In the New Digital World, Technology is the New Work of Business

What business are we in? The technology business.

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“The real issue is that every business is now a tech business – whether it wants to be or not – and that means not just new skills and experiences, but a new outlook on opportunity and strategy.”  This quote is from a recent Forbes analysis of the different business models companies can deploy and how each one is performing in the new digital world.

  • Asset Builders who produce and sell physical things are usually priced at .5 – 2x revenues
  • Service Providers who offer professional services are usually priced at 1 – 3x revenues
  • Technology Creators who develop new technologies are usually priced at 3 – 7x revenues
  • Network Orchestrators who manage social, business and transactional networks are usually priced at 4 – 11x revenues

What is driving these different performance levels is the emergence of new, more profitable business models that deploy new digital technologies like social, mobile, cloud, analytics and platforms.

A recent Harvard Business School study documented that “leading digital companies generate better gross margins, better earnings, and better net income than organizations that have not adopted a digital-first business growth strategy. Early digital adopters delivered a three-year average gross margin of 55 percent compared to 37 percent for digital laggards.

Most companies are behind the digital technology adoption curve

This year’s Harvey Nash/KPMG Survey of 4500 technology leaders found that only 18 percent said their company was effectively using digital technologies to advance their business strategy.

The 2017 New Rules for the Digital Age report from Deloitte found that only 5 percent of the companies surveyed said they have strong digital leadership development programs and 65 percent said that had no significant programs to drive digital leadership skills.

Digital Technology – The New Work of Business

As the McKinsey chart bellows highlights, there is no escaping the evidence that digital technology is converting the way businesses operate and compete albeit at varying rates of impact. As such, it is no longer a choice of whether companies are going to adopt and deploy digital technologies but rather a choice of when.

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Leveraging Digital Technology for Competitive Advantage

Uber reinvented the business model for the transportation industry by leveraging digital technology advances in smartphones, GPS sensors, and networks while Airbnb did the same to the hospitality industry business model.

In 2016, restaurants crossed a “digital milestone” when digital orders using smartphones or tablets (6.6%) exceeded telephone orders (5%).

Starbucks, an early adopter of “digital ordering” in the food & beverage business, says that 25 percent of their orders are now placed and paid for digitally. The digital ordering app has also helped them amass a loyalty program of 13 million active users in the U.S.

Domino’s Pizza has reported 24 consecutive quarters of increased sales in their U.S. stores and state that “technology has clearly been a big part of what’s been driving our business over the last five years.”

Charles Schwab, Goldman Sachs, and Morgan Stanley are deploying digital technology to deliver automated wealth management services to investors with as little as $5,000.00 to invest.

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These new “robo-advisory” services make it economically feasible to serve markets that were previously cost prohibitive by the traditional wealth advisory business model.

Apple’s Research Kit is using digital algorithms to gather so much clinical trial data that it could eventually disrupt the pharmaceutical industry by correlating the effectiveness of the medications we take.

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Disney Resorts has developed a suite of digital tools to help customers visiting their theme parks have a better experience.

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These new tools include the FastPass+ service which allows visitors to reserve access to specific attractions, and the MagicBand, a digital technology enabled wristband that facilitates reservations and customer routing at Disney World.

Lowe’s recently launched a new Innovation Lab with a mandate to work with outside organizations like Google and Microsoft to “develop technology that will improve store operations and customer experience.” Early experiments include:

  • LoweBots: self-guided robots that lead customers to specific products they are looking for, pull up information about different product options and check inventory for in-store product availability.

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  • Holoroom How To: a virtual reality tool that teaches customers how to do basic home renovations.

Silicon Valley Startup Blue River Technology manufactures robotic farming machines to help farmers manage their fields more efficiently.

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The traditional approach was to spray an entire field with weed-killing chemicals. Blue River robotic sprayers combine computer vision and machine learning algorithms to spray only those parts of the field that need it thereby reducing herbicide use by a factor of 10.

What does a digital technology business model look like for your company?

