Why Microservices Will Become a Core Business Strategy for Most Organizations

As an industry, we have collectively returned to that eternal debate about what constitutes a largely technical evolution versus when an important digital idea becomes a full-blown business trend. This has happened before with Web sites, e-commerce, mobile applications, social media, and other well-known advances. It can be hard to remember that at first these were looked at as mostly technology sideshows. Yet they all went on to become serious must-have capabilities on the business side.

Microservices is now a current topic of this debate, as the overall approach is perhaps the most strategic technology trend that’s come along in quite some time. First, a brief definition: Microservices provide a well organized digital structuring of our business capabilities that are exposed to stakeholders who need what our organizations can do, and are usually accessed via open APIs. The concept is now poised to — sooner or later — become the primary digital collaboration fabric with all our enterprise data, IT systems, 3rd party developers, business parters, suppliers, and other stakeholders.

So, you read it here first: Microservices are how most organizations will eventually conduct the majority of their business, internally and externally.

Yet there is still considerable debate and confusion about whether microservices are merely just slightly more elegant network plumbing of our digital systems, of if they actually represent the primary conduit for operating our organizations. I fall in the latter camp, as this platform way of thinking in general has steadily emerged as the leading model for composing and integrating networks of systems and organizations. Don’t get me wrong: We had SOA, Web services, and APIs before — where I once posited that this would turn into a global service phenomenon, which it has — but these each had key details missing or not quite right. At this time, microservices does appear to be the best model we have, honed and culled from over a decade of thousands of organizations experimenting with various approaches.

I am now also clearly seeing from many of my CIO and IT contacts that developing a microservices strategy is rapidly becoming a key priority this year. Not sure that this is broadly the case? Just take a look at the recent JAX Enterprise IT priorities survey, which shows that microservices are currently the 3rd leading IT priority, nearly eclipsing the big trend on the block, cloud computing, one of the other hottest IT topics of recent years.

Yet microservices are often conflated with concepts like APIs, for which there is indeed a considerably close relationship, and so can often be relegated to the ‘we’ve been here already’ bin.

Why the sudden popularity and interest in what appears to simply be a more refined technique to easily integrate and communicate between digital systems? For almost all the same reasons that the Business of APIs and the API Economy had their days in the sun: Microservices take so many of the lessons learned in creating more composable, reusable, and platform-centric version of our digital organizations, strips them down to their very basics in terms of design and consumption, and then places them at the very center of how our organizations operate. (Note: Not everyone would agree at the strategic level that microservices should be designed and offered at the business domain or architecture level but many, including myself, do.)

Naturally, the question is why would we do this, and why would it be just about the most important thing we could do to enable a host of vital business activities and outcomes? Put simply, microservices hold the promise of truly unleashing the greatly underutilized assets of our organizations, both strategic and tactical. These assets include everything from data to talent to innovation, and up until now, we’ve been doing it piecemeal and without a real enterprise-wide design (though I’m cautious about overly top-down efforts here as well.)

Microservices: Building Blocks of the Modern Digital Value Chain

Microservices, by virtue of offering a well-structured way to engage and integrate with the world at large in scalable, digital terms, now appear to hold the answer to enabling faster digital transformation, lowering our levels of of tight coupling and technical debt, and substantially increasing much needed levels of IT integration. More centrally to business impact and growth, they also make it possible for us to build and cultivate bigger and more robust digital ecosystems with our stakeholders. This includes 3rd party developers and business partners to our very own workers and customers.

For me, I first saw the writing on the wall several years ago when I was helping develop the API strategy for the CIO of one of the largest organizations in the world. We had just completed an all-day workshop studying the benefits of opening up systems and data more simply and easily to make them as consumable as possible. I stressed these key points: 1) Open APIs make it far easier to create and innovate on top of existing IT and data, 2) they make it easy to create additional value many times over through nearly effortless integration between systems, 3) they achieve this asynchronously and highly cost effectively by systematically designing a high leverage and productized point of global interaction upfront, instead of hundreds of expensive point-to-point integrations over time. Upon reviewing this, the CIO suddenly sat back, the light clearly having come on, and said, “I get it now. The logical conclusion of all of this is that we need to provide a URI for every piece of data in our organization.” He was exactly right.

Put simply, this means that every element of enterprise data would have a unique link to it through a well-defined interface, which anyone can easily find and use to (yes, securely) access it and update it if appropriate. As I’m fond of saying, civilization advances when formerly difficult things become easier. This is exactly the vision behind microservices: Build and provide an incredibly simple and straightforward way of exposing our businesses in a highly useful and constructive manner so that the effort to connect systems into value chains becomes essentially near zero in practical terms.

Mindset: What Would Happen If Anyone Could Build Anything On Your Business?

The question I then put to those still trying to understand all this is the following: If we could access all our enterprise data simply and easily and could then integrate systems together with just a few lines of code, what could we do this with power? Virtually anything we can dream of, with almost no economic, technical, organization, or political barriers to achieving whatever we — or, and this is the big key, others — could dream of doing with our systems and data.

Because once strategic microservices that enable this are operational, then anything is possible. That’s because virtually all of our enterprise data can be reached, it can be harnessed, analyzed, and it can flow through to wherever it needs to be to extend and empower the stakeholder/customer experience. In fact, it’s the most potent way we know of yet to create and capture shared value and to do this so efficiently that literally orders of magnitude more high value integrations, connections, and innovations will take place (see: How Amazon Web Services makes most of Amazon’s profit.)

So why hasn’t this happened except in organizations at the very leading edge of the digital maturity curve? Because it takes 1) an understanding of the vital — even existential — importance of doing so in order to rapidly gather around a vibrant ecosystems of app creators, integrators, partners, suppliers, customers, and stakeholders and 2) the pre-emptive removal of the aforementioned economical, technical, organizational, and political barriers to doing so. In short, creating microservices, though they themselves are profoundly elemental network-accessible business capabilities to our organizations, takes real work, much of it consisting of softer, non-technical obstacles in the realm of culture, mindset, inclination, and leadership.

