digital transformation

The Digital Transformation Journey

New ebook

Digital transformation has been all the rage the last few years, with virtually every enterprise feeling the heat to reinvent itself for the modern age. Just look at this Google Trends chart for the phrase “digital transformation”:

The problem is, when a term becomes this popular, it starts to mean a lot of different things—which inevitably leads to it meaning almost nothing.

Does digital transformation mean building mobile apps? Offering wearables? Generating efficiencies with the cloud? Using chatbots? Hiring lots of developers? Using platforms? Becoming a platform? Modeling yourself after Google or Amazon or Netflix? All of that? None of it?

As the questions pile up and grow more complex, you can practically feel CEOs and CIOs around the world pulling out their hair.

The digital transformation misnomer 

This ambiguity is a significant reason why businesses have had uneven success in their digital transformations, despite spending more and more on IT. It’s also why we wrote our new ebook, The Digital Transformation Journey.

Informed by Apigee’s work with hundreds of enterprise customers, The Digital Transformation Journey is both:

  • a standalone examination of the nuts and bolts that make organizations successful in today’s economy.
  • a complement to Apigee Compass, a free tool we recently released to help businesses measure their transformation efforts with a digital score and accelerate their progress with curated recommendations.

One of the key themes in The Digital Transformation Journey is that “digital transformation” itself may be something of misnomer. There is no finite journey from point A to point B, and there is no single transformation from one thing into another. Successful transformation efforts aren’t about any single technology or business model.

Rather, when businesses really succeed at what we broadly refer to as “digital transformation,” they gain the technical and operational agility to adapt to perpetual change. The pace of technological change isn’t going to slow down. Customer expectations are only going to get harder to satisfy.

The ability to “transform” must be baked into a company’s business models. Digital journeys only end when companies go out of business. For those that continue to compete, there will always be a new platform or a new interaction model.

Accelerate your digital evolution

Adapting to this world of perpetual business evolution requires changes throughout the organization, from corporate visions that lay out goals and foundations, to the metrics and processes used to drive internal alignment, to the tools used to execute over the “last mile.”

Like Apigee Compass, The Digital Transformation Journey dissects this process into ten core dimensions: platform, APIs, outside-in, ecosystem, leadership, funding, metrics, software development lifecycle, talent, and self-service.

Grounded in real-world examples including Apigee customers Walgreens, Ticketmaster, Magazine Luiza, AccuWeather, and Pitney Bowes, these dimensions illustrate how companies can continue to leverage their core competencies while delivering them via new channels and ecosystems required by the modern world.

Help your business accelerate its digital evolution. Dive into your copy of The Digital Transformation Journey today.

Apigee’s Top API Editorials of 2017

2017 was a big year for APIs.

They continued to solidify their position as the mechanism through which value is exchanged in modern economies, with literally quadrillions of API calls connecting apps, data, and systems throughout the world each day.

Apigee experts published dozens of editorials last year, both externally and via our Medium publication, to help developers, IT architects, and business leaders understand how to maximize the value of APIs and keep pace with constant technological change.

Here are some of our top articles from 2017, organized by some of the year’s biggest themes. Thank you to all of our readers, and stay tuned for more in 2018!

API management best practices

The nitty gritty details of API management can be challenging, but Apigee experts are here to help with their observations from the field. Be sure to check out “KPIs for APIs and Digital Programs: A Comprehensive Guide” by Michael Leppitsch and “Building an Outside-In Approach to APIs” by Chris Von See.

APIs and digital transformation

Virtually all companies understand the digital transformation imperative: if you don’t continually use technology to evolve your business, you’ll go out of business.

John Rethans explains why APIs are central to this imperative in his Forbes article, “APIs: Leverage for Digital Transformation.” And to explore why the technologies that businesses have been using for years are simply no longer good enough, read Brian Pagano’s “Legacy IT: Like a Horse on the Autobahn.”

To maximize the leverage John discusses in Forbes, APIs must be managed as products that empower developers—not as middleware. For details, see my article “How APIs Become API Products,” which includes real-world examples from Apigee customers Pitney Bowes, Walgreens, and AccuWeather.  

