The previous Blog focussed on the digital change, the incredible speed in which this is happening, disruptive developments and the questions leaders ask when they are confronted with digital change. This kind of conversation with leaders comes up during – what I call – Sparring. Discussions around digital change arise in the context of major capital expenditures, M&A considerations, production relocation and alike. Sparring are rapid, short term interventions with Leaders to respond to their immediate request to deal with a specific topic. They enjoy to have an environment where they can openly and unfiltered discuss their burning issues in a confidential and professional environment.
Based on the former blog you probably agree that the digital change will have a huge impact on all of us. One of the outcomes is that there will winners and loosers on the business side.
How to get to the winning side? What can your organisation do to win? You already made an important first step, by reading articles such as this one. You are part of a small crowd of leaders that is interested to evaluate what to do.
One element will most not likely change. The customer will remain the decision making party. The customer will select which service or product he wants and how much he is prepared to pay for it. This paying part is crucial.
A lot of gimmicks have come up and will in the futre, just because digital tools will enable it. Only if the client is actually prepared to pay for it, will it have the necessary economical success. Many economic processes and maybe even some rules will change, but the need for profitability is likely to remain. The “new economy” as we knew it from the 90’s demonstrated that with the dot.com bubble. Only organisations generating cash survived. The others may have bubbled up, but they burst when the hype was over.
The point is that just making something digital does not mean it is good. The customer needs combined with business sense using digital capabilities is what brings organisations on the winning track. Digital capabilities are only tools and products. It takes an open minded, future oriented entrepreneur to translate them in to new products, services and entire business models to satisfy customer needs.
7 steps to win in the digital race
- Understand the true customer needs, considering digital changes
- Review the existing business model
- Consider digital innovation for the production of your product
- Adjust your organisation accordingly – enable agility (next blog)
- What are our specific opportunities and threats?
- Actual KPI’s (direction OK?) anticipating KPI’s (enable rapid action)
- Review strategy
1. Customer needs in the digital environment
As mentioned, the key to success remains in understanding the underlying customer needs. The difference today is the high speed of digital innovations that enables new entering companies and existing competitors to come up with new products and approaches to customers. We and our customers do not know what will be available in one, three or imagine 5 years! There are just guesses but no clarity what kind of products, services and business models the future holds.
How on earth can we know what customers are prepared to pay for? How can we deal with this uncertainty?
The objective of this phase 1 is to get as close as possible in understanding the underlying needs and desires customers have, before we start rapid prototyping.
Underlying needs are intended to cut through all that exists at the moment. It is about going to the roots of the customer needs, rethinking what he actually wants. Example. Henry Ford was claimed to say that if he had asked his customers they would have wanted faster horses, but would not have thought of automobiles. The underlying desire was to get from A to B faster in a more comfortable way. This shows one of the traps organisations risk to fall in. Focussing on making existing products better risks to miss opportunities how to satisfy customers real needs.
Due to this high speed of change we risk to be suddenly bypassed by a completely new solution that satisfies customer needs. Market intelligence and the readiness to make the required changes is more important than ever. A historical statistic from the USA showed that the evolving tractors (agricultural machines) reduced the amount of horses in agriculture from 25 Mio horses in 1920 to under 3 Mio in 1960. It took 40 years and even this slow speed created a lot of pain to all those people, companies, skills around horses that were no longer needed. Today’s impact of innovation to the business is at least the same, however it is incomparably faster.
Taking a systematic approach considering digital change to get to the underlying customer drives is really important. Missing the point in this first step, drives the following steps in to the wrong direction. One approach is “Design Thinking” which has gained momentum in the Anglo Sachsen countries. Irrespective if your interest is more in physical products, services, business models, techniques such as Design Thinking are important to get to agile development. Agile customer need driven developments is important for all businesses, for some it is even a matter of survival.
The Design Thinking approach is based on a multidisciplinary group which goes through a process of customer need understanding, developing options, focussing on one or two and start quick prototyping. These are then tested rapidly on the market. A number of multinationals have picked this technique up and worked with it.
If you are based in Switzerland you may want to know that the company Innoveto will have a Masterclass taking place on 16.11.16 in Basel, Switzerland. The focus is on understanding customer needs and for this purpose Innoveto has asked Erik Roscam Abbing von Livework to have the co-lead in this. Eric has done this successfully with Virgin, Heineken, Rabobank, Europcar, Ebay, Canon.
Disclaimer: As a board member of Innoveto, I registered as a participant for this class. I still have a 15%-Discount Voucher JBEC-SRY6H23LR80X (use it on the registration site). Should you happen to be in Switzerland and if your are comfortable with a German/English workshop, you can register here for the Master class.
The companies who can anticipate and act rapidly to the real customer needs will have the best cards to be winners.
2. Review the existing business model
Indeed a fundamental topic. As for the product the business model needs to be revisited. There can be very powerful shortcuts possible through new innovations. If your organisation misses them, somebody else might use them.
The question stands. What is the fastest, easiest, most fun and attractive way for a customer to get what he or she wants?