Short of facing an existential threat from a disruptive competitor, most companies are reluctant to engage in substantive discussions about modifying or changing their business model. Let’s be clear, not every business is standing in the middle of a burning platform but as the examples above suggest they should all see smoke on the horizon.

Here are some questions that will hopefully help you get the discussions started:

  1. How long can our current business model deliver our desired business growth goals and financial results?
    • Revenues, Margins, Net Profits
  1. What are the biggest threats to our current business model?
    • How quickly do we need to respond to these threats?
  1. What are the most attractive opportunities for us to leverage digital technology for increased competitive advantage?
    • What do we have in our digital technology development pipeline today?
    • How can we most efficiently and effectively test and validate new digital technology tools?
  2. How open is our culture to changing the way we do business?

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.

In the New Digital World, Success Starts With a Clear and Concise Statement of Intent

A Clear Statement of Intent Drives Desired Business Outcomes

Over the past two years, I observed a very distinct pattern between companies that successfully navigate the new digital world and those that fall behind. As it turns out, those who are emerging as the early leaders in the age of digital disruption share one thing in common – a clear statement of intent. In the illustration above, I have summarized what I think a statement of intent encompasses. What follows are some examples that have helped shape my thinking on this issue.

While Steve Balmer was in the last few years as CEO of Microsoft, he and his leadership team talked about the need to figure out how to migrate their offers to the cloud and mobile devices to better compete with Amazon, Google, Apple and Facebook. What they didn’t do was to make a clear and concise statement of intent to prioritize that outcome. As a result, cloud and mobile revenues languished.

On his first day as CEO, Satya Nadella sent an email to all Microsoft employees saying from that day forward “Microsoft is a cloud first, mobile first company.”

Under his leadership, the company began a systematic rebooting of each of their core businesses to catch the new cloud and mobile waves.

Two years ago, they migrated the Office software business which provided an on-device license for personal productivity software including email which was supported by an on-premise Exchange business to run the back end. They diverted the high margin earnings from the current business to fund the launch of Office 365 on a cloud-based subscription model.

As you can see from the chart below, Microsoft’s Azure Cloud business has grown three-fold in the last two years following Satya Nadella’s clear statement of intent. The $14.8 billion from the commercial cloud businesses represents more than 15 percent of the $96.24 billion in overall revenue that Wall Street expects from Microsoft this year. That’s up from a ratio of about 10 percent in the previous year.

Microsoft: Commercial cloud revenue to jump 55% to nearly $15B this fiscal year


Ford vs. Tesla


When Mark Field was installed as the CEO of Ford three years ago, he talked about a variety of new business growth initiatives including electric and self-driving cars. While sales increased significantly over that three-year period, Ford’s stock declined by 40% as the majority of vehicles sold were the traditional cars and trucks the company has always built. What he didn’t do was to clearly declare his intent to make electric and self-driving cars the business growth priority. As a result, he was recently removed as the CEO of Ford.

At Tesla, CEO Elon Musk, has clearly communicated his desire to develop and deliver new software- enabled electric cars that can ultimately drive themselves. While Tesla’s sales are far less than Ford’s, the market rewarded the company with a higher market valuation in part because they believe in Musk’s statement of intent and the results he has produced thus far.

 

Other CEO’s are Getting the Message

A number of CEOs now see the value and benefit of clearly stating their intentions and business growth goals.

Two years ago, then-Starbucks CEO Howard Schultz said he was transferring all his operating responsibilities to his President so he could “focus solely on all things digital.”

Google’s new CEO Sundar Pichai declared that going forward “Google is an A.I. Company first.”

Facebook CEO Mark Zuckerberg has said that “Facebook will be a video first company.”


Committing to the J Curve

The reason most well-established companies are still struggling with navigating this new digital world is that they don’t have the resolve and discipline to redirect scarce resources away from funding their current businesses in order to launch and scale a new digital business.

Venture capitalists call this investing in the J Curve to catch the S Curve as shown below:

As the Microsoft example above illustrates, in order for the company to migrate its Office business from on premise and on desktop to the cloud and mobile devices meant sacrificing short-term revenues, margins and earnings for the promise of long term competitive gains. But their recent results suggest that if you have the resolve to stay the course the rewards are significant.

