Digital disruption and enterprise business transformation are hot topics. Most would agree that some level of transformation is needed. And that the need increases as change and disruption accelerate.

If the speed of change in the industry accelerates further, we’ll need more transformation. – Jan Frykhammar, CEO Ericsson, 2016

Problems appear when the external rate of change exceeds the internal ability to respond. This creates the change race, where falling behind leads to commoditisation and threats to survival.

Enterprise Business Transformation Jesper Lowgren

The tipping point comes when the distance is too far and the pivot becomes unaffordable. After this point an enterprise is often doomed a death of thousand cuts.

How big is the threat?

There are several sources to quote from, but my favourite comes from Deloitte Digital (Australia). They looked at the digital disruption across the entire Australian market and divided it into industries. In 2014 they released a report that summarised the disruption into two key dimensions:

  • The Bang, which is a proxy for the degree of enterprise business transformation.
  • The Fuse, which is a proxy for the timing of enterprise business transformation.

Enterprise Business Transformation Jesper Lowgren Deloitte Digital

Read the full report.

The picture paints two key points:

  • The entire Australian industry will be disrupted (I suspect Australia is a good proxy for most Western countries). It is not a question of if, but when and how much. Significant disruption will take place in two-thirds of the overall market.
  • It is based on 2013 data and underestimates the velocity of change. Disruption has already hit industries such as post and transport.

What is the right approach?

It is clear that a mining enterprise has a different need to a retailer, which necessitates different approaches to transformation. Below are four types of business transformation, each with a different scope and purpose.

Business process transformation

Scope is limited to a particular process or set of related processes. Business process transformation initiatives are often used as stop-gap measures to solve critical processes. For example, a new digital campaign management system, to respond to increasing competition. The limited scope makes it most suited for less disrupted industries.

Business capability transformation

Scope is limited to a business capability. Business capability transformation initiatives are often used to meet tactical and strategic threats. For example, creating a digital marketing and e-commerce capability. The limited scope makes it most suited for less and medium disrupted industries.

Business function transformation

Scope is limited to a business function. Business function transformation initiatives are often used to meet tactical and strategic threats. It transforms an entire business function and all capabilities within it. For example, creating a new digital marketing function that handles everything digital. Most suited for medium-disrupted industries.

Enterprise business transformation

Scope is limited to a whole enterprise. Enterprise transformation initiatives are often used to meet medium and long-term strategic threats. It transforms an entire enterprise and all its functions. For example, creating a new digital operating model that is designed to operate and scale in an ecosystem. Most suited for medium and high-disrupted industries.

The first three approaches are well covered by existing methods, and share the same starting point: The existing business. They re-create one part of an enterprise, to create greater overall benefits. The greater the part, the greater the benefits. Continuing this logic, the greatest benefits would come from transforming the nucleus, the operating model, of the enterprise.

Is enterprise business transformation a too radical approach?

What is the velocity and acceleration of change? This is a difficult question that requires proxies to answer. One of these proxies may be Moore’s Law. It states that computing power doubles every 18 months. Does this mean that change velocity doubles every 18 months? Or every 24 months?

Regardless of the exact velocity and acceleration, it is hard to see how an existing business can operate successfully in 5 years, using current processes and systems. Because in many cases it is the business structure and the operating model that lack ability to keep up with change. When this point is reached it doesn’t matter how much individual pieces are improved. There is a ceiling or limit to what is achievable because process automation has taken place in isolation, creating manual and error prone interfaces.

Leading consulting and research organisations are drawing conclusions that an enterprise operating model and platform must be integrated. And not made up of many smaller operating models and systems that have evolved at separate speeds over time.

The Boston Consulting Group recently published a paper that proposed the end of Two-Speed IT:

Today’s businesses are under mounting pressure to get products to market and systems deployed while minimizing risk and delay. Two-speed IT was an important step in gaining experience in new and better ways to do this. Now it’s time to take the next step. A return to a single speed—one based on agile principles—will improve efficiency and outcomes across all technology delivery and, ultimately, across the company. The result: better experiences for customers—and a competitive edge for the business.

Read the full report.

This requires a new enterprise operating model. A re-wiring, to re-define how the enterprise needs to operate to thrive in change and disruption.

Why is this difficult?

What is most radical is not the transformation or the doing. A successful strategy takes the culture, resources, competition and other drivers into account. The key difficulty stems from the fact that the digital world is new.

Current business structures and operating models and structures were copied from the military in the early 1900’s and have evolved linearly since. They are analogue and complex and wholly unsuited for the digital world. This requires new thinking.

The following highlights the challenges to existing thinking:

What is the starting point?

Different thinking, not only different doing. This is the hardest challenge. Because different thinking is needed to design a future state enterprise that thrives in change and disruption.

Different doing with the same thinking fails. – Jesper Lowgren

The following model focuses on the three core fundamentals for success in the digital world, and defines the core of an agile and scalable operating model.

The new enterprise that comes out this lens will look different. However, this is to be expected and needs to be accepted. If it did not, the enterprise would keep doing the same thing, and create the same outcomes.

The mastery lies in defining the current state and create a personalised transformation journey. That maximises the opportunity and available resources, while minimising risks.

Have you designed your enterprise future state? How far into the enterprise business transformation journey are you? How does this thinking stack up with yours?

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Jesper Lowgren

Jesper Lowgren is a published author, keynote speaker, member of board of advisors for Enterprise Transformation 2020, and a business & digital transformation thought-leader with Telstra Limited, Australia’s largest telecommunications provider.

He is a published author of two books on transformation. Both are available on Amazon.

- ON PURPOSE – The Path to Extraordinary Business Transformation.
- FROM ORDINARY TO EXTRAORDINARY – How to Re-Imagine Yourself and Re-Define what is Possible.

Jesper is Swedish and apologises for any Swenglish creeping into his writing.
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