One of the top priorities of CEO in the Digital Economy – Digital Change (Thrive or Perish)
We all know ‘Change’ is difficult to achieve, specifically, in an existing organization. Corporations change gradually and evolve over time i.e. evolutionary rather than revolutionary. The key driver for Change is the External environment which is mostly unplanned. Hence, what should an organization do in the rapidly changing digital landscape as they are forced to adapt in order to either thrive or perish? In the digital age, one of the top priorities of any CEO is to make sure that they lead the Digital Change effort within their organization.
Let’s take an example. CEO and the leadership team has worked hard and identified an opportunity in the digital space. Additionally, they have developed a digital strategy and identified the digital technologies to enable the implementation of the strategy. What are their chances that they will be successful if they have not aligned their organization culture, structure, people to support the digital strategy? As per Gerald Kane ‘Aligning The Organization For Its Digital Future’ MIT Management Review report, there are four factors that play a role i.e. Culture (desirable behavior), People (assets), Structure, and Tasks.
Out of these four factors, “Culture (under desirable behavior)” and “Assets” play a significantly important role towards the success of any organization planning on Digital Transformation. As shown below in the schematic, the Board is responsible for setting the corporate governance, the CEO (and the senior executive team) is responsible for setting out the strategy and establishing the desirable behavior. In order to be successful, the strategy has to be executed efficiently by resources (aka Key assets). In summary, the strategy is the input and the two important enablers are the ‘Culture’ and ‘Key assets’.
Corporate and Key asset Governance
Adapted from MIT Sloan School Center for Information Systems Research (CISR) – Peter Weill & Jeanne Ross
Let’s focus on these factors i.e. ‘Culture’ and ‘Assets’. The questions that come to mind are:
- Who is responsible & accountable for establishing these factors?
- How do you establish and measure them?
- How do you ensure that these are effective and helping you reach your goals?
Of course, CEO and the senior executive management team are responsible for establishing Culture and belief and it should start with the Vision and Mission statements.
“Culture as a set of basic assumptions defines for us what to pay attention to, what things mean, how to react emotionally to what is going on, and what actions to take in various kinds of situations.”….Ed Schein
Culture is like air! You can’t see it but you can feel it. In the case of air, one can identify certain attributes and can possibly measure and monitor them such as Temperature, humidity, pressure etc. So what are the attributes of Culture, in particular, in the digital age?
Some of the attributes of ‘Digital Culture’ are as follows:
- Appetite for risk (risk averse vs bold)
- Speed and agility (Slow to act vs nimble)
- Decision making (Instinctive vs data driven)
- Structure (hierarchical vs distributed)
- Creativity (low level of innovation vs high level of innovation)
- Trust (low vs high)
- Empathy (low vs high)
- Respect for ideas & peers (low vs high)
As you can see, Digital Culture is nebulous and hard to quantify. It’s something that you can feel and sense in an organization. However, by conducting surveys in an organization and using attributes described above on a graded scale, one can get a good sense of the level of digital culture by looking at their cumulative score of their attributes. Based on the research performed by MIT researchers, corporations having higher ‘Digital Culture’ score have a better success rate in implementing digital strategies e.g. Adobe, Salesforce etc.
The other factor is Asset. In the digital age, People in your organization are your key assets. Other assets such as digital technologies, physical assets, business processes are important but having the right people makes all the difference. Also, having people with deep technical skills is important but not sufficient. There are a few attributes apart from technical skills that help define the quality of talent and how well are they engaged in an organization. Some of these attributes are:
- Work Style (Independent/Silo vs Collaborative)
- Passion for work (work to live vs live to work)
- Incentive (money vs non-monetary such as training, support etc)
- Recognition (immediate boss vs peer to peer)
Once again, corporations that are digitally mature have a higher score with respect to people.
Implementation and monitoring of Digital Culture & Assets is a must.
As described above, ‘digital culture’ and ‘assets’ are the two most important aspects of digital change. In my opinion, here are the steps that need to be undertaken in order to implement and monitor them.
