CHAPTER 4

The Digital Economy
and What BITA Has To Do with It

Businesses traditionally define themselves by their core competence, with technology being at best an enabler. For example, a progressive retail business may view itself as a merchandising company that uses technology. Let’s shift our perspective for a minute. Can this business be viewed as a technology company that does merchandising? If the answer is yes, this business is almost certainly a part of an emerging new world order. In fact, much before the advent of this new order, the above viewpoint was aptly stated by UPS: “We used to be a trucking company that used technology. We are now a technology company that uses trucks.” Now think about your business in these terms.

Digital technology has permeated the creation, distribution, trade, and consumption of countless products and services across the globe. In other words, the ecosystem of digital computing and communication technologies has engulfed economic activity, giving rise to what has come to be known as the digital economy. While technologies like cloud, Big data, mobility, and social media are essential components, it is their widespread application, particularly in business, that has resulted in the thriving ecosystem that forms the digital economy.

We browsed the history of information technology in Chapter 1. If we take a quick peek into the history of business, we see that early economic activity was driven primarily by the twin engines of production and distribution of goods, and hence was bounded by raw material (natural resources), labor, and capital.6 The value of intellectual property and by extension, technological innovation, was ignored entirely.

When digital technology first made an appearance, it was only in isolated pockets, limited by the digital divide—an inequality regarding access and use of information and communication technologies (ICT). For a business to thrive in the digital economy, the first condition was the abolishment of the digital divide. While its complete elimination is a rather lofty goal and something the world cannot wait for, the twin revolutions spawned by the Internet and mobile technology have considerably narrowed the digital divide, creating the right conditions for the digital economy to thrive.

Incidentally, the digital economy is not just about trade and commerce. It’s a way of life in which digital technology blends seamlessly with almost every sphere of human activity. Let’s look at a few familiar examples.

Photography: Until about the advent of the new millennium, photography was quite different from what it is today. Not everyone had a camera. Those who did were not always carrying it with them. Taking a picture was thus rarely impromptu. It was a process extending for days or weeks, from buying a reel of film, to getting the photos developed and printed. How different from just pulling out your mobile phone and clicking a picture, then sharing it next instant over social media with virtually anyone in the world—all in a matter of seconds.

Banking: Remember the days when every time you needed a bit of cash, you had to go up to the bank (within the working hours), queue up in front of the (human) teller, submit a requisition, and get the cash handed to you over the counter through a small window in the glass? Banking was never fun and very seldom quick. Things have changed with ATMs and more recently with Internet and mobile banking as we know. This is enabled by having all relevant constituents of a banking system—customers, branches, ATMs—on a digital network, which is readily and conveniently accessible.

Shopping: Digital technology has profoundly changed our shopping ways. We walk into the shop as much better-informed customers having done the due research on product specs, variety, and pricing on the Internet. We are provided with a choice of payment options through networked payment machines that are linked to our bank. Our purchasing trends are analyzed in real time to inform us of special offers on products that may be of interest. Lastly, the depleted inventory level at the store is automatically updated to trigger next reordering so that stock-out situations are rare. If, however, we are still not sufficiently immersed in the digital experience, we always have the option of buying stuff online while never leaving the comfort of our sitting room.

Transportation and Navigation: When I was younger, venturing into a new territory almost always meant stopping passersby for directions. Route planning for long distance travel was a manual and often cumbersome exercise. For example, you could never be sure how much to stock up on fuel and supplies since there was no way of knowing the location of filling stations and restaurants on the road, even if you could figure out the route. Cutting to the present, we all have map software on our phones or tablets and are therefore rarely “in the woods.” We also know traffic patterns and alternative routes to get to our destination in the quickest possible time. This is enabled through the blending of satellite imagery with mobile data network and intelligent application software.

There are many other examples from our day-to-day experiences that emphasize the role of digital technology in transforming our lives. Just reflect on the way we now call for taxis, pay our utility bills, or book tickets for movie shows, as compared to 10 years ago. Even governments have forayed into the digital space through various e-governance initiatives.

