The Building Blocks of a Digital Business

A digital business delivers value to customers by seamlessly merging the digital and physical experiences. Digital technologies such as cloud, IOT, AI, robotics and even social media are indispensable, but substantial changes within the organization – apart from technology – are key to success. Such changes rely upon identifying and categorizing underlying capabilities into “building blocks,” which the enterprise can then use to gain a top-level understanding of where leaders should focus as they seek to transform into a digital business.

The building blocks are essentially top-level business capabilities. While evaluating each capability, companies must consider all three dimensions: people (roles, structure, skills), process (methods, services, governance) and technology (applications, infrastructure). Which capability should receive the highest priority and investment? Which capability is already mature? Which ones are evolving? After gaining this understanding, the next level of detailing and planning can proceed, and new business functions may emerge.

Capability Building Blocks

Successful digital organizations share common characteristics and behaviors no matter how the capabilities are organized. When developing the building blocks of a digital business, it therefore makes sense to pay attention to these. The diagram above shares a list of suggested characteristics, as well as a list of focus areas. Combined, these lists can be used as reference to design a set of metrics for measuring progress against the desired behavior.

The Foundation building block helps to manage business operations efficiently and create the core around which digital capabilities can evolve rapidly. Capabilities within the foundation include: reliable, secure, scalable end-to-end transactions; accessible and quality data about all aspects of business operations; standardized processes; and common technology platforms. Digital technologies can be used to create a more efficient foundation. The objectives for this block should be:

1. Simplify and automate transaction processing using core technology platforms
2. Create the capability to manage organization-wide master data
3. Encourage data sharing
4. Build security, reliability, scale and visibility across end-to-end value chains
5. Improve efficiency and reduce cost by leveraging digital technologies

As indicated by its name, the Insights building block is focused on delivering actionable insights. Technology plays a key role (e.g. Big Data/Analytics, AI/ML, IOT, Social Media), but technology alone is not enough. The right structures, roles, skills and processes are equally important. How will companies engage/collaborate with the customer? Who will be responsible for generating, curating and validating insights? How will the business leverage its internal data sets? How can it manage insights as an integrated capability? What are the paths from insight to action? The objectives for this block include:

• Create platforms for engagement/collaboration
• Leverage all sources of information, including operational data and external sources, along with Digital technologies to gain new insights not available with traditional methods
• Use “fail fast” approach to validate insights

The Digital Components block should focus on building a repository of reusable components. A component is a self-contained, atomic service that provides data (e.g. customer address), infrastructure (e.g. secure sign-in) or a business service (e.g. create order) and uses digital technologies to provide innovative features (e.g. a service for scheduling predictive maintenance). Ideally, a business should enable all functions to develop digital components, which will be consumed by users through an API or other service interfaces. It is essential to manage the APIs also as a key capability within digital components. Key objectives for the Digital Components block are:

• Create a digital component whenever a business function can “do” something
• Create supporting services for business functions to engineer and manage their own components
• Treat components like products – have an owner for each component to manage its lifecycle
• Encourage cross-functional collaboration
• Manage APIs with a business perspective to generate more value

In the Digital Offerings building block, the business should organize capabilities that enable it to create new offerings quickly in response to customer needs and insights. The focus should be on customer journeys, providing enriched experiences and value to customers. It is not about building offerings from scratch, but about the ability to configure new products and services using digital components (exposed through API). This can be thought of as a “product” capability, but with much faster go-to-market (in days and weeks rather than months). Processes, structures and tools should therefore be aligned accordingly, with the capability supported by seamless cross-channel integration, mobility and content-rich UIs. Target objectives for this block include:

• Use a design-thinking approach
• Give freedom to innovate and experiment
• Focus on accountability rather than hierarchy
• Focus on value generation over standardization

The final building block, External Collaboration, recognizes that digital organizations need to collaborate with their ecosystem to remain relevant and offer better services to customers. With whom should the business collaborate and why? Will the company have formal collaboration with organizations? Will it allow individuals to collaborate (e.g. app developers)? What engagement model(s) will it follow? How will the enterprise enable access to its data and services for collaborators to build innovative offerings? While answering these and other questions, the soon-to-be-digital business should consider the following objectives for this building block:

• Complement its competitive advantages
• Provide a great experience when using an (external) API and/or collaboration platform
• Share roadmaps
• Leverage crowdsourcing if there is a business case

These building blocks are interdependent but allow independent development where appropriate. Similarly, there is no suggested sequence for developing the building blocks of a digital business, as each organization must determine the sequence that makes the most sense for its own enterprise. Leaders who wish to develop their own building blocks should also consider the book “Designed for Digital,” by Jeanne W. Ross, Cynthia M. Beath and Martin Mocker, which adds further elaboration to the strategies outlined above.