I recently gave a keynote address on Wall St. to a group of executives discussing my framework for transforming and preparing companies for the digital age, in the context of humanity, and the role technology would play in our future, including my favorite quote at the end from the very inspiring recent TED broadcast of Pope Francis. Below is the video of the keynote and a transcript. I recommend watching rather than reading this one.
Today, I want to tell you about those companies that are doing Digital Transformation right. I call them the Trailblazers. They have governance, management, resolve, financing and assets, that are dedicated towards going digital, that is at the core of the organization. As a result, they enjoy an overall increase in performance across all key functions. These are companies that are in tune with their customers’ best interests.
So what do these trailblazers do that is so different?
Well, the first thing is Digital Competence. Digital competence is about the differentiation you can achieve by using your IT systems for a competitive advantage; more resilient, responsive, adaptable, and secure. The heart of your Digital capability is your software – that’s the quote-end-quote legacy software that currently runs your business, the new software you’re writing for online and mobile experience, and the capacity of your organization to transform that software to follow your Digital vision. If your team and your digital assets are too ossified to adapt quickly and constantly, your Digital strategy will lead you nowhere.
As such, transformation initiatives that do not first tackle functional, data, and technical complexity issues are setting themselves up for failure. Data shows that those that attack functional, data, and technical complexity achieve cost savings of 15% to 20% of their total technology budgets while increasing their agility and reducing risk. Reducing complexity involves three actions: identifying redundancies, improving key software characteristics, especially changeability, and risk factors, and measuring the impact of transformation in terms of capacity, time to market, and business value. Measuring software at a structural level is the only way for Digital-minded executives to make the right trade-offs between delivery-speed, business-risk, value and technical debt. Dealing with technical and architectural complexity during digital transformation can be difficult. Tech leaders who employ a standards-based, factual approach will avoid the hazards that have derailed past simplification and transformation initiatives.
Now, we talked about trailblazers having digital competence. They also get the process right – the how part – in other words how they do it is unique and extremely efficient. It comes from developing leadership that’s completely clued into the digital mindset, are key sponsors of it and drive it, instead of just hiding behind the tech and hoping the automation works. Technology replicates and automates good strategy, so if the operational strategy or customer experience is sub-standard, the technology enabling it will also be sub-standard. So the trailblazers develop the leadership competence to drive digital transformation.
So what else are these digital trailblazers doing really well? Well, four things.
Customer Experience, Operations, Business Model, and Leadership.
First, they are reimagining the entire customer experience based on the data they are collecting and redesigning how their customers interact with all touch points between the customer and the company, whether they are apps, mobile, desktop, Facebook, Snapchat, or any other social platform, making it exceptionally user friendly.
Second, a subset of these companies are going a step further and attempting to digitize their operations. Now, there are three steps to going about digitizing your operations.
The first is digitizing business processes such as finance, accounting, human resources, and marketing. What is interesting is that there are thousands of companies out there especially at the divisional level, that continue to use paper-based processes for conducting day to day business such as submitting and approving expense reports. Businesses that enjoy visible gains in efficiency are those that are digitizing their operational processes.
The second step in operations digitization is that of employee empowerment to enable them to interact, connect and communicate better no matter where in the world they might be. Employee empowerment via a shared digital platform is fundamentally changing the modus operandi of how employees work and exchange ideas.
The third and final step in operations digitization is that of data management. This phase is all about improving performance, and through transparency, helping the company understand how their customers come, what they do, and how they buy.
Digital trailblazers understand everything about who their customer is – their actions, aspirations, research and buying patterns, their likes and dislikes, and of course what segments they belong to. The companies that invest in customer facing technology without really understanding their customers do not really gain from the investment. So, know your customer well. A friend of mine working for Coca Cola got posted in the middle east and he started this three poster Coke campaign. The first poster showed a man lying in the hot desert totally exhausted. The second showed the same man drinking a can of Coca Cola. And the third poster had him refreshed and running again. What my friend didn’t realize is that, in that region people read from right to left – man was running, had a coke, and then he fell flat in the desert.
Brands like Burberry and Starbucks have mastered this aspect of digitization by offering app experiences that are focused around your individual preferences thus allowing them to target specific messaging to you based on information that you desire. Burberry tries to bring the in-store retail, color, design and runway experience to their customers inside of their App.
