In the new digital world, you need new people in new seats on the bus

In Jim Collins’ seminal book, Good to Great, he makes a very compelling case that getting the right people in the right seats on the bus is more important than your business growth strategy. While that may seem counterintuitive, in the new digital world I think it makes perfect sense. Why? Because with the level of unprecedented disruption businesses across all industries are facing, companies need leaders who:

  • can deal with ambiguity
  • can make decisions without all the facts
  • can embrace rapid iteration
  • can lead cross-functional/cross enterprise teams
  • can privilege core over context
  • can balance short-term deliverables with long term goals

This is never more true than for the CIO and the senior IT leadership team. Any company trying to transform itself into a digital enterprise must be able to leverage new technologies (Social, Mobile, Cloud, Data Analytics, IoT) as an integral part of this effort. In fact, the CIO will often need to take the lead in communicating the company’s “digital value proposition” to internal stakeholders (business unit heads, product development, sales, marketing, finance, compliance and HR) and external stakeholders as well.

“Houston we have a problem”

For many companies, the current makeup of their technology resources are not aligned with the new skills and capabilities necessary to successfully drive digital transformation.  As the chart below illustrates, the vast majority of current IT resources are allocated to supporting the legacy functions in the left-hand column. While those systems of record still need to be maintained, it’s the new systems of engagement and systems of intelligence in the right-hand column that will drive digital transformation.

In the new digital world, to address this problem, companies need to recruit, develop and retain a whole new set of skills and capabilities that don’t currently exist within the IT organization. For example, companies must embrace an outside-in design thinking approach in order to deliver compelling and enduring customer experiences. That is very different from the traditional inside-out user interface design approach being deployed across most companies today. Don’t get me wrong, this is not an either-or problem it’s a both-and problem. There just has to be a major reweighting of resources to the right-hand side of the aisle.

Achieving Technology Leadership Competency

The other point to make here is that this is not exclusively an IT problem, this is a company-wide problem. IT cannot shoulder the full burden of digital transformation but rather must do it in collaboration with all the other key stakeholders across the enterprise and external partners if necessary. I wrote about this in an earlier blog and made the point that companies have to make all their senior leaders technology savvy and technology conversant.

As such, the CEO needs to take the lead and talk with the CIO and Head of HR about clearly defining the relevant skills and capabilities needed and then how to leverage workforce analytics to improve candidate quality and accelerate their recruitment. In some cases, this will entail identifying current employees who have the desire and aptitude to move into these new roles and with the proper training and development can succeed in them.

As a recent Forrester brief stated, “Access to talent and the ability to hire the right people at the right place will become a huge competitive differentiator.”

Where should we start?

https://www.stopthehacker.com/wp-content/uploads/2013/07/Fotolia_41392965_Subscription_Monthly_M.jpg

Here are some ideas for how you can start getting your technology resources realigned to support your transformation to a digital enterprise:

  • Identify the relevant skills and capabilities your company will need to compete as a digital enterprise

    • Convert those new skills and capabilities into new job descriptions
  • Assess the current level of those skills and capabilities within your existing workforce

    • Identify any gaps that need to be addressed
  • Provide the necessary training and development tools to close those gaps
    • Reach out to VC firms and startup companies for best practices

For example, companies who want to move to the forefront as a digital enterprise will need:

  • Product managers who can clearly communicate the key customer touch points and how digital interaction will enhance them
  • Business analysts and data scientists who can extract critical insights from mountains of structured and unstructured data
  • User experience design experts and design-oriented content managers who can seamlessly and securely connect systems of engagement with systems of record
  • Development engineers who can exploit the time to value benefits of Agile, Lean or DevOps
  • Business leaders who are comfortable with launching a minimum viable product (MVP) and utilizing rapid iteration to make changes based on end user feedback

The path forward is pretty clear. CIOs and senior IT leaders who develop a comprehensive workforce plan will find, develop and keep the critical new skills needed to drive digital transformation. For those who don’t, they and their teams will be relegated to a caretaker role with little or no influence on the future competitive performance of their organizations.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com

Using the 4 Zone Model to Build an IT Investment Portfolio

“How much value is IT adding to the business?”  

