Rethinking the technology foundation for digital transformations

Rethinking the technology foundation for digital transformations

By Oliver Bossert and J├╝rgen Laartz
Rethinking the technology foundation for digital transformations

The McKinsey Perpetual Evolution™ approach will help established companies keep pace with digital innovation.

Why are some Internet retailers able to make crucial changes to their ecommerce websites in hours while it takes brick-and-mortar retailers three months or more to do the same? How come just a few car manufacturers can rapidly make online updates to their products in the field, be they to their infotainment systems or to fuel and engine performance—a practice that is becoming crucial in a world of servitization, where manufactured products come with digital services attached to them? And how is the new wave of cloud-based enterprise software vendors able to make software updates to their products in days or weeks, rather than the months it takes traditional enterprise software vendors to do so?

Rethinking the technology foundation for digital transformations

Given that they compete front and center today with such digital natives, established companies must be able to operate with that kind of speed. But most of them can’t, and to a large degree it’s because of their enterprise architecture—that is, how they have designed their technology to support their business strategy. To compete against the best digital natives, traditional companies now need to adopt a much different approach to enterprise architecture. We refer to it as Perpetual Evolution™ because it allows them to continually upgrade both their digital business capabilities and the technologies underneath them.

For companies whose enterprise architectures lock them into legacy business processes and technologies, competing against pure digital companies with perpetual evolution architectures should raise red flags. Established companies in nearly every industry are racing to digitize their business models, product and service offerings, and the business processes that support them.

Some are spending enormous sums to ward off companies like Amazon, Netflix, Uber, Spotify, and PayPal which began life on the Internet and have rapidly gained share in sectors ranging from retail and entertainment to banking and transportation.

Unburdened of having to connect their new digital systems to aging technologies, today’s digital natives can build greenfield digital business processes unconstrained from prior work, in online marketing, sales, distribution, and other areas. That is a key reason why they’re thriving in this era of digitization, product servitization, and dramatically reduced software release cycles—all at a time in which those three trends thwart the incumbents.

In this article, we explain what an enterprise architecture of Perpetual Evolution™ is, how it contrasts with the architecture approaches of the past, and why it has become necessary. We then explore what companies must do to shift their enterprise architecture from the old to the new and the benefits they can get in doing so. Finally, we discuss what it takes to operate with this new architecture.

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