In the case of UBER they not only took business away from the classical taxis but they have also developed a new customer segments. Customers who live in cities and consider UBER to be as easy as an own car and …. cheaper. The easiness of the service has a value of its own.
Even such a new service as UBER needs to change – and they are working on it – to be ready when self-driving cars become available.
The discussion of the future in a digitally transformed world needs to be on the agenda of all companies
The key innovations that influence the change have been listed in the last blog.
The challenging, adjusting of the business model can be related to a generally better model or is linked to new innovative products. Some companies decide to run two business models or more in parallel. May the better one win!
This adjustment may create considerable work and hence it makes sense to address this before the pressure of loosing business kicks in.
3. Consider the digital opportunities for the “manufacturing” of your product / service
This can lead to smaller, larger or fundamental changes how you get to your products. There is a tendency in many businesses that the importance of size in sense of volume reduces to the importance of flexibility. For some it makes sense to produce locally closer to the clients versus in grouped facilities. The result of speed is an increased number of pilot products that are tested of which some will take off like a rocket whilst others just die. This requires not just agility of the R&D department but agility through the whole supply chain.
This need of agility of the whole supply chain is a global theme as everybody is under more an more pressure to become agile. This demand is creating and will create even more digital and physical capabilities and services. An area that is important to monitor closely.
The digital change and the uncertainty that comes with it is especially relevant for large capital expenditure plans with long depreciation periods. Good decisions help organisations substantially, the same way a bad decision can weaken the organisation. There is no guarantee, but taking some quality time to look ahead clearly adds to the chances to make the good decision.
4. Adjust the organisation to your needs – increased agility (next blog)
These theme looks at what it takes from an organisational and people perspective to successfully understand the situation, establish and implement your plans. All our businesses are people businesses at the end of the day. People continue to make the difference, how successful the transfer into the digital area will be for your organisation. This is the main topic for the next and last blog on digital change.
5. What are our specific opportunities and threats to be successful
The points 1-4 have given you insight in which direction you intend to go. You will need to revisit these objectives in intervals. The time between these intervals depends on the amount of change your organisation is exposed to.
One challenge will be the increasing the agility which we will talk about in the next blog. The other challenges can be established with a SWOT (strenghs, weaknesses, opportunities, threats) analysis or with what ever similar tool you are used to. The resulting actions are prioritised by positive impact and ideally put on a Gant chart, checked on feasibility (time, resources).
This program is the input together with the KPI’s form point 6. for the strategic review, point 7.
6. Leading and lagging indicators
In theory this should not be an individual step. Everybody knows that measurement is key. Well I have observed that if companies, especially management, does not take quality time to think about this, it tends to get lost. It goes without saying that KPI’s are sensors to understand where to act and are not intended as a decorative picture on the wall.
Lagging indicators describe the ones that organisations are familiar with. They should derive from the companies objectives. In Finance this is P&L Balance sheet, cashflow. They are a post mortem and indicate if the past work lead to the right outcome. What often is missing are the KPI’s around operational topics, follow up of Gant-Charts/Projects. Assuming they are in place that is good but not sufficient. They are too late and not the right indicators that allow the organisation to act in an agile way. For this you need Leading indicators.
Leading indicators are selected variables that support the lagging indicators. They are broken down to link to the work of departments/ individuals. They can be measured on an hourly, daily or weekly basis. The following up of these indicators on a daily or weekly basis permits to see where problems are and to address them right away.
An important leading indicator could be number of competing technologies that threaten the organisations market position.
7. Review strategy
Why is the strategy review at the end and not as usual at the beginning?
Before we get to that answer, lets see what needs to be done:
- The proposed options for new products and adjustment of business models are presented and discussed with your management team
- The SWOT analysis is reviewed
- The planned steps forward with the required resources are discussed
- Organisational plans are looked at, reviewed and the right person in the right place discussion held, the actions identified
- The lagging KPI’s of what you consider to decide on the companies success are established and the appropriate departments will be asked to supply leading KPI’s to enable rapid adjustments
Coming back to the answer, why the strategic discussions should be at the end.
- Strategies set at the beginning, risk to have a bias towards the past and extrapolating on the past.
- Strategies used to be long term plans to put a company in to a strategic superior position. This made sense when change was slow and more predictable. Strategies then evolved in to 5 and then 3 year plans. Today and even more so tomorrow will change be so rapid that strategies as we know them today will in most cases not be meaningful any more.
- At the end of the process, it is much clearer what options make most sense to win the immediate future – in other words – what to do to match potential threats
- It is based on the business need that the top down support can kick in to support agility, the link from potential future options to todays reality, decide on key resources, people topics.
- Assuring that the plan turns in to reality with the right leading and lagging indicators in place to give the management team the required transparency
Larger organisations typically have the need to set the strategic agenda for their organisational structure (business units, regions,..). The strategic agenda will ask the organisation to integrate these elements in to their review process.
All the best to you to manage the upcoming challenges