To appreciate the full scope of an API-first business evolution, check out “Lessons from Magazine Luiza’s Digital Transformation,” in which John interviews the CTO of one of South America’s hottest companies. And to understand where multicloud strategies fit into the mix, read David Feuer’s “Multicloud: Taming the Rookery.”

Caught up on how APIs are used today? For a glimpse into the future of digital transformation and the role APIs will play as new technologies emerge, don’t miss our article in Business Insider,How APIs are Key to Successful Digital Transformation.”

Security

New software vulnerabilities and attacker techniques emerge on a daily basis, so security remained a leading concern for enterprises in 2017. David Andrzejek wrote two of our top articles on the topic. “Using Behavior Analysis to Solve API Security Problems” in Help Net Security examines how user behavior can be monitored in near-real time to identify suspicious behavior and block malicious actors, and “Grinch Bots are out to Spoil the Holidays” in VentureBeat explains how businesses can stop a trend that plagued many online shoppers last year: attackers who use bots to buy up the most in-demand, supply-constrained items.

Digital ecosystems

To adapt to shifts in customer behavior and the competitive landscape, a business doesn’t need to become a platform company, invent new machine learning technologies, or build loads of new software in-house. Instead, it should leverage what others have built to complement its own capabilities, reach new user groups, and explore adjacent markets.

Anant Jhingran and I discuss these ideas in our CIO.com articles “APIs, Ecosystems, and the Democratization of Machine Intelligence” and “Do You Really Want to be a Platform?” For a deep look at these ecosystem dynamics, including a set of simulations, check out Anant and Prashanth Subrahmanyam’s CIO.com article, “3 Golden Rules for Winning in Software-Driven Ecosystems.”

Industry trends

APIs are playing into business strategies in virtually all industries, but there are still scores of specific trends, use cases, and regulatory requirements from one vertical to the next. Some of our top industry-specific stories from 2017 included David Andrzejek’s “Why Haven’t More Banks Embraced Digital Platforms?” in The Financial Brand and Aashima Gupta’s “Voice Interfaces Will Revolutionize Patient Care” in VentureBeat.

Image: Flickr Creative Commons/Jlm Ronan

You've Tried Apigee Compass. Now What?

Practical advice for using Apigee Compass to drive your company’s API-first transformation.

So you’ve taken the Apigee Compass assessment, received your organization’s digital score and relative ranking, and you’ve read the six relevant recommendations. For extra credit, you’ve even read the three previous Apigee Compass blog posts.

What’s next?

If you’ve done all of the above, it’s because you have a vested interest in helping your organization digitally transform and you recognize the critical role an API platform plays in that effort.

Here’s how Apigee Compass can help your team develop a common vision around your API program initiative

If you or your organization is new to the API journey, use Apigee Compass to:

1. Share your results to start a conversation around what you’ll need to do to succeed as an organization. The Apigee Compass dimensions address elements that span business, operational, and IT organizations. Apigee Compass was designed to make it easy to Share results with your team and invite them to take the assessment too. Do you have a common point of view? Where do you see things differently? Use the recommendations to enrich the conversation and start taking action.

2. Execute a measurable plan. It can be easy to get lost in a transformation effort—there are lots of moving parts and competing priorities. Use Apigee Compass to keep your efforts aligned at a high level. For example, if your company has the vision to build an ecosystem or a digital platform, make sure your leadership, funding, and metrics are designed to accelerate, not slow down, rapid API execution and agile product development. Revisit Apigee Compass regularly and measure your progress as you successfully implement the recommendations in your organization.

3. Leverage Apigee Compass recommendation materials to build your case. Sometimes it can be a challenge to connect the dots between a company’s strategy and the specific elements of execution and product that help you deliver the strategic goal. Embedded within the Apigee Compass recommendations are links to eBooks, product specifications, and a variety of others resources to connect the dots from the high level vision to the nitty gritty of SOAP-to-REST conversion (and so much more!)

If you haven’t already, we invite you to give Apigee Compass a try, and read the other posts in this blog series. It’s a single stop to get your bearings, chart your path, and get others to join your API-first digital transformation. 

