Digital Enterprise or Algorithmic Enterprise: Transformation Required No Matter what You Call It

“The next big thing for IT leaders today,” writes Stuart Sumner (@StuartSumner), “is to become a data-driven ‘algorithmic enterprise’.”[1] Most analysts discuss the “digital enterprise” rather than the “algorithmic enterprise” because it takes more than algorithms to succeed in the business environment of the future. Don’t get me wrong; algorithms will lie at the heart of most digital enterprises. Nevertheless, the traditional combination of people, processes, and technology will still be required. What’s new is that emerging cognitive computing platforms can improve all three areas of a business. Digital transformation won’t evolve naturally even if the latest technology is installed and used. Organizations need a carefully crafted strategy to achieve that goal; and, the strategy needs to include people, processes, technology, and data. The abundance of data now available to businesses is one reason digital transformation is essential. Mike Mason (@mikemasonca), technology activist and adviser to the CTO at ThoughtWorks, told Sumner, “An effective data strategy is needed to solve traditional problems around legacy applications and multiple, conflicting data sets.”

Developing a Digital Strategy

According to Jeanne W. Ross (@jrossCISR) and Ina M. Sebastianis, from the MIT Center for Information Systems Research, and their colleague Cynthia M. Beath, a professor emerita of information systems at the McCombs School of Business at the University of Texas at Austin, “To succeed today, companies need a unique value proposition that incorporates digital technologies in a way that is difficult for competitors to replicate.”[2] They add, “A great digital strategy provides direction, enabling executives to lead digital initiatives, gauge their progress, and then redirect those efforts as needed. The first step in setting this direction is to decide what kind of digital strategy to pursue: a customer engagement strategy or a digitized solutions strategy.” They explain:

Digital Enterprise 26“A customer engagement strategy targets superior, personalized experiences that engender customer loyalty. A digitized solutions strategy targets information-enriched products and services that deliver new value for customers. The best strategy for a company will depend on its existing capabilities and the way it wants to compete. The most important requirement for a great digital strategy, however, is to choose one kind of strategy or the other, not both. A digital strategy aimed at operational excellence may appear to be a third choice, but increasingly, operational excellence is the minimum requirement for doing business digitally, not the basis for a sustainable competitive advantage.”

According to Mason, another minimum requirement is integrating data. “Harnessing data is absolutely crucial for incorporating the latest generation of machine intelligence,” he told Sumner, “but most organisations suffer from having data locked up in legacy systems or dispersed across a variety of databases, often with poor data quality and conflicting sources of truth. IT leaders must implement an effective data strategy to unlock, preserve and grow their data assets.” The good news is that cognitive computing platforms can help integrate the data they need to provide value to organizations. Despite the availability of new technologies, like cognitive computing platforms, Angus Loten (@angusloten) reports that research by McKinsey & Company analysts concludes organizations have a long way to go in their digital transformation efforts. “Cloud computing, data analytics and other digital capabilities may be the future of business,” he writes, “but for most companies ‘digitization’ is still a work in progress, a new study finds. Industry-wide, companies on average are less than 40% digitized, including everything from deployments of digital tools in their supply chains to customer-facing products and services, according to McKinsey & Co.”[3]

Some companies may be lagging behind because their executives believe digitization is just a passing fad. However, the McKinsey report concludes, “Companies that are quickest to implement digital strategies are likely to capture ‘disproportional gains’ over laggards, in terms of growth. By contrast, as digitization spreads it is expected to ‘dampen revenue and profit growth’ for companies that have been slower to embrace it.” Joe McKendrick (@joemckendrick) believes one reason early adopters of digital transformation will leap ahead of their competition is that cognitive technologies will empower the people part of the puzzle. He explains, “AI potentially will enable organizations to expand in ways that were unthinkable with sheer human brainpower, as powerful as that brainpower may be. The advantage AI brings to the table is that many mundane or grunt-work decisions that occupies human decision-makers’ time — such as locating and fixing a data-transfer bottleneck, tracking machine-part performance, or even medical monitoring — is done by machines. In theory, at least, humans’ roles are freed up and elevated to more strategic vistas.”[4] In other words, a good digital strategy leads to even better business strategies.