We already see examples of this happening at the enterprise vendor level. A particularly compelling example of a global set of microservices that expose much of what an organization does is Microsoft Graph, along with their microservices-friendly Service Fabric. While some will quibble with whether MS Graph is a set of microservices in the pure sense, the point is this: Much of what Microsoft offers its customers via its products is accessible within a well-organized enterprise-class set of data services. This is strategic to the point that Sayta Nadella has even called Microsoft Graph their “most important bet”, for all the previously cited reasons.

Microservices are also well established at some of the leading organizations in the world, including Amazon, Netflix, Uber, and a good many others. Less clear is traditional enterprise adoption at the strategic level, though my personal anecdotal evidence is that this is now very much underway in a growing number of organizations. Another proof point of expected growth is that business consulting firms like Deloitte are seriously talking about microservices as enablers for open banking and other industry transformations.

Microservices and Business: The Future

However, in today’s extremely fast-moving world, coming to the conclusion through a largely accidental and piecemeal route that microservices are the future will simply take too long from a competitive standpoint. This will result in a very much less than optimal set of services for your stakeholders. Thus, my advice on microservices in the enterprise is currently this:

  1. Most organizations should now begin a concerted effort to create an enterprise-wide set of microservices. And do it as a part of an overarching business strategy.
  2. This effort should be decentralized but a centrally coordinated effort. To be used to identify and design needed microservices.
  3. A commitment must be made to be in the business of integration and dynamic digital value chain building. Half measures have long-doomed efforts at SOA, APIs, developer networks, etc.
  4. Use design thinking to understand the needs of microservices consumers, then meet them. Understanding what the needs are, and being deeply empathetic to key issues like ease-of-use, performance, and the right to build a 3rd party business on them is key.
  5. Operate your microservices like your core business. Because they soon will be. Invest in them, advertise them, evangelize them, encourage usage, support them, and generate revenue with them.

A growing number of organizations I work with, including most recently one of the largest federal government agencies in the U.S., are now fully cognizant that most of their business will soon be conducted through digital channels. That aforementioned agency is already doing over a quarter of its business through APIs, and expects it will be over half in the next few years. They believe moving from data-based APIs to business-oriented microservices is their next task to go to the next level. So should it be for most organizations.

For the enterprise, achieving success with microservices is certainly possible through a patchwork of department APIs that are designed and operated without an overall business strategy, design, or structure. Or we can adopt a holistic microservices approach to create a more uniform, rational, consistent, and contextual set of open digital capabilities that also forms the basis of business strategy and architecture for the organization. The story is unfolding rapidly, and as I mentioned, I’m seeing an all-time high interest in microservices at the most strategic IT levels. Now that story must be told, understood, and realized on the business leadership side as well.

Update on September 20th: A few commenters have noted that they don’t think that most organizations believe microservices and APIs are actually viewed as business strategy, much less core to it. However, supporting many of the assertions I make above, I recently encountered a recent study from Cloud Elements. Their 2018 integration survey (which included 400+ companies, 27 industries with 26 outside of tech including finance, communications, engineering, and transportation on 6 continents) reported that 61% found APIs to be critical to their business strategy, and 85% fundamental:

APIs (open access to microservices) is Essential to Business Strategy

Additional Reading

My current Astrochart for the New C-Suite: Microservices figures prominently as a key C-level technology and business strategy

A Discussion of the Past and Future of Web APIs with Dion Hinchcliffe | InfoQ

How can businesses keep up with tech change today? | ZDNet

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Designing the Digital Workplace for the End-to-End Employee Experience

As digital becomes instrumental to virtually every aspect of how we do our work in organizations today, two parallel and closely related concerns have joined the industry discussion. These two concerns, workforce engagement (which technology can very much help with) and the employee journey, have risen as urgent topics and joined the overall conversation about the needed capabilities of our work environments. This is because the designs of our future digital workplaces will so deeply inform and define these issues.

Over the last few years, I’ve noticed that most enterprises are still not adequately addressing how to effectively develop and maintain a straightforward and effective approach to technology enablement of the most important activities in the workplace. The proximate cause is sheer complexity as well as experiential noise, mostly of too much information with too little filter. Yet ironically, our businesses actually need to incorporate more technology and data into work procsses, not less, to do our jobs better and evolve the organization.

Thus, the way workplace technology is selected, provided, situated, and supported as a whole has proven generally insufficient to the task of addressing the trio of concerns I’d outlined above. We also have some significant new headwinds that aren’t helping and must be addressed constructively: Pronounced channel proliferation and fragmentation as well as an explosion of apps that run or better enable the business, especially in the mobile space. We generally need these applications, but not when their isolation (most don’t connect well to other systems) and fragmented data creates cognitive overload or involves too much effort for us to effectively use.

The Digital Transformation of the Workplace for End-to-End Employee Experience

Thus I still see many too many workers that in their day-to-day jobs still have to focus on spending much of their time feeding their work systems manually, via import/export and numerous other means, cobbling together an ad hoc experience across dozens of apps, just to prepare to begin their jobs for the day, instead of focusing on the more strategic higher-order knowledge work at hand.

The bottom line: Most practitioners I speak with believe there is plenty of room to improve this situation considerably, but aren’t generally sure how yet. Because of this unclear path forward, most of workplaces are still not expending any real effort in developing a more workable and usable overall employee digital experience. This is a major lost opportunity and it ultimately fails to serve our workers, our organizations, and our customers in vital ways. What’s more, it’s only going to become more of a challenge in the near future as IT continues to proliferate in every part of our enterprises.

Yet I do find that some of the solution(s) to this situation — and which will take real vision, commitment, and sustained change to realize — do exist in early form and are increasingly at hand.

Reconciling digital workplace with employee experience

To address all this, a while back I suggested that we were going to have to develop multi-layered strategies based on one or two experience hubs to cope with the increasingly dense and rich landscape of digital workplace tech. Sooner, rather than later, that we’re going to have to make the user experience, data experience, and community experiences more connected, holistic, and integrated, into some form of better integrated whole that probably looks like a) an enterprise social network, b) an intranet platform, or c) other experience platform where the employee digital experience can be better designed, orchestrated, simplified, aggregated, and connected to the apps and data needed to get work done.

I still believe this, but I also now realize that even with this we’re still neglecting the overall picture of employee experience, something that human resources (HR) has long focused on but that IT generally has not, even though our workplaces have inexorably become more and more digitized.

