5 Heuristics for Digital Transformation at scale

“Learn to see, realise that everything is connected to everything else.” -?????????????? Leonardo da Vinci

Prelude

Hut 8, Bletchley Park , England, 1942

In the raging midst of World War II, with the allied forces continuing to suffer terrible losses at the hands of the infamous U-boats and Luftwaffe , who were disrupting their naval routes and shipping supplies, an intrepid bunch of codebreakers that included scientists, mathematicians and experts at chess and crossword puzzles (a majority of whom were women), were busy at work trying to crack the infamous enigma code.

The Enigma was a type of enciphering machine that used morse code to send enemy wartime messages securely, the mechanism using a combination of rotors and plugboard was considered so secure in fact that every message could have (on average) over 150 million possible combinations making it practically impossible to crack. In a time and age before machine automation really kicked in, this gargantuan decoding task was one for the truly curious of minds - the thinkers, innovators and problem-solvers – folks that relished and welcomed the complexity of the challenge and were willing to dedicate their time to unpick the links between their logical conclusions (based on algorithmic principles) and the mechanics of the machine.

As we know now, the team at Hut 8 led by Alan Turing managed to successfully decrypt the enigma codes (building on the earlier work of their Polish cipher counterparts), thereby paving the way for the D-Day landings at Normandy and the allied success that followed. WWII consequently ended much sooner than it would have, saving millions of lives in the process.

Why does this matter?

“The perfect meal occurs in a context that frequently has very little to do with the food itself.” -?????????????? Anthony Bourdain

Besides the ingenuity and tenacity of the minds at work, the central point about the short prelude above is the cohesive nature of cryptanalysis, the connectedness of insights and the compelling need to think both specifically (zoom-in) and generically (zoom-out) at the same time to drive the most impact. For instance, whilst each message was being painstakingly decrypted to identify its specific content, the message contents still needed to be contextualised (in Hut 6) so the full picture could become available. Other messaging aspects such as timing, volume, direction, broadcast patterns were all vital contextual information that gave insight into the organisation and location of enemy forces. This “Traffic Analysis” process typically took the form of a systems diagram that was used to represent the enemy communication network showing the links between different units, and their respective locations. Message contents could then be mapped to this diagram providing a complete picture of how they operated allowing allied forces to take appropriate, pre-mediated action. Without this connected, contextualised, holistic view, the decoded messages were only partially useful at best and practically unusable at worst.

A Digital Transformation program is just like an enigma (pun intended).

Large global conglomerates all over the world have turned to digital transformation as a key enabler that drives both top-line value and bottom-line efficiencies. This includes the whole spectrum of corporate goals and objectives including Sustainability targets (ESG), Operating revenue (EBITDA), Shareholder value (EPS) and Growth rates (CAGR).

A hugely complex and cumbersome effort whose sheer complexity requires a carefully planned and orchestrated exercise, driven simultaneously across the organisation.

To crack this puzzle, we need to understand and acknowledge that there are a plethora of ways by which we can get it right but context is key – critical aspects such as culture, competence, maturity and readiness of the organisation at multiple levels all play a crucial role in determining the pace of change and probability of success vis-à-vis the organisation’s DNA.

In that context, here are 5 key heuristics that I believe are hugely important and should form the bulwark of any underlying framework driving a global digital transformation.

Heuristic 1.

“Creative Minority, Collaborative Majority”

For any large digital transformation to be successful, an organisation needs both cohorts of talent, they are effectively the Yin and Yang of the digital transformation journey and organisations that strike the right balance are statistically far more likely to be successful in meeting their stated objectives.

A simple analogy to understand this construct is the Pareto Principle (better known as the 80-20 rule). This is a remarkably persistent pattern that shows up in almost all spheres of life, from the personal (what we eat/wear) to the professional (organisations). For instance, a popular retelling of this is that 20% of product line generates roughly 80% of revenue (Google Ads, iPhone/Services etc.) Visual Capitalist: Big Tech Revenue .

Applying the same principle to talent, roughly 80% of any large organisation is in the business of replication, or scaling and operationalising of all services and capabilities via collaboration and co-operation whilst 20% are the creative fountainhead.

To be clear, this is not a tussle between individualism and collectivism or independence and conformity, in short, this is not a binary problem but a spectrum and ensuring the organisation zealously guards and nurtures the 20% whilst preserving and empowering the 80% ensures the organisation is well-balanced and is channelling all its creative cognition into the most valuable, sustainable & profitable initiatives at scale.

That said, what is really interesting about this heuristic is the makeup of the 20% and how we must have clear pathways to identify such talent and nurture them for the collective benefit of the organisation.

Alan Turing (not a coincidence) was very much part of that 20% creative minority.

There are several studies and research papers published on this subject but I personally found, Howard Gardner’s, “Frames of Mind: The Theory of multiple intelligences ” a good starting point and a fascinating insight into how we can identify and nurture such precocious talent vis-à-vis the context of the transformation.

Why does this matter?

“In all chaos there is a cosmos, in all disorder a secret order.” -?????????????? Carl Gustav Jung

Practically every invention or innovation known to humankind has been seeded by someone that just saw it differently and had the grit and perseverance to follow through. Physics, the root of all scientific progress, is pretty much run by talent that seeks order in the vast “nothingness” of space amongst other things and much of the “theories” espoused by physicists decades ago are today the foundational building blocks for all our machine based physical reality, including the biggest of them all, The "theory" of relativity.

From nanotechnology to quantum computing, from electricity to the internet to space travel, the benefits from these technological innovations are systemic and far-reaching.

Large digital transformations are typically complex, cumbersome and very often multi-year journeys that are commonly derailed by the constant shifting or misalignment of priorities, siloed organisational structures and the financial vagaries of the corporate world, i.e, change is constant. Navigating this uncertain landscape and solving for the different types of challenges it throws up requires a steady, well-founded and multivariate creativity pipeline that can anticipate and address such challenges whilst also future-proofing the foundations for sustained growth and profitability.

Take for example the following 2 types of challenges:

Sustainability and Decarbonisation goals in the context of the climate crisis.This is a circular economy problem type and need a systems thinking approach to solve it.

Another circular problem that cannot be solved with a linear, zero-sum approach is how to scale the use of AI whilst minimising energy consumption? .

Is this type of “closed loop” thinking embedded within the transformation program?

Or ?How about the Michelin Star example?

This is an Adjacency problem type - Here’s a french tire manufacturer that created a global culinary standard since the 1900’s simply to encourage and scale the adoption of its own products thereby creating a virtuous cascading effect both for its own brand and a broader ecosystem of restaurateurs, F&B suppliers etc.

Please spare a thought for the ingenuity and power of the “adjacent possible” here.

Another famous example of adjacency is the way Coca Cola co-opted the Santa Claus story as part of its branding narrative to cover for leaner sales during the winter months.

Is this type of “adjacent thinking” embedded within the transformation program?

Alan Turing famously created the imitation game (“Turing test” ) to ascertain if a machine can mimic the intelligent behaviour of a human (earliest form of AI trials) thereby creating a simple, yet effective way to automate and scale intellectual tasks, leading to improved productivity and efficiencies.

Does your digital transformation have a “Turing test” of its own to ascertain the strength and robustness of the ideas & innovations that will accelerate its adoption & success??

Does it have a “fast track lane” that enables and empowers creative cognition so the best ideas can thrive and drive transformation at scale?

Above all, Who are your Yin and Yang driving this thought leadership at all levels?

Heuristic 2.

