The ART of Digital

A Minimum Viable Research Report

A Minimum Viable Research Report

Authors: Michael Rosemann and Marek Kowalkiewicz

Trust, indeed, is the currency of the new economy. Recent months and years have elevated the term to front pages of newspapers. The dramatic drop in numbers of users trusting Facebook with their data, trust in statements made by state leaders, or the efforts to increase our trust in self driving cars , show how important trust has become, given the lack or demise of other proxies of trust (such as brands, certificates, or a simple experience of interacting with a “trustworthy” human).

But what is trust, really?

And, what can organisations, large and small, do to influence it?

Our initial research has shown that individuals have a very diverse understanding of the term. There is the trust in the large and the trust in the small. Trust in the large is a broad, all-encompassing term — it goes well beyond what is easy to define and measure. Trust in the large comprises a complex combination of expectations and mindsets. And then there is trust in the small — a well-defined concept that can be precisely interpreted, captured and acted upon. We believe that the latter is relatively easy to measure and control, whereas the former is closer to art — hard to define, but naturally recognized and perceived. The narrowly understood trust (trust in the small) captures the “it just works” thinking. The broadly understood trust (trust in the large) captures our expectation that businesses of the digital world focus not only on their own success, but also on the consequences of their operations on the society.

In this report we unpack the concept of trust in the digital age. We believe that organisations of the digital age need to think about trust in the broad sense (trust in the large) and design for it. But, in order to do it, they need to properly understand the components of trust in the large. And even before this, before understanding the components of trust, organisations need to understand how trust became an important differentiator.

In order to avoid any confusion, in the rest of the document, whenever we refer to “trust”, we mean it in the narrow sense, and the broad sense is captured by a term we introduce in 1.4: social license.

1. The evolution of excellence

The development of technology-intensive solutions in business can be captured in four stages, each with a specific focus. Each of the stages has its distinct objective, and they all add new requirements to each other, as opposed to replacing the previous stages. The stages are, respectively, focusing on engineering, corporate, customer and societal excellence. As each of the stages has been in the centre of attention for a certain period of time, we refer to the stages as “ages”.

1.1 The age of engineering excellence

The initial stage of each technology development and use is driven by engineering efforts. In this stage, the possibilities of an emerging technology are explored. The histories of the computer, the Internet or robotics, for example, demonstrate how this phase can be seen as the stage of invention, i.e. the creation of a new capability.

Steve Wozniak, spending countless hours on designing, developing, and perfecting Apple I is a perfect example of engineering excellence in action. More recently, untold numbers of professional and amateur software developers work on other breakthroughs in technology[MK3] , for instance developing encryption mechanisms utilizing quantum computing, or exploring new applications for blockchain.

This stage, engineering excellence, is very much characterised by a space where curiosity, determination, research and sound engineering efforts meet. Its main outcomes are entirely new affordances (e.g., the ability to compute — in the early days of exploring applications of transistors) and consequently the focus is very much on providing new possibilities.

By no means, this is a past or a waning activity. Rather, it still can be witnessed in all current explorations, and quite possibly the focus on this stage is only increasing. For example, the development of crypto-currencies, robots that can see and freely interact with their environment or 3d printers that can print food or bionic parts are currently all largely driven by creating such new affordances.

Contemporary maker spaces[MK4] are providing a fertile place to nurture democratized engineering excellence by making advanced manufacturing capabilities available to a mass of explorers and entrepreneurs.

Activities under the umbrella of engineering excellence can be described by the endeavour to answer one question: ‘Can we build it with the technical opportunities at our disposal’? This is a design-intense activity with a substantial amount of prototyping and iterative testing and learning.

The requirements in this stage can be captured in the following three focal points which closely mimic criteria as they are used in assessing outcomes build by researchers. First, does the invention address a relevant problem (the ‘so what’ assessment)? Second, is the invention a valid outcome, i.e. is it understood why it works? Third, have we mastered the underlying process, i.e. is it reliable and can it be re-produced? Thus, the relevant–valid-reliable triangle could be used to assess engineering excellence as defined here.

