Focus on Digital Core

In this article we drill down into the Digital Core realm, which concerns digitalisation technology and processes that enable efficient, predictable, low-cost internal operations:

• Primary processes, such as for design, procurement, manufacturing, logistics and supply chains
• Supporting processes, such as those related to finance, human resources (HR) and information technology (IT)

The immediate objectives extend beyond process digitalisation to include a platform mindset, automated work, discipline for business processes, and data used to make faster and better choices. The challenge will be to move forward, at speed, rather than slip back into pre-pandemic processes and mindsets. Success will bring competitive advantage, and resilience to meet the aftershocks.

Core changes: The long evolutionary road

Business leaders already using digital technologies for new customer value propositions will have learned a valuable lesson: Look beneath the surface. They know that digitalisation can’t be applied across the board without making complex changes to the company’s core.

Think about a proposition that demands extraordinary access to data, coupled with new functionality; there will be competitive pressure to meet this challenge quickly, but big, established companies are not designed to operate at this accelerated pace. Most are built as business and functional silos, habitually relying on hierarchical decision-making processes and messy legacy systems. These historical remnants impede efforts to rapidly respond to new technologies, data and customer demands.

There’s no question about it: Digital transformation requires fundamentally redesigning a company (or at least some parts) for speed and agility. Critical processes and offerings must be divided into sets and subsets of distinct outcomes, or business components, with accountability for each assigned to an individual or team. This eliminates layers of approvals and coordination, facilitating intense focus and rapid response for individuals to work toward strategic company goals.

Constructing such a componentised architecture while casting aside old methods means a long evolutionary journey. Although quick adaptation to changes in technology and customer demands is necessary, it is important to start small and grow into this new skin at a pace the company can manage.

The post–COVID-19 core: 5 intervention areas

To shore up Digital Core focus on the five areas of digital transformation shown below. This is a good step toward securing all of the needed domains (including Digital Customer and Digital Work).

1. Modularized operating model
   Re-think how the organisation works, end-to-end, across its value chain. Break the pre-pandemic silos that inhibit optimisation of the operating margin and flexibility (which is needed to constantly adapt to a changing situation). Create loosely coupled business modules – often demarcated across the lines of commercial products and services - and assign accountability for them. Take advantage of technology-enabled innovation and cloud-based opportunities, and appoint new leaders in the right positions to lead the Digital Core transformation.
2. Digitalised core processes
   Apply digital technology across an expansive range of processes, including finance, HR, IT and supply chains. For example, by digitalising stock management, procurement and transportation planning processes, you can reduce manual work and slash full-time equivalent costs. This would create real-time visibility in terms of materials and product availability in every part of the supply chain, paving the way for better decisions to optimise the chain.
3. Data-driven organisation
   Consolidate data from disparate sources about operational processes, to provide enterprise-wide insights into customers and operations. Then implement advanced analytics capabilities to anticipate changes, so you can develop scenarios and execute the right one when needed. These capabilities can be augmented with artificial intelligence and machine learning technologies. 
4. Modern IT infrastructure
   A modern IT infrastructure takes full advantage of all digital solutions, such as migrating to the cloud to lower costs and increase scalability, and applying robotic process automation to manual routine processes. A platform/application programming interface (API) architecture also offers benefits; companies that have gone this route have proved more resilient to COVID-19 disruptions because they’re flexible enough to rapidly change their IT estate.
5. Security
   The digital technology that underpins the Digital Core and Digital Customer domains presents new cyber-security risks that need to be managed. Traditional approaches of securing the ‘perimeter’ may become infeasible as the number of digital touch points with customers and remote employees increases. What’s more, in regulated industries (eg, financial services), enterprises must grapple with frequently changing laws and regulations regarding risk, security and compliance.

Success in all five of these areas will reveal itself in the operating margin and cost-to-income ratio. To master Digital Core is to lay the foundation for success in Digital Customer as well, completing that long evolutionary journey to digital transformation. We can’t go back to the old world and its outmoded processes and paradigms; the only choice is to move forward, opening up opportunities to thrive.

Interconnections between the domains

In this journey to future readiness, Digital Customer, Digital Core and Digital Work are highly connected, as illustrated in the figure below. Seen from the perspective of Digital Core, these interconnections are the following:

• Digital Core provides the technology foundation on which Digital Customer builds: modern cloud services, a rich API layer and a data infrastructure. Second, Digital Core also established the fully digitized core processes that are required for high-performant fulfilment processes, e.g. for same day delivery. Digital Work, on the other hand, established the human 
• For its part, Digital Work provides the human foundation necessary to establish the Digital Core. Among this are new ways of working like Agile and DevOps, an engineering culture driving down complexity, and a platform mindset based on a long term strategy.