“The Tower of Babel”

For those of a religious persuasion or familiar with the Abrahamic Faiths , there’s a parable in the Old Testament that purports to explain why the people of the world speak many different languages – it’s a great analogy for the mosaic of differences that exist within any large organisational setting and specifically in the context of digital transformation, the imperative to get everyone broadly aligned and speaking different dialects of one common language (as opposed to different languages themselves). Achieving this cohesion requires a large degree of co-operation and collaboration which is actually quite natural for us, especially when the incentives and pre-conditions are aligned to expected outcomes.

From an anthropological perspective too, there is sufficient empirical evidence to prove that as an inherently social species, humans are hardwired to co-operate and collaborate for common good. This is true of all tribes and communities of people across the world, in fact, this crucial human ability is highlighted by Prof. Yuval Noah Harari, in his bestseller, “Sapiens: A Brief History of Humankind ”, as being the differentiating factor that has resulted in our species being the dominant class and in the process outlasting and outmanoeuvring the rest (pros and cons notwithstanding).?

The key pre-requisite to achieving this cohesion however are the pre-conditions and incentives on offer vis-à-vis the context of the digital transformation. Of these, there are two key conditions that are imperative and deserve a special mention in my view.?

Strength, Inclusivity and Integrity of Institutions

Large Organisations today are in many ways like nation states (and vice versa). They operate at relative scale, manage tremendous amounts of heterogeneous complexity and constantly have to deal with the shifting sands of geopolitics and cultures in order to keep their constituents happy (employees, regulators, ?consumers, shareholders). The most prominent example today is Apple .

Multiple studies have shown that strong, balanced and inclusive institutions serve as the biggest pre-requisite for any successful digital transformation.

They act as the foundational pillars that help to influence the right behaviours (via feedback loops), build trust (via consistent, transparent action) and motivate all actors (via shared values and shared risk) to play their part in meeting corporate agenda. Weak, imbalanced and inept institutions on the other hand corrode trust and promote self-serving behaviours which ultimately do not serve the collective interests of the organisation.

Autonomy and Automation

Creating a cohesive social fabric for the organisation also requires incentivising of certain behaviours that enables increased collaboration and co-operation amongst all agents of change.

The Nobel Laureates, Daniel Kahneman and Richard Thaler , both titans in the field of behavioural economics have systematically helped to debunk the myth of the rational economic man and actively coerced the relatively “dry” field of traditional economics to borrow and learn from the social sciences – in effect, they’ve succeeded in creating a circular economy where both disciplines are enriched and stronger. The results have been systemic and far-reaching.

“System 1 and System 2” is a logical thinking construct introduced by Prof. Kahneman in his book “Thinking, Fast and Slow ” in which he explains how our brains are broadly wired to make two types of decisions:

1.??????? Quick, repetitive, frequent (automation, i.e., 2+2=?)

2.??????? Slow, measured, deliberate (autonomous, i.e., define quantitative easing?)

The point being, to achieve cohesion, for cooperation and collaboration to thrive within a complex organisational dynamic, we need to incentivise both System 1 and System 2 forms of decision making to ensure the “Tower of Babel” is aligned and in sync. This requires a careful understanding of the processes and decisions that should be automated for efficiencies and productivity versus the areas that require autonomy, where control rests within the direct purview of stakeholders. The twin benefits of this approach are clear separation of duties (concerns) and overall organisational productivity (more on this later).

Both autonomy and automation also act as empowerment levers, the former by fostering a spirit of ownership in the best interests of the organisation whilst the latter by fomenting a culture of high-value work and productivity that aims to create competitive advantage for the organisation above all else.

Translated into organisation design, this would also mean carefully choosing between centralisation, federation, de-centralisation or a hybrid operating model that is fluid and operates within the bounded logical contexts of the organisation to influence and build the right organisational behaviours and culture.?

Why does this matter?

“My mantra is if you want to help people accomplish some goal, make it easy” - Richard Thaler

Bees are amazing.

Besides pollinating our food crops and supporting their biodiversity, they also help to produce honey (yum!) which we consume both as food and medicine going back to the ancient Egyptians and Sumerians who popularised its use as a healing aid .

Contrary to popular belief, bees have their own unique individual personalities and characters (i.e., their own “Tower of Babel”) but despite this, what binds them together and drives them to achieve such remarkable outcomes is collective ambition.

An increasing body of ecological research also supports the view that Bees are sentient beings and have the same relative “feelings” and “emotions” that humans do, which then begs the following obvious question:

How is it that an insect with a brain the size of a poppy seed can align itself to a common goal and shared priorities with such dedication and precision whilst humans struggle, given our vastly superior abilities?

The answer lies simply in the structure and organisation of the hive.

Large Digital transformations are hard work with a relatively low probability of success vis-à-vis their investment . In fact, most, if not all transformations only partially achieve their originally stated ambitions and one of the key reasons for this is a lack of cohesion amongst the most important stakeholder group of all; the organisation talent pool.

i.e., Larger the size of the organisation, greater the entropy and cohesion challenge.

Given this reality, it's absolutely imperative that there is an active, continued focus on the social fabric (culture) of the organisation via its institutions and decision making bodies to ensure common purpose and aligned priorities. This is the shortest and easiest path to achieving the balance that an organisation needs to drive change, It’s Occam’s Razor .

Is your Digital Transformation powered by strong, inclusive institutions and decision making bodies that operate with integrity?

Are the pre-conditions and incentives on offer sufficiently aligned to your digital transformation goals?

(Note: for a deeper understanding of cognitive bias, Prof. Kahneman’s book is a great start)

Heuristic 3.

“time”

Physicists of all denominations refer to time (“t”) as the master variable that helps us to view the workings of the universe in perspective. Leaving aside the more intriguing and frankly, bewildering aspects of quantum time (discrete vs continuous, “here” vs “now” ), in purely classical terms, we experience time as a linear, finite continuum, i.e., going from past to present to future – an inevitable and sequential progression towards decay.

Given that lived reality, the dimension of time plays a crucial role in how any transformation evolves and especially the interplay between various lifecycle stages of the transformation such as inception, growth, stagnation and decay that will pull and push its trajectory across different seasons that it needs to endure and triumph over.

Smart Architects, Planners and Designers of all denominations are especially aware of the time determinant since it is the prime catalyst that can ensure the longevity, effectiveness and adaptability of their designs. Chances are that you are reading this article sitting in a building of some sort which has been planned, architected and built with the dimension of time factored into the design. There is simply no escaping this.

However, despite this prescient design and architecture, if there is still a problem with the building you are sitting in, blame father time as it is the ultimate boss of us.

Digital transformations like buildings need to weather multiple seasons and storms and still come out triumphant each time, stronger and wiser but still on track to meet their objectives. This requires the ability to think and plan strategically both for the short and long term, in other words, striking the right balance. Something that is easier said than done given the evidence pointing to the relatively low success rate of such programs.

So, how do we insulate a large digital transformation program from the vagaries of time such that it flows with the good and weathers the bad equally well?

By doing what a physicist would recommend of course!

“Everything should be made as simple as possible but not simpler” ? -?????????????? Albert Einstein

Einstein was speaking here in the context of trying to solve complex problems whilst avoiding the dual traps of over-complicating or over-simplifying the proposed solutions, i.e., achieving balance. Indeed, this guardrail was the basis for most of his thought experiments, including spacetime and gravitational waves that are proven now.

Adopting a holistic approach to problem solving, thinking forward and backward, i.e., reduce the problem constituents to their most granular parts (zoom-in) but then put it back all together again (zoom-out) to ensure it fits, is an astute (and scientific) way to solve difficult problems. What this allows for is the rigour, discipline and application required to tackle local issues whilst also ensuring the macro or global challenges are being addressed. “Time” of course, plays the role of the horizontal across both local and global issues dictating the overall course of events.