Value

 

 

 

 

 

This is the one question that most CIOs I talk with struggle to answer. For many organizations, IT’s value is only measured by its ability to reduce costs and optimize the capital expense depreciation of large hardware and software licenses. For others, it’s based on their ability to provide applications and services that enable employees to be more productive. In some cases, IT is seen as valuable resource and contributor to enabling business units to meet or exceed their revenue and profit targets.

Regardless of where your IT group falls across this spectrum of business value there is one unifying theme – IT is not very good at telling its business value story. Part of the problem is that much of today’s story was built on the old Plan, Build, Run model complete with its time consuming requirements process and waterfall development cycles which are now completely out of cadence with the fast-cycle marketplace. This approach has resulted in a large percentage of the annual IT budget being allocated to run the business activities, with a much smaller percentage allocated to change the business activities. This imbalance is only exacerbated by the typical 2% annual budget increases.

 

How to change the narrative about IT business value

Change the narrative

CIOs and their senior leadership teams must make creating and communicating IT’s business value story a mission critical priority. It all starts with a solid framework that defines the multiple ways IT contributes value to any organization. The framework should be realistic, but also simple and capable of being expressed in language that business leaders will recognize and support. The new 4 Zone IT Investment Portfolio is one framework that meets these criteria.

Ent IT Org Mod

The 4 Zone model enables CIOs to construct an IT Investment Portfolio that apportions the business value of IT in four investment categories. It depicts IT’s spending allocations and provides a clear visual aid for discussing changes to those allocations. For example, based on your organization’s 2016 strategic and operating goals and deliverables, is the weighting of the IT investment allocation aligned with those goals? In this context, most if not all business executives will not only understand the type of value IT investments are targeting, but they will appreciate the challenge and imperative of making smart IT investment choices going forward.

 

A four zone business value story

Not unlike a personal investment portfolio where risk and return are spread across multiple investment options, the IT investment portfolio is designed to deliver value and returns in four different categories.

Productivity Zone value is created by providing secure and stable operations and maintenance of the company’s systems of record. While most of the ROI from investments in these SORs has been realized, they are still an important and necessary component to the successful operation of any organization. CIOs can deploy our trapped value audit tool to periodically review and identify opportunities to optimize the costs of maintaining and modernizing SORs while also reducing the amount of technical debt. These resources can then be redeployed against new value creation opportunities in the performance and transformation zones.

Performance Zone value is created by delivering a series of user-centric tools, services and solutions e.g. Social, Mobile, Cloud and Data Analytics that enable the company’s businesses to better engage with customers, supply chain partners and other key constituents. CIOs can use our Collaborative IT Governance model to better align future IT investment priorities with critical business outcomes. By contributing directly to creating valuable and enduring customer experiences, IT can demonstrate its ability to help accelerate customer adoption and utilization resulting in new revenues and profits.

Incubation Zone value is created by IT’s help in identifying, testing and validating next generation product, service and business ideas and leveraging technology enabled innovation to deploy them. This zone also acts as a staging area for all IT projects and provides a prioritization process to determine which of the other three zones would benefit the most from the ultimate value of the project. A rapid agile development approach will enable IT to significantly increase its speed to market and throughput for all IT investments.

Transformation Zone value comes from ITs ability deploy new disruptive technologies to enable the company to launch and scale a material net new line of business. An organization’s ability to leverage technology enabled innovation is becoming a critical source of competitive advantage with the emergence of digital enterprises.

This 4 Zone investment portfolio approach provides a structure and common vocabulary to resolve risk reward discussions between IT and its internal business partners across multiple investment options. It also enables the CIO to characterize and justify IT’s investment recommendations, whether at the C-Suite or Board level, augmented by specific business cases that highlight the ROI from each one.

