ISG Provider Lens™ Digital Business Transformation - Brazil 2019 - Digital Continuous Delivery – Increasing Enterprise Agility
Digital Business Transformation
There is no clear definition of digital business. Hype is everywhere. Expressions such as "digital disruption," "sharing economy" and "uberization" are commonly quoted for multiple purposes. During the research for this study, we observed that software vendors and service providers share their clients’ uncertainty and speculation around the future and what is necessary to become a leader or protect their leadership position. In this report, we apply a reality lens to clarify what is indeed possible and tangible for real people and real businesses to accomplish nowadays.
Taking stock market capitalization as a measuring rule, the top five most valuable companies in the world are digital: Apple, Microsoft, Amazon, Alphabet and Facebook. One might say Apple sells products and so it is not a digital company. However, the iPhone profit margin can be as high as 60 percent, which makes Apple such a valuable company. The iPhone success comes from design and the convenient Internet access and apps it provides. Think about how much someone would pay for an iPhone without Internet access and no apps. Perhaps Apple sells the Internet with a design. Another relevant example is Amazon; it is a retailer, however, its digital platform provides the logistics to deliver products faster and algorithms to increase sales. Microsoft, Alphabet and Facebook have almost no physical product, what they sell is intangible by nature.
Digital companies add abstraction to their matter. In the digital era, customers buy experiences, feelings, well-being, comfort, convenience, and so forth. In one example, a service provider was hired to increase tractor sales, a legitimate target. It used design thinking involving farmers to discuss their real needs to develop a mobile app. The app does not have a "buy button" for new tractors; instead, it has farming apps, services, parts and used tractors marketplace that, in the end, increased 27 percent sales of new tractors. It adds software (the app) on top of matter (the tractor).
"There is no abstract art. You must always start with something. Afterward you can remove all traces of reality." ― Pablo Picasso.
Digital is permeating all aspects of the traditional business. The above example touches the sales process. Other cases change trading, production, supply chain, product design, human resource management and all processes required to run a business. The digital business value chain has three imperatives: experience (abstraction above products), in the cloud (an abstraction from infrastructure) and agility (software changing products).
Bots impact service providers
Robotic process automation (RPA), automation and AI are impacting all players. Service providers are reorganizing their workforces by reskilling, training and moving headcount to closer to clients. Cognitive computing is not replacing humans, as we saw an increase in headcount for almost all the service providers we examined. While repetitive tasks are being replaced with RPA and AI bots, cognitive computing is pushing reskilling and expanding service coverage, thereby requiring more people.
Disruption of the labor-intensive market
Leading service providers are developing intellectual property (IP) in the form of tools, service platforms, frameworks, SaaS and PaaS, with extensive use of service data, analytics, RPA, AI and cognitive computing. Disruption is happening for service providers that were competitive by offering low prices for labor-intensive services. Digital transformation is pushing R&D budgets. Those that cannot afford to develop supporting solutions will eventually run out of business. We are seeing large R&D budgets that were not common for service companies.
The emergence of ecosystems
Ecosystems are one level up partnerships. Companies cannot survive alone and cannot afford to build everything necessary to compete. Some remarkable examples include Microsoft’s partnership with Linux, Apple and Red Hat; IBM’s partnership with AWS, Microsoft Azure, ServiceNow and VMware (which is owned by Dell). Most of the leading service providers have strong alliances with several competing cloud IaaS providers, and are even partnering with each other.
In the past these partnerships were intended to expand the sales channels, maintaining a value-chain around a product or vendor. Today, these partnerships aim to create new offerings and develop the market, improving customer experience. The co-creation and collaboration define an ecosystem, where value exists together but dilutes if separated. It is the case that Microsoft and IBM have more value each if they work together, and value less if broken apart.
Two provider strategies to digital transformation
Some service providers position themselves as the protagonists of the digital transformation, while others are enablers. The protagonists propose to guide the transformation, through intense consulting around organizational change management, business consulting and digital product creation. Lean is the most common methodology offered to manage the digital business; these service providers presume that Lean is the best management tool ever.
Enablers position themselves as "tools" for the digital transformation. These service providers have plenty of options in their portfolio and expect the enterprise client to pick and choose the best arrangement, without a clear proposed amalgam. Enablers presume the enterprise client knows how to conduct a digital transformation.
Hackathons for hiring
It has been frequent to hear management people express that hiring the right people is key to business success. It seems that digital transformation boosts that belief. Especially for agility, when practitioners must synchronize their work, collaborate and commit to a single goal, the behavior is more important than technology. However, hiring on profession, certification and education is pragmatic, while hiring on behavior is challenging.
Almost all participants in this study conduct hackathons on a regular basis. Several have reported that during hackathons they observe behavior for later hiring the best individuals, and sometimes hiring an entire team. Winning the hackathon is not part of the criteria; however, problem-solving, reaction to stress, collaboration, team spirit and commitment are some of the behaviors observed.
The segments of the digital transformation services market that are profiled in this report are identified and described below.
Enabling the Digital Customer Journey
Customer journey is transforming how companies organize marketing, sales, delivery and post-sales processes. Most service providers use design thinking as the core method to uncover the customer journey. Variations occur regarding facilitation and outcomes, with some players focusing on application development while others look at a broader customer experience.
A major differentiator among service providers is how design is included in the customer journey assessment. Some of the assessed providers focus on acquiring digital agencies and have a great focus on design over the customer experience on functions and product options. Others prioritize the user experience, features and functions over traditional design and branding. The design focus was not used to rank providers, as we have not identified a reference, or benchmark, for which approach is better. It seems that there is market for both approaches.
Technology enablement seems to be prized by all participants. During customer journey, design seems to be the best time to experiment innovation and introduce new technologies. The design process includes technology experts, sales, marketing, designers and clients in a collaborative process.
