A Feedback Systems Approach to Digital Transformation
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This document discusses using a feedback systems approach to managing digital transformation. It presents a case study of Uber's digital transformation strategy, modeled as reinforcing and balancing feedback loops. Key challenges for organizations undergoing digital transformation are developing strategies with incomplete data, linking investments to outcomes, and establishing shared understandings. The feedback systems approach addresses these by adopting a holistic, systems thinking perspective using tools like causal loop diagrams. Lessons include shifting from process optimization to stakeholder engagement and focusing on ecosystem value creation.
A Feedback Systems Approach to Digital Transformation
- 1. Education for Managing Digital Transformation A Feedback Systems Approach Dr. Michael von Kutzschenbach University of Applied Sciences and Arts Northwestern Switzerland michael.vonkutzschenbach@fhnw.ch ICETI 2017, Orlando (Florida)
- 2. Digital Transformation is on Everybody’s Mind 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 2 Search term: Digital Transformation March 13th, 2017 Approx. 10.100.000 results (0,56 sec.)
- 3. Cashless paying Robotic exoskeleton Picture source: http://www.ibtimes.co.uk/iron-man-style- robot-suit-soldiers-factory-workers-development-by-hyundai- 1560327 Picture source: http://www.apple.com/apple-pay/ Applications of Advanced Technologies 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 3
- 4. Picture source: http://www.focusedgrowth.solutions/our-services/ A Typical Approach to Managing Digital Transformation 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 4
- 5. 22.03.2017Institut 5 Envisioning Create a vision/strategy Engaging Empower people to act on the vision Optimizing Institutionalize and optimize the change Transforming Change structure, processes, and values Envisioning Engaging Transforming Optimizing Every business transformation is an iterative process that goes through different phases in recurring cycles. “Reality is made of circles but we see straight lines” - Peter M. Senge (The Fifth Discipline: The Art & Practice of The Learning Organization)
- 6. Business occurs at the intersection of two sub- systems: Socio-cultural system Technological system Managing digital transformations is a complex endeavor! The Real Challenge of Digital Transformation is Not Technology… 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 6 Picture Source: J. Peppard and J. Ward, The strategic management of information systems: building a digital strategy, 4th edition, Hoboken: Wiley, 2016.
- 7. We all have our Theory of Success Source: Drucker, P. (1994, p.96). “The Theory of the Business.” Harvard Business Review, September-October, pp. 95-104 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 7 If this is true, how good are we at developing, sharing and adapting useful theories of success?
- 8. Some Key Challenges to Digital Transformation Developing strategies are based on incomplete, fuzzy, ambiguous data Because of uncertainty and time delays in the real world, it is difficult to link investment in programs to outcomes It’s difficult to create buy-in among key stakeholders due to diverse interests, agendas, and language People do not have a shared definition – common understanding – of a digital/smart enterprise There is one thing in common that we use in each phase of the digital business transformation loop. It is your “Theory of Success”! Do you know our “Theory of Success”? 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 8
- 9. Source: Kane, G.C., D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley (2015). “Strategy, not Technology, Drives Digital Transformation: Becoming a Digitally Mature Enterprise.” http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/ A Feedback Systems Approach addresses these issues { Report from Reality 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 9
- 10. … a different way of seeing the world - a different way of thinking, speaking and acting in the world. We Need to Improve at Theory-Building: Shifting from Factors to Loops 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 10
- 11. The common ways of (linear, event-oriented) thinking hampers our ability to generate effective mental models of digital transformation. ACTION & RESULTS SITUATION GOALS DECISIONDISCREPANCY Event-oriented World View: The Standard Approach 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 11
- 12. The feedback systems approach adopts a holistic perspective on complex organizational systems. Feedback-oriented World View: The Alternative Approach 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 12 These most likely are not considered! These most likely are not consistent or compatible! Decision Environment Actions of Other Agents Goals of Other Agents (Your) Goals Side Effects of Your actions Side Effects of Others' Actions
- 13. Applying Feedback Systems Thinking Requires… 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 13 A Paradigm: Systems Thinking Dynamic Thinking – Looking for trends/patterns of behavior – shift from ”event focus“ 10,000 Meter Thinking – Taking a Big Picture View (from the balcony) System-as-Cause Thinking – Choosing to focus on the system within the organization’s controll as responsible for performance Operational Thinking – Looking for explicit causal explanations for behavior (How does this work?) Closed-loop (Feedback)Thinking – Move beyond linear thinking to circular causality – the world is made up of feedback loop relationships Scientific Thinking – Building the most useful, entertainable theory of causality Generic Thinking – Seeing the world composed of generic structures Empathic Thinking – Expanding personal boundaries and creating the ability to understand other perspectives/mental models A Method: The Scientific Method Identify Issues Map Systems and Processes Generate and Test Solutions Communicate and Disseminate Solutions and Insights A Language: Visual Mapping Stress Drug Usage HealthProductivity + - - + - B R Inventory of cars on the lot deliveries sales delivery delay Orders to factory response delay discrepancy desired inventory perceived sales perception delay customer demand FACTORY Production Control Workforce Management Workforce Production Schedule Incoming orders Shipments
- 14. The Uber Case 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 14 Uber provides a unique opportunity to illustrate feedback systems thinking to represent a theory of success for platform businesses.
