The Plan Is Alive!

Just as with the individual projects, we also set milestones for the digitization of the entire enterprise. Once a milestone has been achieved, the process gets the green light, and fresh money can be injected for the next steps, because, as we remember, budgets in digital companies are only released on a milestone-to-milestone basis. If our target hasn’t been reached by the specified time, we need to ask why: Do we need to change our approach to the plan? Is something wrong with the plan? Does it need to be revised or improved?

Digitization is a journey into the unknown. The transformation plan sets the direction, but will always have to be revisited and adjusted following new findings and experiences. The more processes we digitize, the more their unusualness in the organization recedes, and the new digital system becomes the norm.

Turbocharging with Digital Build-Operate-Transfer

If more speed is needed, we can borrow an approach born in the auto industry: build-operate-transfer (BOT). Automakers commissioned their suppliers to build and operate facilities on their factory premises. Once the specialist firm had brought the facility to full working order, control of the equipment was transferred to the automaker as previously agreed. With digital BOT (DBOT) it’s no longer about plants, but it’s certainly about specialists. To speed up digitization, companies on the transformation journey can call on the services of digital specialists to rapidly digitize the initial processes. After a given period, usually six to nine months, these specialists can then be gradually replaced by the companies’ own employees.

DBOT is far superior to other methods of accelerating the transformation. Permanently outsourcing the digital work to a third-party service provider, for example, means that the business always lacks the necessary expertise in digital, and becomes dangerously reliant on the service provider. Forming a spin-off company with a digitally experienced partner is also fraught with risk: it uncouples the digital future from the traditional business; it transfers out important pillars like the customer relationship, technology, and products; and it limits the company’s ability to feed positive impulses back into the existing organization.

Walmart, the world’s biggest retailer, is a perfect example of how a large corporation can move from the analog world and take the digital world by storm. WalmartLabs grew from a small core of 60 digital experts and now has offices in India, Brazil, and the United States. In 2016, the organization employed 3,500 specialists, all working on ways to redefine the shopping experience of Walmart customers, whether in the physical stores, on the website, or on mobile devices. The aim was bold: “Redefining e-commerce globally.”

The Method Greatly Depends on the Starting Point

The digital level of the company, as defined in Chapter 7.4, determines which approach is needed when it comes to IT. Level 1 organizations have a clear task: regardless of the installed IT base, they need to form an agile IT team for their new digital unit that responds flexibly to the needs of the unit. For them, it’s about immediately applying best practice concepts in their digital unit, and not reverting back to the approaches of the old analog world. Companies at Level 3 have already done much of the work. They are either born digital or digitally transformed, and all work according to agile methods, whether in customer-facing areas, in collaboration with suppliers, or in the back office.

Once again, the people with the most to do are companies at Level 2. In most cases, they have an IT organization that only has isolated agile teams. The majority of their IT operations work according to the old waterfall philosophy—a linear development model originating in industry. Requirements from a list of product specifications are ticked off step-by-step in a laborious process that offers little learning.

Although digital natives like Google are good role models for Level 2 companies because of the way they use IT as a weapon rather than just an administration tool, the ambition of making a big-enough leap to set themselves at a similar level is misguided, because the risk is too high. The traditional IT world still has plenty of life left in it. The data integrity and data relevance maintained by most traditional IT systems are extremely good and should be protected. As such, investment in data integrity must remain a top priority.

The transformation starts with processes that are critical to success and usually customer-facing. All the experiences gained in the areas of agile organization and agile working must now be rolled out to these processes. Think back to the cross-functional teams that develop the first solutions (minimum viable products [MVPs]) in two-week sprints, test them on the market, and quickly incorporate customer feedback into further development. Pace and flexibility mean a real competitive edge here. Lufthansa discovered just that when it came to digitizing its check-in process. Instead of needing the normal six to 12 months to translate findings from customer surveys into a new, improved process, it now only needed two to six weeks. Companies that are able to respond to customer needs in just a matter of weeks can turn their IT into a real weapon.

Success Factors for Two-Speed Companies

Companies that have broken into the digital world from the analog world on the back of a two-speed IT architecture should adopt the DevOps paradigm as practiced by digital natives. DevOps is a contraction of development and operations, and means just that: development and business operations are not separated.

DevOps uses shared incentives and processes for developers and operational personnel, and provides them with shared tools. Software solutions are developed faster and at a higher quality if teams, tools, and IT infrastructure are optimally tailored to one another. To make this possible, companies must be prepared to make extensive investment in technology and personnel.

Rob Alexander, chief information officer (CIO) at the U.S. bank Capital One, oversaw a successful transformation process. Capital One began with a recruitment offensive. The bank had found that while outsourcing work solved short-term problems, in the long term it meant the organization lacked key skills. No sooner were the new recruits on board than they adopted the philosophy of agile development and DevOps. Following the first pilot projects using agile methods, Alexander and his teams discovered that this agile philosophy needn’t be of benefit just to specific areas. Today, Capital One’s entire IT is agile.

