Young and fearless, Born Digital Organizations (BDOs) now seriously challenge incumbent businesses, business models and value chains across industries. These digital organizations set new standards when it comes to frequency of new product features, cross channel compatibility, 24/7-365 availability, customer customization, user-interface friendliness and price points. Attributes of Born Digital Products:
- Frequent (daily) product updates
- Work across all channels
- Always on
- Aware of its user(s)
- Friendly user-interface
- More affordable (often product-as-a-service)
Clunky products with infrequent updates that is not fully compatible across various channels or always available for consumption face a dark future in a world of less loyal customers. For many incumbents, it is going to be a painful road to the digital economy.
Digitization is changing the global economy
Over the last period of time a number of industries have experienced structural upheavals. Industrial mammoths have become extinct, and others struggle desperately to survive. The main reason being successful Born Digital organizations (BDOs). Spearheaded by iTunes, followed by Spotify and later others, digital music surpassed physical music sales a couple of years back. Music stores got turned into museums overnight. With transaction costs close to zero and worldwide distribution available at a click, music labels have been forced into new business models. Blockbuster, a famous video rental and dvd by email chain, with more than 60,000 employees and 9,000 stores at its peak, is no longer in business, while Netflix a competitor who successfully transitioned into online streaming services and the digital economy, today holds a market value of almost $20bn. Netflix is not resting on its digital laurels, but continues to grab land in new markets, like the satellite broadcasters and the film studios. Tesla, elegantly riding the eco-friendly wave, has in no time threatened one of the most established and tightly couples industries. A new innovative business model that excludes the retailers is not only shaking up the industry, but also “lobbied” politicians. Who would have thought that Tesla at the beginning of 2015 is valued at almost 50% of General Motors? Amazon revolutionized the way books are purchased. Borders, a leading book retailer once with almost 20,000 employees, had to close down. Amazon is today the number one bookseller in the world. On its adventure Amazon, thanks to agility challenges industry after industry. Retailers, in almost any industry now find themselves in deep compete with the low-margin mostly automated business of Amazon. Soon, it is expected to see Amazon providing automated delivery service directly to its customers, which will reduce time to delivery and lower the cost. This will impose great challenges to the delivery services industry. Finally, being in the industry we are in, we have all seen how Amazon AWS revolutionized the IT-industry. The list of disrupted companies and industries continues to grow. Social media companies like Twitter and Facebook have changed the way news are consumed, seriously challenging established mass media players. Let’s not forget the biggest one of them all, Google, with a market capitalization of more than $330bn. Google, a Born Digital Organization is eating up the world’s advertising budget at rapid pace, and it sees no boundaries. Indisputable the world is quickly becoming digitized. The most successful BDOs are harvesting market shares across industries. How come the incumbents allow this? The reason can mostly be explained by the attributes of BDOs products (see above), which prove to be superior to what the incumbents are capable of producing. Incumbents struggle to set the speed and operate in the new lean way. So, what can incumbent Fortune 2,000 organizations do? At CFEngine we have had the pleasure of working with both sides of the camp, and the rest of this blog is an attempt to share some insight and advice the incumbents on how to less painfully transition to the Digital Economy, from an IT-operations point of view.
Incumbents: “Let’s copy…”
Most Fortune 2,000 companies have accepted the dawn of a new digital economy. Management consulting companies like McKinsey and Boston Consulting Group have shared this insight with upper management, analyst companies like Gartner and Forrester keep publishing article after article to middle management. Representatives from the biggest corporations have gone on study tours to Facebook, Twitter, Netlifx and similar BDOs to learn. The main conclusions from these meetings, reports and insights seem to carry the same story, and, generally, it goes like this:
Executive at Fortune 2,000: “What should we do?” Advisors of executive management: “You must copy what the best in class do” Executive at Fortune 2,000: “What do they do?” Advisors of executive management: “They use the cloud” Executive at Fortune 2,000: “My business is unique. Won’t work.” Advisors of executive management: “Well, then build you own cloud” Executive at Fortune 2,000: “Great! Let’s do that!”
Today we rarely see any Fortune 2,000 company that is not either planning or in the testing-phase building out their own private cloud. Whether they use Open Stack, Cloud Stack or any other “stack”, very few private clouds have hit the production, but they all try hard. Most of the advice though seemed to have missed out on some very important issues, and in particular the most important of them all - the people aspect.
