The executive role in digital business technology decisions

digital-biz-capabilities

This is a Wikibon Voice of the Community Report, sponsored by Hewlett Packard Enterprise Co. Sponsor Posts are identified paid posts that appear on all pages of SiliconANGLE.com, supporting editorial efforts.

Premise

Businesses know that they must invest in digital capabilities because customers are demanding digital engagement. However, most businesses struggle to reach consensus about what digital business capabilities to build and how to deploy them across cloud and on-premise options.

Executive summary

Technology is having an unprecedented effect on business. Consumer technology grants customers the digital means to search, compare notes and explicitly price options. Cloud-oriented technologies offer firms digital opportunities to simplify, shape, and extend businesses faster and with greater visibility into business results. However, it’s the combination of consumer and enterprise technologies that is driving the most aggressive changes: Because digital engagement improves customers’s ability to influence markets and prices, consumers want digital engagement. They are rewarding brands that offer digital engagement and are forcing organizations across industries, sizes and geographies to respond with digital business that provides superior digital engagement, customer experience, more efficient operations and new business models.

But what is digital business? Is it more than just the hype surrounding automation, electronic enhancements, and multi-channel routes to market? As a business executive, is there something deeper that you need to understand to help you choose outcomes, guide strategy, and lead these important changes?

To answer these and other questions, Wikibon convened a CrowdChat to discuss the impacts of cloud computing and digital business. For an hour in late January 2017, 88 industry experts who are part of the Wikibon community met online to discuss this topic. The conversation comprised nearly 350 collaborative observations that generated nearly 3.4 million customer impressions. Among the key findings from the collaboration (a summary of that CrowdChat can be found here):

  • Digital businesses focus on generating value from data.
  • New digital business capabilities are the foundation for digital business success.
  • Cloud computing is essential, but public cloud is not always the best choice.
  • Business executives are more actively guiding digital business technology choices.

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What is a CrowdChat?

CrowdChat is a community engagement tool used by Wikibon to research innovation. A CrowdChat brings together – online – experts in a domain to discuss complex technology, social and business issues. Wikibon posts questions to these experts, which catalyzes a bloom of conversational interactions about the subject. Wikibon analysts then combine these interactions with other research sources to develop the findings that we publish in a Voice of the Community research paper.

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What is digital business?

Ask Google this question and it takes less than a second to come up with more than 75 million pages ready to answer. A quick survey of the top answers from academics, analysts, and consultants, combined with comments from our CrowdChat with experts, reveals a few general categories of response:

  • Digital business spans the physical and virtual worlds.
  • Digital business is about using information technology to transform business models.
  • Digital business is a new way of doing things that emphasizes empirical management, speed, and customer experience.

None of these answers is wrong; all provide important clues. But each of them describes attributes of digital business without getting to the core management question: What really makes digital business different?

From our extensive interactions with business and technology leaders, Wikibon has developed an answer, too. Our answer borrows from management guru Peter Drucker, who famously stated that a business exists to “create and keep a customer.” We believe that:

A digital business applies data to differentially create and keep customers.

It’s a simple statement, but it has powerful implications. Here are a few:

  • Data can be thought of as fuel for digital business. A business runs on the productivity of money, people, energy, materials and machines. A digital business does too, but adds to that mix specific utilization of data. Moreover, like fuel, data can be more or less refined, which leads to different qualities for data that serve different business purposes. For example, data about orders is used in a relatively raw state to handle flow of finished goods, but with “refinement” can be used to predict a range of supply chain, product management, and customer engagement actions.
  • A business can be comparatively more or less digital. A business that is more digital than another is more successful at differentially applying data to create and keep customers. That is why Amazon is more digital than other retailers.
  • Data can be treated like an asset, but a special kind of asset. Most assets follow the rules of scarcity: If you apply money or a machine or labor to one activity, you generally can’t apply it to another at the same time. Data is different. Data can be copied, shared, combined, and concurrently applied to multiple activities at the same time, both easily and at low cost. Because data doesn’t follow the rules of scarcity, many mistakenly treat data as disposable. But that’s not what a digital business does. When confronted with an opportunity, leaders in digital businesses ask traditional questions like how much money will it take and who is going to do it, but also digital questions like what data will be required and how are we going to get it?
  • Increasing the value of options on data must be a buying criteria for IT. Because data can be combined in so many ways to address so many opportunities, data-related investment decisions must accommodate both current and future data use. For example, the data on what a customer does now has value in making product decisions in the future; the option to use customer data in product decisions must be formally managed. Unfortunately, most technology decision makers still focus on product attributes when buying IT hardware, software, or services. Business leaders should steer IT investment in a new direction: How does this technology selection increase the value of data options relative to other technologies?