The opportunity is clear: By apply coherent purpose and design to the full end-to-end employee experience (pre-hire, employment, and post employment) — yet also proactively allowing ‘eccentric activity’ all around the margins that will drive needed the digital competition for new ways of working (and therefore rapid forward progress) — we can simplify, streamline, and direct the design of our workplaces (digital and physical) as it relates to technology to realize a far better employee experience.

To be clear, we won’t — and can’t — design or control the entire employee experience. That’s simply not possible, nor desirable, in today’s highly complex, fast changing, and sophisticated operating environments. Instead, we’ll use a design for loss of control mindset to transform the employee experience while focusing on the major use cases and employee journeys that matter most, while letting local change agents pioneer new ideas around the edge.

Using Design Thinking and Digital Workplace Strategy to Design and Develop a Better Employee Experience

To realize this change we’ll need to make digital workplace a higher order design journey with close partnership between HR and IT (really, in my projects, it’s mostly had to be the CIO and CHRO, who almost exclusively have the purview to mandate bringing together employee experience of every kind under a single umbrella.) Organizations that go from an accidental digital workplace to a more designed one will have much better results with their overall employee experience as well as targeted use cases (typically sales, project management, operations, product development) that have both high impact and strategic significance to the organization.

I’ll be exploring this confluence of the three main organizational experiences (worker, customers, and supplier) increasingly as part of my work in understanding the digital leadership issues in the enterprise. I believe these must be the primary focus of our organizations going forward, and addressing one helps address the others.

Catch me in person: You also can join me in Rotterdam, the Netherlands on May 21st, 2018 to further this discussion as I explore how to apply design thinking and digital workplace strategy to end-to-end employee experience from my latest digital workplace project efforts.
Engage Workshop, Rotterdam, Netherlands with Dion Hinchcliffe and Ellen Feaheny on Digital Workplace and End-to-End Employee Experience

Digital Transformation in 2018: Sustainably Delivering on the Promise at Scale

In 2017, we witnessed organizations take up the mantle of digital transformation with more conviction and effort than any time before. Funding, commitment, and leadership support was at its highest level ever and only showed signs of increased dedication. Ongoing success stories from many leading organizations showed that large scale technological and business transition was also possible for the typical company, not just industry leaders. Perhaps most vitally, the imperative itself became even clearer to leaders as disruption began to penetrate even into long resistant industries like healthcare, finance, and even insurance.

Yet it was also evident that last year was another major learning year, because through our efforts many of us gained an even fuller appreciation of the sheer size and scope of the required journey ahead of us. Combined this with the steady proliferation of new and important technologies last year and we gained both fresh urgency and a better understanding of the true challenges facing us. In 2017, the Internet of Things and artificial intelligence were felt particularly profoundly on the transformation agenda in the industry, along with data science, analytics, and other forms of capitalizing on the vast and invaluable streams of new information that better digitized businesses generate. 2018 will see the same, but with much more focus on reaching the market effectively and seizing network effect, and less on experimentation.

Of all the many lessons learned on digital transformation last year, perhaps the most important was that the complexity and pervasiveness of the necessary changes — organizational, cultural, and especially mindset — as well as the new technologies themselves require powerful new tools and techniques that simply didn’t exist a couple of years ago.

The Two Dimensions of Digital Transformation in 2018: Upside and Oversight for Opportunity, Governance, and Risk Management

The Twin Digital Transformation Lessons of 2017

Two of these new tools and techniques — culled from the hard won experience of the early movers in digital transformation — are particularly worthy of calling out.

The first was a result of the realization that a single, overly centralized change entity like the IT department, the digital line of business (usually led by the chief digital officer), or tech incubator was not sufficient in realizing the profound rethinking and realization of the entire organization in more digital terms. In fact, these entities might not even be that helpful in that they are overly focused on technology and may not have the requisite experience in applying to the redesign and transformation of the business itself. Instead, more decentralized yet highly engaged entities like empowered groups of change agents or networks of transformation teams seem to be more effective are driving long-term change both deeply and widely across the organization. This evidence is backed up by careful research last year by Professor Gerald Kane and his colleagues that digitally mature companies are more likely to have impactful enterprise-wide transformation efforts.

The second insight was that the raw building blocks for digital transformation that existed were simply too primitive, not situated for business use, too little informed by the vital patterns and practices now known to be necessary, and not designed to rapidly incorporate new technology and additional lessons learned as they emerged. In the past, we would have said we needed frameworks for digital transformation, and while those emerged as well, what we really needed was much more operational constructs that had these vital ingredients: A relatively complete cloud tech stack, workable blueprints for specific industries, architectures designed for high leverage that support rapid change, and business solutions crafted to a 40-60% level of completeness and waiting for the details of your business to fill in the rest. While Amazon Web Services, Microsoft Azure, and Google Cloud provided some of these building blocks, they simply weren’t complete on their own. Organizations such as SAP (with its Leonardo offering), Accenture, and others have thus created what I’ve called digital transformation target platforms, which are more mature, complete, and business-focused transformation vehicles and operational capabilities. Note: For more details, you can find a fuller explanation and list of such enabling target platforms on my recent shortlist.

Combined, these two lessons learned — which are equally balanced between the people equation and the technology challenges — are vital in my analysis to successfully tackle the digital change obstacles and opportunities at sufficient speed and scale. That’s because there are very significant competitive implications — that would be irrelevance and/or outright disruption — to moving too slowly or tackling digital change too narrowly and in silos.

The good news in my experience over the last year: More and more organizations are now indeed staring to find these onramps to the superhighway of much more rapid and effective digital transformation. Enough now so that it’s led to a second major — and steadily growing — issue that must itself now be managed as a top priority new purview. This quickly accumulating new tech and business portfolio which comes from achieving a higher change velocity must be well-managed and governed. We simply must keep our new digital businesses secure in an age of Meltdown and Spectre as well as complying with GDPR and all the other rapidly emerging digital regulations that threaten to impede our efforts.