In 2013, Adobe Systems embarked on a major transition from a product/license sales model to a cloud -based subscription model. Revenue shrank 8% in the first year and was basically flat in 2014. The skeptics’ and naysayers’ voices rang loud and clear.

Fortunately, the senior leadership team at the company along with the board stayed true to their intent and Adobe’s revenues reached nearly $6 billion in 2016 up from $4 billion in 2013. Eighty percent of those revenues came from subscriptions and other recurring sources.

By contrast, the recent financial performance of IBM, Hewlett Packard, GE and Ford seem to validate how hard it is for well-established companies to free their company’s future from the pull of their past.

 

Short-term earnings performance vs. long-term competitive advantage

As these examples illustrate, the single biggest challenge facing CEOs and other C-Suite leaders in well established companies is how to find the right balance between funding the businesses they have versus making significant enough investments in next generation businesses so than can deliver material revenues and profits to the company. Said another way, this challenge pits the demand to deliver short-term quarterly earnings against the desire to create long-term competitive advantage.

Making a transition of this magnitude and impact not only requires strong leadership and intestinal fortitude but increasingly a leader willing to put a stake in the ground and make a clear and compelling statement of intent. It will ultimately redefine the winners and losers in the new age of digital disruption.

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 

In the New Digital World, Catching the Next Wave is a Necessity

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Last July, I suggested that well-established companies could no longer sustain competitive advantage through using their size and market reach as barriers to entry. The unprecedented assault of new waves of digital disruption have enabled companies of any size to penetrate some portion of well-established companies’ value chains. Taken together these disruptions are making what was scarce and expensive now ubiquitous and cheap as the chart below illustrates. Simply put, companies must now find totally new ways to compete or risk a major wipeout.

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Unfortunately, it’s not as easy as it looks

Over the past several decades, a number of America’s very best and well-established companies were not able to catch the next wave. There are always a myriad of excuses for industry-altering events like these but I think there is one common reason that transcends them all. They didn’t have a thoughtful and disciplined process to assess the maturity of their current products and services and thereby get a head start on developing their next generation of products and services.

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The Business Maturity Lifecycle assessment: A good place to start

To help build a compelling business case for the need to catch the next wave, start by assessing the performance (revenues, margins and profits) of your different lines of business over the past three years and see where they fall on the business maturity lifecycle shown below. If those metrics are growing at 15% – 30% then it is in category B; if it is growing at 5% – 10% then it is in category C; and, if they are flat to declining, then it is in category D. The results of this business maturity assessment will enable companies to prioritize which businesses are prime candidates to try and catch the next wave.

Most well-established companies who conduct this assessment will discover they have multiple businesses that are candidates to catch the next wave. Because critical revenue and profit-generating resources must be diverted from current businesses to fund the launch of the new digital business, you can only undertake one business model transformation at a time. As such, you need to have complete agreement and alignment across the organization to support the business you choose.

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How Microsoft is catching the next wave

In many cases, the source of declining performance is the result of the business being impacted by one or more of the new digital disruptive technologies. In my brother, Geoffrey Moore’s, recent book Zone To Win he prescribes a process and set of steps to take on this challenge.

By way of example, let’s look at Microsoft, long the dominant player in enterprise computing, and how it has responded to competitive disruptions to the revenues, margins and profits of its three core businesses – on-premise servers and tools by Amazon’s cloud-based web services; Office desktop software by a myriad of cloud software offers; and, their Windows desktop PC operating systems by Apple and Google’s mobile devices operating systems.

Under the leadership of new CEO, Satya Nadella, the company began a systematic rebooting of each of their core businesses to catch the new cloud and mobile waves. You will note that they are tackling this challenge one business at a time.

They started with their enterprise servers and software business which sold its high margin products and services on an on-premise license basis. They diverted a large percentage of the earnings from that business to invest in building out the Azure cloud business on a lower margin pay-as-you-go subscription model.

