It cannot hide the ugly organisation, and the broken business processes underneath…

Launching Digital Transformation project is like reaching for the stars not knowing if you will be alive when you get there…

I know what people think when I challenge the Digital Transformation (“DT”) bandwagon, the new age tool, the prevailing mantra…because so many people love it, make a living from it and claim it works.

I might add its mainly consultants that make a lot of cash from propagating the ‘emperors new clothes’ claiming transformative potential, while selling numerous assessments and studies, mapping what is already there, and then recommending a different colour lipstick…

I’m affriad I just don’t see it. I started my 40 year tech career in mainframes in 1970’s, then distributed, to desktop, to internet mobile. I’ve seen tech evolving and I am now work on what comes next. The next era— quantum computing, biological computing and dare I say Web3. I am also not a consultant, I’m a business operator, I create new disruptive business models designed at scale to scale.

My thesis comes down to fundamentals of computing and how it (Information Technology) processes common software applications across the enterprise, mostly legacy transaction monitors, fed by siloed databases that are not at all flexible. SAP, Oracle, Salesforce, HR have their roots in centralised systems fed by an architectural legacy. Admittedly built for a different purpose and different time, way before the Internet era, before decentralisation, and before AI.

These older legacy systems represent Web1 and Web2 worlds as centralised ‘client server’ architecture, cannot sit underneath, alongside or support Web3 infrastructure. They’re rigid, inflexible rules based systems that make the ’T’ word that rolls so easily off the tongue, more or less impossible. If you try you will end up with…time to read on.

The baby is much more ugly than first thought…

To those who are about to embark on the Digital Transformation journey ‘Buyer Beware Very Aware’. The first question to ask: what are the motivations and reasons? and second what are the examples where DT has worked? — good luck with finding that one. Organisations will never admit failure, will point to a new blockchain or AI bot implementation that are sticking plasters.

When one questions and then challenges the DT practitioners asking what they mean by ‘Digital’ — keeping in mind computing has been digital since we gave up valves to use gates on chips as the transistor came into existence in 1947. That digital signals move as output between layers of hardware, anointed by centralised apps across the organisation, and then between sector layers in any industry. Another reason by the way why DT fails we’ll come to later. Everything is stored digitally into storage? So what does Digital mean in the context of DT? They don’t answer.

Then ask about real Transformation? What really changes? What is measurable? How is it possible to do things without changing core systems? How will the IT infrastructure be modified, extended? What is the end result of DT? How will success be measured?

Will there tangible evidenced based improvement in functions performance, a lower cost base, faster cash conversion cycle times. Will there be impact on market share, revenues and margins, what about MKT CAP? If the answer is no, then why do it?

DT Roots

I spent the 1990s in business process transformation under Jim Champy and Gary Hamill’s lead — transforming and improving what was seen at the time eliminating waste and unnecessary processes, a plethora of systems SixSigma, 5S, Kaizen etc essentially leveraging technology automation to eliminate friction (handoffs involving people), time (throughput — automating human tasks) and lowering cost (removing duplication, preventing error and replacing human costs) seen as waste.

The issue is this. Consultants are drawn to optimising certain business processes, without asking the fundamental question. Is this process needed? What value does it add to the customer? The business? Applying the ‘first principle rule’ — questioning everything, simplifying everything.

The challenge with process optimisation is you can only go so far before you start eating muscle, and there is always structural limitation where performance improves then declines even faster. Cutting out sections of the process tend to impact cycle times of end to end business processes, but the question that is not often asked is how does this improve customer conversions (sales), satisfying customer demand (converting and order to cash) and up and cross selling new high margin products and services?

Client Server — a centralisation gift of increasing costs that keeps on giving…

The issue is never ambition, innovation or lack of performance improvement aspirations. The issue has always been the limitations of Client Server computing architecture that supports von Neumann process (serial CPU instruction at a time) — commonly known as Web2 architecture. A resource hungry, energy inefficient, expensive version of computing that harbours — waste, inefficiencies, duplication and the need to check and report on everything that moves requiring armies of staff.