Starbucks’ Mobile Order & Pay program is equally popular. It lets customers order and pay for beverages in advance and pick them up without waiting in the cashier line. It’s fascinating to see that Starbucks and not Google or Apple became a trailblazer in mobile payments and that’s because of governance and complete management buy-in from the top. Back in 2011 when Google was trying to get consumers to use mobile payment options involving new phones and refurbished in-store terminals, Starbucks released its app with simple QR codes even offering rewards to its customers for using the app which now accounts for a giant share of all sales in Starbuck’s company-owned U.S. stores.
The next aspect of operational digitization is personalization and targeting – and that comes from an analysis of customer data – collecting and harnessing lots of data followed by lots of analysis. For that you need real good data analysts, like the one whose wife had twins. He was delighted. He rang the minister who was also delighted. “Bring them to church on Sunday and we’ll baptize them,” the minister said. “No,” said the analyst. “Baptize one. We’ll keep the other as a control.” So that’s the type of analyst you want.
I will try to explain this using the hotel and hospitality industry as an example. Hotels are starting to use insights from big data analysis to create innovative offers and personalized services. Personalization is an art driven by data science, and has evolved into an entirely new approach to consumer marketing. Hotels are starting to use the collected data, but very few are actually extracting its full potential.
Starwood Hotels for example are conducting advanced analytics, on customer, weather and property specific data, to figure out what price and incentive to offer a guest that is just right for the guest to book the room. They also use the data to determine the length of promotion and the amenities that might be of most interest to a particular guest, so they are offered to the guest at check-in.
Besides rooms, hotels also have spas, restaurants or other services that they aspire to fill and that’s where data comes in yet again. Not too long ago the CMO’s office would create a broadly defined monthly marketing offer that would then be disseminated by hotel staff across the properties. This “one size fits all” method obviously missed the vital component of whether the offer would be attractive enough for a particular guest. Let’s take Hyatt Hotels as an example that enjoyed a 60% increase in non-room revenue over the course of a year by using data analytics to arm their front desk staff with upgrade and service offers.
The final aspect of operational digitization is bringing legacy and the future together in a way that works. Going digital and chasing a future while ignoring the past is an ineffective strategy. Executives think they can simply let go of the past and pursue a new future bereft of legacy baggage. I can tell you that is a recipe for disaster. If you are a retailer, consider doing augmented reality for example where you offer a variety of alternative colors and material for an item that may only have one piece on display at the physical store. A blend of virtual with physical, future with legacy.
Now let’s talk about business model. The reality is it’s impossible for a company to claim that its business model is to use digital technology, and achieve any real success pursuing it. Having said that the digital transformation landscape can be broken down into five business models.
The first is Redesigning the Industry where the companies essentially disrupt and completely redesign an existing industry. Think Airbnb and Uber.
The second is Redesigning the Product where the companies face a rapidly dying product and are forced to digitize the product experience for their customers. Think United States Post Office.
The third is creating New Digital Ecosystems where sub markets can coexist hinged to the parent ecosystem – think Apple and its market of app developers or Amazon and its marketplace of third party sellers.
The fourth is Recreating the Path to the Customer. Here companies are dissociated from their customers by an intermediary that they are dependent on, so are figuring out ways to reach that customer without jeopardizing their existing distribution channel. Think Lemonade.com the insurance disruptor.
And the fifth is to change the value proposition itself. Think rideshare insurance such as GEICO & Farmers, where their new offerings not only cover standard personal automobile use based on monthly premiums, but also add spot insurance coverage for the time that the insured driver is signed in to a commercial ridesharing app like Uber. Think individual insurance coverage for a skier while she is riding the slopes.
So we just talked about the three constituents of successful digital transformation that Digital Trailblazers have mastered – the customer experience, operations and business model. There is one more component and this is an important one. It’s effective leadership and acceptance of digital as a core value driver within the company. Remember, the key to being a good leader is keeping the people who hate you away from those who are still undecided.
Digital transformation is not about innovating on the periphery, or creating a digital department hiring millennials to work for you with the intent of reaching other millennials via mobile devices on snapchat and Instagram or about conducting bold disruptive experiments in the hope that they work out. In fact in all the companies that I have dealt with, the best trailblazers have done none of that. What they’ve all had is fantastic top down leadership with consistent messaging around digital not being this cool thing on the edge, but instead being a core focus of the organization.
True digital transformation only comes with robust and resilient leadership disseminating a message of vision, involvement, governance and acceptance as the drivers of the future.
So let’s discuss each of these as the core components of digital leadership.
Let’s talk about Vision first. A lady walks into a store to return a pair of eyeglasses that she had purchased for her husband a week before. What seems to be the problem, madam? I'm returning these glasses I bought for my husband. He's still not seeing things my way.