The Two Dimensions of Digital Transformation in 2018

As we’ve emerged from the very early days of digitization, there is now a clearer sense of how to tie emerging technologies to specific outcomes. A generic example of such a map is shown above, depicting how technologies can combine and reinforce key desired outcomes ranging from data-driven management of the business and better employee engagement to satisfied customers and higher growth and revenue, while also optimizing the results, governing it all, and keeping everything running safely and securely. These outcomes can be broken down today into two different key dimensions.

The first dimension of digital transformation outcomes, what I call the upside objectives, is what most organizations have been mostly focused on until now, as they try to get out of the gate to create initial wins. You can see from the accompanying visual above, that technology does indeed define the art-of-the-possible when it comes to disruptive new products and services (blue circles, center.) While lightweight IT integration, cloud, analytics, architectures of participation, and smart mobility have been technology approaches we’ve had for a while, the modern focus on digital transformation tends to be today on building and wielding customer-facing experiences infused with digital business models, interconnected ecosystems, services built on top of the Internet of Things, and with many flavors of artificial intelligence to make it personal and differentiated. Even the digital workplace is seeing fairly comprehensive overhauls in many organizations precisely to provide the tools and environment for workers en masse to be more effective at transforming their part of the organization. As a result, low code tools, citizen developer, personalized digital workplaces, hackathons, and other ways of spreading out the hands-on transformation process to the edges of the organization to move more quickly are a focus here.

The second dimension of digital transformation outcomes, let’s call it oversight objectives, is a newer one that hasn’t had nearly as much focus so far but is about to become very important as organizations digitally innovate faster and create far more complex ecosystems and stakeholder-facing experiences. Otherwise known as operations, governance, performance optimization, risk management, and cybersecurity, these oversight capabilities must get better and scale just as much as the upside portion of the portfolio. To ensure these capabilities are funded and resourced just as well as the other side of the digital transformation coin is going to be one of the next big challenges.

The reality is that most legacy organizations are not structured or funded for delivering on continuous change as the norm, to do it sustainably, or at the scale required today. While we’re seeing next-generation organization models that will help, we’re all still learning a great deal about how to design the contemporary digital organization. That we simply have to figure it out is the reality for most of us, but the good news going into 2018 is that we have some promising avenues to explore for more successful results.

Additional Reading

In Digital Transformation, The Art-of-the-Possible and Average Practice Are Diverging

Digital Transformation and the Leadership Quandary

What’s really holding back today’s CIO from digital transformation?

In Digital Transformation, The Art-of-the-Possible and Average Practice Are Diverging

I’ve long noticed an interesting phenomena when it comes to more fully digitizing our organizations. Namely, that it mostly looks like what other organizations have already been doing. Because we are all almost entirely still early pioneers in a brave new technologically-infused world, this shouldn’t really come as a surprise. Since there are an almost infinite number of directions we could go, copying that which we see that works well just makes good sense.

This herd mentality of digital actually has numerous causes: Proven best practices for digital are too few and far between, successful experiments are often hoarded for competitive motivations, digital innovators by definition take on often untenable risks we’d prefer to avoid, and perhaps most of all, we are still trying to get used to the rapid pace of learning that digital requires to stay abreast.

A big reason for this state of affairs is because digital is inherently complex in its realization, intangible by nature (thus it can be hard to study and assess), and difficult to actually understand in context since it’s now so deeply connected to everything else today. This makes it hard to identify the root cause of any desired effects. Combined with the slow rate of change in people when it comes the requisite shifts in culture, skill, and inclination for new digital ways of working, and the result has been a clustering of most organizations around a similar level of digital maturity: Relatively low.

Digital Maturity: Technology Is Driving the Leaders and Laggards Apart

Digital Maturity is a Team Sport

This was made evident a little while back when McKinsey published their in-depth analysis of 150 representative organizations around the world and their digital maturity in 18 dimensions (see graph above.) It uncovered a wide range of digital maturity, but most notably revealed a sort of inverse Lake Wobegon effect, where most organizations were in fact performing well below average.

In other words, average practice is steadily and inexorably diverging from the art-of-the-possible in an exponentially changing era of technology evolution. This is leaving a great deal of space for leaders to find the leaps forward that are dramatically better and thereby own the market opportunities.

Yet, we also know that when applied for its unique strengths — for faster growth, better engagement, reducing friction in commerce, improved efficiency, and so on — technology can be a tremendous force multiplier (something noted about a decade ago by Andrew McAfee and Erik Brynjolfsson), propelling the leaders that focus carefully on these strengths far head of the laggards. This gap is real, which we can see from the data above, and it’s growing quickly in my experience.

Nevertheless, whether I look at the digital workplace, customer experience, or digital transformation efforts that I’ve been involved in over the years, I tend to see the same thing: The application of average practice that, while proven, will assuredly put most organizations into the also-ran list and fail to propel them forward digitally in a meaningful way.

Over time, this has led me to ask what the digital leaders are actually doing that has gotten them much farther out ahead. In short, my ultimate analysis is that they appear to be learning better and faster about digital in key ways — and from a larger variety of sources — than most other organizations. They also then apply these lessons effectively to their business. Digital leaders tend to eagerly gather lessons and evidence broadly and early, especially outside their organizations. Without this, they are limited to what they’re able to learn linearly on their own, through solely their own efforts. There is also good evidence that this is what most organizations do that have survived a long time, from the work of Shell’s Arie de Geus (and which I frequently cite in my keynotes and talks):

These companies were particularly tolerant of activities in the margin: outliers, experiments and eccentricities within the boundaries of the cohesive firm, which kept stretching their understanding of possibilities.

This same line of reasoning has led industry colleagues like John Hagel to conclude that scalable learning, especially across organizations as Don Tapscott has noted in his research on Global Solution Networks, is essentially the only sustainable competitive advantage. But as I mentioned above, competitors usually don’t like to share lessons learned, and it’s often hard to transfer lessons from one style of organization to another, say across industries or geographies.

The key existential question now is this: How can we use today’s capabilities to learn much better as organizations?