One example of technology experimentation is how mobile has impacted traditional business and changed the sales process for cars. Renault Kwid is an entry-level car in Brazil. Renault used agile development to deliver an e-commerce site in 44 days. From January to July 2018 it sold 11,000 cars over its e-commerce platform, which was accessed from phones and tablets in almost 70 percent of the cases.
Digital Enterprise Operations
Digital business positions software at the core, it is the center of a business operation. The software has moved up, from business support to business enablement and as such, it cannot fail. Digital enterprise operations must be agile, stable, secure and reliable. To deliver on these expectations, leading service providers have invested heavily in automation.
A typical digital business runs in the cloud. Although certain legacy businesses such as Brazilian banks have not migrated to the cloud, in particular, because their data centers are larger than the cloud providers’ data centers, their competitors that are small and offer disruptive solutions, were born in the cloud. These banks are pushing the traditional business to rethink the need for concentrating processing capacity. For large data centers, service providers are offering a cloud-like experience on top of VMware, simulating IaaS on-premises.
The need to move to the cloud is to enable serverless computing, infrastructure as code, microservices, Kubernetes and containers. These are crucial elements to enable agility, advanced DevOps and continuous delivery, allowing for a digital enterprise to reduce time to market and keep up with startups and new entrants in the market.
A key enabler is Cloud Foundry or its competitor OpenShift; these platforms allow applications to be seamlessly deployed in multiple clouds. The consistency of one application running in multiple clouds elevates the availability, security and business continuity, at lower costs as compared to deprecated clustering and disaster recovery methods.
Leaders in this market comply with zero outage targets. They use highly automated management platforms with autonomous, AI-based self-healing, provisioning, auto-scale and performance optimization. Services such as CDN are included.
Digital Transformational Platforms (PaaS)
Platforms provide integrated processes to rapidly deliver end-to-end business solutions. Platforms have the architectures and workflows to provide services. Insurance, lending, human resources management, ERP, CRM and many others platforms were identified in this study. Service providers load enterprise data into the platform, for immediate use after business configuration. Platforms run in the cloud as a service (PaaS). Some service providers partner with PaaS vendors, others are developing their own PaaS, leveraging their market specialization.
The ideal PaaS has all the core functionality, APIs and microservices to integrate with other systems, clouds, suppliers and clients. Service providers customize apps that connect to PaaS to provide unique user experiences and business differentiation.
Another relevant trend is the emergence of Cloud Foundry and OpenShift as application development platforms. There are competitors in the market; however, these two are the most common options among the participants in this study. The development platform as a service (DPaaS) allows clients to speed the digital transformation. DPaaS compiles cloudnative applications, leveraging the advanced resources from cloud providers.
Service providers can also use DPaaS to convert legacy applications to the cloud.
Digital Transformational Services (aaS)
The as-a-service model is imperative in the digital economy. Software as a service eliminates the capital investment to acquire costly software solutions. Some service providers have specialized in converting legacy applications to run in the cloud under the as-a-service payment model, while some others specialized in extracting data from legacy applications to migrate to SaaS offerings.
The limitations to customizing the software are not relevant to a typical SaaS enterprise client. The benefits of high availability and lower costs outpace the desire to customize. Usually, APIs are available to extract data and integrate peripheral apps that perform custom tasks or provide data views. SaaS responds to the business pressure to have an asset-free organization, reducing the need for financial provisioning. SaaS typically implies no long-term obligations.
Digital Product Creation & Customization
Today's buyers are different from past generations. The average buyer is older, better informed and concerned with continuous learning. Information is readily available. Social media has a significant influence on buying patterns. Preferences change fast and customers have many options to choose. Products need reinvention to incorporate interaction and new information. Digital products need variations for different groups of interest. Products and services are no longer merely segmented by gender, age, country, city or language. Personas and customer journeys feed the product creation.
Service providers offer stable product development professionals organized in squads with multi-functional teams that use design thinking, real-time analytics, product and service performance data, benchmarking, social network feedback, agile development and many specialized tools to change products and offerings in short time for nearly immediate deployment. Two-to-four week release cycles are frequent targets.
Digital Continuous Delivery – Increasing Enterprise Agility
Continuous delivery complements and extends the customer journey and product development; however, it is the bottleneck for the digital enterprise.
Continuous integration, continuous testing and DevOps enable continuous delivery. The first, continuous integration is the process of merging the various applications under development, to assure consistency of different code versions. Continuous testing requires automation, scripts, data sets and testing scenarios that change every time the product changes. DevOps requires quality assurance before deploying into production while assuring that rollback is possible if problems occur. All these processes need discipline, governance and much automation; otherwise, the delivery process becomes costly, ineffective and slow.
If continuous delivery is not set up properly, it puts the digital transformation in jeopardy. Leading service providers have invested in automating DevOps, which includes all the above-mentioned processes. Clients are advised to check the service provider references in detail.
Blockchain as a Service
Blockchain projects are a reality and several service providers have proven this technology viability. Market expectations are still high; however, service providers are finding use-cases that make sense. In Brazil, R3 Corda is being pushed and tested by Itaú Unibanco and Bradesco, both partners of the global R3 consortium. Banco do Brasil, Caixa Econômica Federal, Santander Brasil, Banrisul and Sicoob (credit cooperative) are leading another project using IBM-Hyperledger. Besides the banking sector interest in blockchain, viable use-cases are commonly found in supply chain, tracking, payment services and document and contract processing.
This study found that service providers are ready to deploy and operate blockchain at scale. There are solutions in production and an important number of use cases that work, perform and are cost-efficient but lack business interest in adoption. Perhaps blockchain is not going to be as disruptive as promoted, or it needs demystification to be better accepted by regular enterprises.