Companies are on the horns of a dilemma. They signed long-term, managed service contracts for IT or business processes, which took advantage of the savings from labor arbitrage. But now they find that there is significant potential to leverage the new suite of digital technologies that promise improved performance and lower cost. The problem is that that their incumbent service providers often actively resist implementing these technologies, using delaying and obviation tactics, refusing to pass on the savings and/or demanding additional work or other concessions in return for complying. Now that I’ve identified this major issue that many companies face today, let’s look at how they handle this non-alignment situation.
Think about animals that travel and hunt in packs. Digital technologies seem to work the same way. Wolves, hyenas and wild dogs, for instance, are smaller and less powerful than larger animals such as mountain lions. Hunting in packs enables them to conquer animals larger than themselves. They work together to find the right opportunity. Similarly, digital technologies don’t come in isolation. They quickly demand a level of competence across a broad set of companion technologies – and some of these additional technologies also have their own sets of companion technologies. Typically, companies that adopt digital technologies end up spending much more time and money and building much more expertise than they initially anticipated. Consider the following three examples of what typically happens.
Example: Artificial Intelligence technology
Perhaps your company is like others that believe Artificial Intelligence (AI) can contribute to their business. But you’ll find that as soon as you start to think about AI, you start to think about data and data sources. That unleashes a substantial amount of work in building data warehouses. You may encounter a hurdle that many companies often find: data sources are less reliable and less precise than you had hoped. As a result, your company will need to build new data sources or improve the existing data sources. That effort will likely move your company to implement cloud technologies, along with the analytics software and data-management software that comes with cloud.
So, what appears to be a commitment to exploring just one digital technology leads to implementing a whole pack of other new technologies. The problem is that each technology requires a learning curve of its own and often sets up a cascading effect of its own. It’s like the “dominoes effect” – one thing leads to another, leads to another and leads to another.
Lloyds Banking Group plans to spend 3 billion pounds in strategic investment with a huge allocation towards digital technology that might give significant fresh business to Indian IT services providers. This investment is a 40% increase over what it spent on its 2015-17 strategy.
Jimit Arora, who leads US-based advisory Everest Group’s IT services research practice, said Lloyds is all set to increase its spending across IT modernization and business transformation to create a better digital banking experience. “Overall, while Lloyds has performed at par with the market, in a recent study we saw that other banks were leapfrogging them from a digital experience perspective,” he said.
From product development through claims management, the insurer landscape will change dramatically over the next 10 years
The possibilities promised in taking full advantage of the new digital IT environment characterized especially by agile, DevOps, automation and cloud, are exciting. However, service providers struggle to deliver digital services at their customary profit levels, and customers aren’t prepared to buy the new digital environment because they’re stuck with their existing purchasing/contracting vehicle. So, we have two sets of constraints: Service providers don’t want to leap to the new model the customers want, but customers’ old purchasing model constrains providers from moving to the new model even if they really want to.
The promise of Lean Six Sigma is continuous improvement and that it will deliver business performance improvement by 3% every year. That was great in a business world where 3% was enough. But not today, when organizations can gain performance breakthroughs of 40-60% or more. Plus, Lean Six programs didn’t enable organizations to change their competitive position. Those two facts are why digital transformation is overwhelming Lean Six Sigma. But to capture the value that digital promises, it’s important to understand how it differs from Lean Six Sigma.
What is it about digital transformation that makes it so much more powerful than Lean Six Sigma? The outcomes from Lean Six Sigma depended on adjusting business processes. In contrast, digital transformation enables the opportunity to reconceive the underlying business model and completely transform the business.