Overcoming Digital Transformation Maturity Barrier with Community Learning, Outsourcing, and Copying for Fast Follower

Three Roads Over the Digital Maturity Barrier

How then are digital leaders overcoming the digital maturity better? In my experience, they are doing one of several things that allows them to pool their digital experiences and investments, then tap much more widely and sustainably into shared lessons learned that they can each use and quickly build upon:

  • Community learning. Non-competitors can come together across organizations to share their digital knowledge and lessons learned, and especially, tackle digital challenges too big even for large enterprises. This kind of cross-entity learning primary comes in three forms, though there are numerous ways to do it: Industry consortiums, which we’ve long had, as well as more digital versions of consortiums such as collaborative multi-organizational Networks of Excellence and of course, the aforementioned Global Solution Networks. These require the highest level of effort but are also the most sustainable, effective, and most likely to reduce the risk of disruption by truly capturing and wielding collective intelligence.
  • Outsourcing. Pull in expertise gleaned from hundreds or thousands of other companies by building on someone else’s mature and evolving ecosystem or digital blueprints. Amazon’s cloud stack and Apple’s iOS platform are great examples of this that countless companies are using today (Netflix using Amazon, for an industry leading example), while increasingly we’re seeing industry blueprints emerging for digital transformation of their entire organization. See the overview of my Digital Transformation Target Platforms ShortList for some details on blueprints.
  • Copying the Leaders. This has long been a corporate strategy of so-called fast followers and it works well for some. This approach basically uses 3rd party investments, discoveries, and exposure to risk in an arbitrage fashion, for their own benefit, picking and choosing what works and avoiding the downsides almost entirely, though some have certainly criticized the fast follower approach, others have cited organizations like Samsung as becoming market leaders by using it. Although technically another form of outsourcing, this model also works in a group of competitors. Downside: You won’t have any “moon shots” or big digital breakthroughs on your own and so you’re still at high risk of disruption.

Clearly, this list is in rough order of preference, though all are workable strategies and will likely be used in combination. That said, the vast majority of organizations are taking the easier routes of the second and third items on the list. This means letting Amazon, Google, Microsoft, IBM, and SAP pathfind their future and build on their capabilities/ecosystems, or being content to cherry pick from the successful digital pioneers and hopefully to attain success in that way.

Digital Maturity Requires Harnessing Collective Intelligence

The third way (first on the list), which I see more advanced and mature organizations engaging in, is to work far smarter by combining knowledge, investment, and experience as whole together, creating a network that can learn many times faster than a single entity. The competitive issues can and are usually worked out.

Are there good examples of multi-stakeholder learning? Yes. Some of the most strategic can be found in the list of known Global Solution Networks, but others that I’ve had personal experience with are the famed Fraunhofer Society, open source software projects (many people/organizations coming together to collaborate on common goals via shared technology innovation and development, and the American Society of Association Executives (and indeed, the entire professional association space, which is becoming increasingly digitized and community-centric.)

There is also a fourth route, which many will observe seems to be the case with certain top digital firms: Hire the smartest people on the planet and turn them loose. This is certainly possible, but it’s also an unsustainable zero sum game that the vast majority of organizations simply don’t have as an option to employ (the smartest people always work for someone else, it has been observed.) Instead, we need additional options for reaching digital maturity that are generally attainable by most of us.

Thus, in the flat and hyper-competitive world of the Internet, average practice is just not sufficient to thrive, nor to survive. Organizations must find ways to learn and evolve faster, more widely, and with much more scale than in the past. Cultivating change agents has emerged as one such way to actually achieve this, but these actors need a steady stream of knowledge on emerging new practices in order to drive the organization forward. This is through scalable learning.

As Scott Brinker’s now-famous law (Martec’s Law) tells us, technology changes exponentially but organizations only change logarithmically. The good news is that it’s very much not clear if this is an inherent limitation of organizations, or that’s just that way because of how we have traditionally learned and changed in the past. From my experience in the field of mass collaboration, my view is that it’s almost certainly the latter. There we now have new and better ways to change if we choose to use them.

The reality is that if we don’t find ways to change more rapidly and effectively, the results are potentially calamitous for us as enterprises and institutions. Fortunately, we now have powerful new tools to apply when it comes to digital learning and change. I believe these approaches may be enough for most organizations for now. If it’s not however, I remain confident that we will find even more and better ways to evolve and grow. The digital future is bright, if we’re ready to learn.

Additional Reading

Using Online Community for Digital Transformation | Slideshare Storytelling Version

How Should Organizations Actually Go About Digital Transformation?

The Eight Essential Digital Strategies

Digital Transformation and the Leadership Quandary

Let the Network Do the Work

The Hardest Lesson of Digital Transformation: Designing for Loss of Control

The emerging case for open business methods | ZDNet

The Top Business Trends for the New C-Suite in 2017
(See: Digital Transformation Programs, Change Agent Initiatives, etc.)

Internet of Things Strategy: It Will Determine Your Organization’s Future

Few technology developments will ultimately have the global cultural, business, and economic impact of the Internet of Things (IoT.) While today IoT still looks like an industry largely concerning itself with factory automation, connected light bulbs, air conditioning controls and so on, the eventual objective is clear even to a casual observer: Nearly everything in the world is about to become connected and data-driven, from the most trivial object to virtually every significant item in our personal and work lives.

The implications of this shift are profound: We’re about to be able to measure and quantify just about everything that exists. While there will be the requisite debates about whether this is always a good thing, the implacable march of technology development will ensure it’s going to happen anyway. When a new enabling technology arrives and is useful, it finds its way into just about everything.

The implications alone for IoT and the healthcare, insurance, financial services, logistics, manufacturing, and energy industries — to name just the most affected — are profound: For the first time in human history, most aspects of our business will be measurable, and therefore to paraphrase the famous Peter Drucker saying, they can actually be managed in a more direct and effective way than ever before possible.

Internet of Things: The Next-Generation Customer Experience

IoT will also be critical to the next generation of customer experience, allowing us create more personalized and far more useful experiences while maintaining direct and continuous connection — and most importantly, value exchange — with our customers like never before. Customer experience is the product we must all produce in the future and IoT is how we’ll realize it. As Stuart Lombard, CEO of Ecobee, noted last week during his appearance on DisrupTV.

As the current wave of Internet of Things emerged on a scene a few years ago, I wrote an analysis on whether IoT is truly strategic to the enterprise (short version: it is.) Though the exact growth projections continue to be debated, given the inevitably vast numbers of devices and the staggering data volumes they’ll create (large enough that it’s even driven the need to push cloud capabilities back to the edge of the network), it’s now evident that IoT will be the largest new technology industry to date, far eclipsing even mobile computing.

