January 26, 2016

Digital Transformation Requires Business To Move Beyond "People, Process, and Technology"

  • The Hackett Group CEO Introduces New Approach To Business Transformation for a Digitally Networked World

MIAMI & LONDON, January 26, 2016 - To succeed in today's digital world, companies must move beyond their deeply entrenched "people/process/technology" frameworks and adopt a fundamentally different model for business transformation, one that is more in sync with the emerging digitally networked reality. This was the main message that was recently delivered at a recent technology conference by Ted A. Fernandez, Chairman & CEO of The Hackett Group, Inc. (NASDAQ: HCKT).

The traditional approach to business transformation is based on a model of value creation involving optimization of linear processes and execution of work. This model no longer adequately reflects the reality of today's digitally-connected world, which revolves around digital value networks as opposed to value chains. A second critical element of digital age value creation is customer-centricity. A new digital business transformation framework needs to be adopted that goes beyond the traditional and more linear people/process/technology model and reflects customer-centricity and value networks. Such a framework must be customer value aligned, best practice oriented, continuous and technology- and people-led. Mr. Fernandez presented Uber as a prime example of a customer-centric value network, disrupting traditional industries and building one of the world's most valuable venture capital-backed private company in just over 5 years.

The Hackett Group has provided IP-based strategic advisory, benchmarking, business transformation and Enterprise Performance Management services to virtually every company in the Fortune 500. In his presentation, Mr. Fernandez made the case that while digital technology has profoundly affected business and people's personal lives, it is still in its business transformation infancy.

"There's a convergence underway that has the potential to transform existing industries and companies, possibly beyond recognition," said Mr. Fernandez. "Cloud-based infrastructure and applications, virtual business and technology networks, and business analytics are coming together with rapidly transitioning employee and consumer bases which that are increasingly adept to new mobile technologies and business models. This convergence is creating tremendous new opportunities for companies that can transform to take advantage of them. We're already seeing substantially altered business models, products, and services, dissolving boundaries between some traditional industries, and the creation of entirely new industries."

As Linear, Process-Led Business Transformation Fades, so Will the Importance of ERP

Mr. Fernandez traced back the people/process/technology framework to industrial age thinking, and explained why it no longer reflects the reality of how business create value in the digital age, since it ignores the fact that internal resources, customers, supply chains partners and service providers are now digitally-connected nodes in a network and not linear chains.

In today's world, digitally-connected customers are at the heart of demand-driven fast-moving value networks. In this environment, the most agile companies – i.e., those that can respond more quickly to customer feedback or new market opportunities – will win in the marketplace.

The technology platform associated with linear, process-led business transformation is ERP, which implements a set of integrated, end-to-end processes in software. While ERP systems will continue to be a core component of companies' technology landscapes, digital business transformation will increasingly rely on a broad range of technology innovations that will extend business capabilities far beyond the core ERP platform itself. Many of these innovations will be cloud-based and will connect suppliers, trading partners, customers, communities, and devices wirelessly and in real time.

Mr. Fernandez counseled attendees at the conference to start thinking about business transformation in terms beyond the linear people/process/technology model and embrace the customer-centric value network model. This represents a fundamental departure from thinking of business models in terms of value chains, and will redefine most industries over the next ten years. The two models differ in four fundamental ways:

Technology- and People-Led: Traditional business transformations start with the design of a new operating models and business processes, followed by selecting technology to implement the design. Digital business transformation starts by conceptualizing value-creation opportunities made possible by digital infrastructure, applications, and information, including structured and unstructured (big) data. The main constraints in this model are the available technology and the limits of human ingenuity. In other words, while traditional transformation is process-led, digital business transformation is technology- and people-led.

Best Practice-Oriented: The development of new, customer-centric value networks has a far more profound impacts on business models than companies have seen through traditional value chain optimization. As a result, a holistic transformation approach is needed that addresses people, process, and technology, as well as organization design, governance model, information architecture, and sourcing models. The transformation of each of these elements should be based on established best practices. Such best practices are the guiding principles companies need to follow to unlock the value of digital business transformation. Emerging best practices related to customer centricity include concepts like design thinking, customer experience design, and customer journey mapping.

Non-linear: The process designs in a traditional transformation are linear in nature, as are the steps to execute the transformations. Digital business transformation is inherently non-linear; value is created and work is executed in a digitally integrated network through orchestration of resources. While many of these resources may be traditional (i.e., linear) process capabilities, in a digital world, these process capabilities become nodes in a value network.

Continuous: Traditional transformations are managed as discrete initiatives with defined resources and a start and end point, which is part of a broader portfolio of transformation programs. In the emerging digital world, cycle times are reduced drastically and transformation ultimately becomes continuous. All elements of the value network are subject to continuous change in response to changing business conditions, performance information, and customer feedback. The transition from a discrete to a continuous paradigm for transformation goes hand in hand with deep change in culture, and organizational change management, program management, and continuous improvement methodologies.

Mr. Fernandez spotlighted Uber as an example of a customer-centric value network. Customer experience, the heart of Uber's value proposition, is "designed" using digital-age methods such as design thinking, customer journey mapping, and user interface design. Service delivery and fulfillment (i.e., the driver network) is entirely digitally integrated into the network, as are business support services, payment processes, and marketing channels. Big data analytics supports Uber's dynamic pricing and trip optimization methodologies. Most importantly, the wealth of customer data Uber is accumulating can be mined for continuous improvement, and used as the basis for entirely new service offerings.

The value-generating potential of building a customer-centric value network like Uber's far exceeds that of traditional value chains. Indeed, Uber's estimated market valuation is $50 billion, exceeding 80% of the S&P 500. This valuation has priced in the value of customer information Uber is accumulating, which will enable the creation of new future business ventures. While companies like Uber are viewed as exemplars of the digital age, Mr. Fernandez pointed out that companies founded in the industrial era, such as GE, are currently leading their own transformations based on the customer centric value network paradigm.

Mr. Fernandez closed his presentation by reiterating that software is at heart of this emerging digital world and transformations must deliver more completed solutions, integrating leading edge functionality and business best practice insight that will redefine and revolutionize value creation, abandoning of a "process first" mindset, and an overhaul of traditional transformation approaches. Those that fail to do so risk becoming victims of digital disruption.

About The Hackett Group, Inc.

The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle EPM and SAP practices.

The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 52% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm's benchmarking metrics, best practices repository, and best practice configuration guides and process flows, which enable The Hackett Group's clients and partners to achieve world-class performance.