Tech startup founders don’t ask for permission before disrupting an industry. They see an opportunity and find ways to cash in on it.
Compare that to the typical enterprise environment. The CEO balances the competing demands of investors, employees, customers and top managers. IT systems supporting the enterprise require rigorous governance and expensive capital outlays. Transforming into a digital business while satisfying these demands borders on the impossible.
A better way is to build a digital island — a stand-alone business that has enough elbow room for experimentation without wrapping everybody in a legacy-company straitjacket. In 2018, DMI published an e-book on digital transformation in the e-commerce sector that touched on the idea of digital islands. Now is a good time to dig deeper into the concept.
It Starts with Pipelines and Platforms
Our e-book explored how to evolve from a legacy company into a digital enterprise. In tech-industry parlance, legacy companies are pipelines that buy, build and sell in a series. Today’s most innovative digital companies are platforms built on collaborations between customers, vendors and the platform provider.
In essence, a pipeline pushes products and services out, like so much crude oil, while a platform pulls people in, like the folks renting and supplying vacation homes on Airbnb. In a platform, customers and vendors don’t just buy and sell. They contribute ideas, content, data and other assets that strengthen the platform for everybody.
Digital platforms like Amazon, Apple, Uber and their peers have done so well that pipeline companies naturally want a piece of the action. After all, it’s far better to disrupt than to be disrupted.
The challenge is that pipelines differ so fundamentally from platforms: Pipeline technologies are data centers, server stacks and Microsoft Office. Platform technologies are AI, APIs and microservices. Pipelines are inherently static like a desktop PC. Platforms are inherently mobile thanks to cloud storage and app ecosystems.
A Safe Place to Become a Digital Business
Disruptive technologies put pipeline businesses in a bind. You need the ability to disrupt your industry without disrupting your day-to-day operations. Moreover, your entire infrastructure is built on the pipeline model, which you must sustain to keep the business viable until you can transform into a digital company.
The forces that hold pipeline businesses together — formal procedures, administrative layers, monolithic software — become handcuffs in a startup.
All these challenges underscore why DMI recommends building a digital island where you can try, fail and try again until you hit upon a formula that works. The digital island must be digital from the ground up, with leaders steeped in the potential of digital transformation. You need to develop a robust digital strategy that combines data, customers, vendors and your unique ability to innovate.
The long-term vision is to keep expanding the platform until it becomes so dominant that the pipeline model fades into irrelevance.
Tapping the Value of the New Currency: Data
Data drives the platform business. While legacy companies conduct costly, time-consuming market research to figure out what their customers want, platforms pull real-time intelligence from their apps and mobile devices. Data analysis helps platform companies improve the user experience and discover insights that a pipeline business would likely miss.
Of course, pipeline businesses also generate reams of valuable data. But that’s an advantage for your digital island: You can pull data from your legacy IT department while avoiding costly investments in hardware and enterprise software suites.
Legacy companies have one built-in advantage over startups: Their years of experience in large, complex marketplaces. A data-driven digital island can put this experience to work, creating a platform strong enough to beat the disruptive upstarts at their own game.
Most enterprises came into the world as disruptive startups. To rekindle that startup spirit, you need a digital island that provides the freedom to think big and the room to recover from the inevitable wrong turns.
Michael Deittrick, SVP, Digital Strategy & Chief Digital Officer