“A digital enterprise,” according to one widely accepted definition, “is an organization that uses technology as a competitive advantage in its internal and external operations.” Admittedly that is a broad definition. Ben Rossi (@BenRossi89) asserts, “Digital enterprise is a concept that is about changing the way organizations use and think about technology — moving it from a supporting player to a leading player in the business. However, it has become apparent that organizations are still not clear on a definition of digital enterprise, let alone a road map to become one.”[1] Mapping the road to the digital enterprise is important. Joe McKendrick (@joemckendrick) offers two reasons why. He writes, “There’s been a nonstop stream of chatter that it’s time for companies to shed the husks of their analog and manual ways and evolve into digital enterprises. It really sounds like the way to go: one, because it’s cool; and two, because there are too many scary stories out there about entire industries (publishing and music to name a couple) being thrashed, ground up and spit out in little pieces by digital competitors.”[2] Being “cool” might be ego satisfying, but McKendrick’s second reason (i.e., survival) is a much more compelling reason to transform into a digital enterprise.
McKinsey & Company analysts Karel Dörner (@kdoerner98) and David Edelman (@davidedelman) agree that the definition of what it means to be a digital enterprise remains blurry. “Companies today are rushing headlong to become more digital,” they write. “But what does digital really mean?”[3] McKendrick asserts that “most attempts to define it evoke social, mobile, analytics, and cloud (the SMAC lineup), and mixing some kind of magical concoction of all of the above to digitize one’s way to the seamless, frictionless, service-spewing enterprise your organization was always meant to be.” Although Rossi doesn’t offer a precise definition of what it means to be a digital enterprise, he does draw a picture of one. “In a digital business,” he writes, “digital technology must be at the heart of what the business is doing and how it generates revenue, seizes competitive advantage and produces value. A true digital business will have a profound impact on the way individuals work and the way companies do business in the future.” Dörner and Edelman agree that simply defining what a digital enterprise is or should be doesn’t really help a business make the transformation. “It’s tempting to look for simple definitions,” they write, “but to be meaningful and sustainable, we believe that digital should be seen less as a thing and more a way of doing things.” Not having a crisp definition of the term “digital enterprise” may make some people uncomfortable but I agree with Rossi, Dörner, and Edelman — actions speak louder than words. Dörner and Edelman add, “To help make this definition more concrete, we’ve broken it down into three attributes: creating value at the new frontiers of the business world, creating value in the processes that execute a vision of customer experiences, and building foundational capabilities that support the entire structure.”
Creating Value
Dörner and Edelman observe, “Being digital requires being open to reexamining your entire way of doing business and understanding where the new frontiers of value are. For some companies, capturing new frontiers may be about developing entirely new businesses in adjacent categories; for others, it may be about identifying and going after new value pools in existing sectors.” Rossi adds, “A true digital business represents a more extreme revolution than previous technology-driven changes and will have a profound impact on the way individuals work and the way companies do business in the future.” I really like Dörner’s and Edelman’s emphasis on creating new value pools and exploring new frontiers. Were it not for those attributes, no one would be talking about the need for companies to transform into digital enterprises. They add, “Unlocking value from emerging growth sectors requires a commitment to understanding the implications of developments in the marketplace and evaluating how they may present opportunities or threats. The Internet of Things, for example, is starting to open opportunities for disrupters to use unprecedented levels of data precision to identify flaws in existing value chains.”
Transforming Processes
“Critically,” Dörner, and Edelman write, “digital isn’t about just working to deliver a one-off customer journey. It’s about implementing a cyclical dynamic where processes and capabilities are constantly evolving based on inputs from the customer, fostering ongoing product or service loyalty.” Rossi asserts that a digital enterprise is one that is able to fuse “digital elements to bring about organizational change and drive efficiency and productivity.” He continues:
“Achieving and maintaining a competitive advantage isn’t possible if a business isn’t productive. Boosting productivity is about more than simply adding new processes here and there; instead, organizations need to reorganize how they operate and the way their employees work. The key to achieving this is by eliminating the waste of unnecessary paperwork and overly complicated processes by digitizing and automating the way we collaborate at work. A true digital enterprise will integrate information, processes, work and people so that the entire organization can collaborate more efficiently and effectively, and therefore produce more valuable products and services.”