Let’s turn our attention to the business dimension of the digital economy, which is epitomized by the digital enterprise, and see how the digital economy has expanded horizons and made the world a smaller place at the same time.

The digital enterprise is a product of the digital economy. It is a web-based enterprise surrounded by an ecosystem of technology (ICT), partners (ecosystem alliances), influencers (external environment), and markets (market/consumers), as in Figure 4.1. Successful digital enterprises draw from the enabling constituents of the ecosystem to assure their sustenance and growth.

Figure 4.1 Digital enterprise ecosystem

There are many examples of medium and large enterprises going digital and transforming themselves in the process, leveraging the various constituents of the digital enterprise ecosystem. A few cases in point are Starbucks, Nespresso, McDonald’s, Disney, T-Mobile, and Fujifilm, which the interested reader may like to study.7 Another example, which may resonate with many in India, is presented below.

In varying measures, all digital businesses follow this model, relying on the interplay with the ecosystem constituents within each of the four pillars.

As the spread of digital increases, you come across more and more apps becoming available. “App” has become a euphemism for a digital service. These apps sit on top of a layered stack, most of which is invisible to the end-user. When you invoke an app, you are inviting a whole range of disruptive forces to participate in your digital experience. The app is only the tip of the digital iceberg (Figure 4.2).

Figure 4.2 The digital iceberg

While the B2C and B2B models are more widespread, the digital economy also backs the C2C (consumer to consumer) model. Here, anyone can become a buyer and/or a seller. Many examples exist (like renting residential premises), some of which are quite inventive.

Very few of us would doubt that if there is one thing quite certain about the future, it is digital dominance. Enterprises beating an early path to digital are therefore at a clear and unbeatable advantage.

The digital transformation of an enterprise is a well-thought-out process that typically originates in an idea (or vision) around the innovative use of digital technology and culminates in a clear competitive advantage to the business, as shown (Figure 4.3). Simply put, digital transformation is about boosting your business by leveraging new advances in digital technology. It applies universally and certainly to your business. Think about how you could do this.

Figure 4.3 The power of an idea in the digital world

Gearing Up to Go Digital

Digital transformation is not as daunting a venture as many think it to be. It is crucial, however, to not lose sight of some important signposts along the road:

• The biggest inhibitor to digital adoption in an organization is not the stage of its technological evolution but the mental unpreparedness of its people. Overcoming this may consume precious months or years during which your competition may get an unsurpassable lead. As a first step, therefore, make sure that everyone on the bus shares the digital vision, believes in it, and is passionate about its accomplishment. This always works top-down and must be reinforced by the leadership at every opportunity.
• For businesses and enterprises in the digital economy, a strong Business–IT alignment (BITA) is the new normal. The digital economy demands a strong BITA. Business has become so closely intertwined with Technology that lack of alignment between Business and Technology is the surest recipe for disaster. We shall see how your enterprise measures up on the BITA index in a subsequent chapter.
• Perhaps the biggest threat to traditional enterprises aiming to go digital is the lowering of entry barriers by the digital wave. New entrants often exhibit greater flexibility and can scale up much faster and at considerably lower costs. This stresses the need to be very nimble and fleet-footed. Time is not on your side if you are a large monolithic player striving to achieve, or retain, supremacy in the digital age. But innovation is.
• The digital economy is driven by continuous innovation in products, services, distribution channels, payment methods, and business models. It may not be possible, or feasible, for one company to have expertise in all these segments. The digital value chain may, therefore, have many participants, who may, in other circumstances, be competing. This coopetition is not an exception but a norm in the digital age, with a single offering carrying several integrated elements to deliver a comprehensive experience to the consumer.
• Digital transformation is not a destination but a journey. Each innovation may propagate a series of new possibilities, and the cycle repeats itself. Consequently, once you come up with a digital strategy and business model, and launch yourself as a digital enterprise, you cannot rest on your laurels. As a rule, never stop seeking fresh ideas and keeping your ears tuned to the customer’s voice. More companies have failed due to complacency than owing to an unviable product idea or poorly designed business model.

