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Cultivating Leadership in a Post-Digital Era

A Forrester Consulting ‘Thought Leadership’ Article Commissioned by the Huawei Enterprise Business Group

To harness the power of technology in a post-digital world, as discussed in Part 1 (ICT Insights issue 19), companies must take an outside-in approach, investing in technologies that deliver outcomes most desired by customers. In the elevator industry, for instance, companies invest in technologies to optimize people movement between floors and minimize downtime; agriculture companies invest in technologies to increase farm yields; and cities invest in technologies to attract businesses and create a happy and safe environment for citizens.

All companies must first understand the needs, wants, and desires of potential customers and engineer an architecture tailored to better deliver these outcomes. Twentieth century architectures will not support the technology of tomorrow. New architectures must sense customers’ evolving expectations and adopt and adapt to emerging technologies to better serve customers and drive revenue.

To do this, architectures must possess the following characteristics:

  • Be flexible and agile. Businesses must rapidly evolve alongside customer expectations. A cloud approach maximizes flexibility and agility and helps organizations adapt quickly to dynamic market conditions and customer needs. In a competitive market, it is almost mandatory to minimize deployment costs across tens of thousands of mobile employees and allow digital touch points and revenue channels to expand. Forty-four percent of companies with a full digital transformation strategy always use the cloud for core business applications, compared to just 17 percent of companies with a ‘bolt-on’ strategy. Thirty percent of respondents state that ‘adopting cloud platforms’ is the best choice to ensure business agility.
  • Support Big Data analytics. Technology architecture must support real-time analytics to provide immediate value to customers and must be analyzed at the edge of the network to deliver the speed customers expect. Machine Learning (ML) and Artificial Intelligence (AI) will help create unique, high-value, and immediate customer outcomes. Successful businesses will anticipate customer expectations and needs and deliver differentiated experiences to meet them.

Twenty-three percent of survey respondents selected ‘new data-based digital services’ as their top choice when asked about digital product design and development, while 22 percent selected ‘predictive maintenance through analytics’ as the best way to improve operational excellence. But cloud services must be tailored to the specific needs of the marketplace. Retailers in the U.S., for example, must expand their architecture to support peak customer loads during Black Friday, the busiest shopping day of the year.

  • Be ecosystem-enabled. Not everything can (or should) be built in-house. Some digital capabilities will be delivered to customers through partners within an interconnected technology ecosystem. Organizations must be ready and willing to share their data across the ecosystem. Energy companies in the U.S. share peak energy forecasts with Nest to enable ‘Rush Hour Rewards’ that help Nest thermostat owners reduce their energy bills.

Post-Digital Business Models will Evolve

To capitalize on new technology-driven revenue, executives must transform their business models and work collaboratively across the organization to deliver new outcome-based services. Simultaneously, business operations must shift from slow, product-oriented processes to agile, customer-oriented processes to keep pace with evolving customer needs. While the new business models are not fully defined, some signs suggest the coming changes across industries:

  • Financial services adopting ML and AI. Emerging Fintech companies already use computer models to manage financial portfolios and optimize returns, in some cases replacing humans. Sixty-five percent of financial services companies already use Business Intelligence (BI), analytics, and decision-making support tools, with a further 28 percent planning to invest within the next 12 months. Also in the near future, financial services companies may drive revenue based purely on their ability to increase the wealth of their clients. Using advanced analytics to predict market moves, companies able to automate investments to outperform market averages will gain a significant competitive advantage.
  • Manufacturing evolves to build-to-order. Using robotics, sensors, and a cloud-based ecosystem of suppliers, manufacturers will continue to evolve, building more products designed for the unique needs of each customer. Embedded sensors will allow monitoring of product quality and reliability for the lifetime of the product. Car manufacturers, like BMW, are already producing unique cars to fulfill each customer order. Future blockchain-enabled records will track all components that go into a product, including replacement parts, to increase reliability and performance. These advances require the means to connect to the product at any time, imposing even greater dependence upon high-bandwidth, high-availability 4G/5G data networks.
  • Logistics and transportation tap analytics, GPS, and sensors. With GPS, transportation can track every movable asset, and low-cost cellular technologies provide the ability to transmit location and environmental data in real time. Data analytics optimize everything from routing to scheduling. The logistics industry has been on a technology-enabled journey for 30 years, but the pace of change is accelerating. Cloud services provide new opportunities to optimize logistics across thousands of variables, including weather and traffic.
  • Higher education services tap digital for learning. Syndicating learning through digital media is transforming higher education, and the ability to use digital learning tools to monitor and improve student performance will be critical to future revenue growth. Campus-based education institutions must digitally connect students to one another and teachers, not only in writing but with video as well. All of this interaction increases dependence on a high-bandwidth communication infrastructure. Future intelligent learning environments will adapt education materials to the unique learning styles of each student, while simultaneously monitoring progress and automatically adjusting to student needs. Augmented and virtual reality will eventually allow every student to experience 1:1 learning wherever and whenever they desire. The adaptation of computer-based game design to learning will increase the effectiveness of education and eventually become a source of differentiation.
  • Digital media and tech services companies build on clouds. As the digital media and tech service provider industries mature, cloud-enabled services have become standard — 94 percent of media companies already use or plan to use public cloud services in the next 12 months. Companies now use emerging technologies to connect to their customers’ digital ecosystems, providing seamless services across multiple devices and locations. French TV company TF1, for example, uses a hybrid cloud approach for faster news production, from anywhere, at any time.
  • Energy companies seek to add value beyond utility. With 72 percent of energy companies updating their legacy applications, and the remaining 28 percent planning to do so in the next twelve months, the energy sector is one of the most active in technology. Digitally enabled smart grids already allow more efficient power transmission: Nigeria’s Smart Grid helped reduce line loss by 20 percent. By embracing sensors across the business model, from power generation to consumption monitoring, companies in the energy sector compete to provide customers greater value beyond the delivery of utility services. Today, U.S.-based Direct Energy partners with Nest to offer ‘Rush-hour Rewards.’ As one of the few sectors already connected to every home and business, energy companies can become enormous hubs for data collection, allowing them to generate new insights that help customers derive greater value from their relationships.
  • Public sector organizations become more accountable to citizens. Government departments in countries as far apart as New Zealand, the U.S., and the U.K. are rapidly adopting digital technologies to drive greater efficiencies and become more connected and accountable to taxpayers. As public sector departments become more open in data sharing, private companies are springing up to leverage the data and create new services to improve the lives of citizens. In addition, cities are wiring together services, competing to become the safest, most digitally friendly city. Nairobi’s Smart City project, for example, has reduced crime by 46 percent.