They then moved on to the Office software business which provided an on-device license for personal productivity software including email which was supported by an on-premise Exchange business to run the back end. Here again they diverted high margin earnings from the current business to fund the launch of Office 365 on a cloud-based subscription model.

In both these examples, Microsoft made the conscious decision to sacrifice short term margins and earnings in order to gain longer term growth and market share from catching the new waves of digital disruption.

As you can see from the results below, this new approach is beginning to deliver improved operating performance and better financial results. Needless to say, Windows is next in line for its transformational reboot.

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Failure is not an option

Let me be perfectly clear that catching the next wave is not for the faint of heart. CEOs, Board of Directors and executive teams across all industries must now confront this leadership challenge and take bold steps to address it some of which I’ve listed below:

  • It requires total commitment to the business model transformation initiative from the top to the bottom of your organization.
  • It requires steadfast resolution not to give into to the pull of short-term performance over the gains of long-term growth.
  • It requires that discretionary performance compensation incentives must be heavily tied to the success of catching the next wave.
  • It requires the tacit understanding that transforming your company into a digital enterprise is, in all likelihood, the single most important decision you will make in your career.

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

In the New Digital World, Employee Engagement is as Important as Customer Engagement

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Most companies today can tell you the approximate lifetime value of their core customers and what they are doing to realize the full potential of that value. How many companies can tell you the lifetime value of their most valued employees and what they are doing get that contribution from them?

Many companies have now adopted the Net Promoter Score metric created and introduced by Frederick Reichheld in 2006 which asks customers, “How likely is it that you would recommend this company ( and its products and services ) to a friend or colleague?” By contrast, how many companies ask their employees, “How likely is that you would recommend to a friend or colleague that they come to work at your company?”

One of the biggest challenges for companies today is to think about their employees the same way they think about their customers. What do you need to do to engage them? What do they need so they can improve their performance faster?  What is the lifetime value of an employee who is highly engaged and able to deliver optimal performance every day?

How many of your employees are highly engaged?

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When you apply Maslow’s hierarchy of needs chart to employee engagement, you see that there are five distinct levels of engagement. As a starting point, if you conduct your own internal employee engagement survey, I suggest you allow the responses to be anonymous, then you can see what percentage of your employees fall into each of the five categories.

As I recently learned, Gallup does its own annual three stage employee engagement survey and the results from 2015 show a continued stagnation in employee engagement.

  • 32% said they were “engaged”
  • 50.8% said they were “not engaged”
  • 17.2% said they were “actively disengaged”

As the chart below confirms, the 2015 survey results mirror the results from the previous four years.

U.S. Employee Engagement, 2011-2015, yearly

The lack of any significant increase in employee engagement over the last five years suggest that a new approach merits consideration.

Rather than treating employees as costs, why not treat them as assets who, when fully developed and equipped can deliver ever-increasing value to the company and its key customers and constituents? In today’s digital enterprise, the old vertically integrated, hierarchical organizational structures have given way to horizontally structured business networks. These new networks require increased demand for communication, coordination and collaboration among peers both internally across the enterprise and externally with customers, supply chain partners and other key constituents. To carry out these new roles employees need new tools:

  • They need to be equipped with the latest cloud, mobile and social media tools at work.
  • They need to have better access to real-time data analytics to help them learn faster than the competition.
  • They need training and development programs that are focused on creating sustainable customer relationships not just efficiently handling customer transactions.  
  • They need to be measured by new metrics that more accurately reflect the increasing value they bring to the organization.
  • They need to be compensated for delivering both short term results and increasing the company’s long term power to grow.

Re-engaging With Your Employees

In order to re-engage with your employees, create customized training and development programs designed to move them from the step they are on to the step above. These programs could include the following:

  1. Validate and document the increased demand for communication, coordination and collaboration among peers both internally across the enterprise and externally with customers, supply chain partners and other key constituents.
  2. Identify the company’s key moments of customer engagement and who represents the company at that engagement.
  3. Determine what social media and technology tools an employee needs to be equipped with in order to create a successful moment of engagement.
  4. Develop a set of metrics that measure the lifetime value of an employee who is fully engaged and able to deliver optimal performance every day.
  5. Develop an employee net promoter score that lets you know how many of your employees would be likely to recommend to their friends and peers that that come to work at your company.
  6. Create customized employee training and development programs designed to move from the step they are on to the step above.

