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by
Mark Raskino
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March 30 - May 2, 2019
He must use all of his software engineering and algorithm skills to stay ahead. “It is brutally competitive,” he shared. “One of the challenges is that you don’t know where the competitors are going to come from. In a fairly short span of time, Airbnb is on everybody’s radar. The reason it’s so competitive is because there’s not a lot of switching costs for online customers. If you don’t satisfy their demands today, it’s fairly easy for them to switch to a competitor. That’s what compels us to build something that is world class. If you stop focusing on that it puts you just a step behind.”5
As physical products become connected, we will see a lot more of these substitutions and customer value improvement solutions. When a product becomes connected it can be remotely tracked and manipulated or utilized.
What were once capabilities that differentiated a business can become commodity costs.
To replace the original core competencies, organizations need strong competencies in software, algorithms, online connected services management, and services creativity.
At Orbitz, company leaders have to think hard about that question, and CTO Roger Liew has one perspective. “I believe first and foremost we are a travel company that is focused on using technology to help people plan and book travel,” he said. “On the flipside, my CEO actually believes we’re a technology company that happens to focus on travel.”
That duality is a really important maturing stage in the digital business leader’s mind-set. Whatever industry you operate in traditionally, your company, like Orbitz, Volvo, and Babolat, should think of itself as a technology company too. Amazon wins by being both a retailer and a tech company, and Uber wins by being both a taxi company and a tech company. If new companies could use that duality to cross a blurred boundary and tear a hole in the side of your industry, you’d better learn how to do that too.
Some business leaders already agree. Irish banker David Duffy worked at Goldman Sachs, ING, and Standard Bank before becoming chief executive of Allied Irish Banks (AIB). Here’s how he put it: “You just have to recognize that we are most likely going to be a highly-technology-driven technology utility in the business of payment and cash management, and if that’s the great portion of the volume of our activity in retail, what’s different about that versus how Google operates?”9
In a Financial Times article, Francisco González, CEO of Spanish and international bank BBVA, explained why banks must become part of what he calls the BIT industry (banking, information, and technology): “Some bankers and analysts think that Google, Facebook, Amazon, or the like will not fully enter a highly regulated, low-margin business such as banking. I disagree. What is more, I think banks that are not prepared for such new competitors face certain death.”10
Maurice Levy, CEO of Publicis, reflected that view: “There is a paranoia that we all need to have. It is the young start-up guy who will take my business and will put my company out of business. That is something we should be paranoid about.”
He is positioning his company to better control the whole package of digital and data utility to the customer before a competitor beats him to it. This boundary blurring creates an entirely new industry— maybe it’s called digital fitness. Plank is quite clear why he’s acting: “There is no reason we should just sit around and wait for Google to do this.”23
it’s a platform for potentially integrating all of them.
Simple digital product extensions without data and services are not enough, because once you expose data and services from your internal systems to other organizations there are questions of standards and integration. If every company makes a digital product with different apps and different communication protocols and different data structures and different data storage and access places in the cloud, customers simply won’t buy in. Life will be way too clumsy, time-consuming, and complicated. However and wherever they arise, we will value integrated platforms highly. We all know this because
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If that’s going to happen, we will need platforms for the exchange of data between the vehicles and the various actors in the marketplace. These actors might include drivers, rental companies, insurers, servicing companies, and local government providers of roads and parking.
“The more we can connect, monitor, and manage the world’s machines, the more insight and visibility we can give our customers to reduce unplanned downtime and increase predictability. By opening up Predix to the world, companies of any size and in any industry can benefit from the investments GE has made by eliminating the barrier to entry.”
The effect of digital technologies is to blur the distinction between creating value in the tangible world of atoms and creating value out of the data that comes from sensing and controlling that tangible world.
Once new competencies and insights become primary, companies can more easily cross from one industry to invade another. Sometimes that crossover creates intersections that result in entirely new industry categories.
Large high-tech firms sometimes seize boundary-crossing opportunities; however, the new opportunities are often so radical and unlike what the incumbents have seen before that only outsiders are likely to test and see if the opportunity is real. Shoals of small start-ups are often the first catalysts of the biggest changes.
As chief digital officer, he knows that the waves of change ahead could make conventional plastic credit cards look like the locomotives and barges of the past.
That recognition has led Perry and his CEO to redesign the way digital advancement is thought of and applied within their business. “In our past, we approached innovations such as digital wallet too much from a technology perspective,” Perry said. “Today we recognize that the approach needs to be altered to focus on the consumer. It shouldn’t therefore be IT-led, it should be event-led. What does the consumer want?”2
Marketing matters a lot at McDonald’s. In early 2015, the company appointed Steve Easterbrook as its CEO.6 A year earlier, in his previous role as chief brand officer, Easterbrook had started important digital moves. He had hired an ex-Yahoo and Amazon digital leader, Atif Rafiq, as senior vice president and chief digital officer, and he had funded a new digital organization, with the role of spearheading how McDonald’s will use digital and technology to grow customer experience and customer engagement. Part of the organization is based in San Francisco to place it closer to emerging ideas.