How Apigee Compass Accelerates Digital Transformation

Get a digital score, learn what needs work, and act on recommendations

In our last two posts about Apigee Compass, we introduced the product’s ability to help enterprises navigate digital transformation, and we explored some of the problems Apigee Compass is designed to address—namely, the operational chasm that exists in most companies between technical and business teams.

Here, we’ll delve into how Apigee Compass actually works, and how it can accelerate your digital transformation.

Benchmarking your digital sophistication

At the heart of Apigee Compass is the “digital score.” Based upon a 100-point scale, the score is calculated using a proprietary weighting algorithm that is informed by Apigee's years of experience working with top enterprises, as well as the our research collaboration with various universities, thought leaders, and business leaders.

With your score, you’ll be able to compare your organization’s digital sophistication to other organizations working to transform themselves, across industries. Is your organization lagging, progressing in its journey, competitive, or leading the pack? The score also enables you to set goals for your API program.

Apigee Compass is organized into the 10 dimensions that our research indicates are most relevant to API-first digital transformation. These dimensions fall into three categories:

  • Vision, which measures whether your organization has the right mindset to succeed at digital transformation  
  • Alignment, which measures whether your API governance is built to support agile API product development
  • Execution, which measures how effectively you can build and scale valuable APIs

Over the years, we’ve observed that organizations that have the most developed vision can more easily align and execute. This may not sound like rocket science, but you’d be surprised how many times companies will try to jump right into execution only to encounter strong headwinds due to a lack of executive support, proper funding, or basic agreement about goals and objectives.

The 10 dimensions not only help you understand specifically where to apply support, but also highlight that an API-first digital transformation is exactly that—a transformation of the whole enterprise. The dimensions include:

Vision

Platform: How developed is your organization’s platform vision?

API: Does your organization understand the business leverage that can be provided by API management?

Ecosystem: How is your organization thinking about driving business value through an ecosystem of partners, customers and developers?

Outside-in: To what degree is your organization focused on” outside-in” strategies, which incorporate data to improve customer and partner experiences?

Alignment

Leadership: Is there top-down support for APIs?

Metrics: Are you measuring the right things?

Funding: Are funds available for scaling your APIs and agile development?

Execution

SDLC: To what extent do you use agile, CI/CD, DevOps and/or cloud-native approaches to software development and life-cycle management?

Talent: How well-developed and integrated is your organization’s digital talent?

Self-service: How easy is it for developers (whether they be internal or external) to access and start building on your APIs?

Recommendations to accelerate your transformation

Of course, just knowing where you stand isn’t enough. You’ve also got to know where to go next. That is why Apigee Compass provides each user a curated set of six prioritized, field-tested recommendations to help them improve their score—and, more importantly, to accelerate their digital transformation.

Clicking on each recommendation provides you with a clear point of view and prescriptive action steps, as well as additional layers of context that include links to relevant articles  and product information that you can use in your own planning and internal discussions.

We’ve found that these recommendations and background information are very useful to executives and API champions as they plan and evangelize their API-first transformation.

Finally, Apigee Compass enables you to drive the conversation within your organization by quickly and easily sharing your results with others and inviting them to take the assessment themselves. A true API-first transformation requires a broad and senior set of stakeholders to share a common vision and understanding; Apigee Compass is a powerful tool to level-set the conversation in your organization.

We invite you to explore with Apigee Compass. It’s a single stop to get your bearings, chart your path, and get others to join your API-first digital transformation. Coming up next, we'll offer up practical advice for putting your Apigee Compass results to work. 

Bridging the Operational Chasm

How legacy mindsets and processes can stifle digital transformation

In a previous post, we introduced Apigee Compass, a new product that not only pinpoints an organization’s progress in its digital transformation but helps it chart a path forward.

Here we’ll delve into a significant problem that we’ve seen among customers: the “operational chasm.”

Customers we work with are undergoing a big shift. They’re moving from industrial operating models designed to optimize economies of scale of production to digital models that leverage clouds and modern software development practices to compete on demand-side economies of scale.   

