The hidden treasures in digital transformation

By AgileBusiness, Digital Disruption, Disruptive Innovation, Strategy No Comments

digital_disruption

The hidden treasures in digital transformation aren’t where you think they are.

It’s worth reading Cognizant’s THE WORK AHEAD | EUROPE’S DIGITAL IMPERATIVE, part of a research series providing insight and guidance on how businesses and jobs will evolve in the digital economy.

Whilst reading it a couple of key insights stood out…

Firstly theres a section of the report which suggests that Your Back Office Is a Hidden Treasure Chest (of Money) and rightly that Digital is not just for sales and marketing. It talks about how automation and more specifically software bots reduce costs whilst improving accuracy and reliability.
In essence they fuel innovation in the back office.
How often is it that we look at those processes as areas of innovation?
This is just one aspect of business agility that we discuss in our book.

In their article on What Is Disruptive Innovation Clayton M. Christensen, Michael E. Raynor and Rory McDonald outline their disruptive innovation model, one where incumbent companies focus on and satisfy the high end of the market as you typically do as a natural part of business maturity and progression since that’s where the bigger profits are. But in doing so the business overshoots the needs of the lower end of the market and therefore leaves the door open as an opportunity for new comers.

Since the cost impact (outlined in figure 6 of the Cognizant report) is coming down for digital across front, middle and back office it’s the perfect foothold for a start-up.
The start-up has lower pricing structures, lower set up costs, can move faster and therefore be more agile in providing for the needs of this lower market.
The only way appears to be up for the start-up, its all growth opportunity and therefore investors see the upward trajectory as worth investing in.
Digital technology enables a positioning of “80% of the benefit for 20% of the cost” and the startup appears to be providing a better value service than the incumbent.

Secondly, there’s the blockers to change. In the Cognizant report, there’s a chart (figure 8, in the section “What could possibly go wrong?”) showing the biggest mistakes that companies are making with digital transformation. The three top percentiles for misdirection in leading and accelerating the digital shift are:

1. Lack of clear strategy

2. Moving too slowly

3. Employing the wrong leadership executive

Each of these align neatly with the velocity, focus and flexibility that we believe is so critical to organisational agility. The role of leadership in setting the vision to give direction but also enabling the flexibility to be adaptive in the execution of that vision. And the importance of aligning strategy with implementation, and enabling the culture that can facilitate moving fast.

Todays Digital leaders are not well enough supported to convince the CFO to invest before the business is dislodged by a newcomer. As the authors of the report state, there’s a real need to share, collaborate, iterate and experiment right across a value chain.
There’s still lot of misunderstanding of what digital transformation really means. Stopping at deploying mobile first, multi-channel, customer centric experiences isn’t going to cut it in a digital age that sees relentless accelerating change.
You have to look at how to improve the velocity of the organisation, changing hierarchical organisations where decisions move slowly up and down the command chain, creating innovation, collaboration, flexibility, and agility.

For exclusive content related to the upcoming book on Building the Agile Business, you can sign up here.

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Digital Disruption and the Wile E Coyote Effect

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One of the challenges inherent in digital disruption (that we discuss in the book alongside talking about overlapping technology lifecycles) is that by the time it becomes widely evident that your business is being disrupted it is often already too late to do anything meaningful about it.

In writing about the story of the mobile hardware market last year Ben Evans used an analogy for this which is a real favourite – the ‘Wile E Coyote effect’. He talks about the problem of lagging indicators and how headline metrics tend to be the last ones to start slowing down. This can ultimately mean that at the point when it is most critical for an incumbent to innovate, everything can still look great for that business and the leadership sees no reason to change trajectory. This is however, precisely the time when a new technology or model enters the market and starts to rapidly erode the dominance of the existing model. Hence the Wile E Coyote effect:

“you’ve run off the cliff, but you’re not falling, and everything seems fine. But by the time you start falling, it’s too late”.

Ben points at Michael Mace’s analysis of Blackberry, written just at the point of their collapse. Mace noted at the time that Blackberry’s market was saturating, they had seemingly lost the ability to create great products, and were drifting into a situation where they could not afford the investments needed to succeed in the future (a line that is easily crossed and very difficult to rectify). The history of failed computer platforms, he says, tells us that the early symptoms of decline are typically very subtle and easily rationalised away by executives. Like Wile E Coyote, by the time the symptoms become obvious, you’re hanging in mid-air with nothing beneath you:

“Nokia and Blackberry were skating to where the puck was going to be, and felt nice and fast and in control, while Apple and Google were melting the ice rink and switching the game to water-skiing.”

Mace believes that the key symptoms to watch are small declines in two key metrics: the rate of growth of sales, and gross profit per unit sold (gross margins). As products move through the traditional diffusion curve from early adopters, through early and late majority to late adopters, pricing incentives help boost sales and growth. As the technology matures and the middle portion of this curve gets consumed introducing another price incentive may still boost sales, and lead to the belief that the product is truly ‘hitting the mainstream’. Yet without realising it (and bearing in mind that the market for any given product is finite), rather than reaching the mainstream market you are instead consuming the late adopters:

“Companies tend to assume that because the adoption curve is drawn as a smooth-sided bell, your demand will tail off at the end as gradually as it built up in the beginning. But that isn’t how it works.”

