Editor’s Note: In this special report, Amazon Web Services and Chief Executive Group offer a series of concrete, action-oriented steps that can help you with the process of digitalizing your organization. Part 2 of 5.
The role of digital technology in business operations has changed over the last three decades. From basic back-office computing, transaction processing, and reporting; to technology that is highly connected to strategic business outcomes, enabling operational efficiency and resilence.
Yet, many companies haven’t adapted their approach to maximize the full potential of the cloud. Many digital efforts still rely soley on technical specialists (CIO, CTO, CDO) or external technology vendors and consultants and tightly coupled to the current business strategy. Operating expenses are narrowly allocated only to those areas where digital technologies—including cloud computing—are seen as a means for implementing the current business strategy. By and large, cost-center mentality still prevails.
We call for a shift in executive mindset to project the future of the business with digital at the core. That is, to systematically deploy cloud and digital technologies to maximize growth in ways that put solving customer problems first and keep the business resilient from end to end. This mindset incorporates thinking about investments in cloud technology from a longer-term, future-oriented perspective and decide on the best mix of capital investments and operating expense to succeed.
When allocating resources for cloud and digital initiatives, some companies exhibit a recession mindset even during normal times. They use digital technologies as a headwind—allocating just enough resources to get them through the current crisis or, worse, reducing investments in technology to conserve cash.
Is your company ready for a reinvention mindset when it comes to digital technologies?
Companies with this mindset systematically reallocate resources to use cloud and digital technologies as a tailwind—leveraging their power to innovate and deliver more compelling value equations to customers than traditional business models that incrementally enhance their existing offering.
This moment in time calls for a reinvention mindset that acknowledges cloud and digital as a tailwind. Leaders should overcome their fear of cannibalizing existing revenue streams and move beyond short-term gains measured on past metrics. The reinvention mindset recognizes that embracing cloud and digital is urgent and that a sequenced portfolio of digital experiments is needed to learn and re-learn so the business can navigate the uncertainties ahead and transform successfully.
We recognize that some organizations may take issue with the term reinvention. A highly successful steel manufacturer, for example, may not want to change so much that it’s like a new company. However, it may desire radically different ways of integrating with raw materials suppliers, managing inbound logistics on those materials in innovative ways, possibly using advanced technology within the steel production process, or embracing transformative technology in sales and distribution downstream processes. We use the term “reinvention” to highlight a mindset that isn’t bound by the constraints of the past, that is open to examining the potential of digital technologies to drive new performance outcomes.
“Many of our [AWS] customers who are on a reinvention journey avoid large scale, multi-year initiatives that require a lot of up-front investment and take a more clever approach to innovation,” says Wesley Story, AWS Enterprise Strategist and former CIO. “The elastic nature of the cloud affords swifter experimentation, which leads to competitive disruption sooner. It is important to keep in mind that getting the most value out of the cloud may require a new mindset, different ways of working, and new skills and structure – optimized for agility.”
A critical insight we have learned from analyzing the successes and failures of digital transformation over the past decade is that the winners approached it as an enterprise-wide business activity rather than a set of functional-level technology projects. Pragmatically, five interlinked dimensions encapsulate how your enterprise should think about digital.
- Scale. Successful digital transformations are most often realized (at scale) when companies start with the customer experience (or business outcome) and work back to design the internal operations and engage with vendors, suppliers and partners. For example, optimizing a single function such as a local supply chain or a single enterprise may have provided some immediate benefits in the past. However, reinventing the business from end to end with access to powerful technologies increases the scale at which you can enhance incremental efficiencies and tap into new possibilities.
- Speed. The speed of technological evolution is order-of-magnitude greater than the speed at which most organizations can absorb and adapt to it. Reinventing the business means possibly using digital technologies in different facets of your operations (R&D, design, manufacturing, recruitment, supply chain, sales, marketing, customer service, etc.) to solve customer service and pain points at or close to the speed of others in the market. You must decide when to be the “first mover” and when to be the “fast mover.”
- Structure. Now is the time to design new ways of working. If digital is pervasive and end to end, then it calls for experimenting with new business structures and processes. Instead of separating manufacturing from sales and distribution, marketing from procurement, and R&D from software and information technology, apply lessons from agile software development approaches. Strive to have integrated cross-functional teams that work toward common outcomes. For example, how could you use two small cross-functional teams that are focused on well-defined and measurable goals instead of one large department with several loosely defined objectives? Traditional IT organizations need a comprehensive approach to cultivating and deploying digital resources, including through alliances and partnerships.
- Skills. Technical skills alone do not confer a competitive advantage. Reinvention requires a blueprint for developing a view of distinctive skills and core competencies. You must develop a roadmap that considers how best to combine smart humans with powerful machines and upskill the current set of employees. How might new roles such as data scientists or AI and ML experts mesh with business operations? How might different cross-functional teams be formed and collaborate to unleash new business capabilities to outperform competition?
- Security. As businesses rely more on digital functionality, the surface area for cyber threats become significantly larger. Whether safeguarding expanding volumes of sensitive data, protecting exponentially growing digital transactions, or designing new technologies such as IoT, 5G, and AI into your business, security must be a high priority. Security must be built into the business model with adequate resources and baked into the organizational culture.
As you reflect on the five dimensions discussed above, you see that digitalization is much broader and more comprehensive than simply incorporating next-generation technical tools to support the current business model and operations.
“These five dimensions -scale, speed, structure, skills, and security – are enterprise-wide and interdependent challenges that should influence how the senior team builds and drives their vision throughout the organization,” says Story. “Winning companies band together as a C-Suite, realizing it’s not a program with a singular leader, but a collective effort where no function or division is left untouched. They’ll embrace customer insights and experience as their guiding light, working backwards from there – considering each of these five dimensions.”
