What to Do When Your Business Model Changes
The role of technology in driving innovative business models
The fundamental question we need to ask ourselves is not “What is the role of the CIO and the IT department?” This is something that is already well defined and understood. The question we need to ask ourselves is “What role should technology be playing in the business?”
Digital Business
In previous articles I addressed the questions of Must the Business Always Bypass IT When It Wants to Innovate? and Free Your Users (or They Will Free Themselves): The vexed issue of Social Media and BYOD in the workplace. Both questions focus on the challenge of responding to new business drivers coming from outside the traditional requirements and role of the CIO (and of the IT department), as we would usually understand them, based on the role and experiences of the last 20 to 25 years.
This piece asks the question “What role should technology play in business?” This is a larger question than the one currently hanging over the role of the CIO and the IT department. This is a bigger question, a question that starts by asking what role technology is will play in the new “innovative” business models that are emerging.
In short, we need to approach how technology will fit into what some call Digital Business, with fresh thinking based around a set of new and very different business requirements. At the core of this change is the pervasive nature of technology in society, which has resulted in people using technology to redefine their lives. This is not just shopping from a website; it’s a lifestyle change in where and how we find information and how we choose to act upon it.
This shift in our attitude to technology is frequently called “Consumer IT”. The reality is that people are driving the uptake and use of technology in business to do business rather than IT professionals. This was at the core of my last article, Free Your Users (or They Will Free Themselves).
In this piece I want to move on to the theme of “innovation”, currently a popular term with as many interpretations and mismatched understandings as the technology elements that go with it.
Innovation, but not as we’ve been doing it
Most IT departments pride themselves in being innovative and can rightly point to a track record in assessing and deploying year by year continuous improvements by “innovatively” adopting new technology. However that’s not what a business school would mean by their use of the term. Instead they would add two key words that provide some increased clarification: Innovation in Business Models.
This difference can be clearly expressed if we go back to the arrival of Amazon and compare it with the then US leader Barnes & Noble response to the emergence of the internet.
Barnes & Noble added a website enabling customers to order books online. For their existing business is concerned with increasing channels to market for incremental business, with the majority of the business model still being unchanged, focused physical locations carrying stock for walk in customers and browsing.
Amazon fundamentally rethought the business model of selling books and changed it from being based on bookstores with their overheads and limitations on stock carried. Amazon took advantage of ubiquitous use of technology in the hands of consumers to allow them to browse and buy in a manner that opened up a whole range of new possibilities.
You can argue that the final point in the revolution was the advent of the Kindle and dropping physically printed books for electronic editions, that truly is an ‘innovation in the business model’.
Amazon still has an internal back office carrying out processes under the best processes of IT, but its business model to find, win, gain orders and more particularly create long term customer relationships with repeat business is based on using technology “outside” the “internal” focus of operating the business associated with IT.
New business models break old assumptions
In the first article in this series – Must the Business Always Bypass IT When It Wants to Innovate? – I provided a breakdown of nineteen recognizable core business models that are frequently used as references for the possible digital business options and their innovative business models.
Source: Mark W. Johnson (2010), Seizing the White Space, Harvard Business Press
There are a number of ways to define digital business. The major points are:
It is interactive between participants to shape what is achieved.
- It is collaborative in the manner that people interact to share experiences and comment on products or experiences.
- It depends on apps, browsers and clouds.
- It occurs outside the firewall and away from the enterprises internal systems.
You can add a lot more to this list, but these main points tell us why the hard won experiences of delivering internal enterprise transactional processes safely isolated from the external world by the firewall on client-server technology simply don’t transfer well, if at all, to the new world and the support of innovative business models.
McKinsey tell us in a recently published report Bullish on Digital that 30% of major businesses have, in recognition of this, appointed Chief Digital Officers (CDOs), though there are several other titles around that equate to the same role as well with Chief Innovation Officer being the main one. You can learn a great deal more about the role and actions of a CDO at their association website CDO Club.
Does hiring a CDO change anything?
However, you are reading this as a CIO so thus far this is not an encouraging message! Let’s recognize that the CDO is effectively just another manager in the business who needs technology to make their operational and strategic requirements to happen. Okay, so they are a technology literate manager with a strong grasp of the topic, but the question is how to define roles and responsibilities within an enterprise to make it coherent and operational successful.
A little over two years ago I wrote in my CTO blog on the Capgemini site about this topic around the title “Inside-Out” versus “Outside-In”. The ideas in the post appeared in a full Capgemini white paper at the beginning of 2012 entitled The Cloud; Time to Deliver which is available on Slideshare. Rather than rewrite the paper here, can I suggest that this white paper should help you to understand and build a realistic approach that combines both. More recently an interesting update on Inside-out and Outside-in, linked to SAP and ERP, has been posted on the Capgemini Capping IT Off blog site.
Innovation in technology vs. innovation in business model
So let’s end with a summary of what this means and the link to the opening paragraphs of this blog about “innovation” in the IT operations versus “innovation in business models”.
Firstly “Inside-out” defines the traditional role of IT in providing the systems to support the “internal” or “inside” the firewall operations, with a secondary focus on providing a limited and controlled set of accesses externally, or “outside” the firewall. The new business models depend on using technology externally or “outside” the firewall, with a secondary concern to provide limited access internally, or “inside” the firewall.
If we now apply this to cloud technology “innovatively” then its role in conventional IT in “Inside-Out” is to improve the virtualization and flexibility of computing resources by enabling greater efficiency in operating Client-Server enterprise IT.
Conversely cloud computing in “Outside-In” is the ability to obtain and use flexible computing resources that exist outside the firewall and are safely separated from the enterprises own systems. In addition the role and type of use required is unlikely to be client-server based; instead it will use the browser and app model.
The first is innovation in using technology to enhance the current operations and business model and the second is innovation in the business model based on being able to use technology in entirely new ways than was previously possible.
Source: Andy Mulholland
In the next article I plan to go into this more deeply by introducing how Enterprise IT should be planning, deploying and operating an Enterprise Platform to successfully underpin an Outside-In Digital Business with an auditable set of management tools. To wet your appetite for this I suggest you might like to take a look at the Open Group who are widely respected for their work in developing the TOGAF (The Open Group Architecture Framework) architecture methodology for Enterprise IT, and are now starting to address the need for what they call Platform 3.0. Why 3.0? To differentiate from the term Web 2.0, which was popular some years ago.
What role do you think technology will play in the new digital businesses that are emerging? What role do you think the IT department will play? And what opportunities do you think that this creates for technology professionals?
