Dr Leslie P WillcocksIn 2022, ongoing research was carried out with John Hindle of Knowledge Capital Partners in which we studied digital leaders, including their approaches to building digital platforms. It became clear that, facing today’s environmental dynamism, connectedness and uncertainty, together with rising, increasingly unpredictable competition, these organisations recognised the need to become not just digital but also agile and adaptable—that is, ‘future-ready’. What does this mean? Some great work has already been done on this kind of digital future-readiness. For Sia, Weill and Zhang (2021) future-readiness means building an ambidextrous organisation and digital platform for both exploitation—efficient leveraging of existing resources and capabilities through continually improved processes—and exploration—combining resources and capabilities in new ways to create further capabilities and opportunities. Clearly, tensions between exploitation and exploration will occur. These can be managed by organisational integration mechanisms. For example, in banking by integrating a stand-alone digital bank back into the larger traditional bank.
But our crucial finding is that organisational ambidexterity is not enough. To be future-ready, business ambidexterity must have digital foundations, and operate through data and digital processes. Ross et al. (2019) put it another way: in designing for digital there is a simultaneous need for a digital componentised operational backbone (to underpin exploitation), and digital services platforms (for speed, flexibility and experimentation i.e., exploration).
We would underline their point that this design logic of digital ambidexterity is increasingly facilitated by today’s multi-layered technology architecture, supported by modularised components, API-enabled connectivity, and scalable cloud usage. Tensions within the digital platform between exploitation and exploration can be managed through a multi-layered technology architecture with an API-based integration layer that connects core infrastructure with customer facing services and content.
The overall vision we see held by digital leaders is of a business-IT-digital fusion, with business IT and digital strategies highly interlinked, and with technology increasingly driving business innovation. In a step towards being even more future ready, Sia, Weill and Zhang (2021) suggest that tensions in bridging Business and IT can be managed by reorganising around business capability platforms run by autonomous cross-functional teams and coordinated by automated processes and platform standards. However, in our view, most organisations will not be in a position to make this step yet. So, what can they be doing?
Getting To ‘Future Ready’
We found, with others, that organisations building ‘future-ready’ today work on three components 1 . The first is a reimagined role for technology that is tightly focused on and fused with the business strategy 2. The business-technology gap has been a perennial issue in transformation initiatives, and has been closing slowly, over several decades. But now, in a very real sense, digital is becoming the business. Therefore, what has been called ‘tech-forward’ business strategy is critical, together with integrated bus-tech management and stewardship of the digital user experience.
Secondly, leading organisations continually reinvent technology delivery. This means agile-at-scale software delivery, modularisation, adoption of next generation infrastructure services (e.g., cloud, end-to-end automation, NoOps, PaaS), technology skills excellence (internal and external), and flexible technology partnerships.3
The third component, supported by our new research, is future-proofing the foundations—that is, the digital platform. The target state here is, firstly, a flexible, business-backed architecture developed iteratively and continuously to renew core systems so they support new digital functionalities. The process will see multiple, even daily, production releases, and frequent upgrades. The flexible architecture will consist of self-contained applications connected with easy-to-configure application programming interfaces (APIs). Secondly, the technology core will include data and analytics systems that provide technology teams across the enterprise with the high-quality information and tools they need to anticipate customer and employee preferences, design innovative applications, and enrich user experiences. Thirdly, security and privacy protections need to be integrated into solutions from the start, rather than added subsequently. This approach can accelerate delivery while improving information security.
For digital platforms, there are many routes to future-ready. A Woerner and Weill (2021) study found only 22 percent of companies future ready, and identified four pathways to improvement that were particularly effective, producing an average net operating margin 19.3 percent points higher than the industry average.
What are those pathways?
- • Where customer experience was uncompetitive, organisations first focused technologically on creating an integrated customer experience and better digital offerings.
- • Organisations with poor operational efficiency focused first on industrialising their technology platform, then on further improving the customer experience.
- • A third pathway took small ‘balancing steps’—alternating focus on operations and customer experience—over several iterations. A key success factor is to have an overall transformation roadmap that informs each of the separate efforts. Without this coordination, digital initiatives tend to lose their way, and the overall digital transformation project loses momentum.
- • A fourth, more radical pathway is to start a new future-ready company with a digital platform and all the advantages built in. This is a sensible option if the fintech competition is fierce, and management cannot see how to change the culture, customer experience and operations fast enough to survive.
Our work points to the fundamental importance of getting the digital platform foundations right, and identifies how progress can be made. All the research points to how difficult the overall task is, with serious disruptions and question marks along the way. Nevertheless, accelerated by the COVID-19 experience, some 55 percent of the leading sector in this—banking—were making serious inroads into building their digital foundations by late 2022. That leaves some 45 percent of that banking sector not having made serious progress out of their technology silos and spaghetti legacy accumulated over several decades. This has worrying implications not just for banking, but for all sectors. In today’s organisations, value migration is constant. And when the game changes, the winners are, like Wayne Gretzky pursuing the ice hockey puck, the ones who migrate to where the value will be.
Sia, S., Weill, P. and Zhang, N. (2021). Designing a future ready enterprise – the digital transformation of DBS bank. California Management Review, 63, 3, pp. 35-57.
Ross, J. Beath, C. and Mocker, M. (2019). Designed for Digital: How to Architect Your Business for Sustained Success (Cambridge, MA: MIT Press, 2019).
- 1 Dhasarathy, A., Gill I. et al. (2020). How to become ‘tech-forward’: A tech transformation approach that works. McKinsey Digital, London/New York; Woerner, S. and Weill, P. (2021). Update on the four pathways to future ready. Center for IS Research working paper, February 18th.
- 2 Willcocks, L. (2021) Global Business Management. SB Publishing, Stratford-upon-Avon.
- 3 Willcocks, L., Venters, W. and Whiley, E. (2014) Moving To The Cloud Corporation. Palgrave, London.