Creating a cultural DNA that breeds full engagement

At the core of any high-performance organization is a culture that expects nothing less than the best that each employee can give and acknowledges and rewards their efforts to achieve that end state. I recently read the book The Boys in the Boat by Daniel James Brown and found that it gets down into the marrow of what it takes to deliver peak performance and total engagement

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On the surface, it tells the story of 9 collegiate rowers and their heroic quest for a gold medal in the 1936 Olympics. Underneath that surface, it tells the story of trust, harmony and total confidence in each other as eloquently described by world renowned rowing shell builder George Yeoman Pocock:

“To be of championship caliber, a crew must have total confidence in each other, able to drive with abandon, confident that no man will get the full weight of the pull. The 1936 crew rowed with abandon, beautifully timed. Having complete confidence in one another they would bound on the stroke with one powerful cut; then ghost forward to the next stroke with the boat running true and hardly a perceptible slowdown. They were a classic example of eight-oar rowing at its very best.”

With their total submission to that kind of teamwork and trust, they represent the very best of what full engagement is all about. As such, I commend this book to anyone who aspires to build that kind of commitment within their organizations. I hasten to add that success in that endeavor will produce transformational results.

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

In the New Digital World, Learning Faster than the Competition is the Only Sustainable Competitive Advantage

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Almost every C-level executive I speak with tells me they are so busy doing their business that they have no time to think about their business. Whether it’s the back-to-back to back meeting calendars or the explosion of digital communication tools from e-mail to texting to Twitter to Snapchat, executives at all levels are completely overwhelmed by the demands on their time and their schedules.

In KPMG’s Global CEO Outlook 2016 survey of 400 CEOs, 85% “admit vulnerability about the amount of time they have to spend strategizing about the forces of disruption and innovation.” The consequences of this loss of control is that critical decisions often get made without sufficient understanding of what’s at stake and what tradeoffs should be made to gain the desired outcomes.

Core vs. Context: What are you paying attention to?

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In my experience, the one defining factor of a successful leader is someone who can clearly distinguish between what’s important, mission critical core versus what’s urgent, non-mission critical context and has the discipline to spend the majority of their time on the former not the latter. So that begs the question, how do you find that right balance?

You can start by doing your own personal core and context assessment. Go back over your calendar for the last two months and look at how you spent your time and identify each activity as either core or context. Simply put, core is any activity that directly impacts the performance of your company while context are those activities that need to be done but don’t directly impact your company’s performance. This exercise will enable you to get a core and context ratio of what percent of your time is spent in each area. If you’re like the many executives I’ve done this exercise with, you will be surprised by how much of your time context activities consume.

Take an hour a day just to learn

In reading the recent blog by Michael Simmons, co-founder of Empact, I learned that throughout his adult life Benjamin Franklin consistently spent one hour a day in “deliberate learning.” Those activities consisted of:

  • Waking up early to read and write
  • Turning his ideas into experiments
  • Cultivating conversation partners
  • Having morning and evening questions to reflect on

Whatever rituals work for you, the key is to commit to them and carry them out on a daily basis.

Think Weeks, Block Days & “Thinking Thursdays”

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When Bill Gates was CEO of Microsoft, he used to take “think weeks” where he would go off by himself to a cabin in the woods and read, try out competitive software and think about the major changes that could potentially disrupt his company’s success. It was on one of these think weeks that he came to the conclusion that Microsoft had to convert to an Internet-compatible business model.

When I worked with Rob Carter, CIO at FedEx, we installed a series of block days on his calendar which allowed him to come to the office with nothing scheduled for the day. This gave him the freedom to choose how best to spend that time including 2 to 3 hour blocks of time to think through a particularly complex issue.