Businesses that focus on engineering excellence, appoint Chief Technology Officers to ensure proper coverage and execution in this space.

1.2 The age of corporate excellence

Engineering excellence, as defined above, leads to developing new capabilities, but in order for this new intellectual property to create value, the capabilities need to be used and contextualised. Corporations play an essential role in contextualizing and using IP in order to create such new value. These organisations, with limited resources and embedded in competitive environments, need to continuously scan emerging inventions and assess if these help them to address essential requirements or create new opportunities. This process of turning an idea into a business differentiator (value creator) is when an intervention becomes innovation.

Corporate excellence reflects an economy of corporations that often meant finding ways to further boost the productivity of an organisation. The obsession to streamline operations goes back to Adam Smith, Frederick Taylor and Henry Ford, who were all driven by designing ever more streamlined forms of mass production. This focus in the corporate ambition also materialised in the first large scale components of systems that were dedicated to planning and controlling of production systems in the form of MRP II systems which later led to comprehensive Enterprise Systems (e.g., SAP, Oracle). Advanced logistical concepts in the domain of supply chain management showcase today’s sophistication of this desire for corporate excellence.

Steve Jobs helped turn an engineering masterpiece, Apple I, designed and hand-built by Steve Wozniak, into an ongoing line of computers that “created” one of the most successful global corporations. Large corporations, as well as individual entrepreneurs, are currently exploring new business opportunities enabled by well understood outcomes of engineering. For instance, Industry 4.0 is an entire space focusing on application of technologies to change how individual organisations, as well as entire industries, work.

The focus on identifying and overcoming non-value adding tasks was accelerated by the Business Process Reengineering phenomenon and largely addressed the well-discussed time-cost-quality triangle. Subsequent approaches such as Lean Management, Six Sigma, workflow management, Total Quality Management or Activity-based Costing provided advanced concepts to address the requirements of the cost-time-quality triangle.

We still witness a substantial (if not dominating) focus on corporate excellence and the automation of the firm which now takes place in the form of artificial intelligence, machine learning, robotic workflows and advanced robotics.

In comparison, one could state that while engineering excellence is concentrated on providing new affordances, corporate excellence is concentrated on analysing and deploying these new capabilities for the benefit of the firm as measured by improvements in time, cost or quality metrics.

Corporate excellence in the form of transactional performance is often the domain of Chief Operating Officers. However, the fast-paced digital economy has meant that many large organisations struggle in maintaining the agility they used to have as smaller organisations. This is perfectly captured by Clayton Christensen’s “The Innovator’s Dilemma”.

1.3 The age of customer excellence

Though customers are of course fundamental to the raison d’être of a corporation, it took a surprisingly long time to consider customers and their actual and desired end-to-end experiences and to make these a primary concern. The transition from corporate excellence towards customer excellence is best described as moving the attention from the supply side to the demand side. This shift has in particular moved the attention from a focus on analysis to design. Previous attempts to simply depict customer touch points (Lean Management: Voice-of-the customer) along a business process are now increasingly replaced with the actual or desired customer experience along comprehensive customer journey maps. Design thinking as a methodology provided the scaffolding needed to tease out these experiences.

While the previous stages were grounded in the conversion of interventions (e.g., assembly lines, new computing capabilities, enterprise systems) and the provision of resulting products and services to the market (push economy), the age of customer excellence very much makes the customer the birthplace of all design activities (pull economy). Desirability best describes the requirement to start with having a customer view instead of concentrating on (internal) capability. No surprise that as a consequence the mantra of mass production increasingly is replaced with a call for mass individualisation.

The increased customer centricity correlated with the emergence of a more advanced understanding of cost and revenue models for which the simplified cost-minimization paradigm of the previous age was no longer sufficient. This led to the emergence of business models as a way to reflect available variables for the monetization of processes, products and services. Viability captures the advanced assessment of a now much more comprehensive set of variables that need to be evaluated when determining the most relevant, sustainable economic underpinning of new value propositions.

