Like “cloud first” digital transformation is another top initiative or directive at most small businesses.
While there are multiple definitions of and approaches to digital transformation, the most advantageous way to think about it is to consider it a business transformation.
This is not an IT or compliance initiative but a call for re-imagining the business in order to compete with players that are born on the Internet. Those that do not understand the implications will see their customers and revenues shrink as more agile, aggressive competitors expand their business models to garner more and more of traditional small business opportunities.
Small business owners and IT executives need to work together to visualize where the markets are going and what actions need to be taken to compete successfully over the next decade.
There are three approaches that small business owners are taking in response to the digital transformation that is occurring in the market.
1. There are those that see this as driven by new regulatory requirements (such as the EU’s Payments Services Directive, PSD2) and therefore are responding with new compliance policies and procedures.
2. There is the second group that says this is “just an IT problem” since it is “digital.”
3. The third group recognizes that the digital transformation is not about IT but a business model change. When the shift to eCommerce at the turn of the 21st century occurred, companies needed to add a new digital distribution channel into the core products and services of the enterprise. It did not represent a new business but an additional way of reaching and working with customers. The difference with digital transformation is that the focus is now on the customer, and not the products – the model is flipped upside down.
In this new business model, it is all about servicing customers and non-customers in their desire to execute a transaction.
If a firm does this well, it could convert non-customers to customers; if not, customers could use someone else’s portal and business will slowly be siphoned off. Amazon and PayPal are good examples of firms that offer service portals for purchases or payments and that are now offering additional services (such as competitive products and loans).
Small businesses have to be winners in offering attractive business portals or be prepared to see digital transactions slowly slipping away.
The first step in the digital business transformation (DBT) process is the determination by the business side of what business they wish to be in.
DBT is not an IT initiative. It is up to the lines of business to decide what businesses they wish to play in over the next decade. If they decide to invest in the new business model, RFG sees the most successful approaches in large organizations are those that create a new business unit to deal with DBT.
This unit should treat the parent company or line of business like any other third-party provider – i.e., they need contractual agreements on SLAs and terms and conditions. This approach will give the unit the most flexibility and limit integration issues.
The new unit should prepare for disintermediation of parts of the company’s traditional business – and it should not care. It should treat the parent and all third-parties equally and not bet on winners.
It should innovate for flexibility (rules-based code that can be reconfigured rather than rewritten). For speed to market, it should only write code where necessary and acquire the rest either as software or as software-as-a-service.
The user experience will be key to success, and to make all that work effectively will require a well-planned data architecture, the use of AI, and innovative mobile products and services.
Whether or not a small business chooses to create a separate business unit, agility and speed to market are required, and therefore, IT should start with the basics and grow from there. This requires building a minimum set of applications such that the user feels an affinity to use of the business’ portal.
The minimum elements that are needed are as follows:
- A mobile gateway into the portal
- Identity and access management and authentication (zero trust desirable)
- AI/ML (machine learning) for fraud and KYC (know your customer – and prospect)
- Strong security and compliance tools
- Chat or chatbot capabilities
- Inquiry tools
- The actual business apps and components for handling the desired transactions
IT needs to build apps and components using open APIs – not integrated into the legacy applications. Componentization will be critical to having maximum reusability of building blocks.
The new unit must have its own databases, especially since it will be capturing non-customer data and treating it as just as important as customer data. After all, organic growth comes from gaining wallet share of existing customers as well as turning prospects to customers – and effective use of analytics on prospects will be critical to converting them over.
IT needs to view this as an omnichannel portal that must be agile, scalable, and be capable of high performance.
Behind all this needs to be a good DevSecOps capability so that new versions of apps and components can be rolled out almost daily. For most enterprises, IT will need to have in place already a good cloud strategy and architecture so that the business can be quickly built, deployed, and expanded as needed.
IT will also need to ensure that privacy regulations (such as GDPR) and governance directives are also adhered to.
Like “cloud first” digital transformation is another top initiative or directive at most enterprises. But there is no common definition, which means there are a lot of different directions that companies are heading in.
Some driven by the business units, others by IT, and still others by their compliance organizations. Most of these efforts will end up costing organizations a lot of money and resources without a commensurate business advantage.
Small business digital transformation should not be relegated to IT as a technical issue; instead it must be assessed as a digital business transformation that lines of business must address and consider critical to their survival.
Small business owners and IT executives should work together to envision what that future could look like and jointly build a transformational business strategy. Success will require a continued collaborative approach between the lines of business and IT to the creation of the new business model, its deliverables and processes, and finally, the implementations.