Recently, Edmunds.com, the online car buying company, introduced “Thinking Thursdays” for July. Each Thursday, all employees have no meetings so they can focus their full attention on getting their critical work done without interruptions.

Always leave the door open for the unexpected

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On the surface, getting control of your time and schedule has multiple benefits. But on a whole other level, you can’t expect to achieve extraordinary outcomes if you haven’t applied your full time and attention to the opportunity or challenge in front of you.

Ed Catmull, President of Pixar Animation and Disney Animation said it very well in his recent book Creativity Inc.:

“In most companies today, you have to justify so much of what you do – you prepare for quarterly earnings statements if the company is publicly traded or, if it is not, to build support for your decisions. I believe, however, that you should not have to justify everything. We must always leave the door open for the unexpected. Scientific research operates in this way – when you embark on an experiment, you don’t know if you will achieve a breakthrough. Chances are you won’t. But nevertheless, you may stumble on a piece of the puzzle along the way – a glimpse, if you will, into the unknown.”

If you agree that learning faster than the competition is the only sustainable competitive advantage, then your company’s future depends on your ability to instill a culture that prioritizes what’s important over what’s urgent. It’s not easy instilling new work habits but with the stakes as high as they are in the new digital world you really don’t have a choice.

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

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?

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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

In the new digital world, barriers to entry no longer exist

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Until very recently, most leaders of established businesses believed that the key to creating sustainable competitive advantage was erecting large barriers to entry through scaling the size and market reach of their companies. The reason this approach was successful was the high costs incurred to:

  • Build product development and manufacturing capabilities
  • Create sales, marketing and customer services networks
  • Fund technology hardware and software expenses to manage Data Centers, ERP, CRM, Finance and HR
  • Allocate significant resources & investments in R&D

While Clayton Christian’s Innovator’s Dilemma showed us the early vulnerabilities established companies had to smaller competitors, the emergence of an unprecedented number of waves of digital technology disruption has now made what was scarce and expensive ubiquitous and cheap as the chart below developed by my brother, Geoffrey Moore, illustrates.

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While one is tempted to look at that chart through a theoretical lens, let me show you an example of the practical realities this shift is having on one of the most successful transportation and logistics company in the world – FedEx.

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As of the end of last year, there were at least 34 different companies that were disrupting some part of FedEx’s value chain. The point here is not that FedEx is no longer competing against giants like UPS and Amazon but rather that their value proposition is being fragmented and diluted by a series of companies who are rounding errors on their balance sheet. Taken alone, none of them pose a real threat to FedEx today but taken together they demonstrate how digital technologies can start to level the playing field in any industry.

A new competitive paradigm means a new role for IT

To combat this new competitive paradigm, companies have to rethink the role IT must play to fend off the dilution of the company’s value proposition and thereby its margins and profits. Not only does IT need to match the speed of the product releases and applications from these new competitors but it also has to identify those business domains and activities within their organizations that would most benefit from these emerging technologies.

Traditional approaches like Plan, Build, Run must give way to new approaches like Co-develop, Assemble & Consume while Waterfall Development must give way to Agile, Lean or DevOps. Speed to market and throughput will become the critical performance metrics and senior IT leaders will have to develop or recruit people with the relevant skills and capabilities necessary to operate in a digitally mediated world.

CIOs can’t let their management agendas hold their leadership agendas hostage

Those CIOs who see this as a leadership opportunity not a management challenge will be best positioned to help develop and deploy the digitally driven competitive strategy it will take to compete in this new environment.

That doesn’t mean that IT teams can ignore their responsibility to make sure that their company’s systems infrastructure and data are stable, secure and in compliance with industry standards. It does mean that they need to perform those management functions in less time and with less resources so they can take a leadership role in driving the new digital agenda for their organizations.

A number of CIOs I’ve talked with over the past two years say they have to get their management tasks done before they can take on these new leadership tasks. Unfortunately, as the FedEx example illustrates, the market is not going to give you that kind of time. To take on this new leadership responsibility, CIOs must find a way to not allow their management agendas to hold their leadership agendas hostage.