Finally, entire new and customer-focused technologies created previously unknown affordances as the democratization of IT allowed light asset models facilitating ubiquitous access and low-cost products launched on platforms. Labelled digital technologies, this development provided a much more comprehensive design space and made previously unimagined services possible. Related evaluations are now conducted under the label of Feasibility.

Customer excellence is characterized by a fundamental difference to the previous age. While the corporate age was largely driven by capturing and resolving well-structured shortcomings (so called pain points), the digital stage is creating an over-supply of opportunities.

The age of customer excellence is embodied by organisations that see past the technologies they created and the value the technologies generate for them. The organisations of the age of customer excellence are deeply focusing on understanding and maximising the value created for their customers. The concept of customers is often extended, to include not only the paying ones, but also those who help create value itself (as seen clearly in platform-centric business models). In case of Apple, the organisation’s focus goes beyond the technology, and explores opportunities to help software developers generate value for their (and Apple’s) customers. Leaders of successful businesses increasingly focus on the concept of “jobs to be done”, to provide the best value for their customers (often called “partners”).

The age of customer excellence can be best summarized in the feasibility-desirability-viability triangle (IDEO). The requirement to capture these three challenges is further complicated by the need for agile, i.e., adaptable, fast changing arrangements.

We have witnessed an emergence of numerous leadership roles focusing on customer excellence, including Chief Design Officers, and Chief Digital Officers. In some organisations, Chief Marketing Officers are responsible for customer excellence.

1.4 The age of societal excellence

While companies keep on improving their internal efficiency addressing classical time-cost-quality requirements and aim to increase their focus on actually desired outcomes while considering new business models and digital affordances, an entirely new requirement has emerged.

No longer are companies reduced to the providers of products and services that simply can be consumed, but they are also judged by higher requirements. Not only customers, but now also societies and their regulators, are expecting that companies consider greater societal requirements. It is no longer about their economic results as they matter to their investors or the attractiveness of their products and customers in the eyes of their customers. In addition to such value chain-driven arguments, corporations increasingly are asked to earn their social license to operate within and to contribute to the society. What started in the mining and minerals industry approx. 15 years ago, the concept of an unwritten social contract has now been extended to all types of industries.

In the following, we will decompose societal excellence into three criteria.

• The systems and processes of an organisation must be trusted. The society expects that an organisation operates and provides services and products according to its promise. The tremendous scale, complexity and speed-of-change within many corporations often puts the ability to deliver-to-promise under intense pressure. The increased integration of external stakeholders into the corporate value chain (e.g., Uber, Airbnb) further complicates this. “It just works” was a statement that Steve Jobs would often repeat, when referring to Apple’s products and services.

• In addition to the more operational ability-to-deliver, society expects that no harm is caused during the production of the service. The absence of harm covers a range of aspects such as complying with health and safety standards (e.g., no child labour), sustainability requirements (e.g., carbon footprint requirements) or protecting privacy demands (e.g., the recent General Data Protection Regulation introduced in European Union). This requirement is best described by Google’s motto ‘Don’t be evil’ in its corporate code of conduct, which as part of the transformation into the Alphabet conglomerate ‘Do the right thing’.

• Finally, organizations are expected to have a raison d’etre that goes beyond stakeholder’s expectations and the absence of harm. Instead, a greater purpose and credible aspirations are desired, i.e. what is the corporation’s contribution to mankind? What is its net-benefit to society beyond its economic model? SAP’s purpose is to “help the world run better and improve people’s lives”.

The age of societal excellence is best captured in the triangle of being aspirational, responsible and trusted. We summarise there three criteria under the abbreviation ART and very much believe they constitute, in addition to (not instead of) the previous three stages, a further class of requirements organisations need to consider when striving in the digital economy.

Before, we explore the ART of digital in more detail, we will quickly recap the four stages as mentioned above using a simple car manufacturer example.

