How to re-create your Digital Core?
Updated: Oct 21, 2021
Senior leaders are uncertain if, and how to transform their organisation. McKinsey suggest three transformation scenarios: Repaint, Renovate or Rebuild & Replace and advises the Renovate scenario. We encourage organisations to Rebuild & Replace, supported by case studies, and this HBR article clarifying the important difference between digitizing and digital transformation. PwC outlines in addition a strategic approach “Compete with yourself” or self-disrupt, because if you don’t, start-ups will take over your market share using new technologies.
Dynamic Integrations advises a digital transformation by re-creating your Digital Core. The building blocks and strategic links of the Digital Core are clarified in this article including how it fits in the broader strategic context "Compete with yourself". The no. of building blocks and strategic links can be adjusted depending on your organisation. The Digital Core becomes your future modus operandi, facilitating continuous change.
Digital Core re-creation in a broader context
As PwC states in the HBR article, digitising your legacy organisation is costly and doesn’t improve your value nor KPI’s significantly. A digital transformation, on the other hand, is building a new organisation on digital (data driven) technologies. The latter creates a new way of delivering a service or product to the market. Another advantage is the ability to design an open digital core to fast integrate new technologies. The Jeststar startup by Australian airline Quantas is an excellent example.
The Dynamic Integrations fits the Digital Core re-creation in the “Compete with yourself approach” described by PwC. A strategic start up plan is drafted in the Concept phase. The Digital Core is created, becomes operational & aligned with the Corporate organisation in the final phase.
This Corporate start-up purposely cannibalizes on its existing market share. This requires courage but is the only way forward due to all technologies, either available or under development, making any start-up far more competitive than a legacy organisation.
Note Concept phase
The strategic considerations and product/service a legacy organisation wants to deliver through this new start-up are out of scope for this article.
Digital Core creation: building blocks & strategic links
People living the start-up life have a purpose and a fighting spirit making it happen. They invest a lot of money & time, and often abandon securities. Therefore an enormous drive and risk taking is apparent among these people.
· Do you still have intrapreneurs within your organisation?
· What are their skills?
· Their mindset?
· Their network?
· How do you go about, in terms where do find them, how do you evaluate, do they have to be employed, full time, part time or do they perform a role in your ecosystem?
Your Common Application Environment (CAE) and its IT infrastructure is most likely outdated. New technologies like Block Chain, 5G, Artificial Intelligence, Low code etc. are entering the market with an increasing pace mapped out by Gartner. Breaking away from existing procedures, routines and habits is difficult. Investments and associated risks could also be perceived as too high.
· How much of your hardware and software can be purchased as a cloud service?
· How much hard code programming is used for application building and data processing?
· What are the benefits of low code?
Which primary tasks must be performed to create your service or product? Leave out all support functions from Porters Supply Chain to get a clear view. After the Core Business Process design ask yourself: “Which of these tasks currently performed by people can or should be automated?” Have this thought permanently on the top of your mind. It is crucial when creating an effective Digital Core selecting the services build on new technologies.
Organisations have grown very big and inefficient. The Common Application Environment was created to match the organisation, not to match your Core Business Process. This situation is not sustainable any more. Start-ups, or your Corporate competitors designing start-ups, can deliver the same service or product faster to your customers while operating at a much lower cost base.
How your organisation handles governance has many implications for future success. It is greatly impacted by the people themselves, the start-up culture created, and the start-up’s operational independence. However not all decisions can be delegated to expert or operational level. Decisions made on operational level must fit and be understood in the larger context. This relates back to the goals and objectives set forth in the strategic plan and requires people having oversight of the strategic implications.
Strategic linking of the building blocks
Based on our experience and discussions with others entrepreneurial & corporate firms we summarized a “best practice” how to link the building blocks (b-b). These linkages must be done sequential, each time involving a larger number of building blocks.
1. Technology and Core business process
2. Technology, Core business process and People
3. Technology, Core business process, People, Organisation and Governance
The strategic linking is an essential part of the book “Competing by Design” by Tushman and Nadler
1. Creating the Digital Core
In the Technology b-b, technology and associated services are selected. In the Core Business Process b-b the optimal process to deliver the service to customers is defined. Matching this Core Business Process with Technology defines which business process task is executed by which digital services. This is called your Digital Core and its documentation is crucial because it enables swift changes when new technologies emerges. This documentation is also essential for the collaboration between business and IT.
2. People adding value to the Digital Core
Once the Digital Core is created, tasks, knowledge and expertise must be added to deliver, maintain and improve the product or service delivered. People can be retrained to fullfil new tasks like: report creation, business-IT collaboration experts and people who maintain the Digital Core technically and process wise.
3. Governance & organising the start-up
The last two building blocks are, not coincidental, remnants from the industrial era. Review the added value of departments and their contribution to goals and objectives. A large organisation could be counterproductive in terms of expert motivation and agility. The same applies to governance. Is the decision-making top down, or are individual experts left with much autonomy and decision-making. There is on the other hand a definite need for people who understand the consequences of expert decisions for the Digital Core as a whole.
Interaction between start-up and legacy organisation
Once the start-up is operational, interaction with the legacy organisation is very important. Marketing campaigns should focus on different market segments. Any proposed change in strategy must be mutually reviewed. Most importantly the legacy organisation should review and learn from this start-up process. Use and build on this knowledge to perhaps start a larger digital transformation.
Topics to consider when creating the Digital Core
In the digital future all actions we perform generate data points. All these data points are registered, processed and reused in datasets. These datasets will be input for artificial intelligence, analytics and report creation. Data quality, and appreciating of the context within it was generated, is of crucial importance. This puts data in the centre of any digital organisation. This is why the business side needs representatives with sufficient data skills to collaborate with IT.
Automatic generation of documentation is enabled by low code technology. This simplifies the steep learning curve of new experts working with your data backend.
It also reduces the burdensome and often neglected task of documenting the hard coding. Hosting costs are under control, are much lower and dependency on individual knowledge is gone. Solid documentation and control relate also back to cyber security.
Like with all upsides, there is also a considerable downside becoming data driven. Becoming fully digital makes you vulnerable for hacking. Your entire organisation is placed in data centres including the control of machinery. Instead of criminals attacking one part of your organisation, digital organisations must acknowledge and have contingency plans in place dealing with these threats.
Title, position and hierarchy lose their value. People fullfil tasks matching their competences. The remaining tasks are put on the market attracting others. People work part-time at several companies using a specific skill, supported by both fixed and flexible agreements. This enables the development cycle of humans and redefines the “raison d'etre” of organisations. Organisations must keep a keen eye on their financial health but also need to be flexible enough match people’s work wishes.
This demands a huge flexibility in the people development department. Human Resources is also something of the past. This demands adjustable applications and simplified communication enabled by technology.
New forms of collaboration
Technology demands focus on core competences and collaboration with organisations delivering other expertise. End services are often a compilation of partial solutions. This requires systems to: share information, enable collaboration, discuss agreements, online communication, and revenue sharing.
Consider an ecosystem as the new organisation form. Many articles write about ecosystem as a way to deliver a product or service to the market supported by many suppliers. This Dynamic Integrations article explains the ecosystem where customers are included and many small companies can join, each focusing on their core competence leading to distributed power and profit sharing.
Building a start-up has many benefits for large organisations. Knowledge is developed in-house, built around new technologies and applied in a start-up. This means low risk for your current business and revenue. You are “for the time being” in an excellent position to test new business models using new technologies in your markets.
Fredrik the Frisian CEO & Bård Øvrebø CTO
Dynamic Integrations - AI & low code backend development