Why does this matter?

?“We shape our buildings, thereafter, they shape us.” -?????????????? Winston Churchill

Architecture is perhaps the oldest and most prevalent profession in the world.

It permeates every aspect of our lives, from the obvious physical things that we use and experience to the not so obvious (at sub-atomic level). From the earliest days of the hunter-gatherers, we’ve been designing and architecting tools for work, play and subsistence, graduating further and further into all areas of our lives now.

From Leonardo da Vinci’s “Self Supporting Bridge ” that relies on the simpler laws of gravity and the power of geometry to the stunning Brihadeesvara temple and now the modern architectural wonders of the world , architects are continually pushing the boundaries of design and the “art of the possible” and the smartest of them are all united by one shared perspective. Prepare for the known, Position for the unknown.

This is a clever and pragmatic design principle to follow especially in the context of the time dimension that is both finite and relatively unpredictable. There’s a wonderful book called “How Buildings Learn: What happens after they are built ”, written by Stewart Brand, the futurist and founder of the “Whole Earth Catalog ” that deconstructs the various layers of a building and how each layer deserves to be viewed and treated with specific regard since each layer serves a specific function in the overall scheme of things – Stewart was “building” on the earlier work of other ecologists who basically set out the premise that nature is essentially a hierarchical system composed of multiple layers and each layer operates and evolves at its own pace and rate of change within its own timescales. The layers (parts) are loosely coupled and depend on each other for longevity and continuity, their sum total (the whole) resulting in our ecosystem.

i.e., Nature is a complex organisational system (sound familiar?) and all buildings, like nature, are not monoliths, hence, the time variable is the all important joker in the pack.

Digital transformations similarly are not monoliths.

They are actually several layers of transformations rolled into one and the perfect metaphor for the old adage “the whole is greater than the sum of its parts”. These layers operate at different levels with varying degrees of maturity, complexity and at their own pace and time. In some cases, the layers of transformation may follow the principles of fractal geometry (like Matryoshka dolls ) where commonality is rife across scales (enabling commoditisation) but in some others there are other specificities to each layer (uncommon features) that must also be catered for.

Successful Digital transformation programs (unsurprisingly) have a lot in common with Smart architecture and design. When coupled tightly to the time dimension, they become prescient, forward thinking and future-proofed from the impact of most unforeseen circumstances. Doing this requires a problem solving mindset that is localised to solve for the here and now but operates seamlessly within the contours and context of the global strategic lens.

Is your digital transformation journey understood and acknowledged as being composed of multiple layers (of change) within it – each operating at its own pace?

Is the Time (“t”) dimension properly factored into the various stages and layers of the transformation to insulate the program from any unforeseen, unexpected turbulence?

Winston Churchill, the wartime prime minister of the United Kingdom who rebuilt the House of Commons (another architecture marvel ) after the war, paying meticulous attention to its design was also an astute politician who understood the importance of time as the best indicator of progress and its role in shaping and influencing change, whether it was in the politics of his time or in the architecture and design of iconic, major public monuments. Large Digital Transformation Programs are no different.

Heuristic 4.

? “Power Distribution Laws”

The Federal Reserve System (“The Fed”) is the central banking system of the US and its executive board has arguably one of the most difficult jobs going. i.e., to set out a ?national monetary policy that can strike the perfect balance between maintaining a safe, low-risk and predictable banking system whilst also providing enough stimulus via the same policy to ensure sustained growth and productivity vis-à-vis the nation’s GDP. ?

What must be avoided at all costs are the evil twosome – Hyper Inflation and Deflation.

This is effectively a cat and mouse game with limited levers to pull and the margins for error so fine and nuanced that it takes up humungous amounts of economists time and space arguing about the rights and wrongs of the decisions made (especially in the context of the ripple effects these decisions generate in globalised capital markets).

In other words, “The Fed” is in the business of striking a balance or seeking equilibrium between some known and some unknown variables to drive largely predictable outcomes. This is prime territory for Game Theory enthusiasts and practitioners and the work of Nobel Laureate John Nash (Nash Equilibrium ) because the problem statement is broadly the same. The complexity here does not come from the economics side of the house, it’s the behavioural aspects that typically flummox decision makers since this is the unpredictable angle (hence behavioural economics), i.e., What incentives are offered vis-à-vis time constraints and productivity trade-offs to keep the economy growing?

Take for example, the case of Hermes , conventional economic wisdom suggests, increasing prices reduces demand but Hermes is the anti-pattern , operating in complete opposition to this principle. Consumers allegedly spend tens of thousands of dollars to join a waiting list so they “earn the privilege” of spending even more astronomical sums of money for a product with no sign of a demand slowdown in sight.

Or for example the Laffer Curve principle in supply-side economics (from Muqqadimah ) that suggests simply that, lowering tax rates equates to higher receipts overall but how low is low enough to keep the delicate balance between demand and supply intact?

i.e., a fiscal policy that could work for some does not necessarily work for others.

In Physics, this behavioural dynamic is the classic interplay between inertia and entropy, between conservation of energy (first law ) and noise (second law ). A Universal Truth.

As should be obvious by now, Digital Transformations also seek the same uniformity of change and an elusive equilibrium but are faced with the same set of challenges and limited success.

That said, what can help to reverse this trend is identifying pockets of explosive, exponential growth and doubling down on these opportunities so that when these opportunities do fructify, the positive snowball (growth) effect they generate can help to overcome both inertia and noise whilst also providing the momentum and confidence needed to sustain and empower others in incubation, i.e., The use of Force Multipliers .

The last 2 decades have undoubtedly been the success story of technology platforms and aggregator portals that were able to connect, contextualise and deliver targeted insights to both their external (audience intelligence) and internal (growth and profitability metrics) customers. The key to this has been the exponential rise and adoption of “search and sort ” retrieval algorithms coupled with several orders of magnitude increase in per capita computing power (Moore’s law ). The impending onset and widespread adoption of Semantics (Graphs , Ontologies ), Knowledge Management and Artificial Intelligence is a natural extension of this trend where others will also seek to harness and harvest the power of the network thereby continually bridging the gap between our organic, i.e., cognitive or biological and inorganic, i.e., machine based realities.

Leaving aside the Singularity question and the predictions of futurist, Ray Kurzweil, this unprecedented success and wealth creation phenomenon highlights one irrefutable fact. The immense potential of Power Distribution Laws when harnessed appropriately.

From Pareto to Zipf , the research is scientific and well-founded, the evidence is clear.

Why does this matter

“The difficulty lies not so much in developing new ideas, but in escaping from the old ones” -?????????????? John Maynard Keynes

Productivity is the holy grail for any large organisation and scale invariance its catalyst.

Imagine if we could scale operations, services, products seamlessly without adversely impacting bottomline. For example: do something once (write a best-seller, recipe, code, design) and profit at scale via multiple channels of revenue (Harry Potter, McDonalds, Google’s Knowledge Graph, Instagram's Algorithm etc.). These are all essentially products with no marginal cost of replication (hence the scale invariance) and offer immense leverage for a fraction of the cost. Code, design patents, algorithms especially are permission-less leverage (i.e., no capital required) and truly democratic, hence the dominance of?new technology billionaires on the Forbes lists (with a little help from the confluence of a few pre-cursors such as electricity, the Internet and personal computing).

Productivity of course does not exist in isolation, it needs a willing ecosystem and networks of creativity and collaboration that is fuelled by a thirst for progress and innovation. This is what creates the opportunities for value-creation that can scale.