The image below illustrates this dynamic, with the business side pursuing digital goals and the IT team working to implement modern technologies and methodologies, such as an API-first approach, to achieve these objectives.

However, there continues to be a high risk of failure because of the unseen impact of legacy mindsets, entrenched and reinforced by operational processes and governance across the enterprise. We call this an “operational chasm.”

 

For example, many companies want to drive new sources of revenue via an API program, but because these companies classify APIs as "technical infrastructure," they don't make other necessary adjustments to their go-to-market, sales, marketing, and product management approaches.

Beyond building APIs, a business should manage them like products, investing in self-service features and constant iterations to make the APIs as easy as possible for developers to use. The business should devise marketing to promote its APIs and cultivate evangelism programs to help partners and developers maximize the APIs' leverage.

Companies that fail to make these kinds of changes might succeed in building APIs—but they’ll struggle to get the level of adoption and impact that they desire.

Another common example: an organization wishes to gain agility or speed by developing a robust set of APIs, which can typically be built in a matter of hours or days.

However, once the organization begins to design and build the APIs, it often tries to employ legacy software development, governance, and funding processes, plunging the API program into long delays and frustrating bureaucracies.

We run into these and many other patterns again and again during the course of our work with customers—the best efforts of business and IT get thwarted by policies and procedures rooted in the non-digital age.  

Apigee Compass is designed to help navigate the operational chasm by breaking the process down into actionable parts, and to guide you and your teams to remake your internal processes to accelerate, rather than hamper, your API-first digital transformation.

Coming up in the next post, we’ll dig into the methodology behind Apigee Compass, and provide some perspective on some of its key attributes and assumptions.

 

Introducing Apigee Compass

A new product to accelerate your digital transformation

Earlier this month, Apigee launched the beta of Apigee Compass, a new solution that not only pinpoints an organization’s progress in its digital transformation, but also helps it chart a path forward and understand where it stands compared to other companies.

Enterprises know that to compete in today’s economy, all businesses must operate like software businesses. Many of the most sophisticated companies recognize that this requires the agility to endlessly combine and recombine software for different digital products—a process that starts with APIs. But the journey is notoriously tricky. Digital transformation isn’t just an issue of deploying new technologies—it’s about changing the way a company does business.

This is where Apigee Compass comes in. With this new app, any executive, program leader, and business or IT person can score their API-first transformation, benchmark their progress against other enterprises, and receive curated recommendations based on our work with hundreds of customers worldwide—all packaged to help them in move their program forward.  

Working with enterprise customers around the globe and in all industries, we’ve seen again and again that the customers who have experienced the most success implementing their API-first digital transformation shared common patterns. And we’ve watched those who struggled encounter common pitfalls.

For the past five years, our thought leadership and strategy teams have identified and communicated best practices and highlighted the traps companies should avoid along the way. Understanding which patterns apply to a company at a given moment in time can help it become more digitally sophisticated. But our efforts’ impact was limited by some of the same challenges our customers face in their own transformation efforts:

  • Scale: They're bounded by the breadth of transformation; it requires influencing a lot of people across many teams
  • Speed: Scheduling meetings takes time; scheduling meetings across many stakeholders takes too much time—it definitely doesn’t move at the speed of digital.
  • Self-service: EBooks and articles are much more useful and impactful to customers when presented in a context relevant to them.

Apigee Compass addresses these limitations. This new approach meets our customers where they are and helps them take action broadly, quickly, and with far less risk, because it provides a comprehensive framework to help navigate their API-first digital transformation.

Answering ten quick questions in less than 5 minutes is all it takes. The app is free—no strings attached.

You can also share your results with others in your organization and invite them to take the survey—comparing your different perspectives is a powerful way to build alignment and a common understanding of the actions that need to be taken to drive success.

Find out where your company stands. Get your digital score and custom recommendations with Apigee Compass.

Coming up next, we’ll dive into some of the operational challenges enterprises face when they embark on digital transformation, and explore some of the ways Apigee Compass is designed to help.

