Project to Platform: Financing Digital Transformation
Financing digital transformation poses a significant problem for many enterprises we work with. It’s not because the C-suite doesn’t support it: the need to become more agile, digital, and data-driven is nearly ubiquitous in executive public pronouncements. But most large organizations look at IT investment in a way that’s ineffective for a successful digital transformation effort.
In previous posts, we discussed how various factors affect an organization's success in the digital ecosystem, and how a lack of alignment between IT and business leaders hampers even the most digitally sophisticated organizations. Here we'll explore ways to think about funding digital transformation.
Empirical research by the Apigee Institute shows clear evidence that a solid digital transformation effort, aligned across business and marketing, whose progress is carefully tied to core enterprise metrics, must be supported by an investment strategy that uses a “real options” portfolio approach.
Planning for the unimaginable
Common IT investment strategies are focused on straight-line net present value (NPV) business case calculations, which emphasize linear solutions and impacts. These methods ignore the value of enabling a range of options and potential future use cases, which an API program, with its reuseable, highly consumable digital assets, makes available for the enterprise. In addition, these methods often ignore the value of the new categories of business data generated by such programs, as well as business capabilities that were impossible to imagine before the capabilities came online.
One media company we’re working with was astounded by a project that now makes key sales provisioning available to large distribution partners within two months, when previous estimates predicted two years and many millions of dollars, each.
More importantly, that functionality will now be reused across all of their numerous current partners and sales channels, and is enabling exciting new partnerships that were too costly before. This functionality was an unexpected byproduct of their original API effort—it wasn’t even the main focus of the initial project.
There was no way that the impact of this capability or its implications on new business could have been predicted at the outset, and no way to formally model the outsized impact this functionality will have on the enterprise. Any attempts to do so would have been deemed ludicrous.
Breaking from the status quo
So how do you fund an API-driven digital transformation, which by nature emphasizes speed and optionality to unlock new ways of doing business, instead of the business-as-usual single-use, point-to-point integrations that perpetuate status quo thinking? For a world where the latter is the dominant paradigm and you don’t have a clear C-level mandate, here are three suggestions.
1. Enable your web/e-commerce teams. Many such teams find their responsibilities expanded to include mobile, kiosk, and many other digital initiatives, while being trapped in the traditional web server, do-it-yourself paradigm. These teams are actually quite open to technology, and often harbor weekend hackers who love to explore the new capabilities that are expanding the digital ecosystem at light speed. Tapping this passion by funding new approaches and quickly realizing immediate projects can create first the technical, and then the business proof points that resonate with a strategy team. These capabilities must be nurtured to move out of the lab into production, where real results are created.
2. Focus on partnerships. Opening and accelerating your relationships with partners via APIs (read more about partner API initiatives here) is high-impact and relatively easy to model. This business area can prove out an API platform, and in our experience creates clear business value that can support future justifications for other business units. What’s best about these wins is that sales operations groups are typically very tactical and demanding, so when they see the value, these groups will send a message to the rest of the organization that APIs have business value. Further, your enterprise’s core partnerships have the focus of executive attention. Adding value here will elevate the stature of the API program in the C-suite.
3. Work on your CFO/financial organization. Using your sucesses in e-commerce and partnerships, you can propose a more robust investment using a real options approach that leads to treatment of APIs as products. This path is predicated on what research has proven to work: the adoption of a digital KPI target, coupled with a portfolio of programs whose net result is to achieve the target KPI.
Building toward the big vision
But what about the visions of groundbreaking business models, ubiquitous connectivity, and enablement of an ever-shifting set of opportunities on big platforms and with unlimited partnership possibilities? Yes, these are still the endpoints to work toward, and fundamentally comprise the strategic reasons to embark on a digital transformation. If your enterprise has the C-Level leadership (in the form of a CDO or CDO-like figure), supported by a well-funded, sophisticated investment approach, by all means, build that new world now.
However, should that vision be shared only within your business unit, a forward-thinking IT group, or a dedicated innovation team, the most important thing to do is to build your team’s capability—and your program’s credibility—while delivering value along the way. The approach we suggest here has been proven in many of the organizations we work with; once your organization begins working faster and at lower costs by orders of magnitude, you’ll have created enough leverage to change the way your organization invests in its API program.