CIOs Must Move ICT from the Back Office to the Front

Between 20 percent and 30 percent of any firm’s business capabilities account for its market differentiation; these capabilities are the reasons that a customer buys from Company A rather than Company B. In the past, product design and development capabilities have typically stood out as strategic; however, in the post-digital era, companies increasingly develop differentiation through the experiences they create for their customers and the technology that supports the delivery of better customer outcomes. As technology becomes a revenue driver, the company’s ICT can no longer be viewed simply as an expense to be constrained. Because CIOs must focus their scarce technology resources on the 20 percent to 30 percent of their differentiating business capabilities, they must also greatly simplify the remaining technology.

To succeed, the CEO and executive team must take greater ownership and responsibility for how technology is deployed across the enterprise. CIOs must help the executive team separate IT, which supports generic business capabilities, from Business Technology (BT), which supports differentiation and creates customer value. Installing the right business technology is now a critical success factor for every business. To help prioritize investments, technology governance and leadership must shift the focus to be more outside-in, working toward improving customer outcomes. At the same time, CIOs must lead a change in perception by changing how business leaders perceive the technology teams that support revenue models. CIOs must also become more accountable for driving revenue growth by:

  • Shifting ICT culture toward the real customer and revenue growth. Just 36 percent of IT groups surveyed reported viewing all non-IT employees as business partners; the rest consider other employees to be ICT customers or a mixture of both. Business leaders most often view ICT as a supplier, not as a partner. CIOs must help their teams get to know the real ICT customer, who is also the real customer of the business. Shifting ICT culture toward the end customer helps clarify what is really important. ICT teams are rarely held accountable for revenue; however, just as CEOs expect CIOs to become more responsible for revenue generation, CIOs must also hold their teams accountable for driving revenue growth. This means empowering teams to innovate and partner across the business. Only then will ICT’s true creativity be fully realized in service of customers.
  • Focusing on growth and agility over efficiency. For years, CIOs have been challenged to use technology to improve enterprise efficiency. But in this post-digital era, the drive for business agility trumps the need for efficiency. CIOs must examine every opportunity to increase the agility of both the ICT team and the overall business, even at the risk of decreasing efficiency. Agility is needed to keep up with evolving customer expectations and secure future revenue growth. Efficiency remains important, but it is meaningless without revenue. Twenty-eight percent of respondents cite business agility as their leading approach when sourcing new software applications; 27 percent deploy cloud rather than on-premises solutions; and 27 perfect are moving toward a hybrid cloud.
  • Simplifying technology and improving security. CIOs must lead a push to dramatically simplify the architecture that supports overall business. When identifying their biggest IT challenge, 21 percent of respondents name applying new security protocols, while 20 percent point to keeping up with bandwidth demands and moving business applications to the cloud. Simplification, however, cannot be implemented overnight, and multi-year ‘big-bang’ transformations are no longer an option. The smooth transition from legacy to new, more secure, and agile business technologies, and the simplification of generic business capabilities, must be a continuous evolution. CIOs still must deliver world-class digital experiences to their customers throughout the technology architecture makeover.

Key Recommendations

As companies move beyond simply bolting digital assets to the existing business and to transforming the entire business into a technology company, executives must rethink their business vision, culture, and strategy. The big challenges ahead can be overcome but not without first changing the thinking of the leadership team. These teams must first build their business model around creating products, services, and digital experiences to help customers achieve the outcomes they desire.

Efficiency is important. Improving efficiency and lowering prices for customers is not a unique concept but making sure business agility remains the focus does not come easily. Your customers are evolving faster than your business can adapt; therefore, in response, your business must also constantly evolve.

Furthermore, it is now essential that your organization build its digital DNA for survival. This means more experimentation with emerging technologies, often without a clear Return on Investment (ROI). Encourage startups in your industry and create incubator programs to speed innovation.

CIOs face an enormous challenge in that almost every technology company claims to be a leader in digital transformation, yet few can demonstrate how. Executive teams share a responsibility for helping CIOs select strategic technology partners that can help transition today’s architecture into a platform for future revenue growth.

Becoming Customer-Obsessed

Without a clear focus on what matters to the customer, none of these changes matter. Your entire business must become customer-obsessed. Since your customers see your business differently than you, learn to see things through their eyes. Only by using technology to help customers get what they need, want, and desire will you secure future growth.

The technology investments of the past focused on operational efficiency — they were inside-out. Future investments must focus more on agility and the creation of customer value — they must be outside-in. Because the outcomes most valued by the customer will continue to evolve and vary by industry, the technology architecture has to be tailored to the industry, yet be flexible enough to adapt to change in the future.

About Forrester Consulting

Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester’s consulting services connect you directly with research analysts who apply expert insight to your specific business challenges.

For more information, visit forrester.com/consulting.

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