The Key to Digital Transformation? Don't Be a Marshmallow Eater

Quick question: how is a technology decision maker like a four-year-old child?  

If you said something snarky—be nice. If you said they are alike because they’re both human, you are correct. If you said that they are alike because, being humans, they are susceptible to cognitive biases, then I’m not sure how you came up with such a specific answer—but nonetheless, nice job, you are even more correct.   

Cognitive biases are blind spots in the way our brains are wired. We’ve all experienced them—when you look at the clock and it’s much later than you’d imagined or when you check your step counter at the end of your day to find you weren’t as active as you’d thought.

I bring this up because many of us remain prone to certain biases throughout our lives, even as we mature, gain new information, and develop new perspectives. Looking specifically at cognitive biases that affect how we assess value, it’s clear that those of us who work in digital strategy and enterprise IT can actually learn a lot by watching how four-year-olds make decisions.

In the 1960s and 70s, Walter Mischel (among others) ran some experiments to highlight this particular kind of cognitive bias. He offered children two choices: They could take a marshmallow—a big, juicy, yummy marshmallow to gobble down right away—or, if they were willing to wait a few minutes, they could have two marshmallows.   

Easy, right? Unless you are one of those rare marshmallow haters, two marshmallows are better than one.

So all of the children waited for the second marshmallow? Nope. Not even half of them.  In the end, only about a third of the kids waited for the big payoff. What???

The power of now

The kind of bias observed in this experiment is called hyperbolic discounting. In a nutshell, hyperbolic discounting is when people choose a smaller reward that arrives sooner instead of experiencing a delay before receiving a bigger reward. The reason why it is hyperbolic (and not linear) is that this effect is more pronounced if the delay comes sooner.

You read that right. The farther in the future the delay stretches, the more likely a person is to wait for the bigger reward. It’s when the delay ends near the present moment that we so often fumble.

This is why people can save for a house but not resist the chocolate cake after dinner.

I was once involved with a company in New York that made these kinds of cognitively-biased decisions. I won’t mention the name, but if any of you are reading this, you know what you did! One time, a middle manager decided that the free coffee in the break rooms cost the company too much money. He got rid of the free coffee and all the employees started leaving the building on their breaks, wandering the streets of lower Manhattan looking for a warm cup of brew. The loss in productivity was staggering and would manifest over many quarters. But the short term savings on the coffee was registered immediately.

It’s not like this company is alone in this behavior. Every company falls victim to hyperbolic discounting—again, it’s human nature.

Don't delay transformation

When I talk to companies about their need to modernize, transform, and go digital, I hear over and over again that they want to do it, but some short-term project, fire, or committee needs to be resolved first. And, once that project is done, they’ll just need to finish the next one. And the next one. Guess what never happens? The big transformation that could save the company.

Stop eating the single marshmallow, folks! Wait for the bigger marshmallow payoff.

If we really want to innovate—really want to save our companies and dominate our markets—we need to overcome this human urge for hyperbolic discounting.

Sure, the project that’s on fire is important. And sure, because it’s already lumbering along through some decades-old systems integration process, disrupting the project might be complicated and cause delays. But you know what’s even more important than that burning project and its deadlines?

Putting APIs in front of all your systems now so that you can reap the massive payoff soon. Taking the extra time to make those APIs easy for developers to consume, instead of just exposing complicated systems. Focusing on user experiences instead of simply completing a project and checking it off the list. If you’d just delay that burning integration project now and do it the right way, with APIs other developers would actually be able to reuse in the future, you’ll already have the foundation for transformation ready for your next project.

Enterprise leaders sometimes talk about transformation as though it will happen automatically some time in the future. Companies use words like “innovation,” “omnichannel,” and “experiences.” But are you willing to wait for the second marshmallow? Two-thirds of you won’t—and we know where that leads. Look at the companies that milked their cash cows dry and waited too long to innovate. When your margins are squeezed, it might be too late.

As I say when I see someone make a bad short-term decision instead of accepting an immediate delay, don’t be a marshmallow eater.

This article originally appeared on LinkedIn.