Strategies to Consider

Boston Consulting Group analysts, Claude Czechowski (@Clau1Claude), Guillaume Combastet (@Gcombast), and Antoine Gourévitch (@AGourevitch1), assert, “To capture the full value of digital, companies need to advance five fundamental strategies.”[5] They are:

  1. Harness the power of data. “With an endless stream of data flowing from smartphone apps, website browsing, social media messages, and customer transactions of all kinds, companies have enormous opportunities to harness the power of big data. But this data needs to be stored and managed in such a way that it yields accurate predictive modeling and meaningful customer insights.” As noted above, cognitive computing platforms can integrate and analyze both structured and unstructured data, bringing new life to legacy systems in the 21st century.
  2. Redefine the customer journey. “The customer journey is more complex than ever. Today’s consumers have become accustomed to 24-7 availability and seamless interactions across platforms and devices, and they have very limited tolerance for service delays and handoffs. To meet these demands, companies — whether B2C, B2B, or B2B2C — need to put the end user at the center of their enterprises, which means mapping the customer journey, identifying customer pain points, developing prototypes, and testing solutions. This kind of ‘design thinking’ approach allows companies to create a superior user experience.” Keep in mind that Ross and her colleagues warn successful companies will pursue either a customer engagement strategy or a digitized solutions strategy but not both.
  3. Build digital capabilities throughout the enterprise. “Digitization is not an add-on. Rather, it is a fundamental transformation of the core business, which includes functions as diverse as logistics, supply chain, operations, and the back office. Companies have the opportunity to create digital factories that simulate an entire production process. Such digital simulation can be used, for example, to optimize factory layout, identify and correct flaws in the production process, and model product quality. Furthermore, cloud-based solutions, application programming interfaces, and agile operations can be used to improve flexibility and time to market. Companies also need to manage IT by implementing new digital platforms and integrating them with legacy systems.” I agree that a holistic approach is essential; but, as Ross and her colleagues note, operational excellence is the minimum requirement for doing business digitally.
  4. Transform governance and explore collaborative ways of working. “To move at the speed that digital requires, companies need to adopt a new way of working. Cross-functional teams must collaborate to brainstorm ideas, conduct prototyping, run A/B testing, and incorporate feedback from users. This, in turn, will require a new form of governance, in which teams are given more autonomy. While corporate management defines global goals and sets strategic objectives (for instance, capturing a greater percentage of business online by 2020), local teams are given the freedom to operate in a way that ensures they maintain the optimum speed and contribute to corporate objectives.” As I noted earlier, a holistic approach to digital enterprise transformation needs to include people, processes, and technology.
  5. Reinforce innovation capabilities. “It’s important for companies to carry out their digital transformations across three dimensions: transforming the core to be more digitally sophisticated; restructuring the business to become more agile and flexible; and exploring new avenues for breakthrough innovation. To make headway in all three areas, companies should explore new opportunities that arise with regard to open innovation, incubators, innovation centers, and corporate ventures.” At Enterra Solutions®, we encourage a crawl, walk, run approach that involves proof of concept projects, pilot programs, and then full-scale implementation. This approach provides great flexibility and adaptability.

Summary

To transform into a digital enterprise, organizations need to look beyond technology. They need to ensure that people, processes, and technology are all part of the transformation journey. As Czechowski and his colleagues conclude, “Digitization, automation, the Internet of Things, and other technological advances are rapidly changing the global economy, and companies that fail to evolve are at risk. Digital attackers are going after the most profitable parts of incumbents’ businesses, disconnecting them from their customers, stripping away profit centers, and leaving incumbents to manage activities that are more costly and less valuable (as we’ve seen with payments processing in banking). For companies that develop digital capabilities too late, the shakeout can be merciless.”

Footnotes
[1] Stuart Sumner, “How to become a data-driven ‘algorithmic enterprise’,” Computing, 7 November 2016.
[2] Jeanne W. Ross, Ina M. Sebastianis, and Cynthia M. Beath, “How to Develop a Great Digital Strategy,” MIT Sloan Management Review, 8 November 2016.
[3] Angus Loten, “Digitization Still a Work in Progress, McKinsey Says,” The Wall Street Journal, 9 February 2017.
[4] Joe McKendrick, “Artificial Intelligence Doesn’t Just Cut Costs, It Expands Business Brainpower,” Forbes, 24 January 2017.
[5] Claude Czechowski, Guillaume Combastet, and Antoine Gourévitch, “Five Lessons on Digital Transformation from B2C Leaders,” bcg.perspectives, 12 December 2016.

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