So how do you get people to see things your way as leaders? Well, there are three components of robust vision coming from executive leadership. The first is defining your Core Asset. When designing a digital transformation plan consider your core asset, the one that pushes product for you. Everybody knows Google. But think about Yellow Pages for a moment. They considered their thousands of sales people as their core asset and reoriented them from selling paper ads to selling digital services to their small business customers through YP.com, a site that now receives nearly 55 million consumers each month.
The second component of vision is having a Core Mission Statement that is not a slogan but instead is transformative and that your organization can internalize, much like what GE has done with its Industrial Internet concept.
Don’t have a mission statement that tells people you don’t really mean it, like Barnes and Noble. "Our mission is to operate the best specialty retail business in America, regardless of the product we sell." Here's the third sentence: "To say that our mission exists independent of the product we sell is to demean the importance and the distinction of being booksellers." It's probably better if your mission statement doesn't contradict itself.
Also, don’t have one that tells people you don't care what business you're in. Here's Albertsons' mission statement: "To create a shopping experience that pleases our customers; a workplace that creates opportunities and a great working environment for our associates; and a business that achieves financial success." In case you're wondering, Albertsons is a chain of grocery stores, primarily in the Western U.S. Ideally, your mission statement should mention what your company actually does.
The third component of vision is about defining a pure resolve and result, in other words what it is that the company stands for or intends to do and what impact the leadership expects from the effort. Think what Burberry did almost a decade ago when it’s CEO at the time Angela Ahrendts declared a vision of wanting to be the brand that would be the first, all-digital luxury fashion house. Today, digital is at the heart of Burberry, harvesting the loots in a cohort that has infamously trailed digital savoir-faire. In the case of Burberry it all came from the CEO’s vision of being an all-digital brand.
Now I just told you about the three components of vision - Core Asset, Core Statement and Pure Resolve and Result.
Now let’s get back to the second component of digital leadership, which is participation. If a company wants to transform, it needs to actively involve its employees and with all the technology available today, participation can be carried out at global scale. Give employees a platform to voice their opinions, then actively participate in the platform so employees can embrace the digital changes. From my experience, employees do not accept something just because it comes from above. Leaders need to show the value proposition behind their request for staff acceptance.
And finally, there’s governance. If you are somewhat of a large company, you will need your executive management to drive the project home otherwise you will end up with multiple apps developed through multiple vendors all doing more or less the same thing at different parts of the organization. We all know that getting different departments to communicate, coordinate and synchronize projects, does not come naturally, which means somebody from the top needs to get it done. In other words sound governance breeds consistency, prevents repetition and is the single most important contributor to the overall success of a digital transformation project.
In closing, I’d like to leave you with these thoughts.
Our world is flooded with data and information beyond the capacity of a single human brain to collect, let alone process. Some people will remember the days when they could rattle off the phone numbers of close friends and family. No more.
Now that the entire global community is at our disposal through an array of mediums, memorization, is in some cases unnecessary. In fact, various traditionally human tasks are being taken up by digitalization.
Many fear that technological dependence is withering away our intelligence. The assumption being that we are intrinsically lazy and happy to dislocate uncomfortable or inconvenient tasks onto computers. In the process, some say, we risk forsaking our intellect, and therein, our control.
This narrative is peddled by alarmist tech press. Many report worst-case scenarios based on speculation and science fiction. Frankly, the reality before us is likely far more nuanced than sheer dominance.
Given our sordid history, it’s easy to envision tech tyranny, but the chances are that technology will continue to blend with humanity until we have new kinds of intelligence, new means of collaboration, new types of decision making, and new areas of hybrid work that recreate the workforce. I believe that the digital era will lead to the creation of more jobs, not destroy them. Just because we today are unable to envision the kind of work we will do in the future when machines are an integral part of our lives, does not imply our children aren't going to think of it either. Who are we to take that wager against human intuition and inspiration?
Fear and distrust often accompany disruptive changes. Rock n’ roll and televisions were accompanied by skepticism and aversion in their heyday. Bank tellers handling routine cash dispensing tasks started doing more cognitively demanding jobs when the ATM came into existence. They started building relationships with customers, introducing them to new financial products such as loans, credit cards and investment plans. Although the ATM caused the number of tellers per branch to reduce by 30%, banks opened 40% more branches given it was cheaper to do so, resulting in more net tellers per branch with more branches and more access to customers. In 1970 there were about 250,000 tellers in the market. Today there are twice as many despite all the automation in consumer banking. In the past 100 years, the US has employed more people in just about every decade than the previous one, despite an industrial revolution and the advent of computers in our lives.