Image: Flickr Creative Commons / John Morgan

Legacy IT: Like a Horse on the Autobahn

I remember once seeing an old, black-and-white photo of a horse pulling an automobile.

The owner of the car gripped the horse’s reins, seemingly oblivious to the fact that he could have used the steering wheel. People stood along the sides of the road, watching him lurch past.

The driver seemed to think everyone was admiring his shiny new car—but most of the onlookers appeared puzzled, likely wondering why the driver was plodding along using single horsepower instead of the dozens in his engine.

Here in 2017, many companies attempting digital transformation strategies are unwittingly re-enacting this scene. The driver in that photo relied on a horse even though he was literally sitting on superior technology—and likewise, too many of today’s enterprises cling to long-in-the-tooth business models instead of fully embracing what comes next.

These companies have often attempted to hire their way out of challenges—but increasing headcount won’t solve anything when what you actually need is a fundamental organizational overhaul.

It’s like if the driver in the photo had added a second horse— or even a third, fourth, or fifth—instead of finally learning to drive.

Banking on the wrong horse: organizational silos and monolithic IT

A couple years ago, I encountered a prime manifestation of this “car vs. horse” dilemma while visiting the CIO of a bank in Australia.

During our meeting, I listened as the bank’s technology teams explained that they didn’t need any help navigating the switch to the digital economy. The CIO then proudly showed me their new iPhone app. It was pretty decent for a first app—I’d seen much worse.

I complimented the CIO and his team on the nifty app and said I had just one little question.

“The iPhone has been out for seven years,” I said. “And you are just getting your first app out the door now? How can you tell me with a straight face that you are okay? This sounds very, very broken.”

Maybe I spoke a little harshly, but it was all in the spirit of helping them realize that even if they felt like they were speeding along in a shiny new automobile, they were really just plodding along behind a horse. Their organization contained abundant horsepower—most organizations do—but it was locked into silos that mirrored corporate budget codes.

Each group tried to hire their way into agility and innovation, potentially adding a few horses to the stable but never transforming the business from “horse-pulled” to “engine-driven.”

“Out of your huge IT staff, how many are iOS programmers?” I asked.

The CIO shrugged. Not many. I didn’t need to ask about video game consoles, smart watches or any other modern form factor. The answer was obvious. The bank had an engine full of enterprise horsepower across its data and services—but it had never turned that engine on.

APIs: shifting from horse-drawn carriage to high-speed supercar

As I continued talking with the bank’s leaders, they began to recognize the scope of their challenges. Luckily, the conversations also helped them recognize possible solutions—namely, that to turn the engine on, they needed to put interfaces between all of the budget code-driven silos around the organization.

By interfaces, I’m talking about APIs. APIs are important because the goal of digital and connected business strategies isn’t merely to release an iPhone app. Rather, the goal is to deliver products and services wherever the end user is—when the user wants it, on the device the user prefers, and through whatever interaction model the user chooses. APIs facilitate this goal because they break complex enterprise systems into discrete services, enabling developers to create new digital products and services much more quickly.

Those complex legacy systems have typically led to slow development cycles because so many process were baked together. This limited developers’ ability to pull data across different silos, and meant that when developers tried to update one part of the system, they stood a good chance of unintentionally breaking a process somewhere else.

By adopting an API-centric approach, in contrast, enterprises liberate developers from that old world complexity. Instead, developers become free to mix and match different services, using APIs like building blocks to quickly assemble new apps and services.

For the Australian bank execs, this awakening to APIs was a big shift. Fundamentally, they had been fooled into thinking that the old stuff was new stuff. They’d developed smartphone apps in the same way they’d developed internal enterprise apps, saddling shiny new technologies with antiquated techniques in the same way the driver from the photo sacrificed his vehicle’s speed by hitching the car to a horse.

By using APIs to create easily consumable layers of abstraction between parts of its organization, the bank was able to leave behind these old obstacles, and to start moving faster. Crucially, this transformation wasn’t just about internal productivity but also about extending the bank’s business to new partners.

