The term “digital transformation” means many things to many people. For some, it’s a customer-centric approach to doing business entirely online. For others, it’s a way of doing business without paper or analog systems. For other “others,” it means “disruptive innovation” toward “decentralized ownership” of “technologies and processes” creating “synergy,” “monetized assets,” and “galvanization.”
Are you crying yet?
The battle for nascent business jargon—er, terminology—never ends. (See also: “DevOps.”)
I think we can all agree that, whichever definition you choose, digital transformation is a fundamental shift in how a company operates in today’s world.
So, why the heck is “digital transformation” even important in the first place?
Well, companies that aren’t digitally transformed are facing tremendous competition from small, young upstart companies who are overturning industries. Airbnb completely flipped the hospitality industry with just a few people, and nothing in the way of property ownership.
Netflix has completely flipped the entertainment industry, is now bigger than all the cable companies combined, and generates more bandwidth consumption than the rest of the entire Internet.
I could go on, but I won’t. But I could. And I won’t.
Welcome to New World IT
Adrian Cockroft, VP Cloud Architecture Strategy at Amazon Web Services (AWS), differentiates between “Old World IT” and “New World IT.” Cloud-native companies are in the New World and everyone else is Old World. Pretty simple. In this context, digital transformation is the path from Old World to New World.
In the Old World, you saw employees at desks, paper on those desks, factories and supply chains, and marketing analytics based on traditional media channels like television and print.
In the New World, employees are mobile and connected via apps and networks. Factories and supply chains are doing just-in-time production. Sales and delivery are handled online. And all of this is theoretically infinitely scalable.
New World companies have the opportunity to deliver personalized marketing directly to customers, know how customers respond and act afterward, and offer new channels that are highly tailored to their needs.
For example, Old World television broadcasters had no idea who was watching what channels and when. They had to rely on Nielsen ratings and other probably-inaccurate-and-possibly-biased systems. New World companies like Netflix and Hulu know what is being watched, for how long, in which house, and by whom (assuming user profiles are set up). They then use that information to offer personalized recommendations based on the content being watched the most.
It’s kinda scary if you think about it, but I won’t go there. I could. But I won’t.
How to Transition?
A lot of companies reach out to us when they find themselves caught in the midst of this digital transformation work. It’s tough! And the scope of a holistic digital transformation strategy is yuge!
Consider these eye-opening facts from Christian Deger, Chief Architect at Auto Scout 24, and Constantin Gonzalez, Solutions Architect at AWS:
- The average lifespan of a company on the S&P 500 in the 1920s was 67 years.
- The average lifespan of a company on the S&P 500 in the year 2015 was 15 years.
In his book The Black Swan, philosopher Nassim Taleb points out that “[o]f the five hundred largest U.S. companies in 1957, only seventy-four were still part of [the S&P 500] forty years later” (page 221).
Given the acceleration of company lifecycles and the amount of “disruption” (ooh!) we’ve seen in the past 17 years, Old World companies aren’t likely to exist another 15 years.
In Deger and Gonzalez’s experience, digital innovation requires a push from somewhere — and that push needs to lead toward digitization, which is really about creating value out of data.
Digitization removes any physical limitations on your products, whether that’s square footage in a warehouse storing your excess inventory or maintaining an office environment where employees must have their butts in seats in order to communicate.
They also recommend developing a culture of builders. You know, people who actually, like, build stuff. Whether it’s physical products or software developers, New World companies are chock-full of people who know how to construct items, apps, and services that can be sold for revenue.
Old World companies often hire agencies (like meltmedia) who build products, services, and infrastructure for them, which is great to get started. But when they don’t take ownership of the products, services, and infrastructure, they lose out on a huge opportunity to apply their expertise to the company’s growth.
Becoming Cloud Native
Amazon uses the term “Cloud Native” to describe companies that use cloud-based services to streamline and automate anything that gets in the way of product development, sales, and distribution.
We like that term.
Cloud Native companies are the ones operating in the New World. Becoming Cloud Native is a major challenge for most companies because services like Amazon Web Services, Microsoft Azure, and Google Compute Engine are changing every day and it’s tough to keep up. There are staffing and training challenges, too.
If you can pull it off, becoming Cloud Native gives you all sorts of incredible advantages.
Airbnb’s tremendous disruption of the multi-billion dollar hospitality industry is a fantastic reminder of what an ambitious, Cloud Native company can do with limited funding and the right mindset around today’s technological capabilities. Now they’ve got the Old World incumbents (and their lobbyists) scrambling to keep up.
But Airbnb is the exception, right?
Well, not really. There are companies popping up all over the world with minimal staffing and full access to all of these cloud-based services ready to change industries. And remember, the average lifespan of companies on the S&P 500 has shrunk about 80% in the last century.
Principles of Being a Cloud Native Business
Being Cloud Native requires a set of standards and beliefs, which Adrian Cockroft of AWS calls “Cloud Native Principles.” They remain constant as practices evolve, and include:
- Global distribution
- Cross-zone/cross-region availability
- High utilization (turning off idle resources)
- Immutable code
Many of Amazon’s newest services, for example, are “pay-as-you-go,” which means you only pay for what you use. Instead of keeping a server online 24 hours a day, 365 days a year, you can now build applications that are priced based on actual usage.
For example, you can abstract your application into its most basic functions and execute those functions only when needed. Think “microservices,” but with less persistence. As a person who used to manage global data centers and who received a computer science degree in 2004, this kind of new paradigm is absolutely stunning.
“Self-service” means you can build everything you need without waiting.
In previous jobs, if I needed to scale out an application, it meant I had to get budget approval for a new server (often $5K-$20K), wait for it to be built and shipped (2-8 weeks), wait for a data center employee to install it (3-5 days), wait for a system administrator to install everything I needed (1-5 days), write up a ticket describing the implementation and rollback plans for adding the server to the application (1-3 days, including approval), then wait until I had a low-usage timeframe to do the implementation. Literally, it took months to get a new server added for an app. Now it takes hours, minutes, seconds, or no time at all (all depending on how you configure your app) and no human intervention.
“Immutable Code” means that an entire application, its architecture/infrastructure, and its lifecycle processes are built into the application code.
The latest cloud technologies allow you to define and automate everything you need in configuration files or abstracted functions. Your code becomes the source of truth for your applications. You don’t have to go into the Configuration Management Database to see how many nodes exist for each tier/cluster of an app. And that information is no longer separate from the functionality of the app. Whenever there’s an app update, you don’t need to write tickets and get global teams engaged at weird hours of the night and manage complex risk because you can now do all of this stuff with a few clicks in a web-based console.
All of this means that I can write an app built for the cloud that reaches any and all of my customers across the globe without having to hire any infrastructure specialists. The team building and designing the application can own the entire software development lifecycle. That’s right, the entire SDLC. They can own infrastructure, application design/architecture, build/deploy/run, scaling, A/B testing, and more without any overhead. If something goes wrong, rollback can be a seconds-long automated process activated with a single click.
It’s stunning for those of us coming from the Old World. It’s the norm for those of us starting in the New World.
This is just the tip of the iceberg. The path forward for running a technology-based business is transforming before our very eyes. If this makes you uncomfortable, that’s a good thing and it’s a great time to get started moving forward before you get left behind.
Moving from the Old World to the New World is challenging, but it needn’t be overwhelming.
There are many strategies for making the transition. We have a lot more to say about it (and we will in future posts!), but if you want to talk about it, just reach out and we can have a conversation.
I’ll leave you with a powerful quote from Daniel Kahneman in his classic book, Thinking, Fast and Slow: “Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”
New World companies know this and live by it. Do you?