Innovation vs. Automation: Digital Business Model

Title

It’s not enough to make a difference on product quality or delivery readiness or production scale. It’s important to innovate in areas where our competition does not act. ~ CEO, IBM Global CEO Report

Innovation in Business Models

Innovation in business model drives the creation of new markets and/or increases existing ones. Companies like Apple, Gillette and Priceline have expanded their markets by changing their business models to include new markets, selling products in pieces or creating new opportunity through closer relationships with their suppliers.

The truth of the matter is that there is no one single formula that can be used to innovate a digital business model.

In fact, there is no single definition or framework in existence today that can guarantee executives a path to success when it comes to business models. Even the definition of business model itself is disputed by academics and managers.

Regardless of this ambiguity, managers know that innovating business model delivers gains that are unprecedented. And they also know that technology has made it possible to deliver results faster and with far less investment than was previously possible.

Apple Xpansion

Source: Creating Value Business Model Innovation, MIT

Stop Thinking Automation

Many businesses are spending significant amount of dollars to transform physical components of their businesses to digital ones. As they digitize, they are simply taking products or services they already have and automating them for digital channels like mobile, web and phone. Unfortunately, status quo product and service automation will not be enough to drive a meaningful change in their business for the long term. And here is why:

  • Automation is easily replicated by competitors and works to decrease switching costs for customers.
  • Automation creates another layer of complexity on top of existing systems rather than attempts to build a new core digital business that creates new markets.
  • More technological complexity in the infrastructure means higher security risk over time. As technology advances so do the threats and vulnerabilities for the old technology that still remain the foundation of an automated digital business.

Start Thinking Digital Innovation

Digital innovation is not about executing a roadmap made up of series of projects that lay out a layer of new technologies on top of old. It is about creating new markets and expanding the existing business by investment in new technological solutions. This means that managers have to push the boundaries of ‘business as usual’ and work to radicalize their way of thinking.

Here is one suggested path you can take to innovate your digital business model.

Begin with Core Principles

Digital business model innovation should begin with a thorough understanding of the core economic principles upon which the business is built. And where can these principles be found? They are stated in the mission and vision statements for your business.

A mission or vision statement is the first step in understanding what your company believes is at the very core of the business. These core statements are generally created with great care and intensity by senior managers of the company. To start here would be to understand the heart of what is most important.

Of course, what is at the heart of a business can vary from company to company. Some companies are concentrating on products, others are passionate about customer relationships and still others emphasize process. Regardless of what the core principles of your business is, digital business model innovation can take the core to the next level of expansion.

From this centre, the work on digital innovation can move to other domains, markets, technologies, etc. as you explore both external and internal possibilities of expanding your business.

Here you are limited by only two things: i) your imagination and ii) what you can build.

I. Play with Imagination

Design

Developing many possibilities or scenarios based on imagination is the necessary first step. This is the design phase of your innovative digital business model. This is an opportunity for you to thoroughly explore the possibilities without restrictions. Don’t let practicalities hold you back at this stage of game. Doing so may be exercising the circular reasoning of self-defeat.

Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.” ~ Albert Einstein

It is important to create a safe environment for this exercise. The naysayers are a necessary part of the process and they help check the realities of ideas but not during the design stage. Fact is that the imagination can easily be quashed by reality and yet it is imagination that can open up new opportunities for the business that would never have been considered before.

Design phase is the one place where everyone can make mistakes and get away with it. The leader for this effort should ensure that the rules of exercising innovation sessions are well-understood.

Here are some high level examples of how financial services can imagine their digital business models:

Models that centre on Situations

situational

Models that centre on Segments

segment

Disclaimer: Above are only preliminary ideas and require further regulatory and technological due diligence to be functional.

II. Plan to Win

Planning is an important part of defining how the innovative business models should work to increase the pie. The process of planning is systematic and will help think through how customers will be served, how revenue will be generated, what will the costs be. Business Model Canvas is a great place to start thinking through a detailed plan for your new business models. Below is a brief video that explains the Business Model Canvas and here is a downloadable doc that gives even more details on the process.

In addition to Business Model Canvas, there is a great compilation of different types of digital business models currently operating documented by Professor Michael Rappa from University of North Carolina. This resource can also help in the Designing phase to kick-start discussions of innovative business ideas. The categories of different digital business models described on the site can provide a foundation for what type of business innovation makes sense for your business. Or even generate a new economy or disruptor.

Create Innovation Mindset

To create innovation mindset in the technology communities of your enterprise, there has to be a deliberate and purposeful effort to drive opportunities for innovation thinking. You might consider the use of a facilitator/consultant who can help accomplish this safe environment for imaginative discussions.

