How You Can Accelerate Innovation By Building a Digital Transformation Platform

You need to create agility and a competitive capability from a complex and intertwined collection of hardened functional and LOB apps. To do that, you need to build a Digital Transformation Platform.

👋 Hi and welcome to The DX Report — all about Digital Transformation, the Digital Experience, and the Digital Enterprise. I’m industry analyst, author, and speaker Charles Araujo, and I’m all about providing insights and analysis for enterprise IT leaders as you make the big bets about your organization’s future!

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Despite every tech company rushing to anoint themselves the great enabler of digital transformation, we have collectively put little thought into how to build a technical capability that can support digital transformation efforts over time — what I call the Digital Transformation Platform.

Authentic digital transformation is not a project or even an ongoing effort, it’s an enterprise capability that requires such a platform to support it.

However, developing a digital transformation platform (DXP) is challenging because it’s not something you can buy — you must assemble it in the context of your organization’s needs. As a result, it may also be the single most important action an enterprise IT leader can take to unleash innovation and transform their organization into a digital enterprise.

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The concepts I’ll share with you today — like much innovation — came slowly over time, then all at once. But when it hit me, I knew that it was going to be central to my work — and yours.

Today’s DX Report is going to be a bit long so I can go into what it means, why it’s so important, and how you can act upon it.

I’ll also be introducing a new format for The DX Report based on some of what I’ve discovered as I’ve been plumbing the depths of what it means to build and leverage a DXP — and the bets required to make it happen.

This is important stuff, so if you don’t have the 15 minutes or so to dig into it right now, please save it and set some time aside to digest it. It’s worth it, I promise.

Understanding the premise behind a DXP is critical because I believe it is the primary driver of technology-based innovation in the enterprise, serving as the missing link that connects the two sides of the enterprise IT brain — efficiency and innovation.

Image: Stable Diffusion XL

The Digital Transformation Gap Between Efficiency and Innovation

There is an oft-reported (and very misleading) stat pundits love to float that 70% of all digital transformations fail.

First off, I think it’s a hyped-up, bogus stat. But I’ll get to that in a future article.

However, the truth in that bad stat is that digital transformation efforts are genuinely difficult to execute and often get mired in a whole host of issues that drag them down, bring them to a crawl, and cause their scope (and budget) to endlessly expand.

But while the stat is easy to throw around, no one is really addressing the root of the issue. Digital transformation is difficult because it sits between IT’s two competing demands: efficiency and innovation.

Since the very beginning, the primary role of technology within the enterprise was to reduce costs and drive efficiency.

Almost your entire stack is made up of functional and line-of-business apps that exist to streamline business processes and create cost-saving efficiencies. To improve those results, IT organizations have spent vast amounts of resources to standardize and harden those business processes. And the resulting productivity and efficiency gains have transformed enterprise IT into a $300B+ market.

But all that hardening and standardization has come at a cost to the other, more recent IT mandate of innovation.

Over the past couple of decades, IT’s mandate has expanded and shifted from a sole-focus on back-office efficiency to enabling customer-facing and experientially-driven competitive differentiation.

During this time, the digital experience became the primary driver of competitive value in the enterprise, and understandably, organizations turned to IT to deliver it.

The challenge is that driving technology-fueled innovation requires the complete opposite of what you need to drive never-ending efficiency from functional and line-of-business apps. Innovation requires speed and adaptability so that you can experiment, respond to market shifts, and adjust to rapidly changing experiential demands.

All that structure and rigidity became an impediment to the mandates of innovation-focused digital transformation.

As a result, one of a few things happened. Either organizations undertook a traditional, efficiency-focused technology project, and called it digital transformation. Or they attempted to truly transform things, but ran smack into the brick wall of a tech stack purpose-built for efficiency.

The fundamental problem wasn’t a “failure of digital transformation,” but a failure to recognize that it wasn’t a “thing” to begin with. What enterprise leaders needed to do, instead, was to build an organizational capability that would enable them to bridge the gap between their competing mandates.

That technology capability is the essence of what I call a Digital Transformation Platform.

Image: Charles Araujo and The DX Institute

It is a collection of technologies that an enterprise must assemble to enable them to innovate by:

• Sensing and responding to market shifts and changing strategic priorities

• Rapidly deploying and orchestrating innovation and experientially-focused automation

• Seamlessly integrating data across the enterprise

• Holistically monitoring the tech stack from an experience-in perspective

• Creating new experiential interfaces to meet customer, employee, and partner expectations

• Driving continual customer, partner, and employee adoption of these new technologies, automations, and interfaces to ensure a return on their innovation investments

And it enables all of this innovation without disrupting the core efficiency that functional and line-of-business apps deliver.

While digital transformation will always be a business and organizational change action, executing it without building a supporting technology capability (a DXP) will doom it to failure.

