Digital Transformation Is Like Urban Planning

Redesigning and rebuilding major infrastructure in a business can be compared to adjustments in a city’s infrastructure. Leaders can take inspiration from specifically three urban planning strategies in the race to keep up with digital competition.

Most companies want their businesses to keep pace with digital startups, but end up bogged down by the need to fix the daily challenges that their decades-old information-technology systems create. How do you redesign and rebuild major infrastructure while keeping the day-to-day work going? This kind of challenge is often referred to as “repairing the airplane while you’re flying it.” But a more instructive analogy might be the redesign of a major city’s infrastructure.

Specifically, there are three urban planning strategies, commonly followed by major metropolises, that leaders can use for inspiration in the race to keep up with digital competition. They include building glistening landmarks that anchor their digital strategy (as Dubai has done), removing roadblocks and bottlenecks to improve their underlying speed and agility (Boston) or changing course altogether to construct an entirely new city (Shanghai).

Dubai – erecting modern landmarks Targeted investments in striking new sights, like Dubai’s Emirates Office Tower or London’s giant Ferris wheel, serve as useful starting points for broader revitalization plans. The Emirates Office Tower was one of the first skyscrapers that marked Dubai’s transition to being a modern focal point for the United Arab Emirates. Today Dubai also boasts the world’s tallest building, artificial islands, the first hotel with a rain forest and the largest indoor theme park on earth.

In the same way, investments in landmark digital projects that significantly enhance customer experience can help launch wider digital transformations. By developing visible, high-impact apps or improving data analytic capabilities separately from core IT sys-

Qtems, companies can roll out new offerings where they will most strongly change perception and put pressure on digital rivals — even if their back-end systems still need years to catch up. A pragmatic, output-focused approach can provide a catalyst to the back-end reinvention that needs to follow and kick-start a company’s digital transformation by making the benefits real and impossible to miss.

For example, by designing a new cloud-based customer service platform, within nine months a power company could go head-tohead with an internet service provider that had started to sell electricity alongside Wi-Fi services and cheaply financed cars. Now the utility will be able to provide not just power but also phone, internet, smart meter, smart home and security services. To customers, the company feels as nimble and innovative as its digital competition, even though its back-end systems remain problematic.

Boston – removing roadblocks At the other end of the spectrum, companies can first focus on removing the structural hurdles that prevent them from moving with speed and agility over the long run. Boston, with its Big Dig project, for example, invested heavily in creating room for more vehicles

Qand future growth by tearing down an aging elevated highway and replacing it with a tunnel highway network to circumvent the maze of congested roads in its downtown area. Even with the project’s delays and costs, city planners confronted the fact that the old infrastructure just wouldn’t fit the area’s transportation demands.

Companies can help themselves become more agile and remove their own bottlenecks by taking a similar approach. For example, retailers will struggle to put the right products on their shelves until they have accurate data about the dimensions of the packaging itself. Companies with sales forces that collect important customer data inconsistently in notes fields, because their data collection systems haven’t been kept up to date, will wrestle with problems downstream because workarounds must be developed to compensate for the poor quality of the initial input data.

The business case for these improvements is often hard to make because the benefit in speed and agility is indirect. It requires an extraordinary level of vision to see how a very different company will emerge at the end of the process and to persevere — as, I’m sure, the architects of Boston’s Big Dig can testify.

Shanghai – starting from scratch Finally, like Shanghai, companies can break away from their past and build a new city entirely. When Shanghai decided to invest in what it hoped would be a worldclass financial hub, it built an entirely new part of the city on rela-

Qtively undeveloped land across the river from Shanghai’s historic downtown, rather than attempting to retrofit its traditional center of commerce. Today Shanghai’s Pudong district is home to the Shanghai Stock Exchange and to what is generally recognized as Shanghai’s modern skyline.

Companies ranging from the telecommunication industry to financial services are adopting a similar strategy by rebuilding core IT functions from scratch in the cloud. Instead of spending years gradually migrating decades-old IT systems, companies are investing in state-of-the-art cloud-native systems that typically only take 18 months to create and cost about 20 percent as much to operate, on average.

Since cloud-based systems are modular and scalable, they are fundamentally easier to manage. Companies can more easily introduce greater redundancy and improve microservices — a critical capability when your aim is to keep up with a constantly evolving competitive landscape. By following this tactic, managers also avoid the operational risks involved with cutting across old systems into new ones. Instead, like digital natives, incumbents can build state-of-the-art systems and either meld them with their older systems at a later date or just leave them alone, like the historic Bund in Shanghai.

Keeping up with digital upstarts that are rewriting the rules of industries, from retail to banking to energy, is one of the biggest management challenges for major corporations today. One reason managers continue to struggle with this conundrum is that they usually attempt to attack their core systems on multiple fronts all at once. Instead, they should chart a course to improve their digital capabilities by learning from major cities, which have confronted challenges on an even larger scale. Digital transformation is almost always difficult and expensive, but learning to think like a city planner can help.

PAUL BESWICKis the head of Oliver Wyman’s digital practice. © 2017 Harvard Business School Publishing Corp.