Yes Web2 computing was all that was available back in the day, born from mirroring the hierarchal centralised command and control of how most industries function — to satisfy and feed regulators, governments and management teams reflecting lines of power, and authority for imposed decision making.

But these power structures are NOT designed for efficiency they’re designed for control and until now the cost has been passed onto other industry layers, who add their operating margins, who then pass these costs onto the paying end customer. We all end up paying for inefficiencies of industries and organisations — as lack of trust deepens, but why should we?

Well as you read on — in Web3 you don’t! The lines of decision and authority are bottom up, are different.

The centralisation effect is a world of ‘PUSH’ top down command and control within an organisation (industry), made more inefficient as organisations are reliant on industry layers (sales agents, wholesale partners and distribution), that keeps adding more friction, time and cost. Whilst also lining the pockets of the big tech firms that sell incremental performance improvements. More worrying it opens the doors for data abuse, single point of failure for hackers and to illegally make money from exploiting customer data, without full permissions, relying on long unsafe T&Cs…

As computing as it emerged from mainframes in the late sixties it delivered centralised transaction processing at scale, then computing moved to the desktop in1980, centrally fed by networks and even today SaaS models are centrally fed and organised around a centralised doctrine of ownership of all data, gatekeepers to resources and products.

This is why products and services are pushed into the market. Why all decision flows are based on push, all customer data siloed to support push. As organisations dictate what customers would like, as Steve Jobs famously exulted “customers don’t know what they want until they see it”… This is celebrated arrogance and complete tosh.

Decentralisation — introducing PULL Web3 — unlocks everything

They way to think about Web3 is inverting the top down business model (the pyramid of command and control) and instead of push, creating PULL from Customers by Customers who are on top. Where Customers decide and engage on their terms. This is the essence of Web3.

I’ve heard pitches, and read presentations of the claims made by Digital Transformation protagonists, exulting performance improvement, happier customers, selling more products and being able to adapt to meet customer needs.

The flaw in this DT argument is Web3 delivers ‘real time’ or close to real time information about the customer and how they are trying to engage with your business, your products and services. Web2 doesn’t. Web2 infrastructure delivers after the event unintelligible data. Ignores the opportunity for interaction and making sure the Customer gets what they’re looking for. Web2 doesn’t know or care.

What good is ‘big data’ if all that can be offered is historic information? The ONLY data that matters IS the here and now, the last customer interactions, current behavioural insights to predict what they might do next.

This is only made possible by sensing everything about customer interactions with the business in real time. As with a blood test it is only as good as that moment, day, that hour as things soon change. Web3 is about sensing what lies ahead and what comes next.

Web3 is a PULL business model — that adjusts to how the Customers want to be treated. Web3 is not the Internet replacement, is not about NFTs, the metaverse, this is lunacy. The issue with the Internet is ‘data’ isn’t owned, until this is solved nothing matters.

Web3 delivers a world where the Customer has a say in designing their journey, their experience, and why it’s seen as delivering ‘customer centricity’,a phrase I really like. Customers can engage on their terms to consume your products and services and the sensory based systems as a ‘nudge’ and encourage offering a two way solution. It allows Customers to PULL what they want, interact in a way that suits them, a personalised experience designed by them supported by smart tools to process insights to suggest new ways the Customer might like to be treated, rewarded, handled and respected. It comes using the least disclosure principle.

Web3 architecture supports this world, Web2 does not. Web2 is imposed. Web3 is light touch.

If Digital Transformation is being used to ‘fake’ Web3 in an attempt to covert Web2 infrastructure without changing the core, it can never work. DT offers a front end veneer posing as PULL with PUSH at the back end — siloed useless data. This approach IS unable to respond to real time adaptation of the customer journey and experience. This is where most DT projects end up-stranded as neither one thing or the other.