As one CIO I am working with said to me recently, “succeeding at management and failing at leadership is not an option.”

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?

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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).

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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.

The Role and Value of an Outside Facilitator in Helping Well-Established Companies Successfully Deal with Disruptive Innovations

As I have discussed in earlier blogs, the Evolution of Enterprise IT from Systems of Record to Systems of Engagement is the kind of transformative shift (disruptive innovation) that has already started to rearrange the competitive hierarchy across multiple industries from advertising to financial services to health care to retail. In fact, from my vantage point, I cannot see any industry that will not be significantly impacted by this game-changing shift.

That said, there are a large number of companies whose senior leadership teams and Board of Directors still think they are not in harm’s way from this change. What they are missing is the opportunity to figure out how they can get ahead of this transformative shift, and thereby, gain the competitive advantage of that head start.

I think there are a number of reasons why it is so hard for successful, well-established companies to act earlier rather than later to address a change of this magnitude and why the role and value of an outside facilitator can help expedite this process:

1. Most successful, well-established companies have developed very strong and well- defined functional/operating silos. These “working silos” also cause the people within them to develop “thinking silos” as to the company’s priorities and how they can best be achieved. In times of major market flux, these individual silos can create a significant barrier to the breakthrough thinking that is required for cross-enterprise success. An outside facilitator can be of great help in breaking down those disparate silos and in enabling cross functional teams to “co-construct a new way of thinking” about what they want to do together.

Ralls_Texas_Grain_Silos_2010

a. High performing management teams often have a hard time facilitating their own discussions as extreme politeness and other interpersonal dynamics prevent participants from structuring discussions that focus on the right issues and allow them to make the tough prioritization decisions that favor one idea/business over another. Simply put, companies suck at being Darwinian.

2. When confronting a major change like “The Consumerization of Enterprise IT”, many companies take an “inside out” approach to figuring out how best to deal with it. In this case, early evidence of success suggests that an “outside-in” approach is much more effective. This requires subject matter experts from IT, Marketing and Business units to let go of their current beliefs and perceptions and utilize well-developed frameworks, models and tools to help them start thinking differently about how employees and customers want to change how they engage with the company. An outside facilitator who is not burdened by existing beliefs and perceptions can help internal leadership teams “let go” of their current mindsets and thereby utilize the new frameworks to re-conceptualize opportunities/problems and generate a diversity of ideas to address them.

a. With Systems of Engagement, you actually start with the user experience and ask the fundamental question: What is the user trying to accomplish in the moment? Then you ask yourself: How could IT systems (typically communication and collaboration systems) intervene in that moment to make the transaction or interaction more valuable and enduring?

3. Jeff Bezos, CEO of Amazon, says that “left to business as usual, people tend to come up with incremental ideas.” In order to achieve exponential growth, “people need to adjust their aspirations so they can focus on bigger ideas.” An outside facilitator can be the catalyst to help drive these bigger idea discussions by raising key questions such as:

a. What are we willing to give up in order to get better?
b. What core elements of our business must be preserved in order to create sustainable competitive advantage?
c. What new skills, resources and capabilities do we need that we don’t have now?

4. Many companies in their haste to address emerging opportunities and threats that they’ve delayed confronting deploy a ready, fire, aim approach. An outside facilitator can play a strong role in making sure that the decision making process is designed in this order – “right view, right intention, right action.”

RightArrows_PMBlog

5. Finally, the ability to have an outside resource present and socialize a major transformative shift of this magnitude along with the models and tools to address it, provides a broad strategic framework in which to organize a series of discussions and projects that will help expedite the company’s ability to get out in front of this shift sooner than its competitors and thereby gain the competitive advantage of that head start.

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.