Given the complexities of the organisational dynamic, the best way to achieve this is via the Self-Organization (SO) principle wherein the organisational layers and structures form a natural “order” or structure that is based on their collective interactions and best suited to the demands of the transformation and its expected outcomes.

SO is a natural, evolutionary, pattern-based process that is commonly seen in both biological (human cells) and physical systems that seek equilibrium in order to function effectively. The benefits include speed, stability, adaptability, autonomy and resiliency.

The Spotify Model is one example of a SO design pattern, a derivative of biology.

In fact, the SO principle is also the underlying foundation and a pre-requisite for several Artificial Intelligence techniques and methods.

However, for SO to be effective in a transformation setting, it must satisfy two primary conditions: The Path of least resistance (Zipf’s law) and the 80-20 rule (Pareto).

Both of these conditions are intrinsically linked and help to overcome inertia and noise enabling the transformation to scale effectively. Zipf’s law does this by effectively providing the simplest path, requiring the least effort to get things done, whilst Pareto’s principle basically reserves this effort for the most valuable and beneficial areas of work.

(Note: Value in this context is a broad umbrella term vis-à-vis the organisation’s strategic objectives and not limited just to revenue or profitability metrics).

Power Distribution Laws act as force multipliers for the transformation.

When harnessed correctly, they allow the transformation to achieve escape velocity by providing the jet fuel necessary for rapid acceleration. What’s more, they also perpetuate the “law of preferential attachment” which basically creates a virtuous positive feedback loop where there is continuous reinforcement of the benefits earned by the use of the product, service or capability leading to exponential adoption rates of the offering, in technology terms, Google Search is a great example of this with a 90% plus market share.

In Popular culture terms, look no further than Swiftonomics for a powerful and clear demonstration of how these preferential attachment laws play out.

Where are the Power Distribution Laws most applicable within your transformation?

All Organisations must operate within the context of a market economy and therefore, all Digital Transformations must obey the laws of supply and demand economics. Continuous adherence to these laws ensure the transformation is meeting its stated objectives that are invariably linked to business value in all its forms.

Keynesian economics (demand-side) has consistently bailed out the global economy from several fiscal shocks, most recently the crash in 2008 and at the core of this policy-making is the use of the “multiplier effect”, using specific levers such as interest rates or govt. spending to spur the economy back on track leading to more productivity and growth. Indeed, despite some opposition (mostly from free-market capitalists), its credited with having saved the modern banking system from total collapse.

A Digital transformation is no different, its adoption and success depends on the inclusion and use of force multipliers that take advantage of power distribution laws to scale seamlessly and deliver productivity and growth.

What Opportunities exist within your organisation that provide the potential to exploit such laws so the transformation can achieve escape velocity and overcome the twin challenges of inertia and noise?

(Note: Hermes, is a textbook example of how to leverage the scarcity principle to ensure brand exclusivity, this is not too dissimilar to the economics of white truffles from piedmont, just at a much larger scale)

Heuristic 5.

“D.I.S.C.O”

• Design ?????????????(solve for duality via discounting)
• Information ???? (solve for asymmetry via innovation)
• Synergy ?????????? (solve for scale via cohesion)
• Capital ?????????????(solve for productivity via humans)
• Outcomes????????(solve for competition via “e=mc2“)

In the world of Biomimetics , where inorganic structures meet organic, evolutionary design, Dragonflies hold a special place of reverence for flight designers and innovators. These flying insects have been around for millions of years and remarkably for creatures that are so small in size, they have the highest hunting success rate of over 90% compared to any other predator in the animal kingdom.

This is primarily due to their unparalleled modular agility (6-way flight, incl. backwards ), exceptional awareness (360o vision) and an amazing ability to predict (and adapt to) where their target is likely to be along a specific flight trajectory (Insect AI perhaps?).

Overall, they are close to the ideal (biological) embodiment of strength, balance and agility, optimised for success in their operating environment.

Dragonflies are everything a digital transformation aspires to be.

In that context, the acronym above is an agglomeration of key perspectives that are, in my view, instrumental to the success of any digital transformation. They capture succinctly the core issues and affectations that a large change program such as a digital transformation needs to address head-on to be balanced, agile and successful.

• Design (solve for duality via discounting)

“Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible” -????????????? Donald A. Norman ?

Its really very hard to overstate the importance and role of good design (and by implication, good architecture) in our everyday lives, it’s the difference between a seamless, efficient, hassle-free experience and one that is laden with issues. Just think of any consumer experience that went without a hitch versus one riddled with inefficiencies, Or, a memorable experience that made you go back for more. Good design is an invaluable asset in whichever trade you are, not least a large digital transformation that must deal with the inherent duality of the challenge.

As we have established already in this article, digital transformations seek to achieve balance overall. Balance between the need for autonomy and automation, exploration and exploitation, analysis and synthesis, the common and the uncommon. These opposing perspectives are both necessary and important for the success of the transformation and therefore the design function of the transformation must address the duality of this requirement in a pre-emptive and adequate manner.

Discounting , a widely used technique in economics, is a pragmatic and clever way of achieving this balance because it uses weightage assigned to design choices over a function of time. This allows for a clear rationale to emerge that supports the overall design blueprint which enables upstream/downstream decisions to be taken if the trade-offs and constraints are agreeable to all stakeholders.

Most digital transformations don’t have a central design function with a clear mandate and charter that works in tandem with the other key pillars of the transformation such as change management or finance. This is a huge, glaring and (inevitably) costly miss.

Why?

Because ultimately all corporate choices and decisions need to be manifested via design. Design of the organisation, of capabilities, products, services and strategies.

For instance, driving innovation at scale is essentially a lateral effort that requires cross domain collaboration, however traditional organisation design is still confined to command and control structures (Pyramids), hence the need for SO that alleviates this.

Apple , the most valuable company on the planet (market cap x revenue x earnings) is essentially a design led organisation. The legendary ?Sir Jonathan (Jony) Ive , was the Chief Design Officer at the company (until 2019) and the mastermind behind its most iconic products. Together with the visionary Steve Jobs, he led the design function of the organisation with incredible care, precision and a laser focus for delivering the ultimate consumer experience. Everything else within the company was subservient to this primary goal and this was backed by a clear mandate that put design above all else. The results of this unswerving conviction towards consumer centricity (via smart design and architecture) are clear for all to see.

Admittedly, not all companies set out to be like Apple or indeed operate in the same context or scale, but all companies want to succeed, especially ones undergoing large digital transformations where the price for sub-par returns could be very costly indeed.

Incorporating a Central Design Function with a federated mandate as part of the transformation is akin to incepting a central nervous system for the organisation that ensures uniformity and optimisation albeit infused with the right degrees of autonomy and specificities where applicable. This is an imperative in my view.

• Information (solve for asymmetry via innovation)

“Our Industry does not respect tradition, it only respects innovation” -????????????? Satya Nadella

As we know already, there are zettabytes of data being produced each day and this is only projected to increase further given the pace of digitalisation across the world.

Paradoxically, however, the pace at which the data is being generated is not commensurate with the pace of information (data in context) that is being produced (both internal and external) to take advantage of all this data in a fair, reliable and effective manner. To compound matters, the information that is produced isn’t retrievable, accessible or available to the relevant decision makers in a timely, efficient manner leading to an imbalance in the availability of the information for effective decision making. In other words, we have an Information Asymmetry challenge (first formalised by Nobel Laureates, George Akerlof , Michael Spence and Joseph Stiglitz).

