Uber is the latest in a long line of digital natives that have seized market share from a traditional industry by using connected digital technologies to deliver results faster, more simply and for less cost. There is a pattern that all these disruptive newcomers share, and which can, with effort, be applied to digitally transform traditional enterprises too. At diginomica, we call it frictionless enterprise.
It's a term I first settled upon five years ago because it encapsulates the way that today's pervasive smart devices, widespread, industrial-scale cloud computing and near-ubiquitous Internet connectivity break down barriers to interaction and thus reset the transaction costs of business. (Others have since picked up this theme, such as Tim O'Reilly's WTF? post last August on Networks and the Nature of the Firm).
Defining frictionless enterprise
A quick definition: frictionless enterprise is a business architecture that optimizes the use of connected digital technologies to strip out cost, delay and opacity when harnessing resources and delivering outcomes. Simply put, it erases the barriers that get in the way of getting things done.
Think of it as an architecture rather than a specific class of organization, because traditional enterprises don't map well to this new world. It's not a like-for-like transformation. Many functions that in the past were usually performed in-house (computing, for example) are now delivered faster, better and cheaper from external providers. Enterprises must reshape themselves, unbundling their traditional operations in preparation to rebundle them in new configurations better suited to a connected, digital world.
This unbundling and rebundling may go through several iterations, and even the digital natives aren't safe — just ask Yahoo! Future rebundlings give established enterprises an opportunity to seize back the initiative from the digital upstarts. Will Uber survive the transition to driverless cars or does General Motors' alliance with Lyft give it an onramp to the next rebundling of personal transportation? Time will tell.
Enterprise as platform
As I noted back in January 2014, there are two sets of winners in this new era of frictionless enterprise:
- Enterprises can thrive by being smaller and more focused, benefitting from lower external transaction costs that allow them to more easily market a more specialized offering than was ever possible before. They can either target nearby customers more accurately or reach a larger geographic market more cost-effectively.
- At the opposite end of the scale, larger enterprises can lower their internal transaction costs, both to co-ordinate and organize their in-house resources and to engage with external contractors. Many will become platforms that specialize in providing efficient networks of interactions between an ecosystem of smaller firms and the markets they address.
Uber is the latest example of a network platform that enables interactions between an ecosystem of partners — in this case its drivers — and their customers. Connected digital technology makes this more efficient than the old industrial model of reducing transaction costs by internalizing the drivers within a proprietary infrastructure. By classifying its drivers as contractors, Uber controversially also eliminates employment overheads, which may portend trouble ahead for its particular approach, but it doesn't undermine the broader platform model.
In frictionless enterprise, the best way to reduce transaction costs is by providing an optimized network platform that transparently brings providers and buyers together. The more friction your platform eliminates, the more of a cut you can justify taking from the reduced transaction cost.
Today we celebrate the likes of Uber and Airbnb because their so-called 'sharing economy' models have brought the benefits of frictionless enterprise to the physical world of the service economy. But they merely replicate principles that have already been applied in many other sectors, from Amazon's coupling of search with affiliate networking to bring buyers and sellers together, to Google's digital reinvention of advertising by making it contextual. There are many other examples.
Established enterprises should take note that these frictionless pioneers are not only innovating in how they engage with customers and partners. Look behind the scenes and you'll see them adopting digital technologies to reform their internal operations, too, with the likes of Google, Facebook, eBay, LinkedIn and Twitter all said to be using Workday's cloud HCM package to manage their people, while Netflix recently migrated all its enterprise application servers to AWS and uses Google identity infrastructure to authenticate users for access.
For established businesses, the migration to frictionless enterprise is a tougher challenge. Many begin by attempting to bring digital engagement into their interactions with the outside world, but it's no good simply tinkering at the fringe if the core still operates in the old ways. In any case, converting what you already do into a networked platform may not deliver the best outcome in a digitally connected world if it's not sufficiently unbundled — and that unbundling process may itself evolve through successive iterations as the world evolves in response.
Like the digital natives, established enterprises must go frictionless throughout their operations. It's essential to transform the entire organization, enabling connected processes that embody convergence, collaboration and context — the 3 C's of frictionless enterprise — augmented by empowered people and a culture of continuous delivery.
- Convergence is about erasing obsolete barriers. Harness on-demand resources to complete tasks faster, better and more cost-effectively than they could ever be done in-house. Break down functional fiefdoms within the enterprise to get results faster. Engage partners and customers in getting things done.
- Collaboration is the corollary of convergence. As more and more of our work activities become digitally connected, new cross-functional collaboration patterns are surfacing. Getting the right mindsets, skillsets and culture in place is the key to success in digital transformation.
- Context becomes pervasive as connected digital technologies bring information wherever and whenever it is needed. This allows us to strip out all the reams of redundant duplication and reiteration that have encumbered traditional enterprise processes. Our mobile devices, connected to enterprise systems, already have all the context we need to simply get things done.
- Empowerment comes from better information and an ability to act on it. Digital technologies are not replacing people but augmenting their capabilities. This often unlocks hidden reserves of creativity and positive energy towards a common goal.
- Continuous delivery is part of the 'devops' mentality that emerges within an agile, constantly refreshed business architecture. Frictionless enterprise is not a static destination but a state of constant adaptation in an ever-changing world.
Author's note: This is the final post in a series of a dozen or so spread over the past two years on the topic of frictionless enterprise, along with others that have highlighted real-world examples. The next step is to collate and structure all this material into a diginomica e-book, which we plan to publish by the end of June. If you want to be notified when that e-book is available, please click the box below to subscribe for more content and then select the topic 'Digital transformation - frictionless enterprise'.