Beyond Disruption and Digital Transformation: A New Framework for Business Process Redesign

The argument

Too many people are talking about digital as if the binary world began yesterday. Are companies really in the grip of digital transformation?  Didn’t that start in 1995? There are more fundamental shifts going on than “digital”:  the trend towards business platforms that enable other businesses; the layering into the economy of services businesses that are not dependent on assets; the creation of the gig economy; speed; oh yes, and mobility too, being detached from a central bureaucracy, going it alone or at the very least shouldering the expectations of entrepreneurship even when you are in work.
We need a framework to help understand how to respond to these changes – digitization does not hack it.

Digital transformation or BPR 2.0?

The new economy has too many contours and turns to be drawn simply so here are some examples – in effect they are business process redesigns.
One aspect of the new economy is the new asset utilization model. We call it “asset light” businesses but in reality it means layering a new friction lowering service into an existing asset base.
Example: A company wants to bring new efficiencies and higher levels of customer care into the corporate jet rental market, challenging incumbent jet charter companies; they create an online platform that provides certification data, performance data, location and availability data for 1,000 of the 4,000 jets globally available for hire.
Customers can use the platform to self-serve their rental requirement, taking cost out of the service layer; they can improve their own experience by selecting transport that is entirely suited to their needs and budget, without aggressive intermediary sales. They feel good. That’s the service Sentient provides and has done for 8 years. Its platform provides the data and transaction engine to utilize jet stock more efficiently.
That model is now active within taxi rides, room renting, tool hire, and many more areas where services improve the efficiency of assets and the level of customer service.
However, to execute the management teams need to know how to construct the platform, how to engineer trust online, how to gain market traction, how to scale the business at low marketing cost etc. There is no “network effect” here – just the platform that encompasses the data, the transaction engine, service delivery, trust engineering and user experience at a high enough level.
A second example: Platforms as a process model. A bank wants to develop a platform that brings together lenders and borrowers. They want to challenge the new crowdfunding and P2P lending startups by bringing the sector expertise to bear. With expert knowledge of key market segments, the bank can launch highly specialized platforms such as loans for working capital in periods of surge for, say, construction equipment or logistics. Knowing the historical patterns of machine utilization and lending records it can automatically gauge the needs of the client and price the risk with a premium for quick decision making.
To make this kind of project work, the bank needs to switch IT people, who have traditionally had an infrastructure role, to a much more dynamic business role and to convert agile methods to the new inter-disciplinary team-based working practices that go with devops. It will also need to build teams around APIs and make decisions about Cloud. Designing an API is a new skill but far more difficult is marketing it and maintaining it, and then migrating it to a microservices environment and giving autonomy to the business. These skills are in short supply.
It will also be looking at switching revenues from product sales to recurring service charges. Most likely, too, the bank needs people in traditional sales roles to start working on social, and to build trust through significant investment in community or data mining, provide UX that’s the equal of any site on the web.The bank also needs people to move into these new roles quickly, maybe people in the gig economy who know how to hack the Internet for growth. It needs to get comfortable with using a contingent workforce on a vital project.
The idea of digital transformation in no way covers the extent of change companies like this face. Many of their decision processes militate against these new methods. So this is business process redesign and re-engineering.

How’s The Future Look for Business Process Redesign?

It would be short sighted to think of this as a journey from one type of organisation serving distinct markets to a more digital one serving roughly the same. Winners are serving totally new markets (Alibaba in finance, Apple in health), or layering services into industries where service has not been developed by incumbents (the asset light model).
This is not a journey with a destination. It is increasingly about pursuing and serving changing customer needs. Customers will continue to shift the goalposts as each new experience expands their opportunities for a more varied, interesting productive, creative lifestyle.
Over the next ten years we are going to see:

  1. More super platforms – digital giants straddling the globe. The four knights will be at least eight: Apple, Google, Facebook, Amazon but also Alibaba, Tencent, CitiGroup, perhaps Xiaomi and Lenovo, and a few wildcard possibilities (SAP building super platforms for inter-enterprise procurement, billing and payment), a Goldman Sachs buying up asset light businesses to create a super-service platform, a telco that gets money (Telefonica?)
  2. The gradual decline of complex, global, supply chains in favor of direct commerce to end-users (Alibaba predicts a $1 trillion cross-border market by 2020 but it is already looking like being bigger than that). Couple that to more onshoring and more craft-based or small batch production and you reduce the need for large scale capital investment
  3. The completion of an alternative financial infrastructure (based around crowdfunding, as crowdfunding becomes more information rich, graduates to bond-like markets, and spawns derivatives to spread risk and create liquidity but based too around Chinese tech platforms that are all now banks)
  4. Born global small businesses that need support to reach into distant markets with good information and strong credit controls
  5. In these circumstances the gig economy’s experienced players can look up and see a faster route to scaling the freelance lifestyle and offering up services for fees + equity in the multiplicity of new enterprises that will form around onshore batch production, crowdsourcing and crowdfunding.
  6. Marketing becomes more influenced by the Searls’ VRM paradigm – people connecting back into the production system and letting manufacturer and service providers know what they want and at what price.