Alexander is a big fan, describing it as a “universal method involving continuous learning where results are tested in the market so that products can be constantly improved until you have a really strong offering that can conquer the market.” Capital One is so passionate about driving its digital transformation because it is certain that the victors in the financial industry will be those that operate like the big high-tech firms. That, Alexander says, is where the future of the banking industry lies.

Transforming Agile into the Leading System

In the early stages of the journey toward becoming a two-speed business, the traditional, or legacy, IT dominates the architecture, with the new, agile IT resting on top as an overlay. With the introduction of agility, IT for the first time becomes a weapon because the business can finally act fast, albeit in isolated areas at first.

Gradually, however, agile IT spreads through the legacy IT. For example, if a certain section of customer master data that’s managed in the legacy system in customer-facing processes is no longer important, then the underlying databases can and must be adapted.

After some time and following various waves of process transformations, an architectural question arises: how and when should the agile structures be made into the dominant axis, and how should the legacy systems be adapted without jeopardizing data relevance and integrity? It’s a critical moment. At some point, the high-speed architecture—the overlay—will come to define the entire system architecture. To ensure the transition succeeds, our experience has taught us that the management of IT should be transferred to a new team so that the old warhorses don’t try to rescue their beloved system.

If IT really is to become a corporate weapon, it’s not enough simply to inject talent in the respective departments. Digital competence must also be present at management levels, most importantly at the executive board and supervisory board levels, and at the second management level. IT must become regarded as a new core competency of the company, and the CDO should have an influential voice on management committees. Only then can digitization succeed.

New Business Ideas Stimulate the Organization and Deliver Fresh Impulse

Under Armour, ING, and General Motors had the same idea: they all acquired or took a stake in fast-growing start-ups that support their digital goals. Under Armour acquired MapMyFitness, MyFitnessPal, and Edmondo, all fast-growing sports and fitness apps. With these acquisitions, Under Armour now controls the world’s largest digital health platform, giving it access to massive data sets on its consumer base.¹ ING operates an online mortgage broker platform in the form of Interhyp. General Motors has invested $500 million in Lyft, has bought autonomous vehicle start-up Cruise Automation for $1 billion, and has launched its own car sharing service start-up called Maven.² All of these give GM a route to future markets, but also provide a hedge against current trends that are affecting the automotive industry.

However, aside from the strategic benefits of these acquisitions, it’s almost as important that, in working with the digital natives of the acquired companies, the employees and managers of the traditional companies learn to think and act digital. For example, Robin Thurston, the former CEO of MapMyFitness, was made chief digital officer of Under Armour after the acquisition. Thurston led the company’s connected fitness business—which included the aforementioned acquisitions—and a platform called Record, a hub for health where users could also get updates from popular athletes. Start-ups accelerate the transformation.

Naturally, start-ups can’t assume responsibility for implementing the digital transformation in large corporations, but simply working and dealing with fast-growing, young companies can give the decision makers a feel for fast and agile development methods.

Large companies often institutionalize their stakeholdings and transform them into business units. Under Armour and its connected fitness business is a good example of this.

Many companies are setting up corporate venture capital/investment funds. For example, Toyota as of the beginning of 2017 had invested in 15 tech start-ups through a $310 million fund. Perhaps the most significant example in this category is the Japanese telecommunications and Internet corporation SoftBank, which has established one of the world’s biggest investment funds. The $100 billion SoftBank Vision Fund has investment from the Saudi Arabia government, but also more recently from Apple. In an interview with Reuters, Apple director of communications Josh Rosenstock outlined the importance of the investment: “We believe their new fund will speed the development of technologies which may be strategically important to Apple.”

Acting Decisively, Not Hesitantly

To ensure that the doubters don’t slow down the pacesetters in a complex and comprehensive transformation, speed is absolutely critical. By employing agile methods and concentrating on the rapid rollout of MVPs—those basic starter products that are continuously improved—classic development times can be reduced by up to 90 percent.

Development teams at a major energy utility used dynamic sprint methods to test an initial MVP in just six weeks, fully covering the process stages of discover, define, design, and deliver. The product was an app that helps field engineers detect gas leaks, evaluate the importance of the leak, and trigger the relevant actions in order of urgency.

During the initial discover phase, the developers accompanied the engineers on their site visits, learned which information they needed in what order and context, assessed whether they had one or two hands free to hold a tablet in the specific situations, and when and how they needed and received support from the back office. They also noted the many pain points, such as missing or incorrect data, and the amount of manual list entries that had to be completed on paper. Experts call it ethnographic research, and it’s part of the design thinking development process.