However, the converse is also true. When you have built this capability, you will have created an innovation power source that will drive your organization forward long into the future.

Unlocking Your Innovation Power Source

Before I go much further, I need to let you in on a little secret. You already own and have deployed many of the components of a Digital Transformation Platform.

And, if you’re finding more success than your peers in executing transformational efforts and driving innovation, it’s most likely because you’ve organically done much of what I’m about to explain.

The ability of a Digital Transformation Platform to drive innovation is less about the specific tools you deploy, but in how you assemble and leverage them to your advantage. The real key here is intent.

The challenge for most organizations is that they purchase a piece of technology that may be a part of a Digital Transformation Platform — an observability tool, for instance — but then deploy that tool with a sole focus on improving efficiency.

It’s not the tool that’s the issue, it’s how you’re weilding it.

When you use that observability tool (to keep with our example) to create experiential visibility, to enable rapid environment change, and to increase the velocity of transactions and workloads through your stack, it suddenly becomes a source of innovation and transformation.

Likewise, you cannot look at any part of the DXP stack in isolation. To function as a DXP, all the components need to work together and be viewed as a whole.

The Buy-and-Build Model of Your DXP

I know that was a long setup, but this is a mindset shift more than anything else, so it’s important to understand the foundations of what it means. And there’s one last piece that you need to get your head around — the how of building and deploying a DXP.

I’ll go through all of the components of a DXP in a moment, but there are two important things to understand about them.

First, you cannot buy one. If some vendor attempts to sell you an out-of-the-box digital transformation platform, run for the hills. The entire point of this process is to create competitive advantage for your organization — that’s not something you can buy off-the-shelf.

That said, this also isn’t about building everything from scratch. The second point is that you’ll be following a “buy-and-build” model.

You’re going to assemble most of the building blocks using commercial enterprise IT software, then use various parts of those tools to build a unique set of automations and workflows on top of them — mostly using low-code and no-code interfaces.

This buy-and-build model is the secret sauce that allows you to create competitive advantage and bridge the gap between efficiency and innovation, while functioning within your existing resource constraints.

With the last preamble out of the way, let’s dive into the components of your DXP.

The Components of the DXP

Think of the DXP as an innovation engine. You take inputs on one side and spit out sustainable innovation on the other. To acheive this, each input must pass through three DXP stacks:

• The planning and architecture stack

• The innovation stack

• The adoption stack

Image: Charles Araujo and The DX Institute

As their names imply, each stack performs a critical function in converting demand into innovation. It’s important to note that these stacks do not necessarily represent discrete collections of tools, meaning that some tools may exist within multiple stacks or within various levels of a stack, based on specific functions.

The Planning & Architecture Stack

The starting point for all inputs into the DXP is the planning and architecture stack, which is typically comprised of one or more of the following components:

• Business architecture

• Value Stream Management

• Portfolio Management

Often leveraged in a purely tactical fashion (or skipped altogether), this class of tools is critical to the functioning of a DXP because it is the place that triage, assessment, and alignment of incoming demand to the in-production tech stack must happen.

In order to strike the balance between efficiency and innovation, you must take an architectural view of your entire environment and continually align and tune it to meet changing needs and demands.

The key here is to leverage these tools to create visibility around both sides of the equation. You then utilize that visibility to take targeted action that drives innovation by mixing your efficiency-oriented tech estate with new elements that create differentiation.

Fundamentally, this process requires a business focus and the ability to contemplate strategic needs and drivers in the context of your current environments. This business focus is essential so that you can effectively connect those strategic goals with the business outcomes you seek to deliver.

The output of this process should be a set of initiatives that you execute within your innovation stack.

The Innovation Stack

The innovation stack is the multi-layered heart of the DXP. It includes various components that stitch together your functional and line-of-business apps, enable you to create a layer of automation and orchestration on top of them, and often provides an experiential gateway to interact with them in a differentatiated or consolidated manner.

This stack typically consists of:

• Data Integration

  • Data Integration Platforms

  • Customer Data Platforms

  • API Design & Management

• Monitoring & Management

  • AIOps

  • Observability

  • Application Performance Management

  • Digital Experience Monitoring & Management

• Business Process Discovery & Management

  • Process Mining

  • Business Process Management

• Orchestration, Workflow & Automation

  • Workflow Automation

  • Business Process Automation

  • Low-code / No-code Application Development Platforms

• Experience & Engagement

  • Conversational AI

  • Low-code / No-code Application Development Platforms

The innovation stack helps you meet experiential and transformational demand by pulling in data and integrating business processes from your core technology estate, and then adding layers of orchestration, automation, and experience to create new applications or interfaces that create competitive advantage.

