Building the Future Fit Digital Business

1.Introduction

We are entering a whole new transformative age, some of have coined this Industrial Revolution 4.0, but this could be more transformative than everything that we have seen in the past 250 years.

The driver of this new Revolution is Artificial Intelligence, which according to industry luminaries such as Mustafa Suleyman (The Coming Wave) and Ray Kurzweil (The Singularity is Near, The Singularity is Nearer when we merge with AI) will also deliver fundamental change in three fundamental forces in human life, energy (dramatically reducing the costs of Solar Energy and Battery Technologies), Robotics (significantly reducing the amount of back breaking work required of humans) and health (transforming diagnostics, treatments and dramatically extending human life).

All these changes together create the new Digital Business. The challenge for organisation is that these changes are happening in the next 5-10 years!!

What does that mean for your company, business, organisation?? Let’s be clear for the foreseeable future Change will be the only constant, and Business as Usual will be synonymous with continuous adaptation and transformation.? We paraphrase Satya Nadella 'AI will not replace companies and economies, but companies and economies that lead with AI, will replace those that do not!'? The businesses that survive will be those who learn from Charles Darwin.? "It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that is able best to adapt and adjust to the changing environment in which it finds itself.".

2.The Intelligent Enterprise

We have a definition for those companies, that can become truly Digital, Data Enabled, and AI Powered - ?Intelligent EnterpriseTM.? An organisation that uses insight, analytics and artificial intelligence to dynamically reconfigure itself in response to the expected needs of its customers, and simultaneously anticipate and respond to changes and events in the external environment?

Returning to ?‘Reengineering the Corporation’ of Michael Hammer and instead of automation processes, we need to focus on ‘obliterating tasks and processes’. ?To consider a business that is truly Digital, data (and value) driven, we should consider the case of Amazon.? Their business strategy was famously written on a napkin by Jeff Bezos in 2001, using the ‘Flywheel’ concept from Good to Great.? Bezos picked Marketing as the critical Capability that he wanted Amazon to be world class at, and realised Data, Analytics and AI was key to that.? Bezos created a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers in a cycle of continuous improvement - improve the selections of goods, and Amazon further improves its cost structure decreasing prices, which in turn increases the spin speed of the flywheel. (https://businesschronicler.com/business-strategy/amazon-flywheel-explained).

The Intelligent Enterprise model is our codified version of the Good to Great flywheel used at Amazon now standardised so it can be deployed in almost any organisation to create a Predictive by Design operating model!? It is both intrinsic and extrinsic in this definition that the organisation is uniquely able to leverage data, analytics and AI to enable and sustain this capability.? The use of Resource Based Theory and Dynamic?Capabilities (see below) help us to identify the resources and business capabilities that will form the differentiation for the business and Kotter’s Change Framework helps us to deliver the change to a business that is designed for change and can adapt continuously.

3.The Business Strategy Framework

As part of a multi-year Doctoral Research programme, I have investigated how organisations can deliver sustained and sustainable competitive performance using Digital, Data, and Analytics (including AI).? Two Business Strategy frameworks have been isolated as constituents:

VRIO Model of Resource-Based Theory (1)

If a business seeks to be competitively differentiated, it cannot realistically expect to be ‘world-class’ at everything.?Resource Based Theory helps firms to identify and focus on internal resources that are best aligned with opportunities and threats from the external environment, to identify key combinations of internal capabilities that uniquely differentiate.?? The VRIO framework is a strategic analysis tool designed to evaluate an organization's resources and capabilities to discover competitive advantages. The acronym VRIO stands for four questions to ask about a resource or capability to determine its potential: Value, Rarity, Imitability, and Organisation. If a resource or capability is valuable, rare, costly to imitate, and the firm is organised to capture its value, it can sustain a competitive advantage.

Sense, Seize, and Transform from Dynamic Capabilities (2)

Dynamic capabilities refer to a company's ability to continuously renew its competitive advantages in response to rapidly changing business environments.? The VUCA world we live within, seems to be here to stay, so being able to drive continual renewal will be critical to maintaining competitive advantage.? The Dynamic capabilities framework is built around three key actions: Sense, Seize, and Transform. 'Sense' involves identifying and assessing opportunities and threats in the external environment. 'Seize' is about mobilizing resources to capture value from those opportunities and mitigate threats. 'Transform' requires the firm to continuously renew and reconfigure its assets and organizational structure to maintain alignment with the changing business landscape. This approach empowers organizations to be proactive and adaptive.