After six weeks and a number of rigorous hackathons, a prototype of the app was ready for field testing. And after various iterative cycles, the final product was ready for market launch another six weeks later. In the past, these types of projects could have lasted up to six years, and might not have even seen the light of day at the end. The rapid market launch of the app triggered a snowball effect: the organization and management were both surprised and delighted, which further cemented their belief in digitization, and in turn further accelerated the transformation.

An Energy Utility Shows the Way

In the first step of the transformation, the energy supplier analyzed its most important processes, and assessed where digitization could offer the most benefit. In terms of production, for example, the aim was to reconcile supply and demand curves using big data. This is no simple task considering fluctuations in supply caused by renewable sources of energy. In terms of transport, a key area is maintenance, which could be made considerably more efficient with predictive analytics. Smart pipeline networks are an option for optimizing distribution. In terms of service, field engineers need constant access to maps, data, and all the necessary software tools. In sales, data analyses and segmentation optimize customer interaction. Other applications include the establishment of a platform on which energy supply, including from third-party suppliers, can be traded in real time, and an automated back office. A wide range of options therefore needs to be prioritized.

Now That We Have the Tools, It’s Time for Action

The targets and metrics have been defined, and the tools are ready. The next step is implementation. The energy utility defined four areas to start first: processes relevant to the customer, suppliers, field engineers, and administration.

1. Customers. The company identified customer-facing processes on the customer journey as those offering the greatest potential. Opportunities exist throughout the value chain to digitize customer contact, and thus reduce costs while improving the service. It starts with production with apps that allow customers who produce and supply green energy to stay up to date with their sold quantities. In the areas of transport and distribution, the energy supplier can install digital alarm systems that notify customers of outages and bottlenecks in real time. In terms of customer contact and service, the company can provide its customers with an app that shows key data at a glance.

   Acting as a consumer dashboard, the app not only shows customers how much energy they are consuming and how this compares to their historical consumption, but it can also suggest ways to save energy, such as running the washing machine during off-peak hours. Such services offer customers genuine added value, while also encouraging more balanced energy consumption during the day when off-peak prices are available due to low demand. And on the corporate side, call centers can be supported or even fully replaced by digital assistants and machine-learning systems that are capable of answering the vast majority of questions, and can forward the call to the right person for the trickier questions. The company can also use advanced analytics to form the millions of customer data points into a detailed customer profile. The smarter the household becomes, the more data it generates, meaning the ability to handle big data became a vital core competency for the energy supplier.

2. Suppliers. The second area on the path toward digitization relates to supplier-facing processes or the supplier journey. At the production stage, it’s about providing digital trading platforms for excess supply. In transport and distribution, it’s about real-time data on deliveries and disruptions. In sales and customer contact, it’s about paperless billing. And in administration, it’s about integrating data on suppliers and energy companies.
3. Field engineers. At the production level, field engineers are provided with apps for safety checks, predictive maintenance, and repair tips. In transport and distribution, two apps for tablets were created. The first is team management in real time, which provides managers with a constant overview of where their engineers are working, what problems they’re working on, and the progress of their work. This app was a great success, helping engineers increase the number of repairs by around 50 percent. The app was developed using textbook agile development practices: programmers and the later users of the app were in constant dialogue on the team, a rapid pilot version was tested by engineers in the field, and the feedback was quickly incorporated into further development, which all led to an attractive app that’s easy to use and has vastly increased productivity. The second is a complementary app that was developed in the same way and helps schedulers plan and prepare their service teams and deployments. Both apps have significantly increased the productivity of field engineers.
4. Administration. At the production stage of the value chain, an app was developed for the real-time forecasting of supply and demand. At the transport and distribution level, an app was created for customer service advisers that shows the customer’s service request and provides the data they need to evaluate the request and provide the customer with a quote. Required services can also be activated and billed, covering the end-to-end process.

While digitization efforts are still ongoing, complete, concrete improvements have already been made. In the customer satisfaction rankings of a leading market research institute, the company moved up three places in just the first year, while year-on-year revenues rose by an impressive 20 percent.

CONCLUSION: THE DIGITAL WORLD DEMANDS A NEW WAY OF THINKING

We have now covered the whole spectrum of establishing, piloting, and scaling a digital transformation. At every phase, speed is of the essence. Three to four weeks are sufficient for clear diagnostics and a plan; three to eight months for a pilot; and one to two years to implement the plan itself throughout the organization. This is integrated digitization—Digital@Scale.

But digitization isn’t just about restructuring the organization. Above all, it’s about establishing a new mind-set: teams instead of hierarchies, networks instead of silos, pace over perfection, and learning from customers, not lecturing them. The digital world demands a new way of thinking. While it may not be easy for everyone to say good-bye to their old systems, it is necessary. As we demonstrated at the start of this book: digitization isn’t an option; it’s a necessity if your business is to survive. It also presents an incredible opportunity—for your company, for your team, and for you as an employee or manager.