There is, unfortunately, no time-tested standard flow that works for all enterprises seeking to embark on the digital journey. Like people, enterprises are unique and at different stages of (digital) evolution. Even so, companies on the digital transformation path follow some typical steps, which include the following:

Establish a Sense of Urgency

The start of the digital journey is not something you put in your three-year business plan. The time is now. This sense of urgency is not required only in the CEO, CIO, or the company’s digital champion. There must be a visible and palpable wave of excitement sweeping the enterprise, reinforced through constant motivational communication by the leadership.

Create a Shared Mission and Vision for the Enterprise

A digital transformation is about journeying into the future. The leadership must ensure that everyone on this journey is clear and enthusiastic about its mission (what you must do) and vision (who you intend to become) through constant reinforcement and by “walking the talk.” Freeloaders and skeptics have no place here. Further, to be shared and believed, your mission and vision must present a simple yet inspiring image of the future. Remember that technology is not the purpose for which the enterprise exists. It is only a means to achieve it. Hence your mission statement may not be “We exist to provide online access to cloud-based portfolio information over high-speed communication channels to maximize the earnings of our customers,” but the rather more mundane yet purposeful: “We help our investors achieve the best returns on their portfolio in the quickest time.”

Prepare a Transformation Blueprint

Between the mission and the strategy is the critical phase of developing a blueprint, or a guide for executing the transformation project. This involves analysis and preparation for getting answers to relevant questions about the internal and external factors that can have an impact on the viability of the project. A few relevant questions would be:

• In what way will digital transformation impact our current business model?
• How does it affect our positioning in the value chain?
• How will it help us identify and enter new business areas?
• How vulnerable will we be to disruptions from new entrants?
• Which new capabilities are needed to become an industry leader?

Define Your Digital Transformation Strategy

A strategy is nothing but a plan to achieve your mission (what and how?). While defining the digital strategy for your enterprise, it is important to pick the right questions that the strategy attempts to answer. Though there is no universal set, it may be useful to build your transformation strategy around the following, with the overarching goal of achieving a sustained competitive advantage.

• Market differentiation: How will I create clear market differentiation through digital innovation?
• Customer loyalty: How can the application of enhanced digital tools help me improve customer experience through the life cycle?
• Cost reduction: How can I achieve better productivity and asset management with digital technology?
• Operational efficiency: How can I achieve efficiency
  gains in operations and service delivery through digital
  transformation?
• Agility, speed-to-market: How do I leverage digital technology to optimize my business processes for higher agility and speed-to-market?

Refresh Your Information Technology Charter

The IT function and its leadership in a digital enterprise can no longer be defined only by their ability to manage crises, maintain IT assets, and efficiently run the operations. Digital transformation calls for an IT leadership and organization that can realign the IT people, processes, technology, and information to transform (change) the business creatively and consultatively. In a digital enterprise, IT is an equal stakeholder in the creation of business value, and this must reflect in the renewed IT charter, which should now include:

• Accountability for the business outcome
• Ownership of the customer experience
• Developing the plan and capability for new technology platforms in line with the business roadmap
• Future-proofing the business
• Thought leadership

Design an Adaptable IT Architecture for the Digital Business

Digital business requires a very resilient and robust foundational IT platform, on which new services may easily and quickly be constructed to achieve targeted business outcomes. Enterprise Architecture (EA) is best adapted for digital business as it improves organizational impacts through productivity, agility, product and service timeliness, revenue growth, and cost reduction.8 The essential aspect here is that various business services can be dynamically reconfigured to suit the changing landscape of the digital enterprise.

Develop the Right Structure for Digital Business

For a digital enterprise, the mindsets and competencies required for success are quite different from traditional enterprises. People need to reinvent themselves, and those ensconced in tight comfort zones often do not find a place. It is essential to onboard people who, apart from being competent in their core function, are

• Customer-centric to the point of obsession
• Continuously looking to innovate
• Agile (quick to change), data-driven, challengers of status quo
• Business folks with a strong aptitude for technology
• IT folks with a strong aptitude for business

Digital transformation requires a strong leader with ownership and authority to make changes in the organization, implement current and future digital initiatives, and own the customer experience. This leader may be from the Technology or Business/Marketing organization, with a clear focus on digital strategy that goes beyond functional boundaries.