Data Integration and Monitoring and Management tools sit at the foundation of this stack because they, respectively, allow you to create connectivity and monitor the flow of data and workloads between systems.

Likewise, low-code or no-code interfaces and platforms are an essential element of DXPs because they provide the ability to rapidly develop and change applications, workflows, and experiential interfaces. Moreover, they allow you to democratize these activities to improve both velocity and relevance.

And, like the planning and architecture stack, merely having these various components is not enough. They must be leveraged in a cohesive fashion to create innovation without disrupting your efficiency-focused tech estate.

The Adoption Stack

The nature of a well-executed DXP is that it enables an organization to rapidly introduce a high volume of change into the organization.

Changing market conditions, shifting customer expectations, and rapidly evolving competition all drive the need for this level of change — but it is incredibly hard on people.

Continually introducing new technologies, changing applications, and reinvisioning interfaces can have a significantly negative impact on both productivity and customer and employee experiences. As a result, it’s imperative that your DXP include a set of tools that help you ensure the adoption of these investments as you deploy and change them.

The adoption stack typically includes components such as:

• Digital Adoption Platforms

• End User Experience Management

• Product Experience Platforms

The adoption stack gives you the tools to continually tweak and adapt the innovations you’re deploying based on the real interactions your customers, employees, and partners are having with them.

Again, the key is to look past the mere tactical gains (e.g., reducing calls to a support function or improving a service metric). Instead, you should use the data and insights this stack provides to optimize your efforts and create a feedback loop to the planning and architecture stack, enabling you to continually refine your transformational efforts.

Operationalizing Your DXP

As I stated at the beginning of this analysis, you probably already have many of these components someplace in your environment.

Merely having these various technologies is not enough. But then how do you transform them into a DXP?

Doing so is a three-step process that I’ll cover in depth in a future DX Report, but here’s the summary:

• Create an innovation pipeline. You need to stop looking at digital transformation as a thing and see it as an innovation capability. As such, you’ll need to build an innovation pipeline in which you see your DXP as a system that transforms demand into innovation. This approach requires that you build a discipline, structure, and culture around this process. It will be multi-dimensional and rely on disciplines such as business architecture and experience architecture.

• Fill in the Holes. While you may have most of the pieces of a DXP already, there’s a good chance your missing some essential components. While I’m not saying you necessarily need one of everything — focus on your business needs — you need to adequately address the capabilities you need in each stack.

• Instrument & Measure Innovation. To ensure the long-term sustainability of your DXP and ensure that it functions as an innovation pipeline, you need to anchor it to specific innovation-driven metrics. The greatest challenge you’ll face is that the default position for almost every tool in a DXP is to focus on efficiency gains. Don’t get me wrong, you’ll get efficiency as a byproduct of implementing an effective DXP, but the goal must be differentiation-generating, experiential innovation. Instrument and measure it as such.

The Bets You Need to Make & The DX Report’s New “Bet-Based” Format

Ok, that’s the basics of building a Digital Transformation Platform. Frankly, we’re just scratching the surface here, so I’ll be periodically digging into various components and elements in future issues of The DX Report.

But as I’ve been mulling and researching these concepts, something occurred to me. The difference between the status quo and driving authentic digital transformation — the difference between having a grab bag of tools and building a DXP — is all about the bets that an enterprise IT leader must make.

Each decision, every investment, is a bet. Hopefully it’s a bet grounded in solid research and analysis, but essentially you only have so many chips to play and you can only bet on so many technologies, practices, and ideas.

The bets you make — and if they turn out to be good bets or bad bets — is what determines your success, organizationally and personally.

Having been in your seat, and in talking with so many enterprise IT executives over the last decade, I know that placing those bets can feel overwhelming. The stakes are huge and everything is in a constant state of flux.

My hope is that the concept of a DXP can serve as a frame of reference as you place those bets. I believe that the most impactful bets you’ll be placing are those that involve the DXP — because they are the ones that will create innovation opportunities.

But I also want to help by changing how I approach my analysis. Going forward, most issues of The DX Report are going to directly address these bets. I’ll define the bet, then offer up “the briefing” — my analysis of the situation with the pros and cons and any significant considerations you should take into account.

Finally, I’ll give you my recommendation, playing the role of your investment advisor. But instead of buy, sell, or hold, I’ll be recommending that you invest, pass, or wait. And then I’ll tell you why.

My hope is that this combination — the DXP reference architecture and this new format for The DX Report — will give you a fresh set of tools to make the best decisions for yourself and your organization.

Ok, that’s it. I want to hear what you think. Tell me where I nailed it — or where I completely missed the mark. I expect I’ll be refining this concept over time, and it will get better the more you chime in and let me know your thoughts.

Finally, this is an important conversation, so share this concept with other enterprise IT leaders you know and invite them to join in!