Under the mantra of engineering excellence, a word-wide active car manufacturer invests resources in addressing relevant problems such as “how do we facilitate car-to-car communication”, “how do we build an e-vehicle with a battery that lasts for 1,000kms” or “how do we further increase the levels of autonomy in our cars”? Any progress with these and many more questions needs to be valid, i.e. proven evidence for such progress is required and the process needs to be well understood and replicable (reliable) to be scaled up globally.

With a view on corporate excellence, the focus would be on “how do we further reduce time-to-market and time-to-customer”, “how do we deploy advanced robotics to reduce the costs or manufacturing” or “how do we improve qualities of a car such as its sensing abilities to further reduce the number of accidents”.

A more external view on customer excellence would start with an exploration of new desires in the context of using a car (e.g., the pressure to find car parks in crowded city spaces), new viable business models (e.g., the design of a mobility subscription service instead of transfer of car ownership) and exploring new feasibilities with high customer value (e.g., the ability of a car to take over certain payments).

Finally, societal excellence would be evidence in aspirations that go beyond selling cars and could take the form of donating a certain number of cars to people-in-need who in Uber-like arrangements could use the temporarily donated car to ear an income. Responsibility could be demonstrated by a respect for privacy and a clear policy on how to track car locations and how related data is protected. Trust, finally, will require delivering-to-promise in a domain of fast increasing requirements and could be evidence by the absence of any type of accidents of an autonomous vehicle.

2. The ART of Digital

As discussed above, the organisations of the age of societal excellence focus on earning their social license to operate. We have seen this shift of focus in many organisations in the recent times.

The three goals of being aspirational, responsible and trusted capture the essential components for businesses active in the digital economy to earn the social license. Differently from the four stages of evolution of excellence, described in the previous sections, aspiration, responsibility and trust do not come in a particular sequence, even if it may initially seem so. Similarly, to the previous section, they do not replace one another, and instead can build upon each other. While it is hard to imagine a technology-intensive business that is striving for customer excellence but never developed corporate excellence, it is entirely possible to imagine a business that is responsible but not trusted. Similarly, it is imaginable that a business decides to start as an aspirational one, but only later develops the trust framework. Since the order does not matter here, it is also possible to imagine a trusted but not responsible business. We list a few such examples in section 2.4.

Despite the fact that the order of stages is not crucial, it appears that organisations typically start with a focus on trust, before expanding their focus to responsibility, and then finally aspiration. We expect, however, to see more businesses, especially emerging ones, to start on the “aspirational” level — aiming at impacting the world in a positive way, with their actions — and only later on developing competencies in the remaining areas (responsible and trusted).

This shift, toward organisations initially focusing on their aspirations, is driven both by the new workforce (millennials are significantly more interested in the type of work they do, compared to Gen Xers — https://hbr.org/2016/05/what-millennials-want-from-a-new-job), as well as the increasing understanding of the massive potential (both positive and negative) of digital technologies and business models — with social networks influencing politics on a global scale, self-driving cars involved in fatal accidents, and other examples of the dramatic impact these business models and technologies have on the society.

Below, we explore in detail what each of the stages entails. We start with stage 1, trust (“it just works”), follow with responsibility (“don’t do evil”, “do the right thing”), and conclude with aspiration (“make the world a better place”).

2.1 Trust

Trust is directing organisations to focus on consistently and reliably delivering outcomes, while offering the expected quality of the outcomes.

The consistent and reliable delivery of outcomes, referred to as reliance, is an intrinsic aspect of an organisation, one the organisation has a strong control over. It requires ensuring that the organisation has the rights skills to deliver the outcomes as well as ensuring ongoing performance. Reliance is a function of the organisation’s ability to manage their processes in time and scale. It is very much grounded in the notion of quality in the industrial age (e.g., TQM’s zero defect attitude).

Offering the expected quality of outcomes is often referred to as credence. As the quality of outcomes, beyond basic — hygiene factor — aspects, is judged by customers, credence is an extrinsic factor for businesses, where only limited control can be had.