Set against these megatrends are the mini-ones, the shifts in business models and the development of a service economy with recurring revenues. What to do about it? How to keep your strategic framework clear?

The Decision Model Framework

We’ve made several forays into the new strategic framework at Gigaom. The essence of that work is that decision processes have to change, away from the linear business model to an options’ portfolio. Nick Vitalari and I began that thinking in The Elastic Enterprise. Good strategy has these components:

  1. It builds knowledge of disruption processes so leadership really gets a sense of a new future unfolding ahead of consumer transitions, just the way Tencent and Baidu are doing in China.
  2. It is active and current rather than complete, a lesson from Alibaba and Amazon, meaning it also builds quickly and iterates, using bimodal or trimodal IT planning, that frees business up to drive application platforms.
  3. It anticipates the pivot points by exploring options (possibilities not putative probabilities), a strength of Fujitsu in IT services.
  4. It seeks the utility position – can I withdraw from competition by being the platform, Uber’s strength at the outset.
  5. It expands options and keeps them open rather than closing them off as “unworkable” or “non-core”, a lesson from water services company ET Water.
  6. It works off a real options estimate of possible returns, ie it budgets multiple options into the core project rather than taking one line from the future and drawing it back to the present through discounted cashflow (a practice that is more common in sunk capital projects in the secondary sector but hasn’t yet permeated services)
  7. It is participatory in that it draws customers in as members, just like Lego (and Mattel which draws in inventors) because leaders know that downstream revenues are dependent on there being committed users
  8. It sees leadership or the brand as a powerful source of attraction to third parties, a feat Google has managed to sustain for a decade and which is beginning to work for telco infrastructure provider Ericsson and CEO Hans Vestberg
  9. Leadership is inter-generational – i.e. brings in the next generation and makes decisions that the organization can jive with for a decade (see GE and early hires like Beth Comstock who pushed the industrial giant the way of crowdsourcing)
  10. It is headed somewhere – i.e. it has a purposeful narrative rather than a destination (think Autodesk)

 Is there enough information here to kickstart a BPR 2.0? No, not in 1200 words. But the Decision Model Canvas in this earlier Gigaom report is a good second base. Are there gaps in the thinking? Yes:

  1. We need to figure out how leadership becomes truly inter-generational or put another way, how the burden of leadership is shared with those who will take in on next.
  2. We need simple real options planning frameworks – ways to calculate the benefits of creating and maintaining multiple options, some of which will never play out; it’s not enough to claim we can do all the business math through lean iterations
  3. We need to break the tradition of disruption analysis and renew it – there are multiple disruption pathways
  4. We need to be open about the need to re-engineer processes – leaders back away from it, skills are in short supply
  5. We need to find ways to upgrade the gig economy into a participatiory, committed workforce.

CoreOS CEO: We’re not out to replace Docker, just its containers

There was a major shakeup in the world of container-based computing this week when operating system provider CoreOS decided to get into the container space with a new open source project called Rocket. It’s a container runtime environment as well as a set of specifications for how App Containers — what CoreOS calls its container images — are built and function. But the bigger news industry-wide was the suggestion from CoreOS that it built Rocket because developer darling Docker isn’t living up to expectations.

CoreOS Co-founder and CEO Alex Polvi came on the Structure Show podcast this week to clarify that message and to explain the rationale behind Rocket and everything CoreOS does. If you’re interested in the future of containers, distributed systems and even cloud computing, both business-wise and technologically, it’s a must-listen interview. Here are some highlights, but there’s a lot more good stuff.

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We’re fine with Docker, really!

If there’s one point that Polvi really wants to get across, it’s that CoreOS didn’t build Rocket because it doesn’t like Docker — either the technology or the company. He called that notion — expressed by the media, as well as, in numerous fora, Docker founder and CTO Solomon Hykes — “fundamentally flawed.”

The rationale behind Rocket is simple, Polvi explained. Docker is turning into more of a platform, adding in features around cluster management, networking and booting cloud servers, and CoreOS wanted to make sure that the original, simple container component didn’t get lost to the world as that happens. In fact, he says he’s fine with the idea of a Docker platform:

[blockquote person=”” attribution=””]”That’s a fine product, the private cloud is an open territory right now still. So the Docker platform is a product that needs to exist. We just want the simple composable building block to also exist for people that have their own platforms or they’re trying to build their own platform to use as a reusable component.”[/blockquote]

Although, below the surface, it might not be the mutual respect society the companies would like everyone to think it is. Later, while comparing Docker’s move away from containers to VMware’s move away from virtual machines, Polvi noted, “There is a debate as to whether the technology warrants another company like VMware to emerge.”

