Operational Modes for Efficiency vs Uncertainty

In order to determine suitable operational models, we must first understand the world in which we are moving. IT is primarily concerned with two major fields of action: digitalization and digital transformation.

Digitalization vs Digital Transformation

You would think that there are already far too many articles, blog posts and other content related to these two buzzwords. Nevertheless, these terms are seldom properly distinguished from one another or falsely used as synonyms. That’s why we decided to summarize the essences of digitalization and digital transformation in a brief but hopefully insightful blog post.

When we talk about digitalization, we simply mean creating a digital replica of something analog. This could be the digital representation of a book in the form of an e-book, for instance. Organizations have been busy with digitalizing processes and documents for quite some time. The primary incentive for companies to pursue digitalization vigorously lies in the cost and efficiency benefits that come with it.

Meanwhile, digital transformation takes things a step further and entails the use of digital technologies to create new digital products or even business models. This is how Big Tech such as Facebook, Google and Amazon disrupted their respective industries. Instead of just digitizing media, Facebook built an entire platform around the actual content, enabling a radically different business model. As software companies have been disrupting traditional industries and business models countless times, digital transformation is no longer exclusively relevant to tech companies. Out of urge for survival, digital transformation is becoming a pivotal endeavor for every company. 

Among the most important differences between digitalization and digital transformation is the solution space in which one operates. Since digitization is concerned with creating a digital version, the solution space and target state are already broadly defined and fairly constant.

Operating in the digital transformation, however, the solution space becomes much more complex. When developing digital products and business models, the problem space itself is often not yet sufficiently examined. In addition, the solution space is largely unknown. The only way to find out what works and what does not work is by experimenting and iterating quickly. To make things more complicated, the target state of digital solutions changes frequently as they are directly influenced by the market and customer behavior.

How to operate in both Worlds

As digitalization and digital transformation encompass fundamentally different goals and challenges, we need different operational modes to cope with both worlds.

Since digitization aims at (cost) efficiency, a mode of operation is required that
allows for:

  • optimization
  • planning & structure
  • estimates & predictions
  • absolute measures (budget, time etc.)

Regarding digital transformation where the pace of value creation and reduction of uncertainty is critical, a suitable operational mode must enable:

  • speed
  • experimentation, feedback-cycles
  • flexibility & agility
  • relative measures (value creation per iteration, deployment frequency)

Projects have become the prevailing way of working for digitization undertakings. As proven by evidence, projects lend themselves well to getting from the start to the target state as efficiently as possible. However, this also implies that goals, challenges and requirements are largely predictable.

In a predictable environment, it makes sense to make estimations, draw up plans and turn them into reality. In the VUCA (volatile, uncertain, complex, ambiguous) world of digital transformation, extensive forecasting and planning lead to a dangerous state which we call the “illusion of predictability”.

When applying a project mode to digital transformation undertakings, we tend to fall into the trap of thinking we can predict scopes, efforts and other variables based on experiences. This is simply impossible in an ever-changing environment.

To set yourself up for success in such an environment an iterative-incremental approach is needed. Increments allow for reducing the complexity by separating products into smaller manageable parts. Iterations reduce uncertainty by collecting feedback throughout the entire development process allowing for gradual product improvements. Such an approach can be described as a product mode.

The same applies to architecture and technology, by the way. Modular, cohesive architectures and instantly-available technologies are required to reduce complexity and test hypotheses as quickly as possible.

For the sake of completeness: Of course, it would be possible to apply a product mode to digitization initiatives. That is probably more like using a sledgehammer to crack a nut resulting in lots of overhead.

As with architectural patterns, there exists no single ideal operating model. Adopting the mode of operation to the respective solution space is key for outstanding software solutions.