AKI PEHKONEN, PARTNER, LEAD ARCHITECT AT NORTAL, June 7, 2021
The rapid pace of digitalization is one of today’s most significant challenges for any business or organization. Technological evolution and innovation cause a change in the market, a disruption that challenges traditional operation methods. As a result, business models need to be recreated. Disruptions are new, forced, and usually surprising changes to a business. In practice, they are based on how technology is changing the way people consume.
Today, technologically-savvy consumers are creating demand for new ways of providing services and are playing a significant role in business development. The best examples of market-changing business models are ecosystem-based services. Different actors add value in a complementary way, such as Wolt and Foodora in the delivery business or Uber and Bolt in the taxi sector.
One of the critical factors in the current pace of change is undeniably the rapid proliferation of cloud services. Just as energy production shifted from plant-specific units to centralized power plants in the 20th century, several other specialized technologies will democratize over time and become widely available.
Democratizing technology easily turns ownership and development into a burden, as standard-based technology competes primarily on price. For example, one of Nokia’s key competitive advantages quickly began to crumble as electronics manufacturers such as MediaTek began to offer standardized chipsets to all phone manufacturers*. Of course, Nokia isn’t the only case. Examples can be found in many other areas as well, such as the long-gone brick-and-mortar video rental stores or the incomprehensibility to today’s children of not watching exactly what they want on TV when it suits them best. Many things that used to be owned can now be acquired as a service, for example, the rental of city bikes and electric scooters.
“Every company has to consider its core competencies, and, in general, what is worth building itself, and which areas are more sensible to outsource, for example, to a cloud solution provider.”
In practice, technological evolution never stops and challenges many previous ways of working and the design principles behind commonly used technologies and architectures. For example, one of the starting points for database design was the normalization of data to relations to minimize storage space. But today, the cost of storage capacity is rarely the determining factor in choosing database technology. At the same time, computing needs have changed so much that they can no longer be covered by a single vendor with vertically integrated solutions and have been replaced by a wide range of different, typically open-source solutions.
The most primitive services, such as virtual machines or storage, have become a commodity as of several years ago. It is mainly cognitive services and their related applications that are currently manufactured. For example, Amazon recently released the Monitron service, which commercializes preventive maintenance and is available from upward of only €1,000 a year. It hasn’t been long since the construction of a similar system would have required significant expertise and investment.
For this reason, it is reasonable for each company to consider its core competencies and, in general, what is worth building itself, and which areas are more sensible to outsource, for example, to a cloud solutions provider.
One good way to outline the situation is to develop your own technology strategy. A technology strategy is technology management that anticipates future technology needs and is focused on supporting the company’s overall business strategy, rather than merely reacting to changes coming from the outside. A good technology strategy increases internal transparency and finds the items worth investing in, thus speeding up the introduction of new technologies.
“A technology strategy is technology management that anticipates future technology needs and is focused on supporting the company’s overall business strategy, rather than merely reacting to changes coming from the outside.”
A good technology strategy is not a copy of selected Gartner publications or a static plan for the next three or five years but considers the current situation and is refined and refocused when new, potentially useful, technological innovations become available.
One good way to design a technology strategy is to use a value map developed by Simon Wardley (Wardley mapping). The idea is to evaluate each component, both by the value it has to the user and by the maturity of that component. In practice, Wardley’s value map helps visualize the current playground and thereby better understand what to invest in yourself and what abilities are better to outsource.
Today’s clients, whether consumers or business customers, have almost limitless possibilities to compare products and services with each other. As a result, the linear funnel based on the sale of a single product has been replaced by much more complex operating models. Many businesses have shifted from selling individual products entirely to, for example, monthly invoicing service models.
As usage patterns change, so does the role of technology – from the business support function to an integral part of the service and a significant business unit. Changing the operating environment is a massive challenge for many organizations. In many cases, the operating model of the IT unit is still based on a support function that was previously invisible to end customers. But now, it has direct effects on customer experience and satisfaction.
“As usage habits change, so does the role of technology – from the business support function to an integral part of the service and a significant business unit.”
The customer experience knows no boundaries in organizations. For example, e-stores form ecosystems with different actors, such as payment services, suppliers, and others. This requires new capabilities from back-end systems. There may be so many integrations that it is not practical to build them as individual cases, but rather, for example, by building general-purpose APIs.
As technological change challenges past practices, it could be highlighted that, as new opportunities emerge, the ability to adapt has become more important than predictability and cost-effectiveness. If you are considering building a new system that would be available as a finished product, you should consider:
Ultimately, it is essential to think about how the investment will support the differentiation of the business on the current market. Finding the answer to these questions is challenging and always depends on the context and the market situation. Yet, the worst solution is to do nothing and trust that nothing will change in the future. For me, digital transformation means explicitly the ability to learn and transform along with opportunities.
*Risto Siilasmaa, Paranoidi Optimisti, 2018 (https://www.paranoid-optimist.com/)