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Individually, these models are utilised by organizations globally to inform their strategic decision-making and adapt to internal and external pressures, ensuring sustainability and competitive positioning in the market.? We bring them together to deal with the challenges and embrace the opportunities of the VUCA world and AI.

4.Data, Analytics and AI Spins the Business

“Amateurs talk Strategy, Professionals talk Logistics” Gen Omar Bradley

The famous quote of Gen Omar Bradley is that ‘Strategy is for Amateurs and Professionals discuss logistics!’ The key logistics here is that for a Business Strategy (powered by Data) is that Data is both an Input and an Output, and execution requires Digital and AI capabilities

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For 25 years, Consulting Firms have focused on People, Process and Technology to design the Operating Models of businesses.? Today, I predicate that is an outmoded concept and Process/Technology are only ‘second order’ capabilities in determining performance.?

• Process is a 19th Century concept developed for mass manufacturing – the future Intelligent Enterprise needs to be able to dynamically reconfigure it’s key activities to serve its customers and markets
• Technology – whilst of fundamental importance, for the majority is less a source of competitive advantage, and rather as it is not difficult to copy/nor rare the case is not having Technology is a source of competitive disadvantage.?

The Capability Flywheel for Intelligent Enterprise is ‘Digital, Data and AI – Spins the Business’. The ‘Fly Wheel’ concept from Jim Collins and his famous business book ‘From Good to Great’.? Of those quite a few will know that Jeff Bezos took that concept, and his strategy was to use input and output KPIs and associated Data and Analytics and AI to spin the fly wheel at Amazon faster than anyone else!?

• Too many companies only focus on the output data and the metrics associated Revenue, Profit, Free Cash Flow etc.? These measures are obviously critical, but they only tell you how you have done – they are ‘backward looking’ by Design.?
• The leading businesses (like Amazon), look at Input Metrics as well as Output Metrics, after all Data is the fuel of the business and therefore drives the processes that operate the business.? Input Metrics could include Page Views, Stock Availability, Price, Discounts, Convenience.?

?For those organisations, Data becomes the master of process and technology in your strategy and input (as well as output) metrics are the fuel and instrumentation that drive you forward!? How your business (or organisation) chooses to differentiate and deliver sustainable competitive performance, data and analytics capabilities will be a Valuable, Rare, Difficult to Imitate and the Organisation therein will be both key to delivering that Competitive Performance as well as Measuring and Managing it.?

Instead, People, Data and AI (PDA) are now the critical levers in determining the optimum operating models for businesses.?

• People – those people who are data enabled and AI Powered will displace those who are not.
• Data is both the fuel of the business, and the material from which insights are derived to better improve decision making in the business.? Critically that Data can be from inside and external to the business.? Data is what we use to measure those leading and lagging KPIs that we will use to drive the business
• Digital, (Analytics and) AI are the means for exploiting that Data to drive value.?

This combination of Data and AI becomes the Digital brain of the business.? More and more logic is removed from legacy enterprise systems (CRM, ERP etc) and the intellectual property and insight to drive competitive performance sits with your People and their capability to use that ‘corporate brain’.? That becomes a capability that is Rare, Difficult to Copy and if you bring the whole organisation with you ‘organisationally embedded’.?

?At that point you have developed a sustained competitive advantage!

5.Conclusion

In conclusion, the Intelligent EnterpriseTM represents a fundamental shift in how businesses operate. By leveraging data, analytics, and AI, organisations can achieve sustained competitive performance and adaptability. The journey to becoming an Intelligent Enterprise requires embracing change as a constant and investing in the necessary complementary assets. ?We might not all be Amazon or Google, but the Intelligent EnterpriseTM provides a framework for your business to be able to compete with them!

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References

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1. VRIO Framework Barney, J.B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.
2. Dynamic Capabilities - Teece, D.J. (2007). Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance. Strategic Management Journal, 28(13), 1319-1350.
3. "The Second Machine Age". May 20, 2023.
4. "The long wait for a productivity resurgence".?www.ft.com. Retrieved?March 8,2024.

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