Asymmetry of information is a well-known challenge in economics, especially in the effective functioning of capital markets where the lack of information can prove to be very expensive for investors. The same is true of large digital transformations where a lot is riding on decisions that are fair, balanced and fundamentally well-informed. Ill-informed choices on the other hand could have very serious consequences for the transformation indeed.

Chief amongst the consequences of Information Asymmetry is Adverse Selection , best demonstrated in a corporate setting by the decline and fall of Eastman Kodak (EK), the pioneering and undisputed world leader in film photography in the mid to late 90’s. Despite inventing (and patenting) the first digital camera, the company failed to see the impending onset and widespread adoption of digital photography and instead chose to continue to invest in their traditional film-based, “razor and blade ” business model leading to an eventual erosion of their market share by other more nimble and astute competitors such as Canon , Fujifilm and Sony .

There are a plethora of news articles and opinion pieces about why this happened and principal amongst the reasons is the short-sightedness of EK management in their estimation of the size of the overall digital opportunity that would have justified further investment into their digital capabilities and their failure to continually innovate.

Their preference instead was heavily skewed in favour of exploitation (cash-cows) over exploration into digital capabilities and services that their customers were getting excited about. There were two things at play, Information Asymmetry (feeding into an inherent Confirmation bias ) and Conway’s Law .

The information that was being shared and received via feedback loops (signalling) on the ground seemed to confirm to management what they already knew – that film photography is popular and profitable which further exacerbated the confirmation bias that already existed within the decision ranks (classic overfitting ). Crucially the feedback loops failed to send out strong signals about the inevitable and permanent shift towards digital photography that was about to upend the EK business model. A simple A/B test (or Lasso ) could have helped to provide the signals for course correction. This failure along with other poor management choices (diversification into chemicals etc.) eventually led to the decline and bankruptcy of the company (in 2012).

Closer to home, from an AI perspective, Information Asymmetry could be catastrophic. Take for example a large language model trying to infer and make recommendations based on an incomplete information set. Hallucinations aside, the real-world consequences of such an ill-informed decision or insight could be devastating for individuals and/or companies.

Computational Linguistics has a role to play in AI decision making but the information being supplied as input is the primary key. Indeed, Bayesian Inference which is a cornerstone of neural network architectures within deep learning AI systems, relies heavily on having dependable “priors ” or reliable data (via FAIR , RFM etc.) in order to predict the probable trajectory of an event or the likelihood of an event, for example, the spread of COVID or the return of Trump!

In that context, it is therefore imperative to measure the levels of Information Asymmetry within the organisation (like the Gini Index ) which will then allow for the right innovation strategies to be placed as a countermeasure against it.

Economics of Information

In sheer value terms, we undoubtedly live in an age of Information Economics (DIKW )

i.e., A time where innovators with access to information (that which is previously unknown and is commercially viable) can translate this knowledge into a sustainable business model to create sellable products, goods or services and profit from them at scale. The biggest technology companies (FAANG ) of our day are proof of this. The key to this is the desire to innovate which is only possible via access to timely and relevant information that enables exploration and experimentation. Google search is perhaps the best example of how to solve a basic information asymmetry problem via the power of innovation. Their search application has in effect put the entire public information landscape at our fingertips so we all have access to the same information for our innovation pursuits, creating a virtuous feedback loop. Although the quality of the information available may vary, by linking this to a revenue model, its in the best interests of the information providers to keep their content, relevant, timely and useful (closed loop).

To Satya Nadella’s point, the capacity to innovate is the key to enduring competitive and strategic success. All businesses today are as much about profitability and growth as they are about innovation that is tightly coupled to a clear strategy and a vision for the future, fuelled by curiosity, creativity and a sense of play (or fun).

They are effectively two peas in a highly digitalised pod.

Microsoft’s strategic partnership and investment in OpenAI (which includes an exclusive license to OpenAI’s intellectual property) is a classic case in point.

Digital transformations inherently are about change and embracing innovation is an integral part of this process. Companies that fail to continually innovate risk everything , no matter how big or small they are, tradition has its place but innovation woven into the culture of the company is what keeps information asymmetry at bay and allows organisations to grow profitably and at scale.

(Note: Linguistics in AI is a core foundational building block and much of the understanding and knowledge we have today is thanks to the earlier works of Noam Chomsky )

• Synergies (solve for scale via cohesion)

?“The whole is greater than the sum of its parts” -?????????????? Aristotle

The Automobile manufacturing business is one of our most prominent industries and is a clear marker for the upward mobility of societies in a capitalist context. i.e., more cars on road=more disposable income=more spend stimulus=happy markets/investors. The inference being a market is primed and ready for more products/service launches.

The environmental challenge posed by the industry will also (by early estimates) soon be addressed with the rapid adoption of electric and other alternative energy sources (by law in some countries ) which is good news for all concerned. Given the size and scale of this Industry, it’s inevitable that large auto manufacturers consistently look for ways in which to get more bang for their manufacturing buck (i.e., commoditise and standardise as much as they can whilst still providing the differentiating value-add so we as consumers continue to spend and aspire for more (Keynes again!).

In that context, the need for synergy is widespread and persistent because it ensures the effective and efficient usage of expensive and limited resources to meet constantly changing regulations, laws, supply and demand dynamics across markets and regions.

One of the biggest examples of such a company is the Volkswagen Group (VWG), a global multinational that consistently ranks amongst the top revenue earners in the Fortune 500 lists . It houses no less than 8 different car brands under its hood, ranging from the affordable (Skoda) to the mid-range (Audi, VW) and top end (Bentley/Porsche).

A perennial challenge for a company of this size and scale is how to ensure the group is collectively able to commoditise and standardise its models, techniques and methods so there is democratisation of the innovation, for instance, a safety feature that can be rolled out easily across all product lines (bottomline efficiencies) whilst also preserving the “brand image” (top-line) of each badge.

Enter the MQB , a modular technology platform that has, by VW estimates, allowed them to adopt a horizontal integration approach enabling a massive increase in efficiencies (20% and growing YoY) and providing significant economies of scale, scope and effort across all their product lines. What is remarkable here is that the modularity and flexibility of the platform extends to all vehicle types (including electric) so its future proofed and acts as a critical and key enabler to deliver on the VWG vision and roadmap. So, irrespective of which range (Petrol, Diesel, Electric) or category (Sedan, SUV) of car you choose to buy (Audi or Skoda or VW), the MQB platform will be used to churn out a standard chassis with enough modularity built in to cater for the variability of specific product lines. The same modular platform strategy has also been extended via the MLB, MSB platforms to other high-end product lines so the synergies continue to be leveraged across the group - This ‘business model’ is the underlying basis of the Platform Economy that is prevalent across all industries (including FAANG ).

Besides the stated efficiencies, Synergies achieved via VWG’s modular platform strategy also provide another important benefit for a company of that size and scale, Emergence - This is pure gold dust for the future course of VWG product lines and services because the platform itself acts as a self-serving longitudinal study (MQB has been operational for over 10 years) of what their customers want versus need (or not). Given this inbuilt advantage and using a combination of statistical (probabilistic) methods such as Regression Analysis or Bayesian Inference or an equivalent of the Central Limit Theorem (sampling the right variables based on law of large numbers), the company can make reasonable and well-founded bets (Prescriptive, Predictive) on the next generation of products and services to launch based on all the data that is being collected and fed into the platform design (via strong and reliable feedback loops).

