Digital Transformation: PRISM, Strategy, Technology, and Funding
PRISM Framework for Digital Initiatives
The PRISM framework categorizes the value proposition of digital initiatives:
- Product: Involves growth and expansion, enhancing revenue. This may include new designs and models.
- Process: Enhances efficiency and effectiveness, offering risk mitigation. This often involves changes to organizational structure and work practices.
- Intangible: Value that can’t be quantified in dollars. Examples include branding, employee morale, differentiation, and cultural shifts. These often lack traditional metrics.
- Sustainability: Focuses on long-term growth and risk mitigation. This area is relatively new, with few established standards, and is rapidly changing.
- Mobilize Options: Creates opportunities for future value-generating initiatives, adding benefits and uses. These are often unexpected and require a visionary approach.
Digital Fitness
Digital fitness can be achieved by focusing on four key areas:
- Generating business value (using the PRISM framework).
- Maintaining strategic alignment with the business’s organizational strategy (using the Strategy Triangle).
- Leveraging technology trajectories (understanding rapid technological change, increased usage, and the growing importance of data and analytics).
- Applying digital economics.
Industrial Eras
Understanding the evolution of industrial eras provides context for the current digital age:
- Late 1700s-1800s: Mechanization, steam power, and water power.
- Early 1900s: Mass production, the assembly line, and electricity.
- 1960s-1980s: The rise of computers and automation.
- 2010-Present: Cyber-physical systems, where new digital technologies blur the boundaries between physical, digital, and biological systems.
Technology Projects: Importance and Challenges
Technology projects are ubiquitous, representing significant financial value (approximately 50% of capital investment). However, they are also:
- Complex: Requiring change management, redesign, and navigating organizational politics and culture.
- Risky: Approximately half of all technology initiatives fail to meet their objectives.
The Strategy Triangle
Strategy involves achieving a unique position, either through low cost or differentiation.
- Business Strategy: Defines how a company competes, typically by aiming for either low cost or differentiation.
- Hypercompetition: Characterized by the speed and aggressiveness of moves and countermoves, requiring a dynamic perspective.
- Organizational Strategy: Involves using managerial levers, such as organizational structure (business processes, reporting structures), culture (values, incentives, rewards), and control mechanisms (planning, data, performance measurement).
- Technology Strategy: Encompasses various levels, including functional (individual spreadsheets), enterprise (ERP systems), collaboration (email, blogs), and the informational strategy matrix (hardware, software, networking, data).
The Digital Landscape
Digital technologies are transforming the business landscape by:
- Amplifying and informing consumer expectations.
- Breaking traditional business constraints.
- Reshaping business models.
Key Digital Concepts
- Shared Economies: Enable individuals to share devices or services for specific value (e.g., Uber, Airbnb).
- Network Devices: Involve connection through a network.
- Artificial Intelligence (AI): Refers to machines that mimic cognitive functions.
- Machine Learning: A subset of AI where systems perform tasks, learn from experience, and improve over time.
- Computational Statistics: Focuses on making predictions using computers.
- Artificial Neural Networks: Computing systems inspired by biological neural networks.
- Digital Twin: A digital replica of a physical entity.
IT Funding Models
Several models exist for funding IT initiatives:
- Chargeback: Charges are calculated based on actual usage.
- Pros: Fairness, as charges reflect actual usage.
- Cons: Can be expensive and difficult to implement, and may discourage innovation because increased usage leads to higher costs.
- Allocation: Total expected IT expenses are divided by a non-usage basis (e.g., per operating revenue – POR).
- Pros: Simpler to implement, often using a single rate per year.
- Cons: May lead to over- or under-allocation of resources.
- Corporate Budget: Corporate allocates funds to IT during the annual budget session.
- Pros: IT has more control over project selection and it encourages innovation by reducing the penalty for inefficient system use.
- Cons: IT must compete with other budgeted items.
- Shared Service Model: Corporate allocates IT funds to business units, and IT charges business units for their services.
- Pros: Promotes efficiency by requiring IT to operate like a business unit.
- Cons: IT must be responsive and effective, or business units may seek alternatives.
The Hype Cycle
The Hype Cycle illustrates the typical adoption path of new technologies:
- Innovation Trigger: Early stages of research and development, generating significant discussion but often 10+ years away from mainstream adoption.
- Peak of Inflated Expectations: Reaches the peak and heads toward the trough, often with less media attention.
- Trough of Disillusionment: Complex technologies cause confusion, leading to decreased discussion.
- Slope of Enlightenment: The technology becomes practical, adoption begins, and efforts are recommitted.
- Plateau of Productivity: Mainstream adoption takes off.
Note: While all technologies go through the trough, not all make it beyond this stage.