A Brief Roadmap for Digital Transformation: Leveraging Business Architecture to Achieve Superb Results

The race towards business models digitalization had already begun in more or less all industries due to the proliferation of various digital technologies. Then the global coronavirus outbreak happened and governments all around the world started introducing measures in order to instill social distancing as a new form of behavior, thus trying to minimize the spread and effects of the virus. This situation has pushed a large number of companies on a global scale to reexamine their digital strategies and accelerate the process of digital transformation.

Digital transformation is a relatively new concept and the fact is we still do not know much about it. The one thing we do know for certain about digital transformation is that it is a journey filled with the blind spots. The executives of many companies are struggling to understand what digital transformation really means in terms of the scope and intensity of change, and what will be the repercussions in their specific case.

On one hand, digital transformation may be seen as the process of using digital technologies to create new or modify existing business models, while trying to disrupt the industry. On the other hand, digital transformation is much more than that. It is not just about digital technology, but about the fact that companies need to embrace new culture, structure and processes that will be aligned with IT architecture, resulting in comprehensive digital solutions.

Digital transformation is a fundamental change for any company. It lasts long and consumes significant resources. Therefore, mistakes that can happen along the way may be very expensive and possibly seriously endanger the companies that made them. Also, the complexity of changes happening during the digital transformation journey is overwhelming. Each part of the company is usually affected by it. Therefore, what is required as a safeguard for digital transformation is a proven discipline focused on analyzing impacts of the proposed changes within a company in a holistic manner. It needs to enable the management to fully understand the nature of change and its impact on various parts and aspects of the company, so it could take actions accordingly in a desired and efficient manner. This discipline is already at disposal. It is called “business architecture”.

Business architecture represents holistic, multidimensional view of: capabilities, end-to-end value delivery, information, and organization; and the relationships among these views and strategies, products, policies, initiatives, stakeholders, and metrics. The value of business architecture is to provide an abstract representation of an organization and the system in which it operates. By doing so, business architecture delivers value as an effective communication and analytical framework for translating strategy into actionable initiatives. This framework also enhances the enterprise’s capacity to enact transformational change, navigate complexity, reduce risk, make more informed decisions, align diverse stakeholders to a shared vision of the future, and leverage technology more effectively (Business Architecture Guild, 2019). Therefore, business architecture should be set as a founding pillar for the journey of digital transformation. And not only that – it also needs to be immersed into all activities focused on developing a digital business model.

As already stated, the journey of digital transformation is not yet well known. There are various approaches to this overwhelming endeavor, but they usually do not take into account the business architecture as a foundational framework.

A high-level roadmap for digital transformation based on the business architecture concept consists of four phases: (1) assess external and internal situation, (2) develop strategy and assess business impacts, (3) architect business solution, and (4) establish initiatives and deploy solution. Each of these phases is comprised of six major activities. Some of them may overlap, but the important thing is to keep phases in a sequential order. What follows is the roadmap for digital transformation on a more granular level.

1. Assess external and internal situation

1.1 Analyze external forces and trends. Analysis of external forces and trends needs to list broader and specific environment factors that influence the company. PESTLE is a good framework for analyzing broader environment factors. It consists of 6 dimensions (political, economic, social, technological, legal, and environmental), each of which contains a set of sub-factors. Specific environment factors could be analyzed using industry analysis (Porter, 1980). This framework concerns with the part of external environment that directly influences the company’s strategy and operations, i.e., supplier power, customer power, barriers to entry for newcomers, threat of substitute products and services, and level of competitive rivalry.

1.2 Identify and prioritize customers’ and other stakeholders’ needs and wants. Identification of all stakeholders, understanding their interests, and their prioritization is the following step. Since customers represent the primary type of stakeholders, their met and unmet needs and wants need to have a high priority.

1.3 Analyze digital technologies suitable for enhancing customer experience. Getting to understand the whole spectrum of digital technologies and engage into deep dive with the most promising ones is the next step. Technologies for the deep dive should be chosen based on the company’s capabilities that need to improve and customers’ needs and wants.

1.4 Analyze current business & operating model. Business and operating model should be analyzed from the aspect of serving the needs and wants of customers. The business model depicts how the value is created, delivered and captured (Osterwalder & Pigneur, 2010), while the operating model, being a subset of a business model, explains only the creating part. It shows how the resources (processes, technologies, organization, people, and funding) are connected in order to create the value for the customers.

1.5 Analyze people and cultural potential for changes. Understanding the competencies, motivations, reward system, as well as organizational culture, and their potential to adjust to the new realities of using digital technologies, is something that should be done as a next step.

1.6 Map and cross-map core & extended architectural domains. Core domains include capabilities, end-to-end value streams, organization, and information, while extended domains consider strategies, products, policies, initiatives, and stakeholders (Business Architecture Guild, 2019). The idea is to do the mapping of each domain and to identify relations among them.