It is well known Blockchain and decentralised ledger technology are closely associated with Web3 innovations because they deliver a new kind of infrastructure that promotes trust, transparency and confidence to customers. All systems are biased in some way and discriminate. Customers now demand assurances ‘the game is not being cooked’, the system is not rigged against them, to exploit them or their data.

Customers have lost faith in centralised industries such banking, insurance, investments, government, utilities and consumer retail. They see these as business models that exploit them, their data and impose rules of engagement around forced exploited Identity, false collection of data and GDPR impositions as the gatekeeper to getting access. Where privacy is crushed as listening in ‘for performance and training purposes’ is a way to collect data for abusive commercial interventions and not for the Customer’s benefit. Customers know this is not about data protection or their interests — it is about the further exploitation of customer data!

Another reason Digital Transformation cannot work is (i) management will never put existing revenues at risk, and (ii) the staff buried in the layers of back office functions are slaves to client server cannot change behaviours, working practises and processes which are enforced, as they are tied to Order 2 Cash and Purchase 2 Pay. (iii) Web2 cannot support the ‘new nature of work’ that is now demanded by new generations that rebel against being tied to a process and desk.

Web2 dinosaurs:

What’s wrong with a Web2 Client Server world?

Are you sitting down? Brace yourself. Web2 harbours cost, inefficiencies and can kill top line growth while inhibiting the ability of the organisation to compete, instead encourages politics, kills culture and innovation as information is used for power:

• Relies on and creates silos, compiles disinformation, encourages power networks and convenient place for non value adding people, process and functions to hide in plain sight.
• Single point of decision making impose inflexible rules and processes because Client Server command and control management demands it
• Users, Staff, Customers and Suppliers are not empowered, feel defenceless and discrimination
• Customer Data is freely traded between functions and layers in the industry continually breaching Privacy Laws and GDPR in a wasteful manner
• The organisation censors activities, makes money from exploiting customer data without their permission and keeps the proceeds
• Higher infrastructure costs. Errors and mistakes are amplified across organisational layers that adds friction waste, lost opportunities and customers
• Requires armies of back office staff to administer the processes, unpick errors and mistakes and undo transactions that are wrong
• Promotes an organisational culture of blame and defending poor decisions, because regardless of people trying to do better the organisation cannot respond to ever changing customer situations and dynamics
• Tech vendors lock in organisations for profit not better service or cost performance — incremental improvements at massive cost
• Finance functions and C level management bake in inefficiencies into operating budgets and numbers — which ultimately dilutes earnings and lowers shareholder returns
• A single point of failure and outages.

No such things as a DT Fix

Managers and business owners succumb to mechanisms without realising the end point is a big bill for a ‘smoke and mirrors’ lipstick effect that will have no measurable upside. Yes lots of work will be done:

Key DT Deliverables

1. Digital Roadmap: A clear, phased strategy for transformation [choosing the colours of the lipstick]
2. Tech Stack Assessment: Recommendations for tools and platforms to adopt [expensive add-on on to try to improve client server]
3. Process Maps: Visual guides for restructured workflows [ that always start with PUSH]
4. Training Materials: Tutorials, FAQs, and workshops for staff [calling this the nature of work]
5. KPI Dashboards: Systems to monitor and measure impact [forgetting there is one measure — customer experiences measured in income]
6. Risk Mitigation Plan: Strategies for managing transformation risks [the main one being nothing much changes]

The reports will mostly be very absorbant in the bathroom.

Then after the pile of reporting the popular initial moves will be:

• To migrate to a cloud (which really means you don’t have your processing in-house on premise), nothing really changes!
• To bring in ‘big data’ tools (trying to use current applications as data repositories — good luck with spending millions on mostly useless old data) that has no value in a Tik Tok attention world.
• To optimise processes (failing to consider what processes can be eliminated) while evaluating ERP, HR, CRM systems that demand you cannot do without them
• To assess the use of Blockchain, AI, autonomous agents and bots as an add on (these are NOT overlay systems, they have an entirely different ethos and architecture) — they are the new architecture!