Large organisations typically also have multiple product lines (usually related like Skoda, Audi and VW) and services all vying for the same set of funding, resources and operating under the same relative set of constraints and trade-offs. Ensuring a strong focus on synergy amongst these product lines (vision/purpose/goals/objectives/actions) via a common platform, forum or process that acts as the Centre of gravity allows the organisation to reap the benefits of a unified, cohesive approach towards delivering transformation benefits, especially when data and analytics is the common thread that runs across it.

Synergies can also be achieved via a differentiated business model.

Take the example of the French luxury goods giant, LVMH , whose business model is based on a decentralised organisation enabling vertical integration and organic growth across its 75 “maisons” allowing the group to reap its collective benefits . The common thread (synergy) across the group is the exclusivity and heritage of each of the brands.

Synergies enable growth at scale, at cheaper cost overall and less environmental overhead, especially for large organisations with heterogeneous complexity. They also allow for multiple interests, agendas and lobbies within an organisation to be brought together for the common good by clarifying different positions of interests, their related benefits and how to create a compelling, cohesive narrative for the organisation irrespective of whether the beneficiaries are a well-organised and efficient minority interest or a disparate and loosely cobbled together majority view. For example, the Integrated Business Planning (IBP) process spearheaded by design and architecture.

The goal is to ensure the company benefits from these synergies.

The benefits of such an approach are further amplified especially within a massive change program such as a Digital Transformation that has an explicit goal to deliver greater value and profitability. In other words, Synergies offer a win-win and an emergent value proposition for all parties within the organisational ecosystem.

In Biological terms, the Human body is perhaps the best example of synergy in action, whether we are walking, eating, sleeping or going about our daily business.

The keys to achieving this lie in aligning the following:

-????????????? Synergy of Vision – where are we going? -????????????? Synergy of Purpose – why are we going there? -????????????? Synergy of Goals, Objectives, Actions – When and How do we plan to get there?

Whether it’s the horizontal integration approach of the Volkswagen Group, or the vertical integration approach of LVMH, embedding a strong focus on synergies ensures a value-based mindset across the organisation. Large Digital Transformations require the same focus as the fundamentals for successful outcomes remain the same.

• Capital (solve for complexity via humans)

“Indeed, in a modern economy, human capital is by far the most important form of capital in creating wealth and growth” -?????????????? Gary S. Becker

All Digital Transformations are based on sound economic models with the same explicit objective of generating value for the organisation and this, by definition, requires a significant capital investment - “Productivity”, “Innovation”, “Growth”, “Profitability” or “Progress”, all these terms are logically rooted in a single word, “Value”, and generating value via the transformation requires capital, both human and financial.

Capital is perhaps one of the most interesting and highly debated topics in finance, but the topics are primarily focused on the financial (physical) aspects of this construct, some of which we have already touched upon earlier (supply-side, demand-side etc.). However, as important as this is, there is still a lot of handwringing amongst the broader community about the dominant “monetarism ” discourse within economics because it focuses solely on the transactional aspects of an economy (spend-consume-repeat) and not so much on the organic enablers that drive a nation’s economy and growth,

i.e., Its People or Human Capital.

As mentioned earlier, large organisations are like nation states at relative scale (and vice versa) and are therefore subject to the same trials and tribulations of striking a balance between growth and stability vis-à-vis their value quotient (typically measured via EPS, EBITDA, CAGR etc.).?

It is in this value context that the topic of human capital becomes a compelling need and requires us to nurture and grow this ratio with equal zeal and dedication as we do the financials of an organisation (i.e., getting Finance and HR metrics joined at the hip).

Admittedly, this is a tricky challenge to solve because unlike numbers that can be tracked and reported consistently and reliably as a measure of value (primarily because humans have always needed a measure for commerce and exchange of value going back to the earliest civilisations when HR wasn’t around), trying to measure the human value quotient takes us into an area of measurement that isn’t mechanistic and/or deterministic enough to be automated as a standard part of our value frameworks.

Nevertheless, the fact remains that it’s the human that procreates and makes things happen. It’s Her/His/They/Them intelligence and a quest for ‘better’ that have given us our inventions and innovations, our Satellites and Submarines, our Periodic Table and CRISPR codes , our Monalisa and Sunrise , our Requiem and Diaraby . Whether we are cracking enigma codes to stop a war (and unfortunately sometimes to start them) or curating an art collection at the Louvre , it’s the ingenuity and tenacity of the human that is the star of the show. Without this, there is simply no progress, growth or profitability – no “Value”.

The AI discourse is another great example of human ingenuity, for all the promise of the AI revolution and the cacophony regarding the impending takeover of the machines, we’d do well to remind ourselves that this innovation sphere itself stems from our collective imaginations and countless “what ifs” that preceded this recent step change in our AI capabilities. We have many imaginations to thank from H.G Wells to Isaac Asimov to Arthur C Clark to today’s stars, Mira Murati , Sam Altman and others.

The Nobel Laureate, Gary Becker , wrote extensively on the importance and need to continually nurture and invest in human capital (learning, training, up-skilling, repeat) if we wished to maintain our rate of progress and prosperity. Indeed, his research also provides empirical evidence in the form of developed (rich) countries that have a higher human development index (HDI) versus ones that don’t (also in, “Wealth of Nations ”). Put simply, it is because they have a high HDI that countries stay rich and not the other way around. Nations with highly skilled, highly educated populations invariably stay ahead of the rest and are at the forefront of the best innovations and inventions, a fact that is further exacerbated today by the urgent need to retreat from previous ecological missteps and instead focus on cognitive pursuits for value-creation and prosperity.

The same is true of large organisations.

The People are the strategy; the strategy is the people.

This is the core competency and long-term asset of an organisation, the equivalent of creating a virtuous feedback loop that benefits the organisation in many ways, including emergence (discussed earlier) and further amplified by leveraging Diversity, Equality and Inclusion (DEI) dynamics . In the context of digital transformations especially, where the culture of an organisation also plays an important role, investing in human capital will ensure any undesirable, inherited behaviours, practices, and methods can also be phased out by continual learning, training and up-skilling. Similarly, for Information Economics to succeed, for competitive advantage to be created and maintained, it must be built on an entrepreneurial mindset and a technology foundation but fuelled entirely by human capital. This is singularly the best investment a company can make.

Bill Gates famously said, “Take our 20 best people away, and I will tell you that Microsoft will become an unimportant company.” - ?I think he’s spot on, people are the difference.

In our contemporary, globalised world, ideas, people, money and goods can move fairly quickly to the most attractive locations - financial capital especially is relatively abundant and easy to secure, via VCs, startup foundations and other government backed initiatives (witness the large investments in Africa and LATAM by nations behaving like organisations themselves), however the human capital and entrepreneurial drive needed to exploit this resource and produce something meaningful and valuable is scarce, hard to find and (most importantly) retain.

In that context, I believe we need an Organization Development Index that acts as a barometer (via balanced scorecards) of how the organisation performs holistically vis-à-vis its business strategy.

An Umbrella index that should house all the external and internal dimensions, that we measure today such as sustainability, pay and gender parity, financials, NPS scores and so on, but also other related, equally important dimensions that aren’t measured today such as but not restricted to;

• Human Capital (Rate of learning, training, up-skilling across the organisation?)
• Innovation Scale (Ideas in incubation? Estimated Value? Progress rates?)
• Core Competencies and Capabilities Pipeline (Function based? Industry based?)

Much like a large pharmaceutical would meticulously monitor and track its drug discovery pipeline to identify the next lineup of blockbuster drugs that will sustain it for decades,

A Digital transformation needs the same rigour applied to its primary asset, it’s People, so it can create a virtuous cycle of growth that benefits everyone.

