Digital Transformation Capability and the Modern Business Landscape

Posted by Michael Davison

Digital_transformation.jpgYesterday morning, The Wall Street journal announced that Goldmann Sachs Group Inc.  dropped out of R3CEV LLC blockchain group. R3 has been notable in its corralling of 70 different banks and financial firms to join their group since 2014, including Bank of America, J.P. Morgan and State Street. A spokesperson commented on the company's departure:

Developing technology like this requires dedication and significant resources, and our diverse pool of members all have different capacities and capabilities which naturally change over time.

For the record, Goldmann Sachs will continue to invest in blockchain technology including the startups Circle and Digital Asset Holdings, but there is only speculation as to exactly why Goldmann Sachs’ membership with R3 expired. Certainly it may have been related to disagreement as to the equity distribution models between R3 and its members, but just a month earlier, when R3 announced their blockchain proof-of-concept prototype exercise, R3 CEO David Rutter commented:

Quality of data has become a crucial issue for financial institutions in today’s markets. Unfortunately, their middle and back offices rely on legacy systems and processes - often manual - to manage and repair unclear, inaccurate reference data.

The truth is, that there's still quite a bit of latitude of digital capability across, within, and without businesses, big or small. 

Getting the whole gang onboard

Perhaps Goldmann Sachs' departure is due to exactly this: some aspect of their business units are behind the power curve in their digitization transformation and data management efforts.

Digital transformation can be a painstakingly complicated process, partially because, according to Computer Weekly,  some parts of the transformation process aren't even executed by the organization itself, yet still require all the vigilance their CIO and IT units can muster, being ultimately their responsibility:

Companies of all kinds are increasingly using technology partners, channel partners, contract manufacturers, warehousing and logistics partners, service partners and other outside services to handle all or part of a business process. Most enterprises come to view these partners as the extended enterprise, and look for ways to have tight integration and collaboration with them.

To achieve effective, successful transformation, digital business leaders must get their whole business ecosystem onboard with a clear, discernable, comprehensive strategic digital transformation plan that touches upon all of the extended enterprise. To act and assess  digital transformation opportunity, McKinsey suggests 4 steps:

  1. Estimate the value at stake. Companies need to get a clear handle on the digital-sales and cost-reduction opportunities available to them. Digital—and digitally influenced—sales potential should be assessed at the product level and checked against observed internal trends, as well as competitor performance. On the cost side, administrative and operational processes should be assessed for automation potential, and distribution should be rightsized to reflect digital-sales growth. The aggregate impact should be computed and turned into a granular set of digital targets to monitor progress and drive value capture.
  2. Prioritize. Most organizations don’t have the ability, resources, or risk tolerance to execute on more than two or three big opportunities at any one time. Be selective. Figure out what areas are likely to deliver the greatest return on investment and the best customer outcomes and start there. While digital requires some experimentation, too many ad hoc demos and showcases lead to scattershot investments that fail to deliver sustained value. One retailer, for instance, ended up with 25 subscale digital offerings by not culling in the right places.
  3. Take an end-to-end view. One financial-services firm built a world-class digital channel but failed to update the paper-based processes that supported it—processes that were prone to error. That false veneer of speed and efficiency eroded trust and turned off customers. The moral? Although it may seem counterintuitive, overinvestment in a slick front end that is not matched with the corresponding high-quality fulfillment that customers now expect may actually lead to increased customer frustration.
  4. Align the business portfolio accordingly. In the long run, some lines of business will simply be destroyed by digital. Hanging on and tweaking them is futile. Companies need to act purposefully and divest where it makes sense, identifying what holdings are likely to be cannibalized or likely to underperform in the new environment and sloughing them off. Conversely, some areas will clearly need new capabilities and assets, which companies often do not have the luxury to build up organically over time. One retailer used targeted acquisitions to rapidly build out its e-commerce capabilities, allowing it to focus on defining strategy and aspirations rather than tinkering with the “plumbing.” Source.

Creating new monetizeable value

A recent report by Gartner revealed that often organizations are missing out on a bevy of monetizeable value due to overemphasizing traditional silos and markets (marketing, social media, mobile applications, etc.). A too-narrow focus means organizations are getting only a small share of the full value that digital transformation can provide. Saul Judah, research director at Gartner says,

All too often IT leaders focus value creation more narrowly, with the result that most digital initiatives are aimed at operational improvements, rather than value transformation. While this tactical approach to digital value can result in very real process and financial improvements, the greatest potential for digital value lies in more strategic initiatives, such as creating new markets, empowering employees, changing the basis of competition and crossing industry boundaries.

IT leaders need to work with the business side of the house to identify and exploit these high-value initiatives. 

Algorithms and analytics offer accelerators of value and are themselves of exchangeable and monetizable value. An analytics process may use algorithms in its creation, which could also be monetizable through an algorithmic marketplace, making it available to enterprises of all types and sizes to use.

For example, True Interaction's data agnostic machine learning analytics platform, SYNAPTIK, is rolling out a data marketplace where organizations can syndicate and distribute new data revenue opportunities and actions to their clients, as well as other platforms.

Digital transformation and the modern enterprise landscape

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The Blockchain endgame?

Blockchain technology offers several benefits to an organization. The technology uses new methods of encryption which enables anonymous sharing of information in a data-rich environment. They are further characterised as Smart Contracts, computer protocols that facilitate, verify, or enforce the negotiation of contract cases or terms. And with blockchain, the dataset remains updated and intact at all times, without the need or use of a central governing authority.

Decentralised systems using blockchain technology can manage the data relationships and sequence of events where all parties share the same data source. Furthermore, with the impending intersection of the Internet of Things with blockchain technology, digitally tenacious organizations will soon be able to connect, conceivably, anything with anything, and get them to communicate intelligently and securely. Enterprises that embrace this phenomenon will be able to provide a better user experience and value-added services, as well as gain competitive advantage and differentiation.

Seeing the rumble between Goldmann Sachs and R3 shows us that we are still a ways off as far as describing the exact standards of blockchain in business. With certainty, some markets need to topple age-old paradigms of strategic thinking that are no longer relevant in a digital world. But the promise is quite exciting.

Topics: blockchain technology, Digital Transformation, business process

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