I have facilitated many sessions, from process mapping workshops to developing game plans for digital channels. In every case, the participants are more than willing and able to discuss a new future for their companies. I find that individuals who work in technology selected this career path because they believe in a better future filled with new innovative technologies that solve problems.

Additional Resources

Digital Disruptors: Models of Digital Operations, Part 2/3 Digital Business Transformation
This is a good summary of various aspects of digital business model.

How Kodak Failed
A great article in Forbes that provides a view into decision making process that led to the demise of Kodak, the inventors of digital photography. A ‘what not to do’ guide.

What can a CIO do to drive Digital Transformation?
HBR Digital Innovation and Transformation blog site where there are many searchable blogs about different aspects of Digital Business Models and Digital Transformation.

Defining the Business Model in the New World of Digital Business
An academic index on all the different ways a business model can be defined. It is a great summary and an attempt to define the concept of Business Model.

_______________________________________

Update: October 14, 2014

A great presentation by Didier Bonnet from Capgemini on the need for Digital Business Model Innovation at Oracle OpenWorld keynote:

_______________________________________

OPEN WRX Consulting Inc. is committed to helping companies improve competitiveness through effective decision making by sharing information and generating ideas.

While my passion is business strategy and technology, my work spans a number of corporate disciplines including product development, process design, marketing and financial analysis. I was a Consultant at CIBC and Sr. Consultant at Innovapost where I had the pleasure of working with clients at Canada Post and Purolator. I also worked as a Digital Strategist for NBA, Kraft, Samsung and Travelex. My experience spans from start-ups to Fortune 500 companies.

openwrxconsulting.com

Advertisements

Why Planning Matters

Winston Churchill, 1941 by Yousuf Karsh

There is in the act of preparing, the moment you start caring.

~Winston Churchill

openwrxconsulitng.com

Cloud Computing: Why Strategic Planning is imperative for CIOs

Cloud Computing_Title

Banks, insurers, universities, hospitals, retailers and government agencies as well as their IT service providers are rapidly transforming into ‘digital businesses’ based on the four converging forces: social, mobile, cloud and information. ~Gartner, Feb. 2014

Cloud

Cloud, simply, is a commune of scalable IT infrastructure (hardware and software) that allows multiple users access to storage and applications. It is no different than having a system that is outsourced to third party vendor like CRM or ERP where the users pay cost of ongoing support. The difference is that you are sharing it with a lot of other entities thus, reducing overall cost of operations. And, as cloud is available 24/7, it allows any user to access the content of Cloud at any time, any place and with any device.

Components

Depending on business needs, you can build any type of technology within the Cloud including Software, Platform and Infrastructure. Here is a snapshot that shows different Cloud technology market values.

Image

Software simply means any application that helps complete a business process, example, annual strategic and business planning process. A Platform is more complex and can include multiple applications running on infrastructure. An example might be a CRM system which may include a real-time database, data storage, campaign build application and analytics software. In a Platform, all components of the system are connected thus allowing applications to use data and process to produce the right information for business. Infrastructure usage can include delivering basic desktop services (aka client/master from old school), network services and even communications services like VOIP telecom. Fact is, Cloud services allow users to build whatever they need for a meagre monthly fee based on usage.

Benefits

Cost

Because Cloud is shared, users can leverage economies of scale to reduce operational costs and eliminate capital investment in technology for their business.

Image*The total capitalized IT spending for the fiscal year (i.e., the full value of capitalized assets acquired in the fiscal year). This includes investments in new application development and IT infrastructure.

^The total day-to-day operations and maintenance expenses for this fiscal year that have not been capitalized. These do not include any amortization and depreciation expenses.

Source: Gartner IT Metrics Data, 2012 IT Enterprise, Summary Report

Agile

Building and deploying various technologies can be far more efficient than trying to maintain in-house systems. Keep in mind that all the best practices for developing, deploying new changes and maintenance of applications still apply even in the Cloud.

Shared

Cloud service providers have built optimized systems that allow users to share the innovation that providers are using themselves. Users can take advantage of this scale and complexity regardless of size of their business.

Reliable

There is greater onus on service providers to ensure that the service is available and reliable. So service levels for Cloud is considerably robust compared to in-house infrastructure.

Web Scale

Cloud service is easy to scale as business needs grow compared to the existing enterprise. Depending on the provider, there can be significant diversity in types of applications that can be built in Cloud.