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said.8 But Sappington was also realistic that he had little or no experience with leading-edge digital engagement with consumers, in his own IT organization. This
Sappington know that McDonald’s requires highly integrated capabilities to drive relevant digital consumer engagement. They are aware that unless they work together very closely as a team, the consumer’s experience will not be smooth and seamless.
Digital-based relationships with customers, and the data behind that, tied into our detailed restaurant information gives us a lot of insight that we don’t have today. Making this come together will benefit our customers, and help grow our business in the process,” Sappington said.
Sappington and Rafiq are a model CIO and CDO pair, spearheading collaboration with the wider executive team to drive digital to the core of McDonald’s. They understand that winning is a team sport.
His team structure mimics the high-performance concept of elite military organizations or professional sports teams, where a single person leads a highly skilled group, with less concern about reporting relationships. “I wanted a high-performing team in which members are driven by mutual trust rather than organizational reporting lines,” said Scagliotti. To
Technology is no longer a support function: it is core to product performance and customer satisfaction, and it must keep pace with the market.
All organizations have a deep-seated bias toward perpetuating business as usual and repelling forces that try to change conventional and well-honed best practices. So
Leading from the front is essential. If the CEO does not own and drive the biggest and hardest decisions, then change will be superficial and weak. Digital business cannot be delegated, and it will not resolve itself.
David Duffy, CEO of AIB, shared that “the leader of the company needs to envision the future in terms of the risks. CEOs are primarily risk managers, and the risk of survival of your company should be at the top of the list. Leadership isn’t battling against the technologists. Digital is just another input; if you, as a CEO, don’t get it, then you’ve failed your company.”
For example, GE is developing massive new multibillion-dollar software and services business on top of business units that manufacture major capital equipment such as aero engines. Factors like the balance sheet structure, capital investment profile, free cash flow, revenue recognition timing, gross operating margins, and tax optimizing methods can change radically when digital disruption occurs.
The head of sales must be prepared to adjust channels and the sales force. In the B2B world, the head of sales is often the person with the most customer-facing power and responsibility, usually more so than the CMO.
The CHRO must build new talent pools, hiring methods, and career paths. When digital business change strikes, new competencies and new pieces of organization design are required, often urgently.
The chief legal counsel must adapt to digital impacts on legal practice. Many industries depend on standard contracts, legal terms, and precedents in the judicial system. The
The chief strategy officer must make digital a key part of corporate strategy. About a third of large companies have a C-level leader designated as head of strategy.18 Many are occupied with conventional business growth maneuvers such as consolidating markets by M&A or seeking adjacencies. Sometimes they work on internal transformations.
The era of focusing mostly on back-office systems and internal business administrative efficiency is fading into history. Today’s CIO must be forward-looking, creative, and thoughtful about future business designs using all kinds of digital technology as a tool for customer-facing innovation. The CIO will become the integrator of the many kinds of digital change that the other C-suite leaders are trying to make. It will be a factoring role, concentrated on looking for the commonalities that can speed progress by simplification. This will involve orchestrating the creation of new systems and
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CDO is a new role that creates coherent policy control and ensures that data assets are exploited as the resolution revolution creates shocking new opportunities and threats. Mark Fields, CEO at Ford, told us, “At Ford, we believe customers own their data, and our role is to be trusted stewards of their data. We have appointed our first global chief data and analytics officer, who is helping us expand our approach to data use, gain greater insight into consumer behavior, and use it to speed up the pace of innovation throughout our business.”19
Digital business is a team sport requiring everyone’s involvement. If any one member of the crew is not rowing in time, the team will surely lose.
“How will you distribute relative responsibility for leading digital innovation and change over the next two years?”
“If you want innovation, the IT organization must be proactive, and be the leader in some areas,” Bendrik said.
Evolve the CIO role; CEOs need digital leadership, not passive service. Old-style CIOs, with their heads locked in back-office efficiency thinking, cannot drive the enterprise to the new customer-and product-centric world of digital. Sometimes new change agents will be brought in to redirect the way that technology-related leadership operates, the role it has in the firm, and the way it is perceived. Digital officers will be part of that. Eventually, the role of CIO will be redefined.
Taking digital to the core entails remodeling the company at the board level and at the executive committee level, guiding your leaders on a digital journey that enables them to comprehend and embrace the full possibilities of digital business.
Raghu Krishnamoorthy is VP of executive development and chief learning officer at GE. The very existence of his role says something about the way