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What does the Wikibon community say about digital business strategy?

  • “Organizations are evolving from seeing IT as a cost center to treating IT as part of core innovation team.”
  • [Digital business strategy emphasizes] “time to value . . . agility . . . the ability to change with the market.”
  • “It’s all about speed to market . . . cost is secondary.”

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Which business capabilities are the foundation for digital business?

Every business must possess the capabilities to create and keep customers. A business capability provides the capacity to perform a unique business activity necessary to achieve a specific business outcome. For example, a retailer must possess the capacity to perform merchandise management; for a retailer, it’s a strategic business capability. Business capabilities can be hierarchically arranged; pricing management is a business capability that must be in place if a retailer is going to successfully perform merchandising management.

Business capabilities can be implemented through a range of labor, automation, and sourcing options. One combination does not unlock all business outcomes, but the trend has been to increase automation through information technology. However, it’s important to note that a business capability is not synonymous with business application or technology. When designing approaches to conduct the activities necessary to achieve business outcomes, business executives should seek the best way to conduct the business capability given customer experience, competition, impact on profitability, capital requirements – and data stocks – among others.

What business capabilities are unique to digital business – or businesses that apply data to differentially create and keep customers? During the CrowdChat, we asked the Wikibon community to identify the application forms most important to driving digital business change. We heard a pretty strong consensus that digital business requires an integration of four business capabilities (see Figure 1 in main image, above):

  • Turn analog data into digital data. You – and your customers – operate in an analog world. The sights, sounds, and vibrations you register are not digital in nature, but must be translated into digital signals to be processed by information technology. For example, customer location is not intrinsically digital; it must be translated into a digital signal using GPS (or, perhaps, recorded by a sales associate at a point-of-sale terminal). The emerging internet of things and people (IoT&P) is the business capability that generally will be employed to transduce physical (analog) into virtual (digital) data. At the core of IoT&P will be sensors that continuously monitor and record real work activity.
  • Turn digital streams into analytic models and insights. Capturing digital data rarely is an end in itself. The objective typically is to use that data to inform decisions. Big analytics (or big data) is a rapidly evolving approach to combining data streams of any size, frequency, and structure into models and insights for decision making. Technologies like machine learning offer powerful new approaches to transforming data feeds into actionable insights and models. Machine learning systems – and their kin, AI and cognitive – will refine the data fuel that new kinds of optimization, engagement, and prediction applications will use to run.
  • Turn insights and models into real action. Big analytics informs a decision, but it can’t act. Just as analog data must be translated into digital data to be processed by digital technology, so must the results of big analytics be transduced back into a form suitable for enacting an event in the real world. Wikibon calls the business capability that handles this crucial work systems of enactment. Note that this is where the rubber meets the road in business. Systems of enactment largely determine customer experience, operational efficiency, and business security.
  • Continuously record business events. Applications that handle revenue or operational transactions are not new. Financial, human resources, supply chain and other systems have been a centerpiece of IT for decades. What is new, however, is the need to integrate those legacy systems IoT&P, big analytics, and systems of enactment.

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What does the Wikibon community say about digital business capabilities?

  • “The most critical apps . . . are focused on customer engagement.”
  • “Product functionality, customer engagement, analytics, IoT [are most important], although not necessarily in that order.”
  • “IoT is key to GDP growth from $4.2 trillion (2016) to $11.1 trillion (2025).”

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What role will cloud computing play in digital business?

Different businesses will implement these digital business capabilities according to the unique interplay of customer needs, assets structures, culture and available talent in that business. However, all digital businesses to some degree will employ cloud computing. The reasons are simple. First, cloud computing extends your business’ digital reach to anywhere, anytime. Second, the subscription payment models for cloud services better match your IT utilization and costs. Third, cloud technologies facilitate adding or removing digital business capacity, in relatively granular increments, based on business volumes at any given instant. Fourth, the vector of technology innovation is pointing in the direction of cloud.