People, processes, and resources will continue to lie at the heart of a digital enterprise; but, their interrelationships are bound to change.
Desired Capabilities
One would think that the transformation to a digital enterprise begins with technology. Yet Dörner and Edelman place it last on their list of attributes that describe a digital enterprise. Chloe Green (@CGreenwriter) asserts, “Every company wants to succeed in the digital economy — but being a true digital-led business is about more than simply having technology in place.”[4] George Westerman (@gwesterman), a research scientist at MIT’s Initiative on the Digital Economy, states, “What we find with digital transformation work is that it’s not really a technology problem, it’s a leadership problem.”[5] Green adds:
“The tech-mindset has permeated even the most traditional of industries, with almost all businesses finding that IT is becoming an increasingly important pivotal part of their organization. Technology is no longer seen as an internal facilitator of everyday business practices. It is now at the heart of business strategy and data can be used by businesses to harvest, store and analyze relevant information to take a competitive advantage over their rivals.”
Like Green, Dörner and Edelman believe that a company’s mindset establishes the fertile ground needed for a digital enterprise to grow. They believe the technological and organizational processes that allow an enterprise to be agile and fast are made up of two elements. They explain:
“Mind-sets. Being digital is about using data to make better and faster decisions, devolving decision making to smaller teams, and developing much more iterative and rapid ways of doing things. Thinking in this way shouldn’t be limited to just a handful of functions. It should incorporate a broad swath of how companies operate, including creatively partnering with external companies to extend necessary capabilities. A digital mind-set institutionalizes cross-functional collaboration, flattens hierarchies, and builds environments to encourage the generation of new ideas. Incentives and metrics are developed to support such decision-making agility.
“System and data architecture. Digital in the context of IT is focused on creating a two-part environment that decouples legacy systems — which support critical functions and run at a slower pace — from those that support fast-moving, often customer-facing interactions. A key feature of digitized IT is the commitment to building networks that connect devices, objects, and people. This approach is embodied in a continuous-delivery model where cross-functional IT teams automate systems and optimize processes to be able to release and iterate on software quickly.”
One of the best ways to obtain cross-functional interoperability is to implement a cognitive computing system that can provide actionable insights and recommendations drawn from data (both internal and external). A good cognitive computing system can help provide a single version of the truth for corporate decision makers (thus helping to eliminate information silos) and can actually automate routine decisions freeing up human decision makers to deal with more challenging or extraordinary decisions.
Conclusions
Dörner, and Edelman conclude, “Digital is about unlocking growth now. How companies might interpret or act on that definition will vary, but having a clear understanding of what digital means allows business leaders to develop a shared vision of how it can be used to capture value.” Rossi points to other McKinsey research to support his arguments. He writes:
“Analyst firm McKinsey believes the best place to start in the digital enterprise transformation is for an organization to understand the value that it can bring and then decide on priorities. ‘Firstly, they need to understand, really, where is the value of digital. Is it in marketing? Is it in sales? Is it in automating operations or a combination of all of those? Secondly, they need to prioritize. There are always too many things to do in the digital portfolio, and focusing on the ones that count is important.’ Overall, McKinsey believes the value of becoming a digital enterprise should be in reducing costs by replacing labor-intensive activity with software-supported activity, either through full automation or through improving the productivity of individual workers in their jobs.”
The road to becoming a digital enterprise has to start somewhere and identifying where a company can get its greatest value from digitalization is a good place to start. From there, exploring other ways that digitalization can help and then prioritizing those activities are milestones that will mark the road along the way. They will also provide a road map of how that transformation is going to be achieved.
Footnotes
[1] Ben Rossi, “What is a true digital enterprise?” Information Age, 16 February 2015.
[2] Joe McKendrick, “10 Tell-Tale Signs You Are Not In A Digital Enterprise,” Forbes, 28 February 2015.
[3] Karel Dörner and David Edelman, “What ‘digital’ really means,” McKinsey & Company Insights & Publications, July 2015.
[4] Chloe Green, “What does it really mean to be a ‘digital business’?” Information Age, 16 September 2014.
[5] Michael Fitzgerald, “Top CIOs Start the Journey to the ‘Digital Enterprise’,” CIO, 28 October 2014.