Image  Source: Of That Blog

Before Entering the Cloud

Working in the Cloud is no different from building a new system in-house or when outsourced to third party. CIOs should set aside time with the organization to plan out a business roadmap that outlines a long-term vision, strategies for growth, tactics and resource requirements. Here is a high level guide on where to start:

Review Tech Portfolio and Costs

A technology portfolio is a complete inventory of your current technologies including infrastructure, platforms, and applications. In completing this effort, managers may find that significant number of applications are old, customized and serving only a small group of users at any given time. They are also not generally mission critical and can easily be transitioned to ERP technologies or the Cloud. This action alone can sometimes save considerable support costs for the company.

For Cloud transition look for the “sweet spot” where application costs are low and criticality to business is minimum. Generally this is the best way to dip your toes into  the Cloud.

ImageFinancial savings benchmarks from in-house IT to Cloud have not yet been thoroughly researched but here are some numbers from Betchel, a giant construction firm (Sales $27B in 2007), that benchmarked its costs for number of IT resources against costs using cloud providers.

Cost structure for Bechtel in-house IT were higher than the best of breed cloud providers:

Image

Define Service Levels

This is a very important step in making sure that your business needs are being met. Define the service levels based on what you need. So for Desktop-as-a-Service, you will require almost 24/7 availability, especially if the company is global and multiple users can access the Service from anywhere in the world. Here is a very high-level guide to Service Level Agreement that help develop Long Term Strategic Partnerships. Everything is negotiable.

Craft Data and IT Policies

CIOs need to be very clear about Data and IT Policies like data archiving and critical business continuity requirements. Ensure that data archiving policies are defined and enforced in the Cloud, for example, all transaction data will be accessible for 7 years. These policies should be automated to ensure further cost savings in data storage and usage is realized on an ongoing basis. Also, keep archiving policies up to date as new data are collected like social media communications, mobile data, etc.

Business continuity is imperative for CIOs when they are thinking of moving into the Cloud. Regardless of whether the application is low cost and not business critical, business continuity must be in place in case there is an outage. A site called cloutage.org keeps tabs on which Cloud service has experienced an outage and when. But regardless of this information, it is important that your business is ready for any disaster recovery if an incident does impact the service provider.

Document Everything

IT is one of the biggest culprits when it comes to not documenting original build and ongoing changes. Moving into the Cloud demands that you document what you are building in the Cloud and how. Document data flows, work flows, architecture, application lists, service levels, business rules, and even simple programming documentation are a must. Simple reason for this is that if the business decides to move out of the Cloud or switch to another service provider, you will have the details to ensure that the transition is smooth. This will also ensure that you do not get locked into a provider. Not knowing what you own is the greatest sin in technology and it can cost the business money and intelligence.

Knowing your Cloud Provider

Having a relationship with your Cloud Provider is a necessity not a nice-to-have. Here are some key facets to look out for when selecting a provider:

Optimization & Transparency

Most of the larger providers already have a highly optimized Cloud service simply because their own business services rely on it. But make sure you can monitor and manage your piece of the pie because your business depends on it. Ensure there is a dashboard that continuously shows capacity and costs. Amazon Web Services uses Splunk Cloud as a way for users to manage their activities and costs.

Managing the Contract

Where possible, ensure that you have control over the terms of contract especially if you are thinking of moving business critical applications into the Cloud. Smaller start ups may have to accept the terms and be agile enough to move to another provider if the Cloud service restricts any part of your business. For larger enterprises, it is critical to manage the contract on an ongoing basis because this is the only way you can ensure that you build a long term partnership with your Cloud provider that serves your business.

Redundancy and Service Info

Although it is important for the business to clean unwanted data, transactions and applications prior to moving to the Cloud, ensure that you are also able to do this after transition to the Cloud. Having transparency into your costs for Cloud usage is only useful if you can take action to manage it.

Cloud service providers should also be able to provide information on:

  • Where your data resides
  • Who controls the data
  • When data is moved to another location

Strategic Planning For CIOs

In 2014, CIOs and IT leaders want to know how to deliver converging solutions using the four converging forces: social, mobile, cloud and informationGartner, Feb. 2014

Given the “convergence of social, mobile, cloud and information”; it is imperative for CIOs to define a clear vision and roadmap for the future of their business using these technologies. CIOs should not only deliver a Technology Roadmap but also a Strategic Plan that clearly outlines how the organization will build and conduct business for the next 5 years in the context of these technologies. The Strategic Plan should be renewed on annual basis to consider new technological market forces that will impact the business. The business is no longer in competition with only the immediate competitors in the same industry but also business disruptors who will do it for less using Cloud.