In other words, tens of billions of connected IoT devices, many streaming rich media and other high volume data types around the clock, are already in the process of arriving today and steadily over the next few years. In the process, they will remake the digital and business landscape as they do, as they represent enormous opportunity for new disruptive new products, services, and business models. At the same time, IoT will also pose very significant infrastructure, operational, management, governance, and security challenges for most enterprises due to scale, skill shortages, build-out, and related issues. Organizations must prepare at the highest level for this and put IoT in the middle of their digital value chain as they digitally transform. The resulting IoT strategies will determine their future as a business in profound way.

It’s evident that IoT is a core part of the future of digital and is the next customer experience mandate. We will simply have to be connected to our stakeholders in this way, holding them close across myriad digital channels, providing value in a way that only real, sustained, and live connectedness and engagement can.

Deep Digital Connectedness Requires a New Mindset

To help frame up this story, I was pleased to contribute recently to a significant new IoT strategy ebook produced by SAP, along with many of my industries colleagues. The book does an excellent job teeing up the mindset and thinking required to capitalize on the historic opportunity of the Internet of Things. Thanks to Amisha Gandhi, Jim Dever, and the SAP team for inviting me to contribute. Note: My contributions start on page 7.

The Future of IoT ebook itself is free, has a nice digital customer experience of its own, and covers the following topics:

Future of IoT ebook: Insights on the Future of the Internet of Things (IoT)

1. Focus Forward on the IoT and Business
2. The “Intelligence of Things”
3. The evolution of smart devices and how business will leverage the IoT
4. The Customer Journey
5. How will the IoT affect the daily lives of consumers?
6. The Internet of Truth
7. Concrete data leads to better decisions
8. The Forward Focus of Business
9. Strategic advice on the IoT for business leaders

SAP eBook: The Future of the Internet of Things (IoT), with Dion Hinchcliffe

Other contributors were an all-star cast and include Ronald van Loon, Yves Mulkers, Maribel Lopez, Bob Egan, Christina “CK” Kerley, Bill McCabe, Ahmed Banafa, Joan Carbonell, Jim Harris, Daniel Newman, Evan Kristel, Chuck Martin, Dez Blanchfield, Isaac Sacolick, and Giulio Coraggio. Brian Solis also shared his thoughts about the ebook as well.

Additional Reading

The Essential Digital Strategies

SAP Leonardo, IoT, and Digital Transformation: The Strategic Implications

Visual: The Top Digital Shifts the Enterprise Must Take On Today

The enterprise technologies to watch in 2017 | ZDNet

Tech Trends AstroChart for The New C-Suite, Q3 2017 | Constellation Research

The Essential Digital Strategies

The reality today is that despite seemingly endless advances and a steady river of emerging technologies, many of the key insights, strategies, and lessons in the digital age have still yet to be discovered. Looking back, we are frankly still early in the pioneering phase of digital, despite significant early ground being claimed and several generations of impressive success stories emerging.

Therein lies the opportunity for most of us.

Thus, despite all the esoteric talk over the years of network effects, the red queen treadmill, strategic platform plays, and winner-take-all, it’s now clear that the digital market is so fluid, self-creating, and essentially infinite, that most of the value by far still remains to be created and captured.

When I say digital age, I do mean since the advent of the Internet, which as we look back on it now was a truly epochal event whose impact will be felt profoundly for the remainder of this century, both inside and outside our organizations. This isn’t an understatement: The vast, easy, simple enabling of global digital networks of people and organizations has been a genuinely a revolutionary one. Today’s networks can be of any size, any form, and can effortlessly enable us to come together en masse and collaborate for purposes of creating incalculable human value — many of which were hitherto simply impossible, and all at a cost that relentlessly falls towards zero.

Far too many people I talk to today, including many digital strategists I find, still do not fully appreciate this time in our history. Most of us are coming to terms with and beginning to understand what digital can do, both for positive outcomes and otherwise (as all technology is a two-edge sword.)

Digital Setting the Global Growth Pace

Yet while digital in all its many forms is now well down the path of transforming our economies, enterprise, and society, we do have a growing sense of what the art of the possible is. It’s clear that digital is now of the primary aspects of how we live and work, and so we must shape it into what we want it to become. We have only to look at tech firm exemplars like Amazon, Google, Facebook, Airbnb, and the 183 companies currently in the so-called “unicorn club”, namely digital startups worth over $1 billion, to find the companies that are creating the most new large-scale business potential. In fact, over the last 10 years, digital companies have surpassed the traditional corporation dramatically, now making up five of the six most valuable companies in the world by market capitalization:

The World's Most Valuable Companies: 2006-2016 - Apple, Alphabet, Microsoft, Amazon, Facebook, Exxon

Put simply, it’s far easier — and more valuable economically — to grow a company in a digital world than it takes to do it the traditional way with physical offices, departments, divisions, stores, factories, and vast workforces to run them all so that you can build products and deliver them to customers individually. The cost of doing it the old way is by comparison simply enormous and increasingly prohibitive, even if we’re not talking about eliminating the old world entirely. An amalgam of the two is happening, as we’ll see.

Note: In a digital world, you still need people of course, and some infrastructure, just orders of magnitude less typically. A canonical example of this is WhatsApp, which only needed 50 direct employees to deliver services to 900 million users at the time they were acquired for $19 billion by Facebook.

What Are the Top Digital Strategies Today?

There have been a good number of attempts lately to quantify what the top-level “known quantity” digital strategies are, since for all the reasons above these should be the top targets for the digital transformation process within most organizations. One of the most recent examinations of this is an exploration by Jacques Bughin and Nicholas Van Zeebroeck’s what they believe today’s 6 core digital strategies are. It’s a good overview, especially the insight that for over 2,000 organizations the value of such digitalization has in general been only a little above the cost of the capital to get there. In other words, most efforts don’t generate unicorn outcomes. (Though to be fair, they shouldn’t be expected to. Digital is a numbers game and it’s why VCs invest in pools of startups than in one or two efforts, but that challenge is another story.)