Leadership Development is an Oxymoron

Short term performance vs. long term power

As I’ve written in earlier blogs, the single biggest challenge facing CEOs and other C-Suite leaders in well-established companies is how to find the right balance between funding the businesses they have versus making significant enough investments in next generation businesses so they can deliver material revenues and profits to the company. Said another way, this challenge pits the demand to deliver short term quarterly earnings against the desire to create long term market power. This framework and concept has been one that my brother, Geoffrey, and I have been developing together and sharing with senior leadership teams for the past several years. Even after numerous discussions and use case examples, it still tops the list as the toughest set of decisions they confront year in and year out.

Power generates performance but performance consumes power

The big aha moment for senior leadership occurs when they realize that while power generates performance, performance consumes power. This means that if the company continues to overweight investments in current businesses so as to deliver short term performance, it will eventually liquidate the company’s long term power to grow.

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Then how should senior leaders make those internal investment decisions to enhance competitive performance on both fronts?

First, by understanding that decision making that optimizes short term performance and quarterly earnings is about management, while decision making that increases the company’s future power to grow is about leadership.

And second, by understanding the different skills and capabilities necessary to move from a management mindset to a leadership mindset.

Deciding between knowns and unknowns

In most cases, all the necessary data for a manager to make a performance-based decision is available and it’s a matter of assessing and comparing “known options” and selecting the one that has the best potential to deliver the desired short term results. By contrast, in many cases all the necessary data is not available to a leader who is trying to decide what new business opportunity has the greatest potential to improve the company’s long term growth prospects.

Leadership development is really management development in disguise

Most well-established companies have put together elaborate leadership development programs designed to identify their high potential managers and develop them into future company leaders. These programs include everything from:

  • The Company’s Values and Code of Conduct
  • Leadership skills and capabilities assessments  eg: Myers Briggs
  • University based development programs
  • Offsite leadership team building exercises
  • Job rotations

While a number of these programs help aspiring managers acquire broad skills and knowledge, in most cases all the practical examples and exercises are designed to help them make better management decisions not leadership decisions. Some of you reading this may be thinking – “so what’s wrong with that?”

What’s wrong with that is that the emphasis on management training, under the guise of leadership development training, only reinforces a silo based organizational structure. And silo-based decisions are primarily made within SBU’s and major support functions rather than across the enterprise. This results in management decisions that favor short term results trumping leadership decisions that favor long term growth.

I’ll give you an example of that in one word: Microsoft. For thirteen years they’ve been making these silo-based decision tradeoffs, and for thirteen years they’ve failed to launch a material next generation business and the market has kept the company’s stock flat during that time period.

How does a company break out of this management decision-making stranglehold?

The easy answer would be to say that the CEO is ultimately responsible for all major leadership decisions. In some cases, such as Apple’s extraordinary performance in the last decade (they successfully launched 3 next generation businesses that all delivered material new revenue and profits to the company), the primary driver of that performance was the company’s CEO, Steve Jobs. But in most organizations, the CEO needs to rely on input from a number of senior leaders who bring industry, market and customer experience and expertise to the table.

The hard answer then is to improve the quality of the decision-making process and not rely on the illusory promises of leadership development programs.

Based on our work with clients, here are four suggestions for how companies can change their leadership decision making processes:

1.  Review and evaluate all next generation business opportunities the quarter before the company begins its annual planning and budgeting process. The reason for this is that if you allow next generation business opportunities to compete directly for resources with established businesses, the former always loses out to the latter.

2.  Launch only one new business at a time. The biggest mistake well-established companies make in this arena is they spread their resources over multiple opportunities ensuring that no one will have sufficient support and funding to produce material returns.

blog 8 image 13.  Run each next generation business like a startup with a dedicated business development SWAT team who are compensated solely for getting the business to scale. The reason for this approach is that most well-established companies’ ability to support a new business opportunity that hasn’t produced material revenues and profits will stop after 24 to 36 months.

4.  Allocate a significant portion of all the discretionary bonus of each member of the senior leadership team to the success of the new business. If not, they will have no incentive to provide resources and support for the new effort.

Following these four suggested process steps for leadership decision making is no guarantee of success, but it sure increases the odds of success over trying to develop leadership decision making skills and capabilities in a classroom or an executive retreat.

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.