Digital Transformation And Digital Value

Digital Value

There are many ways in which digital systems deliver value. Some systems serve as the modern equivalent of file cabinets: massive and secure storage for financial transactions, insurance records, medical records, and the like. Other systems enable the transmission of information around the globe, whether as emails, web pages, voice calls, video on-demand, or data to be displayed in a smartphone application (app). Some of these systems support engaged online communities and social interactions with conversations, media sharing, and even massive online gaming ecosystems. Yet other systems enable penetrating analysis and insight by examining the volumes of data contained in the first two kinds of systems for patterns and trends. Sophisticated statistical techniques and cutting-edge approaches like neural network-based machine learning increase the insights of which our digital systems are capable, at a seemingly exponential rate.

Digital technology generates value in both direct and indirect ways. Some of the best known uses of digital technology were and are very indirect; for example, banks and insurance agencies using the earliest computers to automate the work of thousands of typists and file clerks. More directly, people have long consumed (and paid for) communication services, such as telephone services. Broadcast entertainment was a different proposition, however. The consumer (the person with the radio or television) was not the customer (the person paying for the programming to go out over the airwaves). New business models sprung up to support the new media through the sale of advertising air time. In other words, the value proposition was indirect, or at least took multiple parties to achieve: the listener, the broadcaster, and the advertiser. This model, originating in the analog era, has carried through into the digital economy.

From these early business models have evolved and blossomed myriads of creative applications of digital technology for the benefit of human beings in their ongoing pursuit of happiness and security. Digital and IT pervades all of the major industry verticals (e.g., manufacturing, agriculture, finance, retail, healthcare, transportation, services) and common industry functions (e.g., supply chain, human resources, corporate finance, and even IT itself). Digital systems and technologies also are critical components of larger-scale industrial, military, and aerospace systems. For better or worse, general-purpose computers are increasingly found to be controlling safety-critical infrastructure and serving as an intermediating layer between human actions and machine response. Robotic systems are based on software, and the IoT ultimately will span billions of sensors and controllers in interconnected webs monitoring and adjusting all forms of complex operations across the planet.

A Digital Value Scenario
women w/cell phones
Figure 1. Dinner Out Tonight?

Consider the following scenario:

A woman (Dinner Out Tonight?[1]) is wondering if she can afford to dine out that evening. She uses her mobile device to access her banking information and determines that in fact she does have enough money to do so. She also uses her mobile device to make a reservation and contact some friends to join her. Finally, she uses social navigation software to avoid heavy traffic, arriving at the restaurant in time for an enjoyable evening with her friends.

IT pervaded this experience. The origins, layers, and complex connections of the distributed systems involved are awe-inspiring to consider.

Don’t worry about the technological terms for now.

This is an introduction. You may see terms below that are unfamiliar (model-view-controller, Internet Protocol (IP), packet switching). If you are reading this online, you can follow the links, but it is not required. As you progress in your career, you will always be encountering new terminology. Part of what you need to learn is when it is important to dig into it and when you can let it pass for a time. You should be able to understand the gist presented below; that these are complex systems based on a wide variety of technologies, some of them old, some new.

The screen on her cell phone represents information accessed and presented by a complex “architecture” of distributed systems, including the hardware and operating system of her cell phone, which run software written and deployed by the bank, which communicates with computers (“servers”) in the bank’s data center. The communication with her bank’s central systems is supported by 4G LTE data, which in turn relies on the high-volume IP backbone networks operated by the telecommunications carriers, based on research into packet switching now approaching 50 years old. The application operating on the cell phone interacts with core banking systems via sophisticated and highly secure middleware, crossing multiple network control points. This middleware talks in turn to the customer demand deposit system that still runs on the mainframe.

The mainframe is now running the latest version of the IBM® z/OS operating system (a direct descendant of OS/360, one of the most significant operating systems in the history of computing). The customer demand deposit banking application running on the mainframe is still based on code written in the lowest level assembler. Some of the comments in this code date back to the 1970s. It has been tuned and optimized over the decades into a system of remarkable speed and efficiency. Although re-platforming it is periodically discussed, the cost/benefit ratio for such a project has to date not been favorable.

Figure 2. Digital Made This Gathering Easier

The reservation system looks similar on the mobile device, but the network routes it to a large cloud data center hosting the reservation system. The back-end application here is very different from the banking system; the programming languages are newer, the database is structured very differently, and the operating system is Linux®.

Finally, the navigation software looks much like the reservation system, as it too is based on the cloud. However, the system is much more active as it is continually processing inputs from millions of drivers in thousands of cities and updating traffic maps for those drivers in real time so that they can choose the most optimal route to their destinations (e.g., dinner). The capabilities of this system are comparable to an air traffic control system, and yet it is available as a free download for our IT user.

The resulting value (as in Digital Made This Gathering Easier[2]) is clear:

  • In an earlier era, our user might have stayed in for fear of bouncing a check, or she might have gone out and dined beyond her means

  • The phone line at the restaurant might have been busy, so she might have risked showing up with no reservation

  • Before texting and social media, she might not have been able to reach her friends as easily

  • Without the traffic application, she might have run into a huge midtown traffic jam and been half an hour late

Clearly, digital services added value to her life and helped to maximize her experience of social enjoyment.

What is Digital?

Being “digital”, in the sense of digitizing information, is not new. It has existed, arguably, since Shannon mapped Boolean logic onto electronic circuits [Shannon 1938]. This document uses the definitions defined in Definitions.

A “digital-first” culture is where the business models, plans, architectures, and implementation strategies are based on a digital organization architecture that inspires and rewards a number of desired behaviors, such as servant leadership, strategic value chain thinking, consumer focus, fault tolerance, agility, and more. It requires a workforce with a sense of psychological safety, digitally savvy enough to execute a “digital-first approach”.

As part of this paradigm shift, it is important to have a clear understanding of the existing capabilities, which can be retired, and the new ones that will be needed. In some cases, organizations may need to deal with all these changes while keeping their current legacy platform and supporting applications.

Digital Transformation

Digital Transformation is fundamentally a strategy and an operating model change, in which technological advancements are leveraged to improve human experiences and operating efficiencies, and to evolve the products and services to which customers will remain loyal. It is the consequence of:

  • The ability to handle information in the digital form

  • Using digital technologies to manage the process of creating, capturing, and analyzing information to deliver perceptive human-machine interaction experience

The modern digital enterprise faces multiple challenges in its transformation to the digital economy. New technologies (cloud, IoT, machine learning) and new techniques (DPM, reliability engineering, continuous delivery) both demand attention. This family of guidance will address both aspects. However, technologies are faster moving, while techniques and practices evolve at a slower pace.

For organizations to cope with this fast technology evolution pace and succeed in this Digital Transformation, changes should be pervasive through the whole organization. Digital Transformation as a strategy should be aligned with the overall organization context and environment, and should be derived and sometimes even replace the existing organization strategy.

This strategy shift should encompass the new business and IT disruptive trends, using an outside-in perspective, and lead the development of new business and operational models connected with digital technologies and platforms and with the digital economy as a whole.

1. Image credit, downloaded 2016-09-14, commercial use permitted.
2. Image credit, downloaded 2016-09-14, commercial use permitted.