The topic of trust is of high relevance as current societies face a trust crisis. Trust in institutions, corporations, government, media and non-for-profit is at a low point according to global annual surveys (Edelman Trust Barometer 2018). In order to understand this development, and the role of the digital economy, we need to reflect deeper on trust.

Trust motivates us to take an action in light of uncertainty. Because we lack complete information for many decisions we have to make, we are seeking support of entities or sources we trust. For example, most of us lack comprehensive financial, legal or medical expertise and as a result we trust the advice of professional such as financial advisors, lawyers and GPs. This is what is called institutional trust. Institutions possess resources in the form of systems, processes and ultimately human capital that exceeded the capabilities of a citizen. As a consequence, we developed a dependence on institutions to guide us through our lives.

However, the digital economy has democratized many facets of our society and lives including the notion of trust (Botsman 2017). In other words, the emerging economy of people has opened up new sources of accessible trust in addition to established institutions and as a consequence reduced the dependence on institutional trust. Nowadays, we have more access to sources that we might trust more, including

- access to the behaviour or the preferences of the society (books sold, videos watched, hotels booked or liked) (assumption: high levels of consumption and positive comments reflect credence; i.e. the ranking economy)

- access to trusted peers (e.g., friends or professional colleagues) via social media (assumption: we can assess the views of people we know well better, e.g., the viewpoint of a friend who is a mad cyclist will probably count higher than the arguments of the sales person at the cycling shop)

- access to people-like-me (e.g., patientslikeme) provides the ability to interact with people (assumption: similar circumstances provide high credibility)

- access to algorithms (assumption: machines have a higher reliance than humans)

These developments do not necessarily mean that incumbents will loose in the race for trust, but they most definitely have to make competing on trust a primary concern. ‘Trust architects’ could be a new profession dedicated to orchestrating alternative forms of trust depending on personal preferences. For example, if an Australian farmer is abbe to use Blockchain as a way to improve credence and provide evidence that the produce available in the streets of Shanghai is indeed from Australia, it may afford charging a premium.

2.2 Responsibility

The second area of focus for organisation seeking to improve their social license is responsibility. Responsible organisations are truly focussed on making sure they do the right thing, and recognising, as well as facing, the consequences of any wrongdoing.

The focus on performing their activities well and thoroughly, duty, is an intrinsic factor of responsible organisations. It is an effort to perform actions according to an inner (or outer — if defined by legislation, ethics etc.) sense of what is right. It goes beyond simple reliance as it requires a through consideration of any consequences of potential actions done by the organisations. With other words, responsibility requires the absence of any unwanted (harmful) ‘side effects’, effects that in many cases will be invisible to the customer. Dutiful organisations are continuously trying to understand the impact of their actions, well beyond simple service delivery.

Responsibility is a significant challenge in the digital economy as standards that define responsibility requirements are still only emerging. Unlike physical supply chains where, for example, carbon footprints are now defined and measured, digital supply chains are still poorly regulated in terms of their responsibility. A prominent example for such a relevant ‘responsibility standard’ is the EU General Data Protection Regulation defining data privacy laws.

Organisations that recognise, and face, the consequences of any wrongdoing are referred to as accountable organisations. Accountability entails acceptance of (deserved) praise, blame, reward or punishment for an act of omission, in accordance with one’s moral obligation. As it is impacted by events happening outside the organisation, it is considered an extrinsic factor. An organisation can never fully predict the impact that its actions may have, thus accountability can often only be assessed once an event requiring accountability happens.

Occasionally, digital businesses are driven by duty, but — perhaps through a different perception of “what is right” — they do not accept the blame or punishment in case of a pushback.

2.3 Aspiration

Aspiration is the third area we highlighted as important for organisations to earn a social licence. Aspirational organisations have a strong understanding of their reasons to exist and an ambition to create strong impact. Beyond the pure understanding and ambition to make an ‘authentic contribution to mankind’, aspirational organisations indeed achieve a positive, measureable change to the well-being of people and the planet.