- CEO and Senior executive team, in addition to defining the strategy, they need to establish the Culture i.e. the desirable behavior via vision, mission, and strategic objectives
- In the case of a new digital opportunity, it may be prudent to set-up an entirely new Business unit (or a separate entity) with its own ‘new’ culture that aligns to your digital strategy to ensure success
- Involve everyone and live the ‘culture’ every day
- Institutionalize through constant reinforcement at all levels
- Develop and monitor your results (and fine tune the culture and assets as required)
- Do NOT fear the change, have ‘Faith’, ‘Patience’ and ‘Courage’. After all, ‘Courage’ is the difference between success and failure, that is, either you Thrive or Perish.
About the Author
Udey Chaudhry is an Executive Management Consultant, focusing on Digital Business Strategies and Execution, with extensive experience as a Strategy Consultant with top-tier consulting firms and successful startups. He is an alumnus of MIT Sloan School of Management.
All opinions expressed by Udey Chaudhry are solely his own and do not reflect the view of any professional organization.
© 2017 Udey Chaudhry All Rights Reserved
REFERENCES:
Peter Weill and Jeanne W.Ross, ‘IT Governance’, Harvard Business Review Press
Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips and David Kiron, Natasha Buckley, ‘Aligning the Organization for Its Digital Future, MIT Sloan review, Summer 2015
John Van Maanen, ‘Three Perspectives on Organizational Change’, Professor of Organization Studies, MIT Sloan School of Management
Five (5) steps to formulate Digital Business Strategy
Five (5) steps to formulate Digital Business Strategy
- Establish Digital Business Strategy – How to determine where you want to play, how to provide differentiated value, and how to win (apart from Setting up Vision, Mission and Goals)
- Agree on the new Digital Business Model
- Assess current Digital Business Model against the new Digital Strategy and its impact on the ‘Core’
- Revitalize the ‘Core’ to improve Competitive Position
- Develop a roadmap to achieve the Digital Business Strategy
In the digital economy, corporations are witnessing threats that they have never perceived before. At the same time, digitization has brought in opportunities that are waiting to be seized. Irrespective of where your company resides in the digital space, the business leaders need to re-think their strategy and strategically invest in the future. Hence, the business leaders need to come up with a strategy that embraces digital technology and provide a platform for the organization to thrive in the future. This requires building a robust Digital Business Strategy (DBS) in which the business leaders need to think out of the box.
The basic steps involved to formulate the Digital Business Strategy are still founded on sound financial and business principles. However, the approach needs to be adapted to make sure business leaders are leveraging digital technologies , capabilities, and emerging digital business models to create and capture value effectively. Listed below are five (5) steps to developing the Digital Business Strategy.
1. Establish Digital Business Strategy
- Setup Vision, Mission and Goals
- Identify where you want to play, how to provide differentiated value, and how to win
Setting up the Vision, Mission and Goals is the first step towards establishing business strategy. Of course, the final goal of the corporation is to maximize long term growth and short term profitability.
However, the key elements to establishing a robust business strategy require business leaders to answer the following questions :
- Where do you want to play? This requires identification of which markets (i.e. customers) to target (also known as the Target Market)
- How do you provide differentiated value to the targeted customers? This requires assessment of the competitive landscape to ascertain the value being provided to the customers in that market, and how best to provide differentiated value (also known as Value Creation)
- How do you win in the targeted market? This requires assessment of internal capabilities that you currently have (or can quickly develop) to deliver differentiated value in a profitable manner (also known as Value Capture)
If the leadership team is able to recognize customer’s ‘active’ problems and assess the competitive landscape, it could come up with opportunities that are limited by the extent of its imagination. For example, a grocery store chain ‘Safeway’ unleashed a digital business ‘Digital pre-paid gift cards.’ Safeway spun this business off as a separate company ‘Blackhawk’ which is totally unrelated to its primary line of business (by the way, Blackhawk is the undisputed leader in this space). Another example is a white goods company that is making a foray into a services business by building a mobile application which will integrate all home based appliances across brands for the end consumer to control and manage remotely–an entirely different business model and a very imaginative new offering.
2. Agree on the new Digital Business Model
Once the target market (and end customer) has been identified and the Value Proposition has been quantified, the next step is to agree on the new Digital Business Model and understand the impact on the ‘Core’.