It all sounds great, DT wins the support of the IT Department because they realise nothing much will change, because management are tied up in the narrative that claims the marvellous things they’re going to deliver launching a DT project, in a vague, hopeful attempt to paper over cracks.

After the first Invoice and the initial assessment, what will be offered will be a selection of new coloured lipsticks — each comes with a big price tag , each one treating the symptoms and not the root cause. Like big Pharma they have a pill for everything condition but never cure you.

Worse, the resulting information and process flows become bastardised creating more inefficiencies, harbouring more costs — as the messaging in the tech stack between information systems and the DT patchwork of fixes adds processing working servers harder, using more energy and increasing organisational and process complexity.

Just like an organ transplant the organisation tries to reject it.

Let’s not forget Client Server architecture that is hungry for ‘read write’ confirmations, approvals and thresholds, that demands a hierarchy of rules that do not include the customer designed journey, experiences or data ownership. This adds disproportionately more cost complexity and opens the door for cyber threats — as hackers exploit the need for constant messaging, as happened with the US Government breach on Microsoft OS recently.

One cannot under estimate the inherent inefficiencies of read/write activity where 80% of the servers performance is taken by ‘read write’ demands of a dinosaur OS, and applications built on top. Forget energy compliance and targets as this is going just one way as 80% of servers performance, increases energy consumption, and CPU processing is dominated by updating logs, files, user rights, permissions and activities. It couldn’t get any more inefficient.

Web3 is the BEST competitive weapon around!

If you havent read Simplify by Richard Koch you’ve missed out. It amplifies the message of radical change to 10x customer experience and halve the cost. ONLY AVAILABLE USING WEB3.

Web3 is a powerful solution that stands alone, delivers an entirely different customer ethos. Any organisation, holding group — comprising multiple businesses inside a corporate structure cannot afford to ignore Web3.

The issue is quite often sellers of Web3 services also fall into the Digital Transformation camp, and for many reasons will waste your time an money, divert the corporate and management attention on a path that has a dead end.

Few people get Web3 because it requires new thinking, knowledge and experiences to design, build, deploy and operate — starting small, in niche areas as a set of proofs.

It is worth reminding ourselves the central ethos behind a Web3 business model. It involves the fundamental engineering of new business processes to support a decentralised infrastructure that has a set of first principles:

• Customers own their data, and permissions are negotiated on both sides for entry and access
• Customers have sovereignty over their Identity (the concept of least disclosure applies) to doing business and trading with them
• Customers share information about their preferences and are rewardedfor doing so
• The business model automatically adjusts to deliver a unique customer experience, based on learning new information, perspectives and behavioural patterns about Customers
• The information systems at all levels ‘sense’ and detect, interpret and respond to Customer events as they happen, in ‘real time’ or close to real time
• Over time the infrastructure and AI learns to predicts Customer (user) behaviours
• Operations are more efficient, thinner, there are no unnecessary layers and hierachy — lowering the cost to acquire, to serve and maintain Customers
• The infrastructure enables instant response to revenue creating opportunities
• Payments, Compliance, Governance and Rules of Engagement is programmatically enabled as business process logic, comprising Customer and custodian data inputs
• Encourage innovative Customer centric culture where the infrastructure can support exponential scaling unlocking the marginal cost effect
• New products and services can be tested, adjusted and then rolled out quickly and efficiently
• Shared Rewards and Incentives — drives a circular economy where the customer delivers referrals and new introductions for new sources of Customer traffic
• Better security using cryptographic protocols that secure signatures and permissions — strengthens trust in the ‘proposition’
• Transparency of operations and decision making promotes stakeholder and supply chain confidence
• And…

Web3 is a brutal weapon against competition

Example: I once engineered a Fintech solution for pensions and pension administration back in 2014. It occurred to me pensions was a dinosaur industry, and how pensions were sold and to whom was interesting.

