measurement tables of digital capabilities are an easy way to understand and prioritize the effort required to meet the organizations strategic goals. In Figure 6 for example, we 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 to make trade offs, manage dependencies, set expectations, and prioritize the projects needed to implement our Commerce strategy. Note that in this example, the Intelligent Fulfillment capability has not been assessed, and several other capabilities have not been evaluated for performance (measures in white are not available yet).

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Figure 6 - Digital Capabilities Measurement Table

Understanding Gaps

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 as a way to optimize sales, inventory, supply chain, and operations. They have planned an initiative to support the strategy as shown in Figure 7.

Gap analysis reports like this are an effective way to orient each initiative making up your roadmap. This example gap analysis report 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.

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Figure 7 - Gap Analysis Report

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.

Conclusion

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% that used to be part of the S&P500.

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[1] Data from this Innosight report entitled “Creative Destruction Whips through Corporate America” written by Richard N. Foster and published during winter 2012.
[2] Here are a few other lists of innovations that will change our future and backs Diagram 1: “10 Breakthrough Innovations that Will Shape the World In 2025”, “30 Innovations That Will Change The World”, “Future technology: 22 Ideas About to Change our World”, “Ten Innovations that Could Change the World”, “Top 10 Emerging Environmental Technologies
[3] Quote from this article entitled “The Business of Artificial Intelligence” written by Erik Brynjolfsson and Andrew McAfee in Harvard Business Review on July 2017.
[4] Data from and IDC press release entitled “IDC Reveals Worldwide Digital Transformation Predictions” published on Nov. 1, 2017.
[5] Source of survey: slide 6 of Thomas Meyer’s presentation at the CIO Summit 2016 event entitled “Driving Digital Transformation: Building Blocks for the Digital Enterprise” published on SlideShare on February 3, 2016.
[6] Source of diagram: press release entitled “Operating Model Transformation is Foundational for Success in Digital Enterprise, according to IDC” published by IDC on Business Wire on June 8, 2015.
[7] Source: Article entitled “5 Things that Are Dragging Down your Digital Transformation” written by Meredith Whalen in CIO.com on November 16, 2017.
[8] Source: this article entitled “How Enterprise Architects Can Help Ensure Success with Digital Transformations” written by Oliver Bossert and Jürgen Laartz from McKinsey & Co on August 2016.
[9] Diagrams 4 to 7 are extracted from Michael Rosen’s presentation at the BBC 2017 event entitled “Business Architecture's Guide to Architecture — How to use Business Architecture for Digital Transformation” held on November 9, 2017.
[10] Learn more about the Guide to the Business Architecture Body of Knowledge® (BIZBOK® Guide) on this webpage.