However, I’d argue that Bughin and Zeeborekc’s digital strategies tend to be ones that traditional organizations would be more able to carry out by their existing inclinations and nature. It’s far easier to move into e-commerce, for example, that it is to become a platform company, as the former seems familiar to traditional organizations, while the latter has entirely different rules.

Being a truly digital organization means thinking quite differently than an industrial age organization. I find the above mentioned strategies to be less transformative and meaningfully sustainable than what is possible and evidently required to get the gains that the more green field unicorns are seeing.

The Essential Digital Strategies for Business and Transformation Today

Instead, other research has come up with a slightly different list of strategies, notably recent research by Libert, Wind, and Beck, which shows a breakdown that focuses on price-to-revenue impact. They identify asset builders, service providers, technology creators, and network orchestrators, in that order, with the latter coming out far head. As we’ll see, this identifies more strategic value creators for digital than the previous set of strategies, yet I find that it’s also incomplete in terms of describing digital strategy by not taking into account some of the more tactical approaches.

In my own work with clients, I’ve used a more comprehensive and strategic list of digital strategies — along with applied integration with some of the many proven and/or emerging digital business models that now exist — to identify where organizations should be focusing their valuable leadership time, execution resource, and organizational capacity.

The 8 Essential Digital Strategies Today

With the disclaimer that we’re learning more all the time about which are the most significant and impactful digital strategies, here’s the leading models that exist today, in increasing order of strategic value:

1. Automation

This was the first generation of applying digital to business and didn’t even require networks, though they certainly added an inflection point when they arrived. ERP, CRM, and business process management (BPA/BPM) are all examples of IT automation of the business. The growth of corporate productivity as a direct result of technology automation is a well known story. There is plenty of value here worth investing in, but primarily of the cost-cutting and efficiency variety. Automation will not even prepare organizations for their digital future, so its score is the lowest of all the digital strategies, but is nevertheless the most common form of digitalization. IT vendors such as IBM, Microsoft, SAP, and Oracle have long played a key enabling role in this strategy, but most of them have since moved their new products and services to other digital models below.

2. Legacy product/service digitization

This strategy involves taking existing products and services and putting a digital face on them. This was done by the entire airline and hotel industry in the 1990s and was finally taken up by the retail, media, and financial services industries in the 2000s, in the form of transactional Web sites. Telecom and other industries most affected by digital disruption have often done a very poor job of legacy digitization. While most organizations must look to digitize legacy products to sustain their organizations during digital business model transition, the rise of the unicorns shows us that the largest growth and value is in new markets and technologies. Unfortunately, the majority of traditional enterprise have done a relatively poor job creating effective customer experiences for digital, though the lessons are getting clearer now. Bottom line: Like automation, legacy digitization is a responsible and required investment, but not necessarily highly strategic nor likely to enable survival for the long term by itself.

3. Digital channel distributor

Getting digital products and services to market requires far more than a digital experience at a handful of touchpoints. Instead, it requires marshaling digital channels of all kinds, both self-realized as well as enabling 3rd parties, to flow value from source to customer. Digital affiliate programs (Walmart pays 4% or more gross commission to enable this, for example), marketplaces, arbitrage services, business app stores, open APIs, and other channel reach models such as Amazon’s Alexa Skills are all examples. Even the stodgy insurance industry has gotten into the digital channel game, with insurance giant Chubb partnering with Suning to distribute insurance products to the online Chinese retailer’s ecommerce network, with 230 million users.

4. Marginal market making

Once you have a digital audience, it allows you to expose them to new offerings and digital experiences. This enables incremental new gains that would have been cost-prohibitive without pre-existing investment in that digital market or channel. For instance, Amazon, a good example in so much of digital, allows any of its customers to become individual sellers, tapping into an existing marginal segment that would not have been worth the investment otherwise. While not a big business by itself, this strategy can further tip the competitive scales by generating additional revenue while becoming even more valuable to customers.

5. Technology creation

While having formidable barriers to entry due to capital expenditure, though certainly much less so on the software than the hardware side, there’s no denying that creating a must-have technology remains one of the top digital strategies on the market. Technology creation has created trillions in economic value over the years for companies that solve important problems for their customers. From hardware like smart devices to must-have apps for social networking and messaging to search and media consumption, technology creation can lead directly to value creation like few others digital strategies.

6. Digital platform ownership

Most of us are now familiar with the digital platform discussion, made famous back in the PC days with Microsoft vs. IBM, and now much more familiar to us as iOS vs. Android or Amazon Web Services vs. Microsoft Azure. If you build a platform that can be extended, instead of a just a single point technology, it can be enriched many orders of magnitude further by others, creating an unbeatable network effect over time. Apple and Google have attracted millions of apps collectively to their mobile platforms, while hundreds of thousands of businesses and software companies have built on top of AWS and Azure, making them indispensable foundations that will be vibrant and growing largely through the effort and investment of their platform partners.

7. Network orchestration

What if you could take the assets and technologies that already exist on the network, connect them, and turn them into business models? That’s the premise of this digital strategy, which the likes of Uber and Airbnb have shown pay off in spades. The essence of this strategy is the following: Use existing infrastructure and resources (connecting people who have cars with people who needs rides, for example) and make it the most appealing process. Organizations can create fast-growth new lines of business in very short amounts of time than using the traditional, slow, and out-dated approach of trying building everything yourself, a prohibitive and unnecessary cost today.

8. Ecosystem cultivation

Orchestrating your own platform and enabling it become an ecosystem is the most valuable digital strategy of all. Amazon does this with Amazon Web Services by extending it with marketplace built on top of it, as does SAP with its new but already large and growing SAP App Center. The key here is not just in owning a platform but in making it a recombinant living ecosystem that is directly enabled and extended by each and every new partner, through their own respective ecosystems. Apple does this by allowing other platform partners to build on top of it, a specific example is much of the consumer Internet of Things (IoT) industry, such as Philips Hue and other connected device product lines. Another important example is commercial blockchains, which are poised to become major category ecosystems in their own right, highlighting a path towards a major new digital future. Short version: Ecosystems are as much about their community of business partners, not just the technologies or platforms within them.

