FEATURE – In many organizations, strategy is often lacking from the digital transformation agenda. The authors provide insights into how value chains and Wardley Maps can assist.

Words: Philippe Guenet and Nigel Thurlow

Digital has been the cause of great business disruption since the 1990s, presenting challenges for established players and opportunities for those who want to gain advantage from a new landscape. It has enabled globalization, increased and intensified competition, driven emerging business models (think of PaaS and SaaS) and allowed new entrants – like Uber, Airbnb or Tesla – to challenge the status quo of entire industries.

Modern businesses rely extensively on technology, whether they are developing increasingly tech-rich products, providing associated online value-add services or getting their offerings to customers – a situation that the Covid-19 pandemic has exacerbated. During lockdowns, the businesses that were able to establish effective and reliable digital connections with their customers have carried on thriving, while many others have ground to a halt.

In their quest for adequate digital performance and innovation, many businesses embarked on so-called “digital transformation programs” coupled with the adoption of alternative ways of working at scale, such as Agile techniques. Alas, when viewed from executive lenses, the success of these transformations has been somewhat hit-and-miss.

Businesses have invested in considerable efforts, yet often feel that the cost of ownership of IT is too high, the pace of change too slow, and any innovation is underwhelming. Senior leadership often seem confused when it comes to understanding the origin of the challenges and feel powerless to fix them, leaving them frustrated at best.

On reflection, we have observed that much of this is caused by a lack of real strategy and a poor understanding of limitations, priorities or growth possibilities when deciding what initiatives to fund and where to focus the efforts. When dealing with intangible digital products or services, it is a question of situational awareness.

Many strategic frameworks date back to the 1960s. They considered products as self-contained entities that had a lifecycle and broadly looked to offer techniques to balance the portfolio's maturity. As products became more technology-enabled, the boundaries started to blur between the product itself, the services it offered, the content it delivered and the platform ecosystem it gave access to. This is making strategic choices much more complex.

Smartphones are a great example of platform ecosystems for content and interaction. Beyond the basic phone function, they have replaced books, encyclopedias, MP3 players, cameras, computers, wallets, etc. They have shifted traditional products into software/services operating on a device, creating significant disruption in established product sectors.

What is needed in strategy now is a better way to visualize the digital landscape to allow for better decision making. One key tool we have found great utility in is Simon Wardley’s “Wardley Maps”.

Wardley Maps enable you to visualize your digital value chains. A digital value chain consists of elements that deliver the service, its content, data, infrastructure, and the competencies and practices that continually evolve it. The parts of a value chain are connected and interdependent. Higher-order features tend to offer differentiation. Lower-level elements enable the upper parts. The “production” aspects of the value chain are also the ability to evolve, innovate and change continually.

When determining our strategy, we need to consider digital products in a broader perspective, and we should view their supporting value chains the same. A value chain does not need to be unique to one product. In fact, recombining elements can offer new innovation and possibilities for new products and services.

In these times of rapid change and disruption, insights into the value chains enable us to spot new opportunities and/or emerging competitive threats. The bad news is that digital value chains are often virtual as well as invisible to most decision makers. At best, initiatives surface in the form of program investments on the budgetary line. Decisions are made at the top level with limited insights of the value chains, the limitations that are present, or the possibilities they could open up.

Traditional strategic frameworks do not work with the granularity or the connectedness of value chains, and this is where Wardley Maps offer the distinct advantage of cartography for business. Simon Wardley explains that maps – such as mind maps, business context views, architecture maps, etc. – are nothing like maps: the landscape is merely a canvas and positions have no meaning. With Wardley Maps, a position carries meaning making them unique and useful in digital strategy.

A Wardley Map is arranged on two axes. The Y axis maps the value chain arranged by visibility to the customer with aspects more important and visible to the customer high up and things of lower value or visibility lower down. On the X axis items are arranged based on their current evolutionary state. Genesis is where you find R&D or new innovation and those new ideas that offer future value to the business. Custom Built is where we place items that must be designed and built in-house as no commercial option exists or they are integral in support of the business differentiation. Product (+Rental) is where we place items that are sourced from the ecosystem as it is undifferentiated and cheaper to source than build. Our final zone is reserved for Commodity (+Utility) and is where lower level items such as power exist. This is also the place where platform strategies play out.