However, while your business will use cloud, how it implements cloud is another matter. Public cloud is not always the best option. Contrary to much popular commentary, your digital business designs will require a range of implementation choices because:

  • You can’t do everything in the public cloud. Two factors work against putting everything in the public cloud. The first is unassailable: The laws of physics are against you. Why? Because some digital automation requires such tight time tolerances that you simply don’t have the option to send a signal, even at the speed of light, back and forth from the point of automation to a distant cloud location. A lot of the work of digital business will happen at the “edge,” very close to the point of automation. The second is practical: The bulk of your legacy application portfolio won’t be easy to migrate to the cloud. While this constraint will abate over time, it won’t go away in the next few years. The returns on migrating many workloads to the cloud aren’t attractive.
  • You don’t want to do everything in the public cloud. Even if a digital capability can be implemented in the public cloud, business constraints may require a different approach. Typically, there are two circumstances that call for processing digital capabilities on premise. The first is cost. Moving data can be expensive, and for some types of digital capabilities, the cost can be very high. For example, our research shows that the cost of processing data at the edge can save 90% of the total costs of sustaining an IoT&P application like running a wind farm (see figure 2). The second is that some applications, data, and intellectual property should be kept “for your eyes only” because they are central to your value proposition.
  • Relax. The cloud is coming to your shop, anyway. While public cloud may not always be the best option, cloud innovation is spawning on-premise technology options that subscribe to cloud computing tenets like simple integration with public cloud, subscription payment models, and elastic capacity. New private cloud technology stacks are emerging that will provide a cloud-like experience for any workload. Through the products and services that employ these new stacks, which Wikibon calls “true private cloud” options, business will be able to deploy necessary digital business capabilities while satisfying the constraints of physics, legacy application integration, cost, and IP protection.

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What does the Wikibon community say about cloud utilization?

  • “Saying on-prem is cheaper than public cloud or vice versa is not helpful without proper context.”
  • “Today, just about anything can be done in public cloud. The question is: what . . . should be done?”
  • “The difference between public and private is often about business particulars and their perception of the cloud. For example, we see firms moving data into the cloud for better security and others move data out of the cloud for better security.”

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fig-2-iot-edge-costs

Figure 2: Data Movement Costs Can Make Public Cloud Options Impractical (Source: Wikibon, “The Vital Role of Edge Computing for IoT: 2016 Update,” 8 November 2016)

What will be the role of the business executive in cloud decisions?

Digital business will demand that a lot of money be spent on computing over the next decade. How much? Wikibon forecasts that global IT spending will top US$1.6 trillion dollars in 2026 (see Figure 3). However, the real concern isn’t just how much, but also how will investments move among spending buckets – and who will take responsibility for moving them?

As digital business becomes increasingly central to achieving business outcomes, business executives must get more involved in design and investment decisions for digital capabilities (see Figure 4). Why? Because as customers seek greater digital engagement, your digital business capabilities increasingly become the basis of your brand. By taking more active role in these decisions, business executives can ensure that:

  • Customers, not technology, are the digital business design point. IT tends to organize around technology assets. However, as increasing the value of data assets becomes more central to the IT mission, technology-based organizational forms and cultures will fail the business. Technology competencies will remain essential to any digital business mission, but those competencies must be focused on speed to customer opportunity, into which – frankly – IT professionals have limited visibility and must be provided by business leaders.
  • Digital capabilities can be merchandised. Digital business will affect your business model. Questions pertaining to how you merchandise your digital assets can’t be left to your IT professionals, no matter how savvy they may be. Wikibon believes that a sizable percentage of new SaaS businesses will emanate from non-technology companies. While you want your tech professionals to contribute to these efforts, you don’t want them owning them.
  • Automation and sourcing arrangements are in the business’ best interest. Digital business will impact employment at your firm. How and when will have an enormous impact on employee satisfaction and performance. Again, these are not decisions that should be left to IT professionals.
fig-3-it-spending

Figure 3: Wikibon Worldwide Enterprise IT Projections

 

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What does the Wikibon community say about leading cloud adoption?

  • “It starts at the top because impacts are top and bottom line.”
  • “[Cloud adoption] started with developers, but now we’re seeing more top-down mandates.”
  • “The buying process is now a group decision for everything.”

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fig-4-exec-role

Figure 4: Who Most Strongly Influences Cloud Adoption (Source: Wikibon Crowdchat, January 2017)

Action item

Customer preferences dictate digital business strategies, which can be transformative – and risky. The asset at the center of any digital business strategy is data: How to price, capture, refine and apply it in complex business environments. However, most business executives aren’t prepared to design and configure businesses around data, which leads to much futzing with digital business and frequent execution failures. Going forward, the businesses that win and the executives that succeed will master the role of data in business. One crucial lesson: Technology will not be a one-size-and-place-fits-all proposition. Technology choices alone won’t guarantee digital business success, but the wrong technology decision can ensure digital business failure.

Image: Wikibon