Achieving operational excellence involves the digitization of operational processes and the creation of operational backbone. The process of digitization is very different from the development of new digital offerings. To understand this concept, it is necessary to first explore the difference between “digitized” and “digital.”
Digital vs. Digitized
The growth of technology presents companies with opportunities to do a better job of both delivering their traditional value propositions and creating new ones. Improving how traditional value propositions are delivered is referred to as digitizing. The focus of digitizing is operational excellence — lower costs, greater reliability, and predictable customer services.
The second opportunity, the ability to deliver new value propositions, is referred to as becoming digital. Digitized and digital are essentially opposites: Digitized requires disciplined, standardized organizational processes; digital, by contrast, is focused on business agility — rapid innovation of new customer offerings. Digitizing and becoming digital are both important, but they place different requirements on companies and deliver different benefits.
“Digital technology enables operational excellence (making it “digitized”) and rapid innovation (making it “digital”). Becoming digitized is a core part of building an operational backbone.”
— Jeane Ross, Principal Research Scientist, MIT Center for Information Systems Research
Digitized and Digital Technologies
Digitized and Digital Technologies
Early digital technologies included social, mobile, analytics, cloud computing, and the Internet of Things (IoT), which form the acronym SMACIT, but the number of digital technologies is constantly growing. Blockchain, machine learning, 3D printing, edge computing, and biometrics are all examples of digital technologies. Given the expectation that new technologies will continuously appear, it is important to design your company in a way that enables it to rapidly take advantage of these opportunities as they are identified.
Ultimately, the combined capabilities of these new technologies are ubiquitous data, unlimited connectivity, and massive processing power. Instead of designing around a specific technology, companies should endeavor to design around these capabilities. For example, a company that is designed around taking advantage of analytics may not be positioned to easily take advantage of advances in artificial intelligence (AI). However, a company designed around taking advantage of massive processing power is better positioned to take advantage of any technology that enables this capability, such as analytics, AI, machine learning, and blockchain.
The Operational Backbone
Digitizing involves the building and use of an operational backbone.
“Operational backbone is a coherent set of enterprise systems, data, and processes supporting a company’s core operations.”
— Jeane Ross, Cynthia Beath, and Martin Mocker. 2019. Designed for Digital: How to Architect Your Business for Sustained Success. Cambridge, MA: MIT Press.
Even before digital technologies became available, companies were building operational backbones to efficiently and reliably execute transactions and back-office processes. The opportunities to rapidly create new digital value propositions have only added to the urgency of developing an operational backbone to provide operational excellence.
The need for operational backbone
The current competitive business landscape has made it necessary for all companies to achieve operational excellence through a powerful operational backbone. Despite its importance, an operational backbone is still absent in most companies. Building an operational backbone requires companies to standardize their key operational processes. This has proven to be very challenging, especially in larger organizations with highly complex operations. According to research by Jeanne Ross and her team at MIT, only 14% of companies were found to have a robust operational backbone that is an asset.
Conclusion
In the past, digitization efforts typically started with the implementation of enterprise resource planning (ERP), customer relationship management (CRM), a banking engine, or some other large enterprise system. The resulting operational backbone provided a higher degree of operational excellence. New digital technologies like the IoT, machine learning, and cloud computing provide new opportunities to enhance operational excellence. In doing so, they raise the bar for competition in any established industry. Just as importantly, an operational backbone provides a foundation for a company’s new customer value propositions. As a result, a powerful operational backbone has become a competitive necessity.
Author
Ysobel Lake, Organizational Design for Digital Transformation, Massachusetts Institute of Technology, Sloan School of Management Executive Education, 2020.