Maps are very customer centric. Capturing a map starts with the anchor: the customer and their needs. Then, we map and connect the supporting value chain against the landscape of visibility and maturity. It visualizes the context of the value chain to understand challenges or limitations and make strategic choices accordingly.

Value chains also represent flows of value. As many organizations look to shift away from silos, maps are also a very useful way to identify and establish value streams.

Figure 1 – Generic Wardley Map view of a digital business

In Figure 1, we show an example of how a generic digital business might look on a Wardley Map.

Looking at Figure 1 in the lower right area we find the commodity platforms, data and utility services such as Compute that support the operations. These are items that a business would typically consume from a provider and would not consider trying to build themselves, assuming that was even feasible.

In the center tends to be what delivers the existing business. It is known and relatively predictable, continuously iterated and improved. To the left are new offerings that emerge from new possibilities, a highly experimental space that will define the future business. Though this sounds like a typical portfolio view on the surface, it is enabled – or can equally be paralyzed – by the value chains underneath.

The red arrows represent the evolution flow of the elements. The experiments become productized over time and the products become industrialized. Being in control and proactive about this evolution is at the heart of the digital strategy.

Figure 2 – Reality of many traditional businesses in the digital Age

In Figure 2, we map the state in which many businesses find themselves. As a result of history and limited insight into their value chains, many organizations have built up much technology legacy, which they need to serve at the map’s center.

They consume their capacity administering the existing estate. Their IT is and remains a cost center, and it cannot regain the upper hand to create new value. From a macro level, the cost of business is too high, and innovation is falling behind or inexistent. The company is carrying much waste, that it is trying to optimize rather than eliminate. Without a map, the executives cannot see it and are too slow to drive the right decisions.

For as long as the competition is showing equal inertia, there is no drama. But when one player gets it right or a left-field player steps into the market and redefines the rules, the crisis turns existential. It is Amazon shifting the retail convenience from the local high-street to the doorstep. The existing players could not spare the capacity to see the issues coming and, once the problem emerged, they couldn’t adapt quickly enough, overstretched by their legacy.

Commodity is not just about reducing costs but an enabler. A pattern of movement is: “Efficiencies enable innovation”. Freeing up capacity from elements that are non-differentiated and available from the ecosystem gives the opportunity to redeploy the teams on more value-add possibilities. Beyond allowing the standardized work to flow more effectively, businesses that use Wardley Maps can see a flow of industrialization and a flow of innovation.

For senior executives, the maps provide the clarity that they need in strategy. From the landscape they can establish strategies by playing with the movement of value chain elements. It is very much a case of the parts enabling the whole. The view of the value chains makes the strategies that much sharper.

The landscape of the map also supports defining the operating model to successfully execute the strategy. At the center of the map (Custom/Product) is the work that the business does. It is about lean principles, flow and improvements. To the left of the map is about new possibilities and future value. It is an experimental space with high variability, a landscape of change and pivots, suited for Agile. To the right of the map (Commodity) is a space to industrialize, reduce variability and outsource where commodities exist.

A one-size approach does not fit all. Value chain elements will belong to different contexts. Working with those elements needs to be adapted to their context. Over time the value chain elements will mature and change context. A successful digital organization enables a seamless evolution of the value chains, industrializing on the one hand and exploring the next value-add on the other hand. There is no set answer for the best organizational model, which is really dependent on value chains and their context maturity compared to the market. Every company is unique, and the organizational model will play a significant part in its agility and digital differentiation. The insight of a map enables the right alignment.

IN SUMMARY

Digital is changing businesses and industries, bringing more complexity and demanding faster cycles. Transformation efforts toward digital fitness should enter the field of strategy as part of the better ways of working. Visualizing the digital value chains and aligning them to their context using an approach like Wardley Maps is a way of regaining situational intelligence, something that senior executives need and that traditional approaches lack. Better awareness of the landscape drives a closer connection between business and technology and enables more purpose, accuracy and speed in the transformation efforts.

_{THE AUTHORS}

Philippe Guenet is a digital change coach with 25 years of experience in digital change and a focus on leadership, people and system relationships. He is the founder of Henko.

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Nigel Thurlow is the former Chief of Agile at Toyota, creator of the award-winning Scrum the Toyota Way training course, and the co-creator of The Flow System. The book he co-authored with John Turner and Brian Rivera, The Flow System, is available here.