Digital Strategy: The Story of Disruptive Co-Evolution

Is this list of strategies an oversimplification? Almost certainly. Is it incomplete and will it grow. Absolutely. Yet it also provides a clear lens through which to look at the heart of an existing organizations and making momentous changes. Smart organizations will grow digital competency — largely through talent — that can quickly execute from the start to the end of this list.

How will such changes be made in large organizations? I’ve been exploring that and grappling with the means of digital transformation and the future of technology enablement in my work for years and some broad outlines are emerging. So in the meantime, brush up on these and get ready for one of the most interesting and challenging times in business history.

Additional Reading

In Digital Transformation, Culture Change Goes Hand in Hand with Tech Change

Vital Trends in Digital Experience and Transformation Today

22 Power Laws of the Digital/Social Economy

Old but still interesting: Fifty Essential Web 2.0 Strategies

Digital Transformation and the Leadership Quandary

The data now shows that a near majority of organizations today are undergoing digital transformation in some shape or form. By digital transformation I don’t mean IT automation of the business of course, but wholesale rethinking of some or all of the business in digital terms. It’s the greatest game in the business world right now, and necessary for long term survival, but such digital reinvention is also one of the hardest journeys to make.

Moreover, just like startups have a high failure rate (8 out of 10 don’t make it typically) in trying to do something new that’s relatively unproven, digital transformation is a endeavor fraught with high hurdles for success in any organization.

Enterprises, however, do have vast assets they can assemble on deck to ensure a successful outcome — everything from existing customer bases and supply chains to current market share and the ability to fund loss leadership to success. This drives the failure rate down much lower than typical greenfield technology startups. But as commentators such as Christian Frei estimate that two-thirds of companies still won’t make the journey successfully, and others have put the failure rate much higher.

Modern Digital Leadership Unleashed by Network Effects: Digital Transformation

Better and New Types of Leadership = Effective Digital Transformation

As Christian also notes, leadership is ultimately the root cause, for both success and failure in re-imagining organizations digitally:

After all these discussions, workshops, and coaching sessions, one point came out very clearly as the biggest threat companies have in this transformation.

It is not technology.

It is not their people.

It is not their business model and products.

The biggest threat and reason why most companies will fail to adjust and most likely either end up bankrupt, acquired, or marginalized…
… is their leadership mindset, which is embedded in their company culture.

The diagnoses of the reasons for implicating leadership is many and varied but essentially boils down to the reality that leadership has the most resources and control in hand, but is often lacking in digital vision and/or competency to wield these. The reality is that most leaders of large organizations today have limited experience in successfully leading either large digital efforts or enterprise-wide change efforts, and much more rarely both at the same time. While it’s likely we’ll see far more seasoned executives in this space in the next 5-10 years, that will be much too late for most organizations.

what then can leaders do now to ensure they’re doing their very best tap into and truly marshaling the deep experience, fresh thinking, and effective action they need from across their organization and indeed, from across the industry? To help address leadership in digital native terms, I’ve been promoting the concept of network leadership for some years now (and I’m not alone), realizing that all leaders must much more effectively tap into the full measure of knowledge and innovation in new channels they need to deliver on what has become the most important and challenging transitions in the history of business.

Leading (and Acting) With and Through Your Networks

Leaders have always had to work through others — their workers, business partners, and their industries — to accomplish what enterprises do. But we now have new ways and methods of doing so that are far higher scale, have more leverage, and are earned, rather than owned. Leading through the network is the only way to tap into broad enough talent, diverse ideas, and local action to accomplish the large scale changes that must be achieved today. I’ve written much about the new CIO mindset emerging and the need to better design our organizations for loss of control needed to keep up with the pace of tech change, and that these must be baked most deeply into the leadership thinking (both on high and at the root) of our organizations.

Underscoring this, I recently receive a note from a friend (who was also previously one of the top CIOs in the world in my opinion) that made me reflect that while we can (and must) let much of the network do the work for us — if we only know enough to harness it — that leadership remains critical in ensuring the ultimate outcome:

The leadership part (for what I had) was always my “secret” weapon.” Key parts of that leadership is:
– Human (recruit, develop, manage, balance)
– Technical (new and old tech, ops etc.)
– Business (core business (new and incumbent), finance and accounting)

From this we can see that people are the key to driving actual change. Technology and business, combined, are the vehicles, but not the agents of change. Leaders must cultivate, build, and tap into the best networks of people, tap into their knowledge, and empower them to create change at scale. (See the growing and vital change agents industry conversation for more thinking on this.)

Thus the essential leadership quandary with digital transformation is that leaders — formal and grassroots — simply don’t know what they don’t know yet. And many — and likely most — are simply not taking sufficient steps to learn more and faster or unleash those that know a given answer and can act.

My good friend and CIO advisor Tim Crawford put this another way today. Leaders in digital — both on the technology and business side (though the distinction is starting to get blurry these days) — must establish their network effect. For those not yet familiar with this key digital concept, it means establishing sustainable value through connection. For the CIO and other types of leaders, this means building relationship capital in all its forms (personal, organizational, industry, and digital), and then using it effectively.

Addressing the Leadership Quandary with Network Effects

As I noted in a reply to Tim, this means:

  • Engaging both upwards and downwards. Establishing deep and wide social capital in the process. Done in digital channels especially, this creates an inherent network effect when combined with the the other items on this list.
  • Being the conduit for change. By ensuring you empower and enable others through their relationship with you.
  • Sharing knowledge. By setting it free to spread and work for you forever.
  • Enabling and empowering others. Proactively, especially with change agents (which are the ones, by definition, that will effect needed change anyway).

In short, digital transformation requires a new type of leader with a digital mindset that is broadly encompassing, fueled by growing network effects, and strategically turning over non-essential control to their network of change agents to drive the many hundreds, if not thousands of local microtransformations that will collectively result in a holistic and aligned overall digital transformation. It’s a more organic, pervasive, and sustainable way and, I believe, the only real way most digital transformation will ultimately happen.

Why? Because a rich network always beats a poorly connected system in almost any situation.

Additional Reading:

How IT and the Role of the CIO is Changing in the Era of Networked Organizations

Using Online Community for Digital Transformation

How Should Organizations Actually Go About Digital Transformation?