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Designing Your Business for the Digital Economy

Presented by: Jeanne Ross, Director and Principal Research Scientist at MIT Sloan

November 2014

Part of the Oracle Experiences in Enterprise Architecture article series

Jeanne W. Ross often studies how firms develop competitive advantage through the implementation and reuse of digitized platforms. Her research covers topics such as enterprise architecture, IT governance, IT-enabled business transformations, IT demand-shaping and investment processes, IT operating models, and digital innovation.

Dr. Ross took the podium as the keynote speaker at the 2014 Oracle Enterprise Architecture Summit to discuss her recent experience interacting with senior level executives. "This is architecture's moment," she began. "In the digital economy, architecture distinguishes winners from losers. The digital economy is here and all our efforts to help business leaders understand and embrace architecture are about to be realized."

Ross spends a lot of time studying how companies are setting themselves up for the digital economy. She is especially interested in organizations where architecture plays a leading role and becomes relevant outside of IT. However, as she and her colleagues have learned, many enterprise architects are still trying to gain traction within their organizations, partly because the term "architecture" is not widely understood. Because CIOs and senior business executives often talk about major business transformations in terms of "redesign efforts," she suggests that architects use the term "design" rather than "architecture" to describe their work.

Ross went on to recount her interactions with the CEO of a $1 billion health food products company. This family-owned business wanted to go public. The new CEO hired the best COO, CMO, CIO, CFO, General Counsel he could find, and turned them loose with the directive, "You know the playbook for your function. Just go do it."

Four years later the CEO claimed that the health food company was ready to go public, although he admitted that he was still baffled about the "digital" part of the transformation. He had hired a chief digital officer and then fired him after one year because the CEO wasn't sure what this officer was supposed to do. "There is no playbook for digital," the CEO admitted.

Ross begs to differ. She maintains that there is a playbook for the digital economy. It's called enterprise architecture. Unfortunately, most businesses are not making the connection. Simply telling business leaders to "run the playbook" is no longer enough. "To become a digital business, all of the business functions need to be integrated, but there is no playbook or roadmap," she says. "Although senior executives don't always understand this, these are architecture challenges. And this is what enterprise architecture must do going forward."

Social + Mobile + Analytics + Cloud + Internet of Things = SMACIT

Ross uses the SMACIT acronym to describe the key technologies of today's digital businesses: social, mobile, analytics, cloud, and Internet of Things. However, becoming a digital business is not just a question of adopting these technologies and running a little faster.

Companies are deluged with data. They need to process that data as well as coordinate activities, both inside and outside of the organization. Two achieve these objectives in a positive way, Ross delineates four business strategies, which are shown in the figure here:

oeea-ross-fig01
Figure 1

Industries such as travel and media have been completely disrupted by these technologies. They have been forced to rethink their offerings in terms of a digital product and service strategy. Financial services is not far behind-and many other industries are starting to see huge impacts from SMACIT technologies as they leverage digital capabilities to design more competitive products and services.

Many of these businesses don't know what needs to take place behind the scenes within the domains of Marketing, Digital Operations, Digital Workplace, and Security. Without architecture, companies tend to address these opportunities in silos, often created by individual lines of business and then "wired together" by IT people after the fact, as shown below.

oeea-ross-fig02
Figure 2

The task of enterprise architects is to design cohesive business platforms, not just one-off applications. Architects must step back to consider the base underlying technologies that support all lines of business, along with the specific applications that share data and support disciplined processes. Of course there will always be one-off efforts. But as enterprise architects enforce standards, optimize the core, and make strides towards modularity, they can better integrate these efforts and leverage platforms that the business can utilize going forward.

Competitive advantage from SMACIT

Ross went on to offer some real life examples, beginning with USAA, a financial services company that serves members of the U.S. military and their families. USAA leads its industry in customer satisfaction and has an extremely high Net Promoter score. It bases its services around providing for the "life events" of its members such as births, marriages, college, international deployments, and so forth.

USAA doesn't want its members to concern themselves with how the company is organized or which division they are supposed to call: property & casualty, retail banking, or financial advisory services. To ensure a cohesive experience, USAA's Enterprise Strategy and Planning group helped to create a new division called Member Experience. They worked with a business architect to figure out how to re-design their member services for the digital economy. Now they are building a presentation layer that allows them to take any capability and deploy it on any device. Leveraging this centralized platform has made USAA an omni-channel business on its journey from phone to web to mobile.

Philips is a diversified global technology products company with three major business sectors-Lighting, Consumer Lifestyle, and Healthcare-which comprise 60 business categories in 100 countries. According to Ross, Philips CEO Frans von Houten wanted to transform the business by enforcing local innovation for product development, along with standardization of core processes to permit scalability worldwide. He and his management team identified four key business processes that they "had to get right:" Idea to Market, Market to Order, Order to Cash, and Enabling:

oeea-ross-fig03
Figure 3

Business leaders at Philips quickly discovered how difficult it would be to implement these core processes for three very different business categories. Enterprise architects helped build out these processes by bearing in mind their shared requirements. They used agile methodologies to keep business people engaged. The leadership group now owns these four processes and is leveraging them as a basis to redesign the company for the digital economy.

Commonwealth Bank of Australia is embracing SMACIT to simplify connections for customers who contact the bank. After learning that they ranked fourth among the four major banks in their region, senior officers determined they needed to offer more digital services to keep up with the competition. They used cloud technologies to streamline the IT operation and social media to engage customers. Enterprise architects continue to play a leading roll in "redesigning the customer experience."

What's the morale of these stories? SMACIT technologies allow businesses to move quickly as long as they know where they want to go. Having a clear architectural vision will help lead the enterprise through these four stages:

oeea-ross-fig04
Figure 4

Companies that achieve competitive advantage with SMACIT technologies have solid capabilities and they know how to use them. How do they do it? First they find management's passion. At USAA, it was integrated life events. At Phillips it was scaling operational processes. At Commonwealth Bank, it was a passion to reduce operational costs and increase customer satisfaction. In each of these cases, architects were tasked with identifying the correct strategies to pursue, helping management achieve clarity about digital products and services, and making sure that the new technologies they deploy are actually used.

All figures used with permission from the Center for Information Systems Research (CISR).