Monthly Archives: August 2016

Digital transformation and Business bones

I love that people are focusing attention on “digital transformation.” Every consulting firm has a practice area, every research firm and think tank has a report and every business magazine has a series of stories.  Google shows 7.3 million search results.

My entire career has been about transformation. In the early years it took the form of new product development and generating demand with advertising. The transformation was largely formed with persuasion and clever ideas, communicated to people with TV and print, and by making the item available at the local market.

By the 1990’s the transformation started becoming digital with infrastructure things like websites, email, and ecommerce — requirements easily added to any legacy business. This was largely a tactical exercise with marginal impact to the core of a business. Of course many new businesses were created, born of the digital ecosystem and a growing generation of natives.

Having celebrated the 25th anniversary of the World Wide Web, we now see a type and magnitude of new company not previously possible. Facebook, Alibaba, Uber and Airbnb are examples for this new type of company whose existence is grounded in digital technologies and which are highly differentiated from their competition.
goodwin 4 companies

Interesting, but what about legacy companies —  companies that make and sell things the good old fashion way?  Theodore Levitt’s famous marketing myopia mantra – What business are you in? – has little value in the face of this type of competition.

What is needed is a way to think about an existing business in a different way. Just like a building is subject to architecture for the planning, designing, and constructing, so too is a business, especially a business that seeks to transform itself.

Business Architecture is a formal practice – a conceptual framework – to blueprint the relevant business structures that can guide digital transformation.

BA diagram

With this single blueprint of the business structure, all stakeholders can share an understanding of interconnectedness and how changes in one area will impact other areas. What’s more, this blueprint will provide common vocabulary and a framework with which to discuss transformation. Everyone gets on the same page and shares the same knowledge.

In a building renovation, professionals often refer to the “bones” of a building, the equivalent to our bones and skeleton, being good or bad. Business bones are also a good metaphor for what is good or bad as a subject of transformation.

In a taxi company example (aka, Uber), one bone is a hard assets/cars and another is labor/driver. The taxi company, wanting to remove these bones would need to understand the changes for hiring/re-staffing and vehicle provisioning.

In a general merchandise store example (aka, Alibaba), the marketing and delivery bones would need to be added and the store either discarded or transformed into a warehouse. Staff would be retrained to new positions and hours of operation.

In the context of digital transformation, the critical component involves Information Technology Transformation (ITT). Business Architecture is particularly well suited to mapping and aligning transformations from Business to IT and the current “as-is” to the future “to-be” requirements.

Screenshot 2016-08-24 14.46.18

With a clear understanding of the business structure and bones, plus how to align Business and IT transformation, innovation has a solid bedrock from which to build.

Contact me to continue the conversation.

Read about That Doggone Digital Transformation article for more insights.
Larry W. Smith

Twitter: @lwsmith10011

linkedin.com/in/lwsmith10011

larrysmith.contently.com

Doggone Digital Transformation

dogDigital transformation is a hot topic in Corporate America for good reason: legacy companies, selling “real” products with established value and customers nurtured over many years, are getting crushed by new companies who seemingly have no value other than some digital-internet-mobile-social voodoo.

You’ve heard about Uber and Airbnb, but recently the Dollar Shave Club ($SC) — selling razors in a field dominated by two Fortune 50 companies — was purchased by Unilever for $1 billion.

$SC was notable for having a great sales video and direct-to-consumer relationships but it neither made its products or mass promoted nor distributed them; a perfect disruption in the mass distribution channels.

The lesson is not in the disruption, but rather how it is possible to reinvent, innovate, and leverage up existing assets.

My friend Rob called bullshit on me regarding “how easy” is was to digitally transform a legacy company into a modern day Uber or Airbnb of a given category.

Since both Rob and I use Business Architecture as a way to describe value creation in any given company, it was fairly easy to explain how one might transform a traditional company with some applied digital tools and techniques.

Source: http://www.businessarchitectureguild.org

Rob knows I dislike dogs (cat guy), so he said I was CEO and asked how I would digitally transform a dog food manufacturer. Let’s assume this is a $1B revenue business, operating for 50+ years, has a strong regional brand with loyal customers, strong distribution to specialty pet stores, food, drug, and mass merchants, and sells 10 SKUs of wet and dry dog food.

A business architectural analysis of the potential for Digital Transformation highlights 4 value streams that support the opportunity:

  • Product Manufacturing, with both the recipes and the branding. Labels alternative branding are inexpensive,
  • R&D knowledge about dogs, their diet, nutrition, and overall health
  • Strong just in time operations and logistic to service over 2,000 accounts
  • Basic ERP systems, accounting and general technology systems integrated across most of the Operations, though lacking for sales, marketing, and customer relationships.

To undertake a digital transformation, key missing components would have to be addressed:

  • A value stream that dealt with the customer or “end-user” as a stakeholder. Having relied upon a traditional distribution and direct retail relationship, there was no knowledge about or engagement with the actual customer: the person, family, or dog.
  • Further, there are no capabilities or information in support of consumption or purchase behavior. There was nothing about the dog’s health, activity, age, location or its’ well being. For example: was the dog on a farm or ranch or in a city apartment?

Starting with low-hanging fruit — things other companies are doing and 3rd party suppliers offer — we came up with these ideas that address both the relationships with consumers and the underlying economic model. These ideas are easily applied using existing assets and value streams and minimal investments for pilots and test markets.

  • License an activity tracker digital device (e.g., Fitbit, Garmin) or for dogs. This will include a smartphone and computer app tailored and branded to the company specifications. Critical to this is an understanding of diet, activity, and nutrition. For example, the dog may be more active in the summer and need more protein, but less active in the winter and need fewer calories with more vitamins and other nutrients.
  • Create a CRM infrastructure and outreach program to individuals; this includes customer accounts and billing, customer service, and related logistics capabilities. The CRM should also be tied to advertising and other outreach programs.
  • Develop and promote a custom direct-to-consumer distribution program that automatically sends “customized” food. A TBD big issue is the ability to change formula and recipe to meet certain requirements for calories and quantity. Ideally, Fido would have his own label with portion control.

Disruption to existing channels of distribution can be offset with data and knowledge about customers and purchase behavior, plus separation with new branding and direct to consumer (and dog) relationships.

This is certainly an oversimplification and abbreviated description of both Business Architecture and Digital Transformation. It does however exemplify the clarity of thinking and ability to focus strategy into a few meaningful and actionable activities.

We can do this for your business. Contact me.