• Outcomes (solve for competition via "e=mc2")

“Competition is both the life of trade and the trade of life” -????????????? Ariel and Will Durant

All Digital Transformations are undertaken with the singular aim to enable the Organisation to create competitive advantage within its operating and trading environment(s). i.e., to enable the Organisation to compete and win.

In that context, the success of any digital transformation is largely dependent on how well an Organisation has managed to harness and leverage the collective wisdom, ambition and cognition of its workforce to create a clear competitive advantage over others and enables the Organisation to meet intended outcomes.

i.e., how is the Organisation managing its most important asset of all, its “Yin & Yang”?

There are a whole host of talent management strategies and frameworks, all of which are relevant and applicable to this topic, however, I believe we need to go deeper to ‘see’ the opportunity in a different light.

At its very core, beneath all the literature, strategies, frameworks and operating models, I view an Organisation’s ability to compete and win as a 3-body problem .

The 3-body problem is long-standing conundrum in Physics which is basically trying to calculate accurately the position, momentum and velocity of bodies (3) in motion and in relation to each other. The complexity here is in trying to match the deterministic (atomic) features of this challenge to the probabilistic (sub-atomic) aspects, i.e., Organisationally speaking, the equivalent of mapping the known to the unknown (i.e., exploit?vs explore), above the surface to what lies below it (i.e., analyse?vs synthesise).

1.??????? Energy?

“Everything is made up of atoms” -????????????? Richard Feynman

In traditional Chinese culture, “chi ” (qi) is regarded as the energy of the universe, although this thought has largely philosophical bearings (also prevalent in other Polytheistic Faiths ), some of our greatest and most eminent physicists from Einstein to Planck and Maxwell to Bohr have all spent their lifetimes unlocking the secrets of this enigma, from the vast limitless expanse of outer space (originating from the “Big Bang”) to the workings of protons, quarks and gluons at sub-atomic level. What is abundantly clear and proven based on the meticulous research and empirical evidence is the presence of this energy quotient within all matter (organic and inorganic), eloquently and brilliantly condensed into the most famous equation of all time, “e=mc2 ”.

A Digital Transformation program is, at its core, a concerted effort to harness this energy present in matter so it can be shaped and channeled accordingly to meet intended organisational outcomes.

This is essentially what all the off-sites, team events and gatherings are about, the fundamental need to collate, conserve and harness the energy within the Organisation’s “Tower of Babel” so it can be spent where it collectively matters the most.

So?

Energy types (like Organisations) can be broadly divided into two flavours, both of which make up the two ends of the cognitive spectrum. Both energy types complement each other and co-exist (at different ratios) within a transformation.

o?? Convergent (or Centripetal)

o?? Divergent (or Centrifugal)

A Centripetal force is convergent or unifying by nature and adopts a linear, structured, analytical sequence of steps to get to an ideal solution. It creates a clustering effect (MQB, MLB, MSB) where energy is working collectively towards a central goal or objective using a known set of guidelines and principles.

VWG decision making is largely a centripetal or convergent force.

A Centrifugal force is divergent or open-ended by nature and adopts a non-linear, unconventional approach to idea generation and value creation using exploratory techniques to meet objectives (75 ‘maisons’). It leans more into the co-option and collaborative mode of thinking that places greater emphasis on the collage of creativity and free-form problem solving.

LVMH decision making is largely a centrifugal or divergent force.

For an Organisation undergoing a large digital transformation, it’s imperative to recognise these two complementary segments and ensure they are positioned appropriately (and in the right ratios) to solve the right kind of problem.

This ensures the right balance and allows the transformation to harness the collective energy of its leaders for the success of the transformation.

2.??????? Networks

“Compound interest is the eighth wonder of the world, he who understands it earns it, He who doesn’t pays it” -?????????????? Albert Einstein

The Internet is an inter-connected network, hence the abbreviated name. (simply put, a protocol-based mechanism to exchange “packets” of data)

As an innovation that has fundamentally changed the way we live and operate forever, it is perhaps the starkest (inorganic) example of the power of the network. The remarkable thing about this change is the relatively short period of time it has taken (since its invention) for it to affect our lives permanently. There is simply no possibility of a world without an internet anymore, no going back.

If anything, we are about to witness a rapid increase in the adoption and application of this innovation in ways we only read about in science fiction until recently. The primary source of all the power behind these network effects is of course, the law of exponentiation , i.e., the ability to grow non-linearly (1+1=5) over time, both in terms of utility and value, in qualitative and quantitative terms. i.e., More connections on the network (density) = More exponential value offered.

Take for example, the recent, devastating COVID outbreak, an unfortunate albeit real-life example of how network effects operate when the law of exponentiation kicks in. The fatality rates which grew linearly in the beginning, suddenly exploded (exponential growth) with each passing day causing a global pandemic and a total shutdown across the world. What got us out of trouble was the fact that this outbreak was biological in nature which meant that adherence to protocols such as vaccinations, better hygiene standards and limited exposure allowed for the spread to be controlled and the infection rate R0, to fall below 1, the Epidemiological rate at which exponential growth turns into exponential decay instead (i.e., no one left to infect due to vaccinations and the ones already infected are immune anyway to either contract or spread the virus). This biological leverage does not exist in an inorganic system, hence the fears expressed by some regarding the impending AI takeover (topic that merits a separate discussion). In mathematical terms, this is sometimes also referred to as “Geometric Progression on steroids”, a fascinating subject that holds the answers for many pressing social and organisational challenges we face today.

Large Organisations are typically high-entropy entities. Their size and scale invariably perpetuate additive behaviours and practices which in turn causes more process and governance overheads. This behaviour is actually closely linked to a cognitive bias common to us (loss-aversion ) and implies that we are very good at adding stuff but very poor at getting rid (subtraction) of things. Nature is exactly the opposite hence the symmetry and the need to maintain it that way. Given that these additive practices are native to the organisation, a smart way of managing this (also from a behavioural perspective) is to bring this within the purview of the “Network”.

The Network approach is based on forming connections within a specific bounded context or domain and is very much in line and aligned with how we operate in the real world.

In an Organisational context, it allows both convergent and divergent forces to co-exist and thrive within the same connected framework of governance (typically federated). For instance, a supplier or distributor network houses members of all specialties and sizes under one roof, the rules of such a network are federal in nature which allows for each of them to operate with a fair degree of autonomy whilst also abiding by the broader membership criteria. In the political landscape, Switzerland is a great example of this setup. However, what the network also does is to ensure we monitor and curate the additive streak by virtue of its membership, i.e., the network operates at two levels – commoditisation and differentiation with feedback loops between the two. So, if a differentiating feature starts to get common enough (A/C in cars) due to consistent demand, this feature is commoditised within the network and no longer a distinct feature (all forms of it). This prevents the proliferation of such activities across the Organisation (MQB as an example) allowing for economies of scale, scope and effort.

Indeed, our Technology titans (FAANG) are also direct beneficiaries of the network paradigm, including this platform.

A Large digital transformation must identify the “nodes” on the network that defines its topology and ensure they are connected within a federated governance framework using common interface contracts so they can benefit from its compounding effect leading to efficiencies at scale.

(Note: The use of the word 'forever' above is based on the assumption that we will continue to have electricity to power our machines, without this, there are no modern amenities or AI).

3.??????? Ecosystems

“Evolution is cleverer than you are” -?????????????? Francis Crick

An Ecosystem is essentially comprised of multiple actors, all of whom are broadly aligned based on their respective positions and mutual, multilateral interests, working towards a common emergent value proposition that benefits all participants of that ecosystem. The focal point of a business ecosystem is the value proposition that defines its boundaries and ensures competitive advantage is being created for everyone in that system (specifically the keystone actor ).