As per Peter Weil and Stephanie Woerner of MIT Research, executives have four options (see 2X2 matrix below) in selecting a business model,. The variables along the X and Y axis represents 1) Business design i.e. the extent to which executives like to control the Value Chain, or drive an ecosystem that delivers on the customer’s total needs 2) the extent to which they know about their end customer’s goals.
Based on these two variables, the matrix is divided into four quadrants, namely,
- Suppliers
- Omnichannel business
- Ecosystem drivers
Modular Producer
Business leaders can assess which quadrant they currently sit in and where would they like to be in the future. This is a soul searching opportunity which will define the future of their organization.
- Supplier : These companies have partial knowledge of the customers and operate as part of the value chain of another company. Examples are Applied Materials Inc. and KLA-Tencor
- Omnichannel Business: These businesses provide customers access to their products across multiple channels, including physical and digital channels. They have a complete understanding of customers’ needs and wants but limited to the products and services sold within the Value Chain. Examples are retailers such as USAA and Walmart
- Ecosystem Driver: Companies that develop an ecosystem by creating a relationship with other providers that offer complimentary (or competing) services. These companies are able to capture the buying behavior of the customer irrespective of whether they buy the company’s products or services. Hence, these companies have a complete understanding of customer needs and go beyond the traditional Value chain principles. Examples are Amazon, Apple, and Fidelity.
- Modular Producer model: These businesses provide plug-and-play products or services that can adapt to a variety of ecosystems. These companies have a limited view of the customer as they are limited to the data from the transaction that they process. Examples are PayPal and Apple Pay
Depending upon where you want to play, how you provide differentiated value, and how you want to win, one of the four business model options can be selected. In general, in the digital economy, the companies should strive to be in the Ecosystem driver space. In order to succeed and thrive in this space, the goal should be to be the business of ‘First choice,’ that is, a significant number of customers should come to your site first to buy (or search) products or services that they may be interested in.
3. Compare current Digital Business Model against the newly selected Digital Business model and understand its impact on the organization
Digital Business Models are not easy to change once implemented and have enormous ramifications as to how the organization shall operate in the future. One key area that needs to be understood is the impact on the ‘Core’ of the organization. The Core is something that allows you to deliver the benefits to your customer with much greater effectiveness than any other competitor. This secret sauce is something that makes it very difficult for your competitor to emulate you. If the newly selected Business Model requires you to develop new capabilities (i.e. secret sauce) that will deliver value to the customers and provide you the edge over your competitors, then it’s time to look internally and revitalize your ‘Core.’
4. Revitalize the ‘Core’ to improve Competitive Position
As mentioned above in Step #3, the Core is the secret sauce that cannot be replicated easily by your competitor. Some examples of Core are Network Effect, Customer Service, User Experience, and Low Cost. However, the Core is not the reason customers would buy from you; instead, they will look at the Competitive Position of your company. As per Bill Aulet, Managing Director of MIT’s Entrepreneurship program, the Core will help drive your ability to deliver certain benefits to the customer, which has to translate into value for the customer, which then leads to a better Competitive Position. The Core is how you are building a capability to differentiate yourself from your competitors, and it cannot be easily replicated by others.
Based on the selected Digital Business Model, the capability(s) that you need to develop may require you to revitalize the Core in order to provide you the Competitive Advantage. The revitalization of the Core and subsequent development of these Capabilities will most likely require leveraging Digital Technologies . The capabilities requiring digital technologies can be termed as ‘Digital Capabilities.’ Examples include an excellent website design that enhances User experience (UX) and an electronic platform that enables network effect. Please note that the value proposition in a digital ecosystem is not solely dependent on the Digital Capabilities. There are examples of Core that generate high value that are not enabled by digital technology such as providing unmatched Customer Service and being a Low Cost manufacturer.
5. Develop a roadmap to achieve the Digital Business Strategy
- Identify and develop Digital capabilities
- Digital External
- Definition – Product and services being offered by an organization that are digitally transferred and consumed by the end customer. For example, delivering ebooks, music downloads, financial policies, warranties, and airline tickets.