Pension brands often pay in the UK £150 to acquire a pension customer/member in direct marketing and factoring in commissions for layers of agents and distributors. Factored as a indirect cost layered into the business case, because the industry needed to feed all the layers doing the admin, marketing and financial services advisory and sales work, but also to fulfil the Web2 infrastructure requirements and demands for reporting and other non value adding work. Inefficiency is designed in.

Then it occurred to me pensions is not about investment at all, it is a tax wrapper (calculation) that happens in payroll. A set of employee and employer simple adjustments that captures deductions that goes into a ‘savings pot’ in a fund structure. So I decided to automate it so employers, employees and even smaller businesses could upload payroll files and the system would ‘self serve’ automatically set up the trust deeds for the new pension member, an electronic signature and a simple allocation of monies into ‘saving pots’ automatically created into a balanced diversified fund.

This proved to be revolutionary as we were able to simplify the entire process and lower the cost to acquire and service pension members by 98% — instantly making us the best value in the market. Instead of costing £150 to land a new pension member we got this down to less than £1. The cost to serve, annual pension statement, regulatory reporting we received to £2.50 per member per month, where pension and wealth managers had layers of back office staff to feed. It wasn’t a fair fight.

The big pension providers couldn’t compete and had to focus on those with bigger pension pots and large organisations too inefficient to notice high fees and costs .

So many industries remain vulnerable to this kind of disruption having to rely on inherently inefficient Web2 Client Server structures reliant on Customers paying higher margins to feed the inefficient industry layers baked into the price/cost.

Deploying Real Transformation

Web3 should not become a bastardised version of Web2. They cannot co-exist. New Web3 initiatives encumbered with Web2 thinking, management, to be grown and nurtured under Web2 management doesn’t work either. Web3 has to stand alone, without Web2 constraints, behaviours and strategies, with a different budget, business case and return on investment.

Web3 businesses thrive or die quickly. They can be spun up, tested and tried quickly. Eventually they can become the parent ‘mother ship’ outperforming the old Web1 and Web2 business models. A transition from old to new.

Web3 business models consume fewer resources, have thinner infrastructure and need fewer process points involving people. And yes Web3 creates new roles and jobs too. They use the latest tools and innovations including — AI, Blockchains, Incentives and Rewards, as different stores of value exchange, and parts of the infrastructure can operate autonomously.

Adding new technologies — AI, Quantum Computing

Web3 is one of several pervasive, dangerous and new technologies on our horizon. Therefore any new Web3 strategy and design must prepare and be compatible for what is coming — new Deep Technologies — such as Quantum enabled AI that requires defending using quantum resistant algorithms (post quantum), that can embrace decentralised architectures, tech stacks and simpler direct messaging.

Many organisations struggle to implement Blockchains and Decentralised Ledgers, even AI tools and bots into the core Web2 based workflow and hierarchies. Compliance also gets in the way, legal to especialy re-source and referene data to avoid eDiscovery cliams. However each new tech addition is always treated as alien to compliance functions, problematic to IT functions and scary for legal.

The moral of the tale of Web2 and Web3 is be careful what you wish for. Web2 Client Server organisations are engineered to reject and spit out any and all decentralised tech, anything that threatens command and control with its baked in inefficiencies, seen as a political threat of being found out they’ve been harbouring costs and inefficiencies for years.

About the Author:

Nick Ayton is a tech futurist, a pioneer of business process transformation from the 1990’s, was early into Bitcoin and blockchain in 2012. With a background in Computer Science — from Mainframes to Blockchain, Quantum and AI he is a recognised disruptor and contrarian specialising in Deep Tech, Fintech and Decentralised Business Models. In 2017 he wrote the definitive bible on tokenomics and crypto monetary policy, he built one of the first regulated crypto trading platforms, a Top 5 all time Blockchain influencer and Web3 creator, designer and disruptor.

If you want Web3 done properly email Nick at Aytonnick@gmail.com or call +44 7717 493125