It may take a good deal of time and effort in the early stages to build up momentum, but as the technology or product matures and you begin to saturate your market the momentum you have built up through well optimised brand, marketing and distribution means that you ‘gulp’ through the late adopters rapidly and sales continue to grow until they suddenly drop. The Wile E Coyote effect.

The key challenge then, is to be adept at recognising those early signals and to be prepared to re-orient the organisation towards experimentation rather than simply efficiency.

For exclusive content related to the upcoming book on Building the Agile Business, you can sign up here.

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The Perils of an ASAP Culture

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‘Group chat is like being in an all day meeting with random participants and no agenda’

Jason Fried

Efficiency and effectiveness of communication is critical to organisational agility and how we use available tools to improve this can play a key role in digital transformation. Yet I’ve lost count of the number of organisations I’ve dealt with that have stories of attempting to implement some kind of new collaboration, communication or sharing technology, only to find that staff adoption, activation and retention rates fall far short of expectation. Many of us, for better or for worse, are wedded to email.

The only vaguely serious contender to email’s crown has perhaps been Slack, which has grown rapidly and which some have described as an email killer. Real-time communication like group chat offers up the prospect of faster decision-making and accelerated communication flow. Yet whilst we all get too much email and it has become the domain of commonplace bad habits (like inbox to-do-lists and reply-all), perhaps the kind of asynchronous communication that it typifies is not quite the enemy of agility that it is often taken to be. Perhaps it is more the case, as Jason Fried (the founder and CEO of Basecamp) says in this excellent summation of the pros and cons of group chat, that truly effective group communication comes from how you blend asynchronous with real-time communication tools:

‘All sorts of eventual bad happens when a company begins thinking one-line-at-a-time most of the time.’

Group chat, says Jason, is great for certain use cases (hashing things out quickly, getting critical information in front of people in a timely manner, adding fun to work, helping to nurture a sense of belonging). Yet when it is used as the primary method of communication across an organisation or group it can carry with it significant downside. Like follow fatigue, catch-up anxiety and FOMO, lack of depth in explanation, reflex responses, implied consensus, diversions and pile-ons, repetition, over-informing, lack of context at the subject level, rapid context shifting, difficulty of review, expectation of presence, and time-zone communication.

But I particularly liked his point about the perils of ‘asap culture’. Group chat, he says, conditions us to believe that everything is worth being discussed quickly and immediately when in reality few things are:

‘…ASAP is inflationary — it devalues any request that doesn’t say ASAP. Before you know it, the only way to get anything done is by throwing it in front of people and asking for their immediate feedback. It’s like you’re constantly tapping everyone’s shoulder — or pulling on everyone’s shirt — to get them to stop what they’re doing and turn around to address what’s on your mind. It’s not a sustainable practice.’

Real agility comes from effective prioritisation and management of organisational focus and attention, and not from attempting to do everything at once.

For exclusive content related to the upcoming book on Building the Agile Business, you can sign up here.

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The Balance Between Consistency and Autonomy

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Airbus A380 at SFO

Principle 11 in the agile business manifesto states that the best results emerge from small teams with a high degree of autonomy. Autonomy is critical in the agile organisation, and not only in enabling a culture to move fast. Equipping the right teams with both the required tools and resources and also the freedom to experiment and continuously improve generates momentum and a true learning culture. Autonomy empowers motivation, ownership and responsibility. It is an under-utilised catalyst for digital transformation.

Yet autonomy without alignment can lead to chaos. In the book we talk about the optimal balance between consistency and self-determination that can empower agility. And this case study about the near cataclysm that happened in the project to build the new Airbus A380, the world’s largest commercial airliner, is a stark reminder of what can happen in the absence of proper alignment.

It’s worth reading the whole thing, but the essence of the story focuses on how different design groups working in different countries on the project had used different versions of the same Computer Aided Design (CAD) software. As the engineering drawings were being developed across multiple teams, German and Spanish designers were using version 4 of the CATIA software, whilst British and French teams had upgraded to version 5. The trouble with this was that version 5 of the software was a significant upgrade from the previous version, meaning that there were notable inconsistencies that emerged only as the first aircraft prototype was being built in Toulouse.

Despite being manufactured to specification, as the 530Km of wiring and cables began to be woven into the airframe engineers quickly noticed that many of the wires were a few centimetres too short. The complexity of the wiring system (more than 100,000 wires) coupled with the discrepancies between the software meant that the redesign, rebuild and consequent multiple project delays (‘at one point more than 1,100 German engineers were camped out at the Toulouse production facility trying to rectify the problems’) resulted in months of delays and a huge over-spend.

There was, as the piece points out, other reported context around this project failure that reads like a litany of anti-agility. A complex organisational structure (and the resultant political silos) that originated from the history of the Airbus business as a consortium of separate companies. Not creating a single project team across different centres. Ongoing pressure to keep the project moving forwards to fulfil an overly aggressive schedule. Misdirected emphasis on keeping different parts of the company happy rather than focusing on what was best for the aircraft. Not addressing issues early enough.

Principle 9 in the agile business manifesto states that technical excellence and good design are central to maintaining organisational agility. The Airbus 380 project was delivered almost two years late and several billion dollars over budget. When it comes to building the agile business, autonomy without alignment can prove very costly.

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