Fact is Cloud is an equalizer of small businesses to large enterprises. It provides smaller businesses with the same technological power that larger organizations have already invested in for decades. And more Cloud providers are popping up every day in the market. Bottom line is that Cloud is a cost saver based on economies of scale and organizations should not ignore this phenomenon but figure out how they can use it to their own advantage in their business.

Cloud is the foundation that will lay out the future of Information Technology:

Image


Image

Kiran Sohi’s career has focused on leading companies to success by enabling strategic decision making. While her passion is strategy and technology, her work spans a number of disciplines including IT, marketing, finance and operations.

OPEN WRX Consulting Inc. is committed to helping companies improve competitiveness through effective decision making. Services include structuring, facilitating and implementing strategic planning process and strategic solutions for businesses, functional departments and/or channels.

Visit openwrxconsulting.com for more info.

 

 

Strategic Planning: Why Boeing wants to do it like #AppleLive

Title

“Rather than take on expensive, gargantuan projects like the 787 Dreamliner, which CEO Jim McNerney characterized as ‘moon shots,’ he said he wants Boeing ‘to be more like Apple’ with its carefully planned development strategies on successful product launches.”The Street 

Start At The Top

Image

ImageApple has traditionally used “stories” to communicate Mission and Vision statements to the world. These statements are specific, achievable and realistic. The words are simple and easy to understand.  Everyone knows what Apple means when it says “high quality” or “low cost” or “easy to use” in reference to Apple products. Apple’s statements hone in on “products” and “customers”.  Both employees and business partners get it and without asking the question: What do you mean by….?

Recommendations:

  • Mention products and customers
  • Keep it simple
  • Be realistic
  • Tell it like it can be done by anyone
  • Do it like it can’t be done by anyone

Build Products Like it’s The Only ONE

Apple is master of design. Design thinking rules the culture regardless of function.  New product ideas become an internal ‘start-up’ and report directly to executive team on progress. A detailed product development plan is created based on Apple New Product Process that lays out stages, responsible people, and when each stage is to be completed. Exec Team reviews progress every Monday on each of the new products. The “EPM mafia” is engaged. This includes an engineering program manager and a global supply manager who work together to produce a product with ‘what is best for the product’ in mind. Once built, the product is tested. If it is not ‘right’, it is sent through the production process again. Each iteration of product is reviewed by Exec Team and commented on. If it is unsatisfactory…it is sent back for redesign and production. Packaging is designed and tested after production cycle is complete. ‘Rules of the Road’ provide a framework for every stage of release of the product to the public. More info available in Inside Apple: How America’s Most Admired–and Secretive–Company Really Works by Adam Lashinsky.

An overarching competitive advantage Apple retains that others in the industry have not been able to replicate is CULTURE OF LOYALTY. Interestingly enough, this loyalty permeates not only Apple’s employees but also its customers. This is why Apple customers line up to buy new products. The law of Scarcity working overtime. (Check out today’s #AppleLive event line up)

Recommendations:

  • Don’t let realities like costs hold design back
  • Exec team must be directly involved
  • Prototype and test, repeat
  • Be physically there on the production floor for every prototype
  • Inspire Loyalty from managers and employees

Taking New Product to Customers

Product launch is not a function at Apple, it is a company wide event that unfolds on Apple fans and bystanders alike. It is the best example of “Social Proof” enabled by a company. Many tech companies including Microsoft and Alibaba now mimic Apple’s product launch. And it works!

Rumours also play an important role in spreading news before it actually happens. Recently Apple has been in the news about devices that will enable Healthy Living. And the news is so well permeated in the media that the rumours alone fuelled a tech surge in the markets.

Recommendations:

  • Build a cult following for your products
  • Spread rumours about what you are working on
  • Have a party at new product launch!

SWOT Analysis

Image

Financials

Image

 

Source: WSJ.com

 

Market Share

Image

 

Source: Bloomberg

______________________

Kiran Sohi’s career has focused on leading companies to success by enabling strategic decision making. While her passion is Strategic Planning, her work spans a number of corporate strategy disciplines including IT, marketing, finance and operations.

Prior to finding OPEN WRX Consulting, Kiran was a Strategic Planning consultant at CIBC and Business Consultant at Innovapost, where her clients included Canada Post and Purolator. She also had the pleasure of working as a Digital Strategist for NBA, Kraft, Samsung and Travelex.

Visit openwrxconsulting.com for more info.

Team Based Strategic Planning Process

 

Strategic Planning Process that incorporates both strategy and business planning processes. The Bottom Up | Top Down Approach can be attributed to “Team Based Planning” by C. Davis Fogg. I have modified the process to provide both an alignment with strategic solutions development and digital/IT roadmap planning.