CoreOS CEO Alex Polvi

CoreOS CEO Alex Polvi

We build what we have to

When you consider the CoreOS business strategy, the reasons for Rocket begin to look a little more clear. Polvi calls the CoreOS lineup of technologies, which also includes a database, registry service, cluster management and other pieces, “a platform for platform builders.” It’s building the “primitives” that people need to build next-generation distributed systems and platforms, as opposed to actually building the platforms (think Heroku or CoreOS partner Deis) where people ultimately deploy applications.

“We are never trying to just take somebody else’s solution and build it,” Polvi said. “We’re trying to fill in the white space and build something that’s technically sound in an area we think is an open problem.”

He contrasts this with Docker, which he says is now becoming more akin to cluster (and container) management plays such as Mesosphere and the Kubernetes project, or VMware. Those technologies might use containers and let users move them around and manage them, but they’re far more about the management aspect than about the containers, or any other pieces of infrastructure, themselves.

Kubernetes works levels above the container, which isn't mentioned on this diagram from Microsoft.

Kubernetes works levels above the container, which isn’t mentioned on this diagram from Microsoft.

In fact, despite the fact that CoreOS has its own cluster-management tool, called Fleet, Polvi said the company actually contributes quite a bit to the Google-led Kubernetes project because it really likes the technology and the trajectory the project is on.

“Docker was a similar thing early on,” he added. “We used it for a year, we collaborated heavily with that community, but then it became clear they were on a trajectory that was no longer what we needed — and what a lot of people needed, not just us.”

Still, Polvi noted, technically, there’s no reason why Docker containers and Rocket can’t coexist provided Docker is willing to work within CoreOS’s container specifications or collaborate with CoreOS to develop a standard container format.

Structure 2010: Sebastian Stadil – CEO, Scalr; William “Skip” Bacon – VP of Products and CTO, Virtual Instruments; Michael A.Jackson – Co-Founder, President, and COO, Adaptive Computing; Jagan Jagannathan – Founder and CTO, Xangati; Alex Polvi – CEO and Co-Founder, Cloudkick; Javier Soltero – CTO for Management Products, SpringSource

A younger Polvi (far left) talking cloud a Structure 2010.

A quick thought on the cloud

We also asked Polvi about the world of cloud computing, where he used to work after Rackspace acquired his last startup, CloudKick, and where many CoreOS workloads will likely run. Maybe old allegiances just die hard, but Polvi thinks Rackspace is actually in a pretty good position as bigger cloud providers such as Amazon Web Services, Google and Microsoft continue to drive down prices.

“Now, because of the competitive pressure of the cloud providers, compute on infrastructure will go asymptotically to free over time, as well,” he said. “If you think about it, what’s left after the hard parts of software are free and the compute itself is relatively free, or free enough? … I think it’s service, that’s how you do it. You help people use all this stuff.”

Today in Social

I often use 51 percent population or household penetration as an indicator of mass-market adoption. And 50 percent by a single vendor is a remarkable thing. But what happens when a platform loses its 50 percent share? Two different memes suggest that the Wintel era is ending. DRAM consumption by PCs went under 50 percent for the first time in a long time, according to IHS-iSuppli. But smartphones only soaked up 13 percent of memory chips and tablets 3 percent. A more damning tally by Asymco shows platform shipments pushing Microsoft towards 50 percent. Installed base matters more, of course, but where shipments go, IB and usage follow. The thing is, nothing else has emerged as a 50 percent-contender yet. It feels like that for the immediate future, core computing platforms will look more like the videogame market than like PCs. Does that imply walled gardens?

Facebook Credits: a shaky media platform

There is a lot riding on Facebook Credits. But for established media companies, the mandatory use of the in-app Payments system could be less than appealing. Will the company be able to become a major distributor of paid premium content? It depends if it wants to.

Today in Social

Facebook’s, according to a survey of 100 developers posted on Hacker News. When asked about integration problems, Facebook mentions came up most, followed by Google and Twitter. Naturally, those three supply some of the most widely used APIs out there. Developers complained about bad documentation, bugs, OAuth and lack of example code. Two complained that Google+ hasn’t got a public API yet. At the same time, Twitter also received the most positive comments of any company mentioned, including kudos for its documentation. YourTrove Inc., the photo aggregation company that wrote the survey, admits it isn’t super-scientific or well-crafted, but it certainly exposes some things platform companies need to work on. And it didn’t even get into business issues.