When you hear someone say: “Get a backbone,” what do you think? You probably assume that the individual in question is weak or lacks conviction.
The same can hold true in an organization. If your company lacks a digital backbone – the fundamental, structural support for all your systems, apps, networks, and employees – it is probably too weak to meet today’s competitive challenges. It is essential if you want to digitally transform your company. Like a physical spine, it must be strong: if it fails, everything fails.
But where do you start?
In this series of articles, I will explain how your digital backbone is your most important structure – providing a solid foundation for digital transformation and the future of your business.
Leverage existing core technology
As you race to digitally transform, there are two high-level fundamental tasks:
- Taking your core business – what you do today – and leveraging your technology to do it better, faster, cheaper, more efficiently
- Stepping out of your core business and creating new models that didn’t exist previously.
In this article, I’d like to discuss how you can leverage the technology you already have, making it work for you by creating a solid foundation… a digital backbone for the future.
You probably have years of work and millions of dollars’ worth of core business technologies that you rely on to perform day-to-day activities. You don’t want to rip it out; you would prefer to keep it and simply add new technology for new tasks.
But can your core technology make the jump from business-as-usual to a digitally transformed company? Or is it too weak and rusty to take the leap?
What if you could leverage your core business technology, making it better, cheaper, and faster? And – at the same time – be able to add new technology that helps you to create new business models and drive future profitability?
Start with some data
Leveraging technology means two fundamental things:
- Leveraging data
- Leveraging new software that operates on this data and eventually leads to optimization or (even) new business building.
The world of new-business building is highly industry-specific and even customer-specific. This means that probably the core value-generating software part needs to be developed by your own company – or by close partners. One issue with this new type of enterprise software is that it’s potential for standardization is very low, perhaps even zero.
In contrast, traditional business software use cases like accounting are typically very well-defined and standardized in ERP packages. For example, basic balance sheet transactions constitute a well-documented algorithm, based on standard data structures (which go back all the way to the Italians when they invented bookkeeping in the 16th century).
A fundamental challenge for most enterprises is that they do not have (or have lost) the ability to create their own software in a scalable and broad manner. Over the last decades, many IT organizations morphed into software operations teams with comparably low need for training to perform large software development projects.
This is a consequence of the huge success story of standardized business software, delivered by SAP, Oracle, Salesforce, and the like. In the early days of software, when Software AG started, companies were building their own (business) applications on top of some basic technologies such as a database (e.g., Adabas) and an application-oriented programming language (e.g., Natural).
In the past, we saw huge software development departments with deep knowledge and skills create some complex software. But this “muscle” vanished over time. Hence, the impact of the current wave of digital transformation means they need to train this muscle again, on an even higher level of mission criticality. The notorious shortage of IT- and software-skilled resources makes it even harder.
Race to digitalization
Building up experience and robust processes takes a lot of time and often involves a succession of failed projects. But the grand challenge is not only about internal abilities, it’s also about external threats. I usually refer to this aspect as the “race to digitalization” between industry incumbents who (re-)learn software and software companies (mostly start-ups) who learn an industry. This “race” has already seen some very prominent winners, all of which are on the software side.
Take Amazon, for example. Amazon is not really a retailer; it is (was) a software startup that realized the potential of e-commerce over the Internet, built a software platform, and taught itself how to sell books. So, it solved a technology challenge and learned enough industry knowledge (in this case retail) to become successful. Many traditional retailers, especially those who specialized on catalog-based business, were not able – or not fast enough – to catch up with its ecommerce platforms.
But there is also a cultural dimension to that. Digital transformation can also radically change the relevance and importance of (previously) key roles in organizations. In the case of the catalog retailers, for example, there is the role of the chief procurement officer. He or she ultimately decides which products (articles) make it into the catalog and which do not. The catalog is (was) a physical thing and could only be so thick. So, the decision was crucial and heavily influenced its commercial success. The role was hence highly recognized and held a lot of influence.
Changing the culture – Amazon
Now in the world of e-commerce, the “digital catalog” can be infinitely thick. Amazon, the new iteration of a catalog retailer, sells virtually everything. The role of the chief procurement officer basically vanished overnight. To admit that a key business role is not needed anymore is culturally quite difficult and part of the non-technical dimension of a digital transformation. New roles are created – mostly roles with entirely different skill profiles. For example, the person who is responsible for the user experience of an online store website must understand and improve the way customers are searching and finding products.
Changing the culture – Tesla
Another famous example is Tesla: A software company that taught itself how to build cars around a computer – a piece of software on four wheels. From a car manufacturer’s purist point of view, these cars fall behind some of the traditional quality criteria, such as the legendary “Spaltmass” gap. Tesla cars may not live up to the traditional standards of BMW, Mercedes, Audi and the like but, increasingly, people don’t care.
What they care about is the CO2 footprint and their digital experiences inside the car. The latter is a software challenge, that encompasses the entertainment system, the GPS function, and the new dimension of autonomous driving. Tesla “gets it” and, according to Morgan Stanley’s auto industry analyst Adam Jonas, “Tesla is a car company in the way Apple is a phone company.”
In these examples, successful industry players have been attacked by new companies that sourced their disruptive energy from software expertise. What does this mean for all the other industries? That they too must build and leverage more software.
To do this, they need to get a digital backbone.
In my next article, I will discuss how to leverage your existing technology, and make it better, faster and cheaper.