By employing APIs to simplify on-boarding, for example, the bank gained all of the accumulated skills and experience of people outside of its organization—some of whom leveraged the bank’s APIs to build exquisite smart phone apps and game console apps and wearable device apps and ... you get the idea. The old horse-drawn IT model could never have accommodated this barrage of external contributors and was a thus a barrier between the bank and the network and platform strategies it hoped to achieve.

Digital transformation means embracing agility

In short, by shifting from a legacy approach to an API-centric one, the Australian bank unleashed the horsepower of its organization plus the horsepower of experts from outside the organization. The bank’s leaders stopped confusing the old with the new and started moving like a sleek sports car into their digital future.

Enterprises from all industries have much to learn from this example—chiefly that successful digital businesses don’t just release new apps and websites, and they don’t just port existing business models to new places. Rather, they embrace agility as a core strategic and operational principle.

For more on streamlining IT to accelerate innovation, check out the free eBook, "APIs and IT Rationalization: Cost Avoidance and Cost Savings for Enterprise IT."

This post originally appeared on Medium.

Image: Wikimedia Commons

Magazine Luiza's Digital Transformation Manifesto

The Brazil retailer's digital success translates into explosive growth

Lots of CEOs issue great vision statements.

But it's not that often that they can back their words up with results.

In Magazine Luiza's annual management report, released this week, CEO Frederico Trajano issued a full-throated digital transformation manifesto.

It's doubly inspiring. Not only is Trajano's vision powerful, but Magazine Luiza, one of Brazil's leading retailers, is also delivering fantastic growth and results in the teeth of a major economic crisis in its home market.

While its competition is growing digital at 7%, Magazine Luiza's digital business is exploding at 40% quarterly growth, and driving traffic and growth in the company's 800 physical stores.

Download Magazine Luiza's 2016 management report here. It's definitely worth a few minutes of your time.

 

How Magazine Luiza Mastered Digital Transformation

Retail is a tough business. In Brazil, it’s brutal.

Tight margins, lots of overhead, turbulent markets, and that’s just the start. In Brazil, retailers contend with extreme political and economic instability, tax and regulatory complexity, and the uniquely challenging logistical and operational hurdles owing to its immense size and challenging infrastructure in the country.

Dozens of major national and international players do battle every day to serve Brazil’s massive consumer market. Walmart has spent billions of dollars to break into the market, yet it still seems to have a tenuous foothold.

Against this backdrop, one of Brazil’s hometown retailers (and an Apigee customer), Magazine Luiza, was recently the number one performing stock in Brazil, topping even Petrobras with a stock price increase of over 400%.

Last quarter, the company reported breakout earnings of 33% growth in ecommerce and 28.9% EBITDA, accompanied by reductions in debt and improved cash flow—impressive results for any retailer operating in the United States or Europe, but downright extraordinary given the challenges facing retail companies in Brazil today.

So how did they do it? Like many seemingly overnight successes, the story behind Magazine Luiza’s strong performance has its roots in digital bets made over several years by leadership willing to take a risk and bring in outside perspectives.

Decision 1: Choosing the right innovation model

Magazine Luiza’s then COO, now CEO, Frederico Trajano, closely watched the retail industry’s massive shift with the rise of mobile shopping.

Having been the founder of Magazine Luiza’s original e-commerce business during Web 1.0, Trajano was no stranger to the impact of digital in retail. He also made frequent trips to Silicon Valley and closely watched the entry of foreign competitors into the already crowded Brazilian retail market. He recognized they were no longer just competing against traditional Brazilian retail or e-commerce rivals; their market was now influenced by global internet giants as well.

By 2012, smartphones and apps were driving massive shifts in industries across the globe; perhaps none more so than retail. The innovation lab initiatives launched by enterprises in response have often failed to make an impact on the core business and can end up costing thousands of hours and millions of dollars.

When Trajano launched Luiza Labs to address this shift, he made three decisions that led to successes that others missed. First, he picked the right people, including the gifted software developer Andre Fatala, to run the team. Second, he freed the team to experiment with new technologies and development methodologies outside of the organization’s existing processes. Third, and most importantly, he enabled Luiza Labs to bring value directly to the core ecommerce business.