The strong understanding of reasons to exist and an ambition to create strong impact is an intrinsic factor of organisations that is often referred to as purpose. The purpose of an aspirational organisation goes beyond a simple desire to deliver quality outcomes (which is the domain of trust), or outcomes that are not harmful (which is the domain of responsibility). The purpose of an aspirational organisation is actively focused on creating positive change in the world. “Make the world a better place” is a mantra that is not foreign to aspirational organisations.

Beyond an intentional purpose, the actual change caused by organisations is referred to as impact. As there are many other factors that can influence impact, it is an extrinsic aspect of organisations. Aspirational organisations focus their efforts on ensuring that they indeed achieve their ambitions.

The emergence of aspirational businesses in the digital economy is a relatively new phenomenon. Some of the early initiatives, such as the “One Laptop Per Child” project, have paved the way for digital businesses to explore this new space of aspiration-first business models and technologies.

The light-asset resourcing model of the digital economy combined with new business models has facilitated a number of entrepreneurs who now strive to make as social enterprises contributions to mankind in the form of zero-cost health or educational services.

However, there is also substantial (economic) benefits for incumbents if they are able to create aspirations. Beyond the obvious motivational impact on the existing workforce or its role in attracting new talent, an aspiration can also catalyse the innovation of entire new products and services. For example, a university that would move from being a trusted and responsible provider of degrees to striving for the aspiration of securing life-long educational well-being, will be motivated to design entire new educational services such as subscription models to ensure an ongoing up-skilling of its graduates.

2.4 The Venn Diagram of the ART

The true ART of digital consists of achieving trust, responsibility and aspiration at the same time. However, as we outline briefly below, in many cases (and in fact not dissimilar to the other triangles above, e.g., time-cost-quality), many organisations only achieve two of these three requirements of societal excellence.

Trusted and responsible organisations

Many organisations that stay true to their strategy and operating models will fall into this category as truly aspirational organisations are still the exception.

Trusted and aspirational organisations

Organisations in this category provide the customer with what they ask for and deliver high quality outcomes while striving for and actually delivering on a higher purpose. However, while they conduct their business, ‘unwanted side-effects’ are created. This could be for example inappropriate data leakages in a social network provider that otherwise helps to satisfactorily connect people around the globe.

Responsible and aspirational organisations

Organisations in this category show a high level of awareness for the social obligations and have admirable ambitions. However, they lack the operational capabilities to deliver on this promise.

3 Summary

A key feature of the digital economy is that is has empowered citizens in the form of powerful, affordable devices, global connectedness and new levels of digital intelligence. In addition, new business models have facilitated free access to a number of digital public goods and accelerated accessibility. As a consequence, the economy’s centre of gravity has started to shift from corporations to people. In such a democratized environment, society has a new voice. Corporations can no longer focus on micro-improvements in their own ecosystem, but have to consider societal well-being in their strategy as well as in their daily operations.

This paper crafts a narrative of four ages of excellence that we named engineering, corporate, customer and societal excellence. They are all additive, i.e. each adds its layer of requirements. By no means they reflect a chronological development. Rather, each of these four could be a fertile starting or reflection point for an organisation. Depending on the ambition and capabilities of the organisation and its stakeholders, it could be engineering excellence (if there is a unique technical invention), corporate excellence (if there is strong business acumen and resources create a competitive advantage), customer excellence (if the organisation is driven by and able to solve a specific problem) or societal excellence (if commitment to an aspiration combined with dedication to trust and responsibility has initiated the organisation).

Societal excellence is not only a new challenge, but rather comes with substantial opportunities. In addition to the common micro-analysis of customer problems (e.g., customer journey maps, design thinking), the macro-investigation into societal problems has the potential to identify entire new significant problems that deserve attention, but also come in many cases with economic opportunities. Increasingly, it can be observed that decision makers are sensitised to the need for societal excellence, and that regulators demand it. However, an appropriate toolset is still in its infancy.