- Digital Internal
- Definition – Digital technologies utilized to develop an organization’s internal business capabilities. For example, supply chain visibility across the value chain (or ecosystem), collaboration, service catalogs, scorecards, and mobility.
- Digital External
- Organization readiness (culture, communication, employee involvement, talent and skills)
- Culture – Does your organization encourage employees to embrace digital technologies and capabilities? Is there an environment for innovation and experimentation? For example, Gary Loveman, the CEO of Caesar’s casino has transformed the casino from a second tier to number one gaming company in the world. ‘The employees are encouraged to run marketing experiments that help to develop and implement finely tuned strategies that add value and make sure customers keep coming back.’
- Communication – Is your organization ready for the digital change? Make sure that the digital strategy has been clearly communicated so that employees could serve as ambassadors for the organization and lead the change both internally and externally
- Talent and Skills – Does your organization have the right talent and skills to succeed and embrace the digital revolution? Do the leaders have the skills to understand the digital threats and opportunities? Are the leaders well prepared to formulate a strategy that will help their organization to thrive in the near future?
- Managing business complexity – Identify your operating ‘Sweet Spot’
In order to provide differentiated value to the customers, businesses add new products, services, and channels. This results in adding complexity to organization’s processes and systems. Enhancing value to the customer has a direct positive impact on the Revenue; however, at the same time complexity results in increasing an organization’s business processes costs (i.e. Operating costs). The organization has to make sure that it operates in a zone where the benefits of adding value to the customer outweighs the costs added due to complexity. This zone is also known as the ‘Sweet Spot.’
About the Author
Udey Chaudhry is an Executive Management Consultant, focusing on Digital Business Strategies and Execution, with extensive experience as a Strategy Consultant with top tier consulting firms and successful startups. He is an alumnus of MIT Sloan School of Management.
All opinions expressed by Udey Chaudhry are solely his own and do not reflect the view of any professional organization.
© 2015 Udey Chaudhry All Rights Reserved
REFERENCES:
Peter Weill and Stephanie L. Woerner, ‘Thriving in an Increasingly Digital Ecosystem’, MIT Sloan review, Summer 2015
Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips and David Kiron, ‘Is Your Business Ready for Digital Future’, MIT Sloan review, Summer 2015
Bill Aulet, ‘Disciplined Entrepreneurship’, 2013 Edition
Erik Brynjolfsson, Professor, MIT Sloan School and MIT Center for Digital Business, ‘From Correlation to Causality’, March 31, 2013
Martin Mocker, Jeanne W. Ross, ‘Rethinking Business Complexity’, Center for Information Systems Research, February 2013
5 Key Challenges and Opportunities for CEO while formulating Digital Business Strategy
5 Key Challenges and Opportunities for CEO while formulating Digital Business Strategy
The CEO is responsible for ensuring the success of the enterprise in this Digital Era, and he in turn depends on his team. Here are the five key (5) challenges and opportunities for CEO while formulating Digital Business Strategy:
1) Innovation:
An enterprise can innovate primarily via product innovation and/or business model innovation. Product innovation is a more widely accepted and relatively easier path to undertake. A good example of product innovation is leveraging digital technologies (e.g. Mobility, Big Data Analytics, Cloud Computing, etc.) such as Apple’s iPhone, iPad, iCloud etc. The business model innovation is just as effective as product innovation in terms of financial results; however, to implement the change requires a lot of time and effort such as Wal-Mart’s Cross Docking System, Toyota’s Production Systems etc. There are challenges in both the approaches, and there are immense opportunities as well. The leadership team needs to choose wisely!
2) Clockspeed:
As the leadership team starts to evaluate each business unit (and their respective offerings), they should have a clear understanding of the clock speed of its respective business units (i.e. high clockspeed equates to industries with very rapid evolutionary rate). This is more important if there are multiple companies within the enterprise portfolio. Measuring the output of each company (or business unit) in terms of Financials (e.g. ROI, net profits, etc.) is not sufficient. Clockspeed needs to be included as one of the key measures, and each new opportunity should be measured against it. As most of the new business opportunities in this digital era may lie in a business industry that may have a very high clockspeed; hence, it is important to consider this factor while assessing the overall health of the entire enterprise portfolio.