 

An investment approach that is aligned with the new consumption economy

Contributions

In today’s subscription-based consumption economy, the value of IT’s products and services are measured by customer/end-user adoption and utilization. To deliver the maximum business value of IT, CIOs need to effectively articulate how each investment will directly contribute to the successful deployment and utilization of each product or service its supports. As such, IT investments must be able to generate immediate returns which accelerate with increased usage. This means that IT has to significantly increase its speed to market and throughput.

The fast cycle cadence of the consumption economy will require IT to replace the old Plan, Build, Run development process with a new Co-Develop, Assemble and Consume process. This new process puts a premium on making a series of investments and getting market feedback on them quickly so leaders can make the needed changes that will drive further adoption and utilization.

 

Get started with a current state investment assessment

As a first step, CIOs can use the 4 Zone model to do an assessment of how their budget and resources are allocated across their current pipeline of projects and deliverables. This assessment would allocate each project into one of the four zones and create a baseline of where you are making your IT investments today. You can then ask questions like:

  • Is the current weighting of investments by zone aligned with our corporate strategy and goals?
  • Do we have the appropriate risk reward ratio across our investment portfolio?
  • Are we delivering the desired ROI from our portfolio of investments?
  • Are we making the right level of investment to accelerate customer adoption & utilization?
  • Does our portfolio of investments maximize the business value if IT across our company?

Creating and effectively communicating a compelling IT business value story is not an easy task. Overcoming legacy mindsets about the role and value of IT requires a strong framework; a well-balanced risk vs. reward investment strategy aligned with corporate goals and deliverables; a new development process that is in sync with the fast cycle market cadence of digital enterprises and a new set of consumption market metrics.

Armed with those tools and that approach, CIOs should be well prepared to make the business case for the value of IT.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com

 

 

 

The 4 Zones Model: A Playbook for the Incubation Zone

Companies have no choice but to up their technology enabled innovation game

According to a recent McKinsey study, more than 60% of CEOs expect up to 50% of their earnings growth in the next 5 years to come from “technology-enabled” business innovations. A recent study of CIOs by IDC found that 57% expect to be defined in terms of delivering business innovation to increase revenue, margins and new products.

In order for companies to be competitively viable in this new era of digital disruption, they have to dramatically increase their ROI on their portfolio of technology innovations. As I’ve stated in earlier blogs, these digital disruptions are fundamentally changing the way companies engage with their employees, customers, supply chain partners and other key stakeholders.

Disruption Chart

Companies have been spending money on research and development at the fastest pace in 50 years. From last November to the end of March, U.S. companies funded R&D at an annual rate of $316 billion or about 1.8% of GDP which is the largest share ever for the private sector.

As such, it is disturbing to read that, according to a recent Deloitte study, the return on R&D investments by the 12 biggest biopharmaceutical companies fell from 10.5% in 2010 to 4.8% in 2013.

The Incubation Zone: The Three Innovation Playbooks Model

The 4 Zone Model I’ve developed (link to earlier blog http://eepurl.com/blFb3T) is designed to enable CIOs and their senior leadership teams to maximize the business value of IT across their organizations. IT’s charter for the Incubation Zone in particular is to help the company identify, test and validate next generation product, service and business ideas and leverage technology-enabled innovation tools to develop them.

In our work with many companies across multiple industries, we have developed a set of three innovation playbooks to help them better organize and implement their portfolio of technology innovation investments as the chart below illustrates:
Three Innovation PlaybooksAt the core of this tool are three distinct innovation playbooks that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

  • Have we differentiated our offer enough to gain real competitive separation?
    • Have we created a truly unmatchable offer?
  • Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
    • Have we gotten to good enough fast enough?
  • Have we optimized our opportunities for gains in resource utilization and cost reduction?
    • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

Our work in this space has also shown us some of mistakes companies make with their approach to innovation which results in a very low ROI on their investments. Here are two rules of thumb to avoid:

  • Never tie differentiation and neutralization programs to the same release schedule
    • Differentiation has to go far
    • Neutralization has to go fast
    • Combining the two dumbs you down and slows you down
  • Best in class is appropriate for productivity innovations only
    • Too low a mark for differentiation (beyond class)
    • Too high a mark for neutralization (good enough)
    • Benchmarks are for productivity programs only

The Harsh Reality about the ROI on Technology Innovation Investments

As the chart below illustrates, the majority of innovation investments do not deliver the desired results or ROI. These less-than-optimal outcomes most often occur when differentiation projects are launched too soon or neutralization projects take too long.