In the early 1900s when the tractor entered the scene, it threatened massive unemployment in the farm states with an entire generation of youth no longer needed on the farms. But we rose to the challenge and took a step that is without doubt the greatest investment America ever made in the 20th century - the High School Movement. We required our youth to stay in school till 16, something that was unprecedented at the time and extremely expensive to do. The youth could not work either on the farms or do any other type of job while in school. And look at the result! We ended up with the greatest, most skilled, most creative and most productive workforce the world has ever seen. It is this workforce that created jobs we could never have imagined of in the past - yoga instructors, robotic surgery and even the creation of Pokemon Go.
The fear of disruption is understandable, but at odds with the reality we inhabit. Disruption—creative destruction—is the order of the day. We must learn to cope in parsimonious and more even-handed ways.
Indeed, this is a lesson we've been wanting to learn ever since the Industrial Revolution. History taught us that nothing is forever, that no empire or technology is unshakeable. No lifestyle constant.
Social roles, business models, tools and even culture are in constant flux. And for every change, there is a proportional consequence. As traditional jobs fade into the past, new jobs that demand new skills and mindsets emerge.
Sure, our devices are becoming faster, stronger, and more accurate, but they are not becoming human. Digitalization is its own kind of intelligence. Our devices can recognize our voices and act upon simple instructions, identify photos of animals much quicker than the human brain, but all these instructions are preprogrammed.
There is still a driver behind the wheel.
Even when the driver is no longer necessary, for instance in the case of self-driving cars, the decision-making parameters of a computer will not mimic those of a human. For better or worse we are emotional and irrational beings, that despite evolutionary hurdles, made it this far.
Digital is the product of human imagination, not nature. It is programmed to think unlike humans. Digital represents an ideal of logic that we cannot incarnate, but it is not human and never will be.
What we should be doing is using this opportunity to determine what it means to be human. We have capacities and abilities that digital cannot emulate: our adaptability and ingenuity, our bodies, our emotions. These are unique qualities of Homo Sapiens that must be reevaluated and advantaged.
Education has traditionally adopted the one-size fits all approach, leaving behind anyone that couldn’t keep up. Not only is that wasted human potential; it belies a reality that each person has untapped abilities of possible benefit to society as a whole.
Teachers are now embracing technology to facilitate the individualization of education. Ensuring that we hone our children's strengths rather than propagate their weaknesses will help them be the best version of themselves.
It’ll also differentiate what is uniquely human from what is uniquely machine, and what should be hybridized.
Another threat to the realization of what makes us human is personalization. We demand technology adapt to us. Instead, we unwittingly conform to it. Imperceptibly our lifestyle is controlled by the very algorithms that promise us consumer satisfaction.
What we want to watch on Netflix, our next purchase on Amazon, the posts we see on social media or the home improvement loans we qualify for are all outputs determined by an algorithm.
We shouldn’t fear digitalization. We should fear malevolent actors working behind the scenes to systematize conformity, suppress human potential, and instill fear in a technology that is already embedded in every aspect of our lives and society—whether we like it or not.
We must also prepare ourselves to think differently, to grow in the midst of change, as is the fate of our species.
My friends, do not let fear dictate your thoughts and actions. Henry Ford once said “If I had asked people what they wanted, they would have said faster horses”
In conclusion, I’d like to quote a passage from the TED talk of His Holiness Pope Francis that was broadcast recently, and that resonated with me like it did with millions around the world. I quote:
“Science, and you know it better than I do, points to an understanding of reality as a place where every element connects and interacts with everything else. How wonderful would it be if the growth of scientific and technological innovation would come along with more equality and social inclusion. How wonderful would it be, while we discover faraway planets, to rediscover the needs of the brothers and sisters orbiting around us. How wonderful would it be if solidarity, this beautiful and, at times, inconvenient word, were not simply reduced to social work, and became, instead, the default attitude in political, economic and scientific choices, as well as in the relationships among individuals, peoples and countries. Only by educating people to a true solidarity will we be able to overcome the "culture of waste," which doesn't concern only food and goods but, first and foremost, the people who are cast aside by our techno-economic systems which, without even realizing it, are now putting products at their core, instead of people" - Pope Francis
So my friends, my one message to you as you go about digitally transforming your businesses is this:
"Put your customers at your core, put your employees at your core, put people at your core, as you transform your products, processes and organizations" - Anurag Harsh
The World’s your playground. Go Digitalize it. Thank You.