Amazon is the world’s largest online retailer and one of the earliest and most successful examples of how an ecosystem works. The word “Ecosystem” has its roots in ecology; hence nature is defined as a finely balanced and complex, organic ecosystem (organisation) of multiple actors that are broadly aligned based on multilateral interests (and therefore the need to preserve that balance).

Th ecosystem paradigm applies to other technology giants such as Apple, Microsoft too.

But this isn’t restricted just to the technology space, NATO is an example of a military ecosystem comprising multiple countries, each with their own specific geo-political agendas but that are broadly aligned based on multilateral interests and working together for the singular purpose of security and stability across regions. The USA is the keystone actor within this ecosystem and orchestrates, choreographs proceedings for the benefit of everyone, primarily itself.

Airbnb is an online travel and hospitality ecosystem that comprises thousands of global vendors (multilateral) who are all participating based on shared economic interests and the common objective to provide great travel and holiday experiences for consumers across the world. Airbnb is the keystone actor.

Erasmus , similarly is an educational ecosystem within the EU that comprises multiple universities across the EU states, all of whom are bound by the shared vision of democratising access to the best learning opportunities for their brightest talents (investing in human capital) whilst furthering their own specific university agendas. The EU is the keystone actor.

Such an arrangement naturally also supports emergence irrespective of a CPG, Military or Educational setting, which then accelerates discovery, innovation and invention across the various dimensions and activities of the ecosystem such as resource allocation, choice of partners, sets of relationships and activity types.

Simply put, an Ecosystem (forest) is comprised of loosely coupled and inter-connected networks (species of plants, trees, animals) and operates across platforms (technology foundations – soil, terrain, waterbodies etc.). The logical boundaries of an ecosystem are confined to its central value proposition, i.e., how to create and capture value that benefits the forest and everything in it?

In a Digital Transformation context, some of the key benefits offered by an ecosystem-based strategy is the ability to create adjacent or new business models, operate as multisided entities (supporting both supply and demand) and choice of operating models (vertical and/or horizontal integration).

This Tripartite focus on value-based, need-based and access-based positioning ensures better, holistic risk management, emphasis on joint value creation due to the interdependence between the various partners resulting in emergent benefits for this multilateral alignment of willing partners.?

Amazon is a great example of this, it went from selling books to essentially becoming a keystone actor in a global retail ecosystem, all the while creating value and an enduring competitive advantage for itself and the participants of its ecosystem. The blueprint for this success though has been around for millions of years waiting to be replicated when the time was right (Electricity-Internet-PCs).

That said, in a business ecosystem, keystone actors have huge responsibilities since they decide the rules of membership and governance which includes decision rights and hierarchy of rights within the ecosystem.

One important nuance here is the multilateral nature of the relationships (1-Many) within this system which requires careful thought and consideration for decision making.

As everyone’s (mostly) favourite superhero would say:

“With great power, comes great responsibility” -????????????? Peter Parker (spider man)

Business Model Innovation and Composability

Chief amongst the benefits an ecosystem provides is the ability to create adjacent or new business models. For instance, it allows for the keystone actor to focus on specific market segments (its core competency) whilst also foraying into other adjacent areas of opportunity in a controlled, secure manner, using largely the same set of foundational capabilities, i.e., efficiencies at scale.

For instance, Amazon can sell both its own brand and other branded merchandise benefitting from the same set of distribution, warehousing and logistical capabilities (like foundation connection beams ) but beyond that, using its data and analytics platform(s), it is also able to keep close tabs on the pulse of the consumer so it knows what the trends are and which way consumer loyalty is shifting allowing it to quickly change focus and pursue profitability and productivity (i.e., value) based on empirical evidence. Being in such a dominant position, also allows it to take the lean startup approach , i.e., measured bets by adopting “Open Innovation” tactics and creating a test segment for a new line of products with limited or distributed risk. So, at best, it has generated a new line of business, consumer segment, channel of revenue and profitability and at worst, it learns from this and knows what not to do so it can redirect capital elsewhere. i.e., It has succeeded in integrating the incentives across the end-to-end value chain. Indeed, the dominance and benefits from this ecosystem are so pervasive that the Amazon business model has come full circle, from online retailing of books, electronics, groceries , we now have bricks and mortar stores !

Large Organisations have similar needs, trade-offs and constraints.

They typically suffer from the disjointedness of having divisions of labor, knowledge and governance as three separate streams which prevents the organisation from learning at scale and in an integrated manner that enables innovation and knowledge sharing for creation of future products and services.

Adopting an ecosystem-based strategy ensures such an integrated approach addresses the issue of heterogeneous complexity. This allows for easier, common problems to be crowdsourced whilst the more difficult, new problems can be dealt with via vertical integration routes – for instance, resource allocation across the three categories above or the decision to build, buy or partner is made easier depending on the depth and breadth of the ecosystem and careful allocation of decision rights. Both Information and Knowledge also permeate seamlessly through the ecosystem (across categories) to accelerate learning, sharing, collaboration and building of new capabilities that enables innovation at scale.

Digital Transformations need ecosystems to succeed at scale.

They provide the collaboration and alignment structures necessary for the transformation to build confidence and reinforce its better behaviours whilst not having to deal with the disjointedness of isolated efforts and silos.

Take the Sustainability challenge as an example, the sheer size, scale and complexity of this problem requires an ecosystem-based approach to solve it.

It requires the Organisational ability to orchestrate (centrally) and choreograph (across) activities across the vast ecosystem of multilateral partners, but this effort is rewarded by the benefits of rapid knowledge creation, learning, sharing and joint value creation for all partners within the ecosystem.

Integrated Business Planning (IBP) is another example of an ecosystem offering. It needs tight collaboration across the Commercial, Finance, Operations and Data/Analytics arms (or networks) of the Organisation (as multilateral partners) so there is one synergised execution plan that can translate business strategy into action that can be tracked and measured accordingly. To succeed, it also needs an agile operating model (spearheaded by business design/architecture) so both bottom-line and top-line are secured. The immense opportunity presented via the seismic shift in GenAI capabilities and underlying foundation models (amongst other AI spheres ) further amplifies the need for this ecosystem based approach which will enable Organisations to grow and profit at scale.

Successful outcomes for large organisations today are those that embrace diversity of perspectives, inclusivity of well-founded opinions and integrity of thought leadership to achieve a shared vision that benefits both the organisation and the wider ecosystem within which it operates.

Admittedly, this seems antithetical to the primal and core tenets of all competition, i.e., zero-sum games, however the larger benefit here is in seeing this as an opportunity to grow or increase the size of the overall value pie for everyone rather than just growing one’s own share of the pie, i.e., by acknowledging the energy quotient within a transformation as finite and expendable, investing in networks that are deep and self-learning, and adopting an ecosystem-based approach which aligns multilateral partners (and networks) based on shared vision, Organisations can ensure they achieve intended outcomes in a fair, equitable manner whilst still meeting their stated targets.

As wonderfully articulated by the Pulitzer Prize winning writers, Ariel and Will Durant, our very existence as humans is tied to the competitive streak that is the underlying basis of conception (survival of the fittest), however we must acknowledge and abide by the natural and universal laws of the dynamic ecosystem we inhabit and share with others. This is no longer an option.

Operating within this panoptic view of our reality whilst staying deeply focused on value creation via the heuristics described above is the key to achieving successful outcomes for a Digital Transformation.

I hope you found this useful.

Thanks for reading.