Why IT companies are moving towards Digital Platforms Business

Shift towards Digital Platforms

In this blog, we shall discuss why IT service companies, which were traditionally focused on providing services like Applications Development and Systems Integration are shifting towards a Digital platforms.We will try to declutter both the business and financial benefits from this paradigm shift in strategy.
As we are moving towards knowledge economy where innovation and IP is the most valued asset, IT companies realize the importance of reorganizing itself around flexible and independent platforms.

Why tech companies needs to focus on Digital platforms

  • In this digital era of industry convergence, we see tech companies becoming car companies, but the real question to be asked is how fast a tech company will operate and innovate like a tech company.
  • The leading technology giants – FAANG companies have been leaders in innovation in last decade.This has influenced automotive leaders like BMW to foster innovation by reinventing their core business around data and digital.
  • The real strength of these tech companies lies in their technology which allows them to be more flexible, scalable and agile than their competitors.For these companies, IT is no longer a stumbling block, but an enabler and driver of continuous innovation.

Why Digital Platforms play can be a competitive advantage?

  • When IT is organized around set of modular platforms run by respective platform teams, then this becomes a competitive advantage.This is because each platform have a logical cluster of activities driven by a technology that achieves a business objective.Hence they can be run as a business or service.These platforms can be managed individually, can be swapped and at the same time when all the individual platforms are integrated, then this form the backbone of the company’s technological capability. The crucial driver of success in this initiative would be how closer the business and technology teams work together in order to get quick approvals from the decision making authority.
  • The reason why platform play has become important and strategic for the companies is because IT itself has changed and important management practices such as Agile and Cross-collaboration have become more relevant.
  • This modular platform based IT is what encourages companies to innovate.This gives them required agility to experiment, fail, learn and scale quickly.By this, they can launch products faster to market than its peers.With this scale and flexibility, IT becomes the focus for innovation at executive and board level.With the advent of new age digital technologies, technology has become a competitive advantage.

How should a Digital Platforms business function?

  • To understand, how a platform company works, let us take an use case in Banking industry.
  • In Banking, Payments is a major business segment.In any large bank, payments line of business will itself have ~50 applications that operates independently from each other.If the bank wants to convert its Payment product to a platform, then it can bring the IT and Business folks together to modernize the existing IT landscape and focus on priority initiatives by allocating the required resources.
  • When this happens, Payments platform functions as an internal business that serves all the functions of the bank.This approach will bring clarity on where to focus on tech interventions, divest non strategic IT applications and then move target applications to cloud which can help in further upgrading or build new offerings for the internal business clients.
  • This platform approach of running the business can be rolled up across all IT functions in similar manner to ensure consistency and replicability.

A closer look at the Digital Platforms based company

  • Though Platform is built on technology, it should be really considered as a service.
  • A platform company focus on business solutions to serve its customers.They operate as independent entities which brings together business, technology, processes, governance and resources and are empowered to act quickly.They are run by Platform owner whose responsibility is to provide the solution and operate it like a service.Platform teams are cross-functional and involves business, IT, analytics and other relevant processes.The teams work in an agile manner to build the solution, enable continuous business innovation and run all the necessary IT.
  • A platform based company will have ~20-40 applications with each application big enough to run a discrete service, but at the same time are manageable.
  • A Platform management can be grouped into three major focus areas – Customer journey, Business and Core IT capabilities.
  • To substantiate, let us take the use case of Personal Banking.In a normal account opening scenario, a customer experience will involve searching, opening an account to get a mortgage.The business capability platforms will deliver banking solutions like payments, credit analytics, reporting dashboard and a MIS.The core IT platforms provide the underlying technology where the customer journey and business capabilities run.These include cloud platform, data analytics environments and IT connectivity solutions.

