How to Become a Digital Business: A Three-Step Journey
For an example, look no further than Uber Technologies Inc. and what it did to ride-hailing. In the pre-Uber era, fetching a ride began with calling a taxi company, often hours in advance of your actual journey. You start to fret about whether or not the car will arrive on schedule an hour before your departure time. Not knowing the assigned diver’s number, you call the same unpleasant agent who initially booked your drive. When you finally manage to contact the driver, he promises that he is ‘just around the corner’ but arrives thirty minutes past schedule. A heated discussion ensues between you and the driver at the end of the journey concerning the exact travel distance and the ride fare.
Uber fit this entire process into a single mobile app and removed most, if not all, of the friction points. With Uber’s app, instead of hours, you book minutes ahead. You no longer have to interact with taxi companies and their disinterested agents: you now bypass that entire layer and contact the driver directly. You know the dynamically adjusted estimated time of arrival (ETA) of your ride in advance and receive a notification when the car arrives. At the completion of the trip, the app tells you the distance traversed and the fare due. You can also contact customer support if there is an exceptional need that cannot be resolved through the available in-app options.
Building such a system is not a trivial task: a disparate and decentralised set of components need to be digitised and then aggregated. The Uber app requires digital databases to store rider, driver and trip information. A programme has to receive GPS signals from drivers’ phones and regularly update the driver location index in the driver database. The next piece of the puzzle is a ride dispatcher that handles ride requests and dispatches drivers based on the location index and availability. To be able to publish ETAs to the riders, the system needs an ETA calculator. At a set time interval, each trip’s intermediate GPS locations need to be recorded to be able to eventually calculate the distance travelled. Finally, we need a pricing calculator that will use the logged journey data to calculate the final trip fare. These are the co-dependent internal software elements, called microservices, that enable the Uber app. They, in turn, rely on an array of other third-party microservices, chief among them are Google Maps that processes much of the navigation information and payment gateways. Microservices constantly request and receive relevant information from each other to execute their tasks.
The good news is that most businesses can emulate Uber and unlock unprecedented growth, even if not at the same scale as the ride-hailing behemoth. From improving the efficiency and speed of existing processes and enabling better customer care to opening up entirely new markets, digital transformation presents a massive opportunity for businesses.
There are many factors driving this reality such as plummeting computing costs, expanding internet connectivity, and the proliferation of smart mobile phones. The result is that digital experiences are accessible to billions of people, often in their native languages.
This changing reality, on the other hand, also poses a potent threat: tech-enabled upstarts would invariably displace or kill off incumbents that fail to go digital before it is too late. Think of the many taxi companies that Uber destroyed as it launched across the globe at breakneck speed. Businesses fall back by sitting still in a changing world.
What’s Stifling Digital Transformation?
Given the clear advantages of going digital, a natural question to ponder is what is stifling many businesses from making the transition from offline to online. A Forrester survey of 1600 businesses in America and Europe found that only 21 percent believe that they have completed digital transformation; a further 22 percent were still investigating, while 56 percent were in the process of transforming but with fairly narrow scopes. Moreover, according to the Harvard Business Review, of the $1.3 trillion that was spent on digital transformation in 2018 globally, around $900 billion went to waste.
Under the established workflows, domain experts who have an intimate understanding of the existing business process need to work very closely with expert developers for extended periods. This duration is generally measured in years, not in weeks or months. In a standard digitization project, domain experts study the pain points of the present customer journey, devise improvements and enlist developers to help implement those changes. As programming skills are in short supply, most firms cannot afford good developers. This forces business leaders to contract a custom software vendor for the development. Rarely is such a job satisfactorily done: the process is often financially and time-wise a costly back-and-forth between the business and the software vendor. The real crunch comes when certain fundamental changes are required to the developed software further down the line. As such, under present circumstances, digital transformation remains challenging, expensive, and time consuming.
Digital Transformation: A Three-Step Journey
How can an offline business successfully execute digital transformation, mitigating the problems identified above?
