At the Heart of Digital Transformation

Creating a strategic foundation

To transform is to change in form, appearance, structure, condition, nature, or character. It is an overly used word that can be made to fit several narratives. Yet, given its definition, the dynamics of what is sure to be a volatile and complex future should compel us all to transform. I believe however, that the narrative must change. This is not a technology discussion, and it is not a digital discussion (although digital is the reason we are here). Rather, it is discussion of likely structural shifts that alter our beliefs and intuitions. These shifts will fundamentally change the way we think about organizations.

Through an organizational lens (versus societal) this visual cuts to the heart of transformation – and it starts with an adaptive core. Our networked, software-driven, and platform-oriented world has created a complex adaptive system. In such systems, a perfect understanding of the individual parts does not automatically convey a perfect understanding of the behavior of the whole system – elevating the importance of system thinking. Systems with lots of components behave and interact in a way that makes prediction impossible. With a high degree of uncertainty, and the speed at which shifts are likely to occur, adapting is the only way to survive. An adaptive core is therefore about resilience and relevance. Organizational character therefore must transform, embracing a digital DNA that aligns with the operating environment we find ourselves in. Much like the human spine is our backbone, the heart of the organization must be a digital spine. It is the foundation upon which everything else is built.

If the adaptive core is foundational, platforms represent a dominant growth mechanism. The network orchestration business model enabled by platforms is the fastest and cheapest path to growth. According to Open Matters (machine learning company), network orchestrators outperform companies with other business models in several key areas. These advantages include higher valuations relative to their revenue, faster growth, and larger profit margins. The folks at Open Matters believe this occurs because the value creation performed by the network on behalf of the organization reduces the company’s marginal cost. This phenomenon was described at length in Jeremy Rifkin’s The Zero Marginal Cost Society. Increasingly, businesses will maintain a portfolio of business models, with network orchestration a growing piece of the portfolio.

The final circle takes us back to complex adaptive systems. Value is emergent, in that new forms of value arise rapidly and unexpectedly. This phenomenon grows more acute, as the exponential pace of science and technology accelerates. How then do we stay close to emergent behavior, uncertain situations, unpredictable, unexpressed, and unmet needs? More importantly, how do we convert emergent need to value? Agility is the key to exploiting opportunities resident in emergent need – and the path to agility is complex. Ecosystem services (core capabilities that are consumable in the markets we interact in) enable agility by allowing us to effectively operate in multi-stakeholder ecosystems. Increasingly, our core capabilities are combined with those of ecosystem stakeholders to create value – making ecosystem services the key to agility. Additionally, agility comes from leveraging the abundance of capacity and ideas resident in the human cloud.

Lastly, the markets in which we engage will expand. The challenges are several-fold: innovation in traditional markets; new ways of thinking to capture share in emerging markets (platforms, near zero-marginal cost, etc.); and the ultimate future battlegrounds of emerging ecosystems.

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