2. Develop strategy and assess business impacts

2.1 Define different business scenarios. Scenario planning makes uncertainty a part of the planning effort (Chermack, 2011). By developing scenarios with varying degrees of probability, management can perceive the potential future in alternative ways, which widens their horizons, forces them to think about opportunities and risks, and increases their responsiveness to various unfolding events.

2.2 Define target customer segments and technologies to be used. Defining customer segmentation, and exploring and analyzing the needs and wants of each segment is the next step. The needs and wants of each segment are being incorporated into the appropriate value streams and matched to the best technology solutions for supporting these value streams.

2.3 Develop to-be business model. Understanding of the different factors that characterize the current situation in the environment and the company, various business scenarios, and customer target segments with appropriate technologies that will support meeting customers’ needs and wants, shapes the domain in which the business model development should take place. After that, management may start developing all elements of the business model, while being careful to achieve the alignment among them.

2.4 Develop goal/objective hierarchy. Strategy may be represented as a hierarchical goal and objective chain. On the highest-level of this chain are strategic goals that are being cascaded on several levels of objectives. This hierarchical system is based on the rationale that each action will result in achieving a specific objective and, consequently, all actions will take an organization toward achieving strategic goals. In order to understand its strategy, an organization has to map the whole goal/objective hierarchy (Business Architecture Guild, 2019).

2.5 Analyze objectives/business architecture impact. Analysis of business impact of the defined objectives is greatly eased off by the cross-maps between different core and extended architectural domains. Tracking down the relations from the objectives to all the other domains will show the scope of the impact, while its intensity and nature should be analyzed separately.

2.6 Analyze business architecture/IT architecture impact. IT (information technology) architecture represents blueprints of the technologies, data structures, and applications that collectively comprise the IT environment of a company. Business/IT architecture impact should develop understanding on how strategy and other business architecture domains affect technologies, data structures, and applications (Business Architecture Guild, 2019).

3. Architect business solution

3.1 Visualize to-be business architecture. To-be business model and goal/objective hierarchy represent the baseline upon which all to-be business architecture core and extended domains should be mapped and cross-mapped.

3.2 Develop to-be people practices & organizational culture. Defining the competencies, motivations, reward system, as well as organizational culture needed to achieve to-be business model via goal/objective hierarchy, is the next step.

3.3 Design to-be organization structure. Dividing the total labor into distinct tasks and defining the mechanisms necessary to achieve coordination among these tasks are two basic components of organization design. The elements of structure should be selected to achieve an internal consistency or harmony, as well as a basic consistency with the company’s specific situation (Mintzberg, 1983).

3.4 Design to-be value chain & processes. Value chain explains how a company creates and exchanges value with its stakeholders. This step considers designing to-be value chains and their decomposition to the level of more or less detailed processes.

3.5 Visualize to-be IT architecture. This step considers defining technologies, data structures, and applications in a manner that will enable reaching an alignment of business and IT architecture, i.e., a state in which automated systems and data architectures fully enable strategy, capabilities, and stakeholder value (Business Architecture Guild, 2019).

3.6 Analyze current state/target state transformation. After the current and target states are well known, it is necessary to analyze the gap between them in order to understand its width and what it takes to bridge it.

4. Establish initiatives and deploy solution

4.1 Define initiatives based on the objectives. This is the area of the project portfolio management. In this step, the specific choices need to be made on how to achieve each of the objectives from the goal/objective hierarchy. Each initiative should be focused on one or more specific objectives, while paying attention not to have overlaps between them.

4.2 Prioritize initiatives. Each initiative is given a budget and other resources. Since resources are limited, the prioritization needs to be made based on the importance of the objective that should be achieved via designated initiative, its cost/benefit analysis, and the timeline.

4.3 Create initiative measurement criteria & KPIs. Monitoring the progress of each initiative requires defining criteria for measurement and accompanying KPIs. Each KPI needs to be well documented (what data will be used; how, when and who will collect the data; how will data be analyzed; how will KPIs be calculated, etc.).

4.4 Establish project plan. Each initiative is translated into a concise project plan that precisely define the objectives, scope, people involved, timeline, risks, etc. Having a proper project management skillset is of high importance in order to assure running the project according to the plan.

4.5 Monitor progress & deploy corrective measures. Continuous project monitoring will enable management to identify possible discrepancies between the project execution and the project plan in a timely manner, as well as to define and implement corrective measures.

4.6 Evaluate the level of success. Evaluating and communicating the performance of the digital transformation journey to all stakeholders will be done at the end of this complex endeavor. It is important for all stakeholders to understand that this is not the end of the digital journey, but rather the first stop on a long way ahead.