- 15. The Uber Case: Uber’s GBF Strategy GBF strategies promote a strong focus on reinforcing feedbacks that create a large customer base and the accquisition of captial for rapid growth. Uber’s underlying strategy can be described as a ‘Get Big Fast’ (GBF) strategy. 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 15 Uber App Attractiveness Number of Uber Users Transactions Revenues Available Capital Growth Activities + + + + + + R1 Uber GBF-Strategy
- 16. The Uber Case: Managing a Two-Sided-Market One of Uber’s core challenges is that it must manage satisfaction on both sides of a two-sided-market (riders and drivers, and investors). Users’ satisfaction depends on rapid availability of cars and drivers, while keeping the business attractive to investors. 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 16 Uber App Attractiveness Number of Uber Users Transactions Revenues Available Capital Growth Activities + + + + + + R1 Uber GBF-Strategy Investor Capital + + R3 Attractiveness to Investors Number of Uber Drivers + + R2 Satisfaction Loop
- 17. The Uber Case: Reinforcing Feedback Loops – The Growth Engine Uber’s theory of success relies on a set of positive feedback loops that reinforce the power of the system from one side of the market to the other side, thereby creating a growth engine. 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 17
- 18. The Uber Case: Balancing Adjustment Loops Regardless of how compelling Uber’s service is, there are also a number of limiting feedback loops. Some of them are caused by time delays between decisions and results. 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 18 Uber App attractivness Uber users Transaction Revenues Available capital Uber drivers + + R1 + + + + Investor capital + +R2 IT development Adequacy of IT infrastructure + + R3 Marketing Brand equity + + + R5 Service development Adequacy of service infrastructure + + + R4 - B1 Drivers on hold Behavioral changes - +B2 Disrupting trends Data volume + - B3 Cyber security -B4 Service adjustment B5 IT adjustment - B6 Marketing adjustment -
- 19. The Uber Case: Growth and Underinvestment Archetype – The Trap Managers are often unaware that capacity adjustment takes more time than earning revenues. Withholding investments or reductions in capacity can lead to financial problems. 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 19 Uber App attractivness Uber users Transaction Revenues Available capital Uber drivers + + R1 + + + + Investor capital + +R2 IT development Adequacy of IT infrastructure + + R3 Marketing Brand equity + + + R5 Service development Adequacy of service infrastructure + + + R4 - B1 Drivers on hold Behavioral changes - +B2 Disrupting trends Data volume + - B3 Cyber security -B4 Service adjustment B5 IT adjustment - B6 Marketing adjustment - Service Investment
- 20. From resource control to resource orchestration From process optimization to stakeholder engagement From a focus on value creation of a single system to a focus on ecosystem value creation Lessons Learned 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 20
- 21. Contact Details Dr. Michael von Kutzschenbach FHNW University of Applied Sciences and Arts Northwestern Switzerland Institute for Information Systems Peter Merian-Strasse 86 CH-4002 Basel, Switzerland Phone: +41 61 279 17 70 E-Mail: michael.vonkutzschenbach@fhnw.ch 3/22/2017Dr. Michael v. Kutzschenbach (Institut for Information Systems) 21