Unlike many innovation efforts that focus on big-vision moonshots, the Luiza Labs team initially focused on small but impactful projects such as setting up a wedding registry. These projects enabled them to hone their skills and iterate/fail rapidly. The first glimmer of something bigger came with the labs’ first real digital venture: Magazine Voce (“Your Store”), which enabled aficionados of products sold by Magazine Luiza (mostly electronics and cell phones) to sell these products to their friends and family over Facebook and make a small profit.

This program enabled Magazine Luiza to begin to harness the power of another internet juggernaut to reach customers far from its stores and expand its sales power using a digital affiliate strategy.

Decision 2: Bringing digital innovation to the core of the business

In most enterprises, digital labs are kept "safely" at bay in the outskirts of the core business where they can shine without causing any disruption. As a consequence, many of these innovation groups end up languishing or shut down for lack of "business value."

Organizations that succeed at digital find ways to bring the innovators back into the organization to drive value at the core of the business. In the case of Magazine Luiza, as the success of early projects grew, Trajano continued investing heavily in Luiza Labs, which expanded to 100+ developers and into its own building. He pushed to expand their use of modern development techniques, APIs, and digital platform approaches throughout the broader IT organization.

Luiza Labs had such an impact on the business that Trajano and his in-house strategy team realized that making plans for "retail" and "ecommerce" separately didn’t work anymore. Retail and ecommerce were morphing into a digital imperative for all of Magazine Luiza.

In the fall of 2014, Magazine Luiza adopted a new strategic plan to apply the "digital" approach pioneered by the Luiza Labs team to the whole company. Magazine Luiza was shifting from a brick and mortar chain with an ecommerce business to a digital business with physical points of sale.

This seemingly simple decision had profound implications. In sum, Magazine Luiza would rethink virtually every aspect of how it did business, from the products it sold and the way it sold them, to its in-store experience, its ecommerce and mobile channels, and its supply chain and logistics management.

Decision 3: Using their existing culture to power the transformation

True digital transformation brings about an existential crisis for many organization, and the same was true for Magazine Luiza . On the one hand, company leadership knew they needed to evolve to a new digital focus. On the other, there was a loyal workforce of more than 24,000 employees who were at the heart of the retailer’s 50 years of success.

Declaring their workers obsolete and relegating them to unemployment didn’t fit the company’s broader mission. So, rather than shut down or reduce investment in physical stores to focus on new digital properties, they chose to leverage digital technologies to empower their salespeople and improve their stores.

Magazine Luiza accompanied its digital transformation with a massive education effort for leaders from its 800 retail stores with seminars on social media, big data, omni-channel strategy, and other key digital topics. In subsequent months, training focused on helping all employees become digital guides for customers.

In this way, being digital took on a missionary’s zeal. What started as an experiment in a closet became something much larger. It was about more than selling household goods and electronics – it was about making the benefits of the digital economy available to ordinary Brazilians, both for their customers and employees.

Decision 4: Opening up a digital marketplace

One of the toughest hurdles for most brands—particularly those with a long and storied legacy—is coming to grips with the reality that, to harness the power of network effects, they ultimately must open their platforms.

After investing 50 years in a brand synonymous with physical retail in Brazil (Magazine Luiza translates to “Luiza’s Store”), they made the decision to give third-party sellers a way to leverage the company’s significant brand clout in Brazil and sell on Magazine Luiza’s platform. The company would now take a giant step beyond ecommerce, becoming a true digital platform business.

The Magazine Luiza experience, now several years into its journey, is the quintessential web 2.0 success story, one where deliberate decisions led to a digital transformation that holds lessons for businesses the world over. They’ve proven out that succeeding in digital transformation requires strong leadership and a willingness to take on enormous risk to pursue a vision in the face of uncertainty. Leaders must empower their most creative employees with modern software (cloud, APIs, web apps) and methodologies, and point this potent combination of tools and talent at the core of their business.

Doing so will not lead to disruption, but rebirth.

This article originally appeared in The Huffington Post. For more on Magazine Luiza's digital transformation, check out this short video interview with the company's IT manager.