Why many innovation efforts are wasted - graph
While there is no silver bullet that guarantees innovation success, when the three innovations playbook model and tools are successfully deployed ROIs have greatly increased in many technology investment portfolios.

In my next blog, I will take a deeper dive into the Transformation Zone and talk about how you can deploy our Three Horizons model to scale net new lines of business that produce material new revenues and profits.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

Technology-Enabled Innovation is the New Source of Competitive Advantage

Everywhere you look technology-enabled innovation is the driving source of new competitive advantage for companies of all sizes across all industries:

ubersmFrom Uber redefining the taxi user experience by utilizing the GPS function on your smart phone to find you rather than you finding a cab and then billing you afterward so you don’t need cash or a credit card

Airbnb_Horizontal_Lock_Up_PMSTo AirBnb redefining the lodging user experience by letting you “rent a room” through your PC or phone at far less than standard hotel rates

60To major pizza chains significantly increasing their market share by letting you order and pay for your pizza delivery or pick up by phone

Technology-enabled innovation is not only disrupting the competitive landscape, it is redefining the user experience value proposition across a multitude of industries. It is also putting companies on notice that if you can’t successfully engage your customers in this new “digitally mediated world” you are on your way to your very own Kodak moment.

SMAC – Social, Mobile, Analytics, Cloud

These four disruptive models are completely altering how people connect, communicate and discover information. What these individuals are looking for are “friction-free” user experiences that delight and inspire them. These new tools affect how customers make decisions which affect their entire “customer journey” which ultimately affects their customer lifecycle. Simply put, it defines the differences between the traditional customer and the new connected customer.

Redefining IT as a source of innovation rather than a constraint to innovation

In a recent study on IT innovation, 90% of CIOs said that technology-driven innovation is crucial for achieving competitive advantage. Yet, on average, just 14% of IT budgets are earmarked for innovation and only 23% of companies report very positive results from their IT innovation efforts. Why the disconnect?

Historically IT has been viewed as a constraint to new ideas and innovations as CIO’s primary focus and responsibility was on building and maintaining secure and stable platforms and tools that “keep the lights on.” While it is still essential to securely maintain these systems of record, it is now a competitive imperative that IT evolves to a business enablement role that leverages technology innovations which deliver new revenues and profits for the company.

A Framework for Organizing and Implementing IT Innovations

In his recent book, Escape Velocity – Free Your Company’s Future From The Pull Of the Past, my brother, Geoffrey Moore, put forth a three part innovation framework that is designed to significantly increase the ROI on innovation investments. At the core of this framework are three distinct innovation playbooks (see chart below) that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

  • Have we differentiated our offer enough to gain real competitive separation?
    • Have we created a truly unmatchable offer?
  • Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
    • Have we gotten to good enough fast enough?
  • Have we optimized our opportunities for gains in resource utilization and cost reduction?
    • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

pic 1
Two Rules of Thumb
There are two key rules of thumb that can keep you from making the mistakes most companies make and result in most innovation initiatives not achieving their desired goals and outcomes (see chart below ).

  1. Never tie differentiation and neutralization innovation programs to the same release schedule. Differentiation is all about how far while neutralization is all about how fast. Combining the two dumbs you down and slows you down.
  2. Best in class is appropriate for optimization innovations only. It is too low a mark for differentiation (goal is beyond class) and too high a mark for neutralization (goal is good enough).

pic 2
Some compelling examples

Here are some recent examples that caught my attention of how companies are trying to get better returns from their portfolios of technology-enabled innovation investments:

Burberry_logosmBurberry – When Angela Ahrendts took over as CEO in 2006, she envisioned how Burberry could remake itself into a digital brand. Her initiatives which tripled revenues during her tenure included:

80-A new website (Art of the Trench.com) that featured customers as models
-A more robust e-commerce catalog that matched the company’s in-store inventory
-The digitization of retail stores using RFID tags

walmart newsm@Walmart Labs – Walmart set up a separate “idea incubator” as part of its eCommerce division in Silicon Valley which helped the company increase its online revenues by 30% last year.