Boost Your BITA Power as You Prepare Your Digital Launch

The stage is now set for your launch into the digital space. At this juncture, a strong BITA could be a shot-in-the-arm for enterprises. As you construct the digital edifice, Business and IT must take calls on the legacy systems to be retained, revamped, or retired, as well as the future systems to be developed or acquired, considering both the business and technology implications. Also, while the transformation is underway, Business and IT must work interdependently in an agile, iterative cycle to deliver an enhanced user experience as they shape the enterprise’s digital future. Without this functional harmony, or alignment, between Business and IT the transformation could be an exercise in futility. BITA is, therefore, the backbone of digital transformation and early benefits to customers.

The best time to start, if you haven’t already, is now. Run the transformation as your highest priority project with clearly defined milestones and a system of measuring the progress in your journey. Companies that get their project blueprint “bought-in” by all stakeholders early in terms of deliverables, schedule, and funding have the best chance of executing it successfully.

A digital transformation project is run in an agile or iterative mode. This means that it must factor in frequent changes in business requirements, as opposed to a traditional (waterfall) project where all requirements are frozen before the project kicks off, and the next stage only starts when the previous one ends. That is, a flexible approach, which allows for incremental deliveries, is best suited for digital transformation. This also helps with fine-tuning the output by feeding any quality or performance gaps back into the next-stage requirements. It is beyond this book to go into the description of the iterative project methodology, but a conceptual drawing is presented here (Figure 4.4) for context.

Figure 4.4 Iterative project execution cycle

The agile model, which is based on continuous feedback and interaction between users and executors, reduces uncertainty in the final delivery, though there is often some confusion initially with less clarity on precisely what must be prioritized for delivery (Figure 4.5).

Figure 4.5 Project uncertainty

While we have touched on a few essential aspects of transforming to a digital enterprise, let me reemphasize here that digital transformation does not happen by merely adopting new technology. You may implement the most advanced technologies but would still not become a digital enterprise unless the entire organization transforms itself to take advantage of the potential unleashed by these new technologies. It’s a bit like putting the latest smartphone in the hands of your grandmother and expecting her to exploit its full potential even while she is happy with her button-phone and does not aspire to anything beyond! It’s the same for enterprises—people must be ready first.

There are many great examples of successful digital transformation by companies. I had an opportunity to meet with some of the transformation champions, mostly the Chief Information Officer (CIO), Chief Marketing Officer (CMO), or Chief Digital Officer (CDO), at organizations that have successfully transformed their businesses and it was inspiring to hear them speak very passionately about their experiences. They all spoke of the eight steps that we described earlier. Here are some of the other lessons shared by almost all of them:

The world of digital business is a lot different from our familiar world of traditional (or analog) business. The quirks of the digital world would be unimaginable a few years ago. Uber is the largest taxi service in the world, though it does not own a single car. Skype provides one of the world’s largest communication services without owning a single piece of telecom infra! Some of the world’s biggest retailers, like Alibaba, hold no merchandise in their inventories. Even the world’s largest movie house, Netflix, does not own or run a single cinema. Facebook does not create content, yet it is one of the largest media owners on the planet today. If it’s not capital or infrastructure, what has powered the phenomenal rise of these—and many other—successful digital enterprises? The answer lies in focusing on the interface rather than the product, and the ability to leverage technology for business in very innovative ways to weave a reality around an idea that became a vision for the enterprise. Enterprises that have institutionalized BITA have a clear edge.

Before we go into measuring and improving specific dimensions of BITA for your organization, let us look at the results of a survey that was conducted among folks from various organizations on the digital path, and discover the relative importance and role of BITA in influencing enterprise success. This is the topic of the following chapter.