Start with APIs
While there are a range of feasible options, a proven approach is to embrace an API-first design. APIs, or application programming interfaces, are pieces of code that pass information – usually structured as requests and responses – between two applications or microservices. Adopting an API-first approach to digital transformation means treating the variety of business assets, capabilities, and functions as individual microservices and exposing them to other microservices, both internal and external, via standardized APIs.
In Uber’s case, the driver location updater, ride dispatcher, ETA calculator, and pricing calculator are internal microservices that constantly communicate with each other to perform their assigned tasks. These microservices make queries as well as changes to the user, driver, and trip information databases. They also interact with third-party services. Uber’s map visualisation and navigation capabilities, for instance, are derived from Google Maps, using the Google Maps API. The Uber app is a digital experience layer that sits atop multiple microservices bound together by APIs.
The first step for a business that wants to go digital is to convert, or construct, the constituent elements of its business process into microservices and define APIs that systematically expose them. This modular approach is different to replacing the offline business process with a single monolith application. Admittedly, this initial step is not easy. Domain experts and experienced developers will have to work together for several cycles to finish this task and no shortcuts can be taken in this regard.
Building Digital Experiences
The next step is building new digital experiences. A good digital experience listens and reacts to events—i.e., user input, physical triggers, temporal changes, etc.—making the customer’s journey through the business smooth and rewarding. Once the first step is complete, building new experiences is essentially a process of connecting and combining the APIs at your disposal, including third-party ones. This is known as API programming.
API programming, as presently practiced in the industry, is not entirely straightforward and requires substantial experience. An emerging set of tools broadly classified as low-code or no-code platforms, however, promise to radically alter this equation. These platforms are API programming environments that hide much of the boiler plate code required for building applications, by connecting APIs and layering experiences, and enhance security, performance, and scale. Their superpower lies in enabling domain experts themselves to enact new digital experiences with limited expert developer support sought when needed. As such, low-code platforms can dramatically reduce both the time and money required for continuous iteration and truly unlock the digital promise for businesses of every size and scale.
Fast Feedback, Improvements, Measure Loop
The third step of digital transformation extends and maximizes the advantages of the modular digital architecture created in the first step and the superpower identified in the second. The third and final step in the journey of digital transformation, thus, is evolution through experimentation and customer feedback. Even though experimentation forms the backbone of every successful digital company, it is sadly ignored by a majority of companies that commit to becoming digital, as evident through the 21 percent of Forrester survey respondents who consider their digital transformation journey a finished affair.
Unlocking Growth Through Experimentation
The truth is that successful digital businesses never stop transforming. The final step of experimenting and evolving through user feedback, therefore, is more accurately categorized as a state (of being) rather than a step.
Digital businesses have the advantage of having access to vast amounts of user data. With data, it is now possible to closely monitor every step of the user journey and identify points of friction. Remember that once a business is reconceived as a set of microservices connected by APIs, every business capacity and information is merely an API call away. Moreover, domain experts now have low-code tools, which allow them to recombine these APIs on their own, allowing them to craft and ship new experiences or features at a rapid pace, directly easing every point of friction and uncertainty. When a business obsessively identifies and eases customer friction points over time, it unlocks compounding growth.
It is impossible to overstate the exceptional power of compounding growth achieved through rapid iteration. A digital business that finds ways to improve its revenue by 5% week-on-week, would achieve a 12x year-on-year growth; if a business grows its revenue by 10% week-on-week, it would attain a staggering 142x increase in its annual returns.
The key point here is that only digital businesses that can experiment and ship new features on a weekly basis can even contemplate such a growth trajectory. For this to be the case, it is not enough to go digital: a business must go digital the right way.
In conclusion, as we have noted, digital businesses are typically not built from scratch; most, including highly successful giant companies, are created by bringing online what is at present an offline process or experience. Such digitization is a three step journey of (i) construing the various components of the business as APIs, (ii) layering new digital experiences by connecting and combining these APIs, and (iii) taking advantage of data and evolving through experimentation over time. We also saw that a set of emerging technologies identified as low- or no-code platforms promise to alter API programming for the better, making this crucial step of digitization less expensive and frictionless than what it used to be. Enterprises that take advantage of these platforms and go digital the right way will be primed for unprecedented growth in the next decade.
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