Today, every enterprise is grappling with the day-to-day challenges of learning to do business at digital speed. As business leaders chart a path through this tumultuous change, it's helpful to look back to where it all started, more than two decades ago. The experiences of those early adopters teach us valuable insights.
The common enabler of the change sweeping across all industries today is technology — and the technology industry itself was first to feel its impact. What its people and businesses learned in the early days of adopting digital technologies can help to illuminate the far-reaching changes we are all now experiencing.
Over the past several years, I've carefully tracked three interconnected trends, enabled by technology. Each is powerful in their own right. Put them together, and they define a roadmap for businesses to thrive in the digital economy:
- The XaaS Effect defines how we engage customers.
- The emerging collaborative canvas of digital teamwork shapes how we work together.
- The overarching framework of frictionless enterprise defines how we organize our operations and processes.
The most successful players in today's digital economy use all three in combination.
Everything-as-a-Service - XaaS
Let's start with how we engage customers. At first, the delivery of Software-as-a-Service — and later infrastructure, platforms and a variety of other IT resources as-a-service — appeared to be purely a technology affair. The servers were moving to the cloud and the software was being sold on a pay-as-you-go subscription rather than a one-off perpetual license. Early adopters thought they were doing it simply to save money and avoid the hassle of managing their own IT.
But what this viewpoint overlooked was the impact of a continuous digital connection between the provider and the consumer. This unprecedented feedback channel fundamentally changes the nature of the relationship, establishing a virtuous three-part cycle of ongoing engagement with the customer, continuous monitoring of their usage, and iterative improvement of the product or service.
SaaS providers gradually started to realize that what they had here was an entirely new way of doing business. They had to discard the old pattern of discrete sales engagements, where there was little other contact except when the product stopped working or the customer needed to buy something new. In this new, connected relationship, they found they prospered by staying in touch and continuing to deliver better outcomes for their customers.
While SaaS providers were the first to experience this XaaS Effect, the spread of digital technology means this new way of doing business now reaches far beyond the software industry. All manner of products, experiences and services can be connected up digitally and delivered through a continuous relationship with the customer. Manufacturers track their products in the field to improve performance and deliver pre-emptive maintenance. Retailers engage with customers to deliver a more rounded shopping experience. Service providers package up their capabilities to offer more responsive outcomes.
This model of delivering everything as a connected service is the XaaS Effect, where XaaS (pronounced 'X-ass') stands for Everything-as-a-Service. It's much more than just a way of engaging customers — it can't be simply tacked on as a digital front-end without huge changes to how the organization operates internally. To follow through on that continuous engagement, the entire organization must become more connected and responsive. That has huge consequences we discuss in much more detail in our d·book, The XaaS Effect. But one of the most important consequences brings us onto the second big trend — the change in the way we work together.
As the pioneers of cloud computing learned to automate and scale out their digital infrastructure, they discovered that their engineering teams needed to work more closely together to get things done faster. Pervasive automation meant it was no longer necessary to plan and execute change over lengthy cycles. They evolved a new approach called continuous delivery, which allowed them to rapidly deliver changes and new capabilities in small increments. At the same time, a new way of organizing agile development teams emerged called DevOps, where the people who write the software work side-by-side with those who put it into operation.
These fast-paced, cross-functional patterns of work required the evolution of a new form of digital teamwork — one in which small teams worked autonomously within a collaborative ecosystem; where transparency ensured that everyone could see how their work fitted into the whole; and that still enabled rapid responses even when team members worked remotely.
Digital tools provided the instant connections and real-time information flows that enabled this style of working. In the early days, developers used simple online messaging channels such as IRC to keep in touch in the moment. Other tools evolved to share work status, to-do lists, performance metrics and documentation.
The modern, more user-friendly versions of these tools — Slack, Microsoft Teams, Dropbox and others — are now spreading like wildfire through the enterprise as these patterns of teamwork take hold everywhere. Organizations have to build out a collaborative canvas to channel work through this fast-moving landscape.
Pervasive automation and digitalization means that every aspect of the business feels the same acceleration in planning and execution that software engineering teams first experienced a decade-and-a-half ago. Digital connection and the rise of the XaaS Effect is accelerating product design and delivery cycles, while customers demand instant responses and attentive engagement in all their interactions.
As organizations reorient their processes around the XaaS Effect, and establish a collaborative canvas to support digital teamwork, they recognize the need to rearchitect their operations to support these new patterns of behavior. The concept of frictionless enterprise provides a framework for achieving this transformation.
Digital natives were the first to go frictionless, unhampered by the legacy structures that stifle change in more established businesses. But with no pre-existing models for this new way of operating, they didn't always get things right. When Netscape founder and technology VC Mark Andreessen famously wrote in 2011 that software is eating the world, he barely mentioned the crucial role of the network in spreading software's reach. It's connected software that powers this transformation.
That's important because of the impact of connectivity on the transaction costs that go to the heart of the nature of the firm, as outlined by British economist Ronald Coase in the 1930s. Today’s connected digital infrastructure has completely upended all of the cost-benefit calculations that underpinned the twentieth-century enterprise, sweeping away much of the friction caused by time, distance and lack of information. As I wrote in a previous post,frictionless enterprise becomes the true goal of digital transformation:
Many existing processes are now delivered faster, better and cheaper from external providers, while others can only be done better in-house if they are completely refashioned to take advantage of today's technologies.
The goal must be to eliminate all of that institutionalized friction — not only from its internal operations, but also from the organization's external interactions with customers, suppliers and other stakeholders. The enterprise must transform itself to become frictionless.
Survival in this new world depends on becoming an optimized network platform that harnesses the best resources to deliver better, faster outcomes. Be like Amazon, and ensure your internal buyers are free to choose outside providers over internal resources if they're a better fit. Be like Airbnb, and leverage a pool of external assets and contractors that cost less than maintaining your own proprietary estate.
At the same time, established companies can leverage their physical assets, longstanding relationships and brand values to stay competitive in this new world, so long as they're prepared to transform how they operate and think about their role.
The starting point for a frictionless enterprise strategy is to adopt a mindset of eliminating paper-based processes, breaking down functional demarcations and making information and resources openly available, on demand. The ultimate goal should be a highly collaborative, change-ready organization that is prepared to continuously rethink and rearchitect how it delivers outcomes to customers and stakeholders in line with its values.
This framework aligns with many other approaches being discussed by forward-looking business thinkers, from Lean UX authors Gothelf and Seiden's latest book Sense and Respond on responsive product development, to MuleSoft CTO Uri Sarid's notion of the Coherence Economy, which we discussed in a recent podcast.
The strength of frictionless enterprise as a concept is that it forms a practical blueprint for action in combination with the XaaS Effect and the collaborative canvas of digital teamwork.
There's a lot more to add so I'll elaborate further in future posts and d·books, as I and my diginomica colleagues continue to explore how enterprises are applying digital technologies in the real world.