Critical Success Factors for Digital Platforms Play

Even though Platforms are distinct units, their success depends on how effectively they work together.When more focus is on individual projects, chances are that companies might overlook the larger picture of having all IT components work together.
Platforms can be effectively coordinated through three ways:

Digital platforms success factor 1 – Make Strategic and allocation decisions

  • The right strategic approach would be to put money and investments on those platforms that can support business goals or are in most urgent technical need.
  • This implies that companies need to reallocate their budgets on high growth platforms as against conventional approach of increasing budget for each business.Hence the business leaders need to secure right resources and funding from executive committee.At the same time it needs to rationalize its IT applications in order to accelerate its shift to cloud.

Digital platforms success factor 2 – Speed and Interoperability

  • From business point of view, the teams need to set up protocols on how they should work together in an agile manner.
  • From technical point of view, there should be protocols like platforms and applications interfaces for seamless connectivity, access source codes from service libraries easily and select the right IT tools for agile team management.
  • Standard operating procedures empowers teams and helps in eliminating redundant development of applications that won’t integrate with other applications and any miscommunications.

Digital platforms success factor 3 – Cross-Platforms Program Management

  • When teams take an agile approach, the requirements and dependencies evolve as things progress further.This is a blind spot for conventional Program managers who focus only on their project deadlines.
  • Hence it is critical to have a Cross platform program management function that has an oversight to drive consistency and delivery.

How to shift from IT services Business models to Digital Platforms based approach?

  • A shift to platform based approach is more than IT transformation.It is a fundamental organizational and operational change to create an IT environment that runs on set of platforms.
  • To have success in Platform play, one require a strong leadership, quality teams, strong program management and value proposition.

Successful companies adopt four pronged action plan to shift to Platform based IT.

Digital platforms plan1 – Assess the Platform portfolio

  • Business and IT leadership should come together to cluster the company activities and the associated IT into a set of ~20 – 40 platforms that cover customer journey, business capability and core IT.This will act as a good starting point of reference.
  • Once this is completed, segregate platforms into fit, healthy and sick categories.Fit platforms are already in good shape and require investments to innovate and capture value.Healthy Platforms are currently effective but require modernization for future requirements.Sick platforms need a complete overhaul.
  • This approach of segregation would be useful for executive team to prioritize and reallocate the right resources and investments.

Digital platforms plan2 -Set up initial Platform teams

Once the decision is taken on the list of platforms, the next step would be to allocate the right resources.Initially based on the priority, two to three platforms are identified. A platform team can start with 20-30 member team and can ramp up to a bigger size.
Some of the important roles in this team would be:

  1. Platform Leader – A business or IT executive who will act as a Product owner with an IT engineering mind.
  2. Business members – Work closely with technical team in designing the platform and responsible for ongoing management of the business.
  3. Technical Members – Manage the IT applications associated with the platform and responsible for modernization, renewal, development and day to day operations.
  4. Functional Team members – These will be from Finance and will be in Program management function.They will have the decision rights on IT spend and platform budget requests.

Digital platforms plan3 -Platform Transformation

Platform transformation is done keeping in mind the top priorities.The platform teams need to be quick and follow an agile approach to iterate discrete pieces of work.
The teams should not be allowed to follow traditional meetings, secure formal approvals and have any other dependencies that can delay progress and create unnecessary complexity.
Platform teams should focus on the following core activities.

  1. Evaluate existing applications – This includes decommissioning old applications, updating/renewing core applications and building value added features at the top of the applications.Once this is completed, then the effort should be to accelerate and shift the applications to cloud.
  2. Code Development – Writing codes in blocks/modules that can be easily replaced when required.In addition, usage of extensive APIs can provide necessary flexibility to the existing code.

Digital platforms plan4 -Executive committee support

While the Program Management team is responsible for allocating more budgets and resources to the most productive platforms and reduces budgets to platforms that are not productive, the steering executive committee takes big decisions and set business transformation goals.The executive team will have a final say on all major decisions regarding the platform business.

Conclusion

  • Shifting to a digital platforms based company requires a change in the mindset. It requires perseverance and flexibility to adapt based on how the platforms evolve.
  • A platform based approach can enable IT to accelerate change rather than act as an obstacle.


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