3) Competitive Advantage:
As all competitive advantages are temporary, key variables that determines the longevity of the advantage are the clockspeed and your ‘Core’. The faster the clockspeed, the shorter the time horizon of the advantage and vice versa. There are a few parameters that can enhance the longevity; however, the enterprise has to constantly re-invent itself and revitalize the core over time in order to sustain itself. Hence, the leadership team needs to constantly look for opportunities that can provide a longer term advantage. As per MIT Sloan School of Management professor Charles Fine, ‘the faster an industry evolves, that is faster the clockspeed – the more temporary a company’s advantage. The key is to choose the right advantage – again and again’.
4&5) Business Capabilities and Organizations:
General Patton once said, “Wars might be fought with weapons, but they are won by men, it is the spirit of the men who leads that gains the victory.” In reference to the enterprise, the weapons are your ‘business capabilities’ and the men are the ‘organizations’.
- Business Capabilities: One of the keys to winning a war is having the latest and effective weapons at your disposal. Since business capabilities enable your strategy and could be the difference between winning and losing, it is extremely important that you ensure that you have the best business capabilities available. Leadership team needs to ask this question, if they are optimally leveraging Digital Technologies to build ‘best in breed’ business capabilities? In today’s world, one cannot win a war with swords and spears.
- Organizations: I’m sure everyone agrees that fortitude of the men (and women) is the single most important factor in winning. Does your organization have resilient and courageous folks? Are they willing to adapt, learn, and deliver the results with the best business capabilities at their disposal?
References: Charles Fine (Fast Clockspeed)
About the Author
Udey Chaudhry is an Executive Management Consultant, focusing on Digital business strategies and execution, with extensive experience as a Strategy Consultant with top tier consulting firms and successful startups. He is an alumnus of MIT Sloan School of Management.
All opinions expressed by Udey Chaudhry are solely his own and do not reflect the view of any professional organization.
© 2015 Udey Chaudhry All Rights Reserved
CEO’s Role in the Digital Era – 6 Steps Approach
Background
In today’s business world, with the advent of disruptive digital forces, nothing is sacrosanct. Traditional thought processes and viewpoints are being challenged. Innovation is taking place across multiple dimensions at a rapid pace which has never been witnessed before. In addition to product innovation being ushered in due to new digital technologies, there are now innovative business models that are being developed. Competition is being witnessed not just from traditional competitors and from customers (via backward integration) & vendors (via forward integration) but also from corporations outside the industry. Some of these corporations are simply seizing opportunities by addressing the weakest link in an enterprise or creating one that doesn’t exist today.
Who is Responsible?
Should the CEO be accountable to the shareholders for the success of the Enterprise’s Digital Strategy and Transformation?
The CEO is responsible for ensuring the success of the enterprise in this Digital Era, and he in turn depends on his team.
There is no clear-cut approach or methodology to achieve success in this Digital Era. Every situation is unique, and it is up to the leadership to help guide the future of their enterprise. However, there are certain guiding principles (steps) that are available and that can be followed by the leader to come up with a good game plan.
Recommended Six Steps to formulation of Digital Strategy and successful Transformation:
- Embrace digital (enhance growth by innovation & imagination i.e. Digital External*)
Albert Einstein once said, “The true sign of intelligence is not knowledge but Imagination.” We are limited by our ability to imagine, and this holds true today more than it ever did in the past. As the CEO, the question is not only to be an expert in your Industry (or domain) but also to be able to imagine possibilities outside your current realm and across boundaries. A future enterprise’s business strategy will be based on who can best imagine the new possibilities and seize those opportunities by leveraging existing capabilities to their advantage and revitalize their ‘Core’. This has to be an ‘on-going’ process as all competitive advantages are temporary, in particular, in this high ‘Clockspeed’ digital era.
- Develop a good business strategy with great tactics (i.e. Operating strategy)
Once the new business opportunity has been identified, leaders should focus on developing a good business plan. In the Digital Era, time is of paramount importance; hence, developing a strategy that is good enough to move forward is all that is required. As per General Patton, “ A good plan, violently executed now, is better than a perfect plan next week.”. The focus has to be on developing great tactics (i.e. Operating strategy) to compete against competitors in the marketplace. This is where the wars are won or lost, i.e. in the trenches. Look no further; in football, no matter how good the strategy is, the team that frequently wins is the one that is disciplined, relentlessly perseveres, makes adjustments as needed, and eventually wears out its opposition. It’s all about the tactics!