P&G Decision Cockpit – To improve the “clock speed” for new innovations at P&G, they set up a single analytics portal called Decision Cockpit. This tool provides real time data across brands, products and regions to more than 50,000 employees globally.

starbuckssmStarbucks optimizing back-office functions – In 2013, 1/3rd of the 100 active IT projects at Starbucks were focused on customer or partner facing initiatives; 1/3rd were focused on improving efficiency and productivity away from the retail store; and 1/3rd were focused on improving resilience and security.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

Leveraging Offer Power: Who Says You Can’t Differentiate and Neutralize at the Same Time?

In my brother Geoffrey Moore’s new book, Escape Velocity – Free Your Company’s Future From The Pull Of The Past, he lays out a very compelling framework on how companies can significantly increase the ROI on their innovation investments. This framework presents three different ways a company can generate meaningful returns as illustrated in the diagram below.

OfferPower_1_Resized

The first way is to create an “unmatchable offer” that  your key reference competitors can’t or won’t replicate and that your customers will pay you a premium for because there is nothing comparable on the market. The secret here is to make sure you go far enough so that the market clearly sees the differentiation. Many companies stop to soon believing that “best in class” is the goal. What they ultimately find out is that best in class is a “sucker’s bet” because the market won’t pay up for it.

The second way is to neutralize offers from your reference competitors that have features your product doesn’t have. The secret here is to get a comparable offer from your company to market as quickly as possible. The two mistakes companies make here is first they move too slowly and second they spend too much money trying to outdo the competitive offer. In this case, the goal is to get to good enough fast enough so you don’t lose any competitive ground.

The third way is to task a project team to go identify and reclaim resources that have been dedicated to efforts that are not yielding good returns. The challenge here is to make sure that you don’t let any “sacred cows” off the hook in this cost optimization exercise. In this case, best in class is a good target to shoot for.

The other major mistake companies often make is to tie differentiation and neutralization initiatives together in one work stream which guarantees that they won’t maximize the potential value and returns from either one. Each one should have its own work stream as illustrated by the diagram below.

OfferPower_2_resized

Having said all this, I want to raise another opportunity and that is the potential to conduct both differentiation and neutralization initiatives at the same time while keeping them in separate dedicated work streams. Apple’s recent actions once again provide a good template for how to do this well.

It has been well documented that Apple successfully launched 3 next generation products in the last decade. It should be noted that the iPhone was not released to the market until the iPod had successfully generated material new revenue and profits for the company and similarly the iPad was not released until the iPhone was producing material new revenue and profits.

What has been overlooked by many observers of this decade long unprecedented set of accomplishments is that while the new products were coming to market Apple was also developing lower cost models of each to neutralize competitive offers at much lower price points. The iPod Shuffle and iPod Nano along with the iPad Mini are examples along with the recently rumored launch of a lower cost iPhone.

While there is always a danger of these new lower cost offers eroding the industry high margin rates Apple enjoys, the greater risk is to do nothing and see their market position evaporate like what has happened to Palm, Nokia and RIM.

As I said earlier, it is important to remember that you need good organizational and operational processes in order to drive parallel differentiation and neutralization work streams at the same time. Each one will have its own separate cadence, timetable and set of deliverables. Each will also require different leadership skills to get the desired outcomes. As such, HR should play a strong role in helping to identify the strongest candidates to lead each one.

In the end, in order to maximize the ROI on your innovation investments, I think the message is clear. First, you need to separate your innovation initiatives into three separate work streams with three clearly defined deliverables. Second, even after you’ve successfully launched a truly differentiated offer, you need to immediately  begin thinking about how you can protect that offer from lower cost alternatives.