IT leaders face a monumental challenge. They must figure out how to sort through the cacophony of new technologies, buzzwords, and industry hype to find the right digital path forward for their organizations.
And they simply cannot afford to fail.
Those organizations that are fastest to the right digital path will be the ones that win.
The path forward, however, is strewn with the legacy of decisions made long ago — often before any of the current leadership team assumed their roles. While it’s fun to think about the future with a green-field mindset, that’s not reality for IT leaders sitting in the trenches.
To make matters worse, vendors are bombarding business executives with messages describing an unbridled future full of promise — and profits — if they only buy the latest technology innovations.
The result is that IT executives are in an unenviable position. They must somehow identify the precious few game-changing advances that will provide competitive value for their organizations — out of the ever-growing mass of new technologies.
They must then craft a strategy that re-envisions the existing technology stack and blends it with the new value-driving technologies into a cohesive architecture orchestrated explicitly to deliver value for the organization.
Easy, right?
The challenges are real, but there is a solution: IT leaders must shift their governing perspective away from technology, enablement, or even various forms of return on investment (ROI) and instead focus exclusively on competitive value.
In other words, they must develop a new digital business architecture.
Resetting IT’s Governing Value Model
From the beginning, IT organizations have measured value in terms of efficiency. The universal business case has been operational cost reduction. All the talk about digital transformation has done little to change this perspective.
Even today, executives green-light the vast majority of IT projects based on cost reduction-centered ROI calculation models. Whether in the form of operational efficiency or direct savings, cost reduction has been the primary consideration in calculations of IT value.
However, organizations have already realized most of those gains. And the savings-driven projects that remain are achieving smaller and smaller returns.
Technology has emerged out of the back-office shadows to become the primary driver of competitive value in organizations. The problem is that you’d never recognize this fundamental shift simply by sitting in a budget meeting in most enterprise organizations.
Of course, not every component of the technology stack drives competitive value. In fact, most parts of an organization’s technology architecture do not — and that’s a problem. Given so many years of cost reduction focus, most of the resulting technology stack exists for only one purpose: to provide protection against competitive disadvantage.
The vast majority of an organization’s technology investments are now just the cost of doing business. They do not provide any significant cost advantage over competitors — and even if they do, those advantages are always short-lived.
I’m not saying that these investments are not important. The organization would, in fact, almost instantly collapse without them — but the fact remains that they are not providing a competitive advantage to the company.
The New Architectural Framework
Within any enterprise organization, each element of the technology stack exists in one of two value states: those that provide competitive advantage to the organization (competitive) and those that are merely required to keep the organization in the game (sustaining)
But most IT organizations do not know which is which.
To develop a digital business architecture, however, this competitive-value perspective must become the primary perspective which governs all decisions related to technology investments and technical architectures, because it drives the re-envisioning of the entire enterprise technology stack.
Enterprise IT organizations have historically designed technical architectures from a systems perspective. IT gathered business requirements and then deconstructed them into a set of systems that would fulfill those requirements.
When cost optimization was the fundamental business driver, this systems perspective worked fine. However, when the foundational perspective shifts to competitive value, a systems perspective is no longer useful.
In the era of digital business, organizations need a new architectural framework that accounts for the two value states — competitive and sustaining — and enables IT leaders to define a digital business architecture that supports them both appropriately.
Realigning the technology stack from a competitive value perspective eliminates the guesswork on many of the key decisions facing IT leaders today about which technologies to maintain in-house, versus which to deploy to the cloud. This realignment also makes it much easier to sort through the mass of emerging technology innovations to determine which are worthy of investment.
The greater the contribution to competitive value, the greater the need for speed and agility to protect that advantage. For example, the organization may need to respond if a competitor introduces a new salesforce automation system that reduces their cost of sale, but that response probably doesn’t need to be all that swift.
On the other hand, if a competitor introduces something that threatens an organization’s competitive advantage, it will be critical that they have the capability to adapt rapidly and respond to that threat.
The Digital Ecosystem
The new architectural framework decouples a technology’s position in the value stream from its position in the underlying technical architecture.
Legacy technologies will remain in-house. Sustaining technologies residing in the commodity tier will be almost exclusively sitting in SaaS deployments. But everything else will live somewhere in between.
It is irrelevant whether the organization deploys any given technology on in-house environments or on an IaaS or PaaS cloud environment. The only thing that will matter is how it orchestrates the delivery of services throughout the environment to deliver its intended value (competitive or sustaining).
This complex combination of interconnected technology environments, all orchestrated from a competitive value perspective, is what I refer to as a digital ecosystem.
Building these digital ecosystems and leveraging them to create advantage is the subject of my new book, The Ecosystem Advantage: How to Build the Digital Ecosystem That Will Help You Win in the Digital Era.
The resulting digital ecosystems will be unlike the technical architectures of the past. They will be highly fluid, self-correcting environments in which a vast amount of the technical activity occurs outside the walls of the enterprise — with organizations measuring and managing them exclusively from a value perspective.
My Take
As organizations rush to become digital enterprises, the difference between success and market irrelevance will be their ability to break through the clutter and build their unique digital business architecture.
IT leaders must re-envision their technology stack from a competitive value perspective, align both existing and new technology investments to the new architectural framework, and then carefully craft a dynamic digital ecosystem to orchestrate it all in pursuit of market differentiation.
This digital approach is a far cry from the command-and-control approaches of the past — and it will require a fundamental retooling of both the technological and cultural underpinnings of the organization.
Copyright © Intellyx LLC. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers.
This article was originally published in the Intellyx Cortex Newsletter.
