Why McKinsey’s two-speed IT is only one half of a good idea
In a recent article McKinsey advocates the adoption of a two-speed IT environment to go digital. The authors state that ‘delivering an enriched customer experience requires a new digital architecture running alongside legacy systems’.
Yes, the article and its recommendations generally hit the mark: agile, scrum, small podular teams, a modular approach to development in short iterative cycles with a beta-testing, fail fast mind-set. All the buzzwords from Eric Ries’ 2011 book The Lean Startup are represented. It’s a proven method, we know it works. We also know that not all enterprise systems – nor the people in the organisation – can run at that clock-speed and should maintain a slower cycle of change.
However, the fallacy of the statement lies in the use of the term legacy. The Oxford dictionary defines ‘legacy’ in this context as ‘software or hardware that has been superseded but is difficult to replace because of its wide use’. It leads readers to believe that with a legacy core –say a mainframe patchwork or an ERP that hasn’t been upgraded in 7 years – they can adopt a two-speed IT environment and tackle the digital age head on. This could not be further from the truth. That form of two-speed IT represents the fast track to high cost and short-term success coupled with a growing complexity that will increasingly thwart the very objective it portrays to achieve: speed to innovation.
In reality, the core supporting your business should never be considered legacy – it is the foundation upon which an organization operates. The operating model is embedded in it, and while that will change over time, it supports your business. The day you consider it legacy should be the day you start making plans to replace it.
All the focus in digital is on the customer experience, yet the digital economy mandates a broader shift in thinking than just digitizing the customer journey. It is naïve to think that a mobile experience coupled with some digital marketing and social initiatives define the digital enterprise. Digital needs to be woven into the fabric of the organization from sourcing and manufacturing to distribution and channel-agnostic but channel-aware services, looking through organizations and channels at the entire value chain.
Digital means to re-imagine
Firstly, Digital means re-imagining the business model – moving from selling products to selling services, from transactions to subscriptions, or shifting from wholesale to direct-to-consumer.
Secondly, it means re-imagining business processes – for example, taking back control of the promotional calendar pushed on retailers by FMCG brands and ensuring offers that are aligned to the category strategy and are valued by the customer.
Thirdly, it means re-imagining the customer experience – focused on presenting a seamless, consistent, authentic view of your brand.
A digital core
To facilitate and enable that, every organization needs a digital core.
Burberry has a digital core (http://bit.ly/1K5fSof). Without it, they would never have been able to take back the licenses for Spain and Japan and re-store their brand image. With it, they have been able to merge digital and physical and lead the way in re-imagining the associate and customer experience across all channels. With it, they are expanding into beauty and fragrance and embracing a completely new business model.
Decathlon/Oxylane has a digital core. With over 850 stores in 27 countries across 3 continents and 70% of merchandise from own labels, real-time visibility of the supply chain and inventory from sourcing location to store is crucial. This allows them to optimize allocation of stock from production runs at the source based on local current sell-through rates and the latest forecasts. They have now introduced SKU-level RFID on 80% of items, resulting in extensive benefits in the supply chain, and as the foundation for a vastly enriched in-store experience.
Tommy Hilfiger Europe has a digital core. Tommy Hilfiger is launching digital showrooms across Europe (http://bit.ly/1K5f7LK) in a bid to completely re-imagine the showroom environment where retailers come to buy collections for the upcoming season.
Jeanne Ross at MIT’s Center for Information Systems Research states: “In the 21st century no business can survive without a digital core”.
A true digital core supports the business in any direction it chooses to take, and does so without decelerating the momentum of change. The core also forms the bedrock for the innovation track of two-speed IT, and that is why collaboration between the two modes of IT is crucial to sustained change and innovation.
Perhaps McKinsey should heed Aesop’s Fable the Tortoise and the Hare and in a twist to the story, call for an environment of collaboration – it is bound to trump speed alone.