Why the road is going to be Painful
BDOs move very fast, and they work diligently to ensure the quality of service is good enough for its customers. Incumbents look to BDOs and want to copy tooling and processes. The path to lean IT turns out very painful for incumbents as it calls for change in organizational structures and trust models. Secondly, rigid, non-interoperable legacy systems still runs a significant part of the incumbent business and must remain part of the equation. Lack of trust In order to move fast one needs to remove time wastes. People and processes are big time wasters. Seek to replace these with automation to unleash the flow. At BDOs we find very efficient change processes where few people, sometimes only one, single handedly can respond to customer requests and push changes into production. To incumbents this might seems crazy, but given that all changes are, as code, rolled out in phases and has full audit trail, this might not be as risky as one think it is. Among today’s incumbents we don’t see much empowerment. We rather see fair of change because precautions of doing wrong can be devastating for one’s career. While the trust model of BDOs is built upon empowerment, the case often seem inverse with the incumbents. Legacy systems still drive revenue Among BDOs, API-driven systems generate all the revenue. Making incremental changes (micro-services), and modify / add / delete related services is easy and quick. Their systems are built with agility in mind. For the incumbents the story differs. Legacy systems with, if any, rare interfaces still generates significant revenue, and cannot be turned off. Making new services work across all channels prove really hard and time consuming. Lack of interoperability among systems is prohibiting lean IT and meeting customer experience of integration across any channel. How many have not painfully experienced IVR systems embraced by most Fortune 2000 companies, where regardless of what you enter, you have to restate your name and number when a representative finally takes your call? As much as the incumbents want to copy and become agile like the BDOs, we see how their current trust-model and legacy systems work against the goal. It doesn’t matter what technology or cloud “stack” one decide to take on unless these more fundamental issues are being addressed. So, what can you do?
What to do?
The majority of today’s automation, devops, private cloud and “Next Gen” initiatives to transit to the Digital Economy among incumbents seem to focus on technology, not people. Perhaps, due to the law of least resistance? (Changing technology is easy while changing people and processes hard). The results of the initiatives one can say end up in either one of two camps: Hopping Along or Green Field. Hopping Along Without upper management support and involvement these projects will fail. Why? Because, looking at BDOs, we find a different trust-model, and changing trust-model among an established organization is insurmountable, and impossible without upper management involvement. In addition to upper management involvement,change agents within the organization, technical engineers and team leads, that are willing to stick their neck out and carry the flag, the flag of automation and empowerment, are needed. Finally, a successful “Next Gen” project will lead to labor restructuring, and change agents under stress. For support, dedicated HR people who understands where thing are going from early on are called for. Very few projects has all of these three professionals lined up. The inevitable result is no change in trust-model and thereby no success at copying the BDOs. Most organizations end up hopping along in increments, failing at making the big leap necessary to compete in the Digital Economy. A typical scenario is projects investigated by architects and lead by Director, or at best a VP-level person. They end up with a new set of tools and tool chain, but the people and trust-model remain the same. The results are marginal. The path to digitization goes through lean IT, and is for the most part about people, not technology. Without changing trust-models, incumbents are likely to continue to hop along for a long period of time. Green Field Not all incumbents “Next Gen” project end up “Hopping Along”. Some projects get upper management support with real mandate to change. Due to rigid legacy systems and established bureaucracies, a normal conclusion then becomes that it is too hard to digitize the organization from within. Such a conclusion leads to spin-offs, or totally new organizations. New organizations that are designed like BDOs from the very start. One hire new young people that bring with them the latest and greatest of technology and mindset. There is support by upper management and mandate to do whatever is needed to become best-in-class, including creating a modern auditable trust-model. The most famous example of this is probably GE Software, a billion dollar project from GE to prepare the company for the Digital Economy. GE Software started out in California last year, and is seeking to employ more than 1,000 software engineers. The project is embraced by their ceo Jeff Immelt and probably set out to be able to compete with BDOs. GE will, like other incumbents, struggle with their legacy systems, but they might have addressed the more critical trust-model.
How to ease the transition to the Digital Economy
The role of rigid legacy systems and consolidation of services will remain a hard nut for most incumbents. This is an inevitable challenge that even today’s API-driven technologies one day proably will face. However, to best improve, one needs to adapt lean IT. Looking at the BDOs, trying to align more to their trust-model is probably where incumbents have the most to win. Incumbents that succeed adapting modern trust-models will have an easier transition to the Digital Economy. This blog will end with 4 concrete pieces of advice to the incumbents wanting to ease the transition to the Digital Economy, from an IT-operations perspective. Three about people, one about the technology, the ratio at which people and technology should be thought of for IT-projects. Advise #1: Think Automation and hire only the best Erik Brynjolfsson and Andrew McAfee argue in their books The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies and Race Against the Machine, and Irreversibly Transforming Employment and the Economy that we moving towards a society of Stars and Superstars, where jobs are automated. We are starting to see this in the IT-organizations of the BDOs, where only a hand-few of people is now doing the job of hundreds. Budget, and be willing to pay your System Engineer $150,000, not $70,000. Hire only the System Administrator who is worth $150,000. Advise#2: Create a trust-based culture Unless lead-times are significantly cut, and people empowered, creating a lean organization that is able to compete with BDO, is very hard. Ensure upper management (C-level) supports the next “Next gen” project, and has granted necessary mandates for change. Work in concert with HR from day one to help them see the bigger picture of the desired end-states. Advise#3: Identify and empower the change agents Transforming an incumbent organization requires courageous and competent change agents. The drastic changes implied by operating more like BDOs, will lead to conflicts and internal opposition. Ensure that these engineer and leaders understand the importance becoming change agents who carry a flag - that they are essential to show the way to the rest. Advise#4: Select a flexible automation tool that works across all platforms Legacy systems will forever be revenue generating. One day, even today’s systems will become legacy. BDO operations are highly automated. Ensure your automation tool and frameworks work across all channels and are well positioned for future technologies.