- Act quickly while listening to the customer
How to differentiate between Customer’s ‘Active’ and ‘Inactive’ problems is a tough ask. One possible way to ascertain this is to use Data Analytics. There are multiple tools and techniques that are available to understand and predict customer needs but come at a cost (i.e. investment). This may provide an insight into a customer’s future needs but cannot assure positive Return on Investment (ROI). Hence, one should tread carefully in this area. In the beginning, it may be prudent to leverage data analytics for internal improvements (recent studies show that the ROI attained is much higher for internal improvements versus gaining customer insights). In parallel, learn from what your competition is doing in terms of customer insights. Sometimes, it makes sense to let someone else spend his resources to convert those problems from ‘Inactive’ to ‘Active’ as they try to gain the first mover advantage. In digital business, first mover advantage is not necessarily an advantage rather acting quickly once the customer need is established is hugely advantageous. There are multiple examples that prove this statement (Netscape Navigator browser was taken over by Microsoft IE browser, MySpace by Facebook, Alta Vista by Google search engine, etc.)
- Focus on a few and monetize
Enterprises have limited resources; hence, the focus should be on selecting a few products (or services) and vigorously execute the set out plan. Additionally, effort should be made to monetize whatever you are selling. It is not sufficient to just increase certain perceived metrics such as the number of registered users, eyeballs, etc. The focus should be on delivering results that business experts and shareholders can understand and feel i.e. the language of money!
- Develop excellent business capabilities (Digital Internal*)
The key ingredient for success, apart from imagination, is the development of business capabilities. Of course, the objective is to leverage existing capabilities and to assess what is lacking. The gap in terms of capabilities can be bridged either by developing them internally or acquiring them from outside. Herein lies the opportunity to acquire those required capabilities in the shortest possible time (remember time is of paramount importance in this Digital Era). There are various ways to acquire these capabilities which could be digital in nature. Some of the proven traditional ways are Mergers & Acquisitions (M&A) and/or strategic partnerships. Additionally, one should look at digital technologies such as the ‘Cloud Computing’, ‘Mobility’, and ‘Social Media’ to help develop these capabilities quickly.
- Motivate & trust your team to perform meaningful work
An enterprise can be as strong as its weakest link. This is where we see a major difference between a good versus a great organization i.e. the quality of their workforce. Malcolm Gladwell mentioned in his book Outlier, people crave for meaningful work. Meaningful work consists of three criteria:
- Effort to Reward relationship: Define a clear relationship between effort and reward. The better the performance, the higher the reward.
- Complexity: Put people on complex projects, and they will shine
- Autonomy: Provide complete independence
In other words, give people a challenge (complexity), freedom to run it like their own business (autonomy) and set up a system that rewards them for their successes. Then, just sit back and enjoy the journey. However, the team needs to be close to the customer so that it can listen to the customer needs, understand market shifts and make any course corrections on the way.
There is so much social, political and economic uncertainty around the world. On top of that, digital technologies & new business models are destabilizing one industry after another (more so in Media & Entertainment, Electronics, Finance & Insurance, Retail, Airlines, Hotel industries) and no industry is immune to these disruptive forces and it’s just a matter of time.
Obviously, in order to counter these challenges and convert them into opportunities requires vision and fortitude. The question is, as the CEO, are you ready for greater challenges?
Digital Internal vs Digital External*:
Digital Internal – Digital technologies utilized to develop organization’s internal business capabilities
Digital External – Product and services offered by an organization that are digitally consumed by the end customer
About the Author
Udey Chaudhry is an Executive Management Consultant, focusing on Digital business strategies and execution, with extensive experience as a Strategy Consultant with top tier consulting firms and successful startups. He is an alumnus of MIT Sloan School of Management.
All opinions expressed by Udey Chaudhry are solely his own and do not reflect the view of any professional organization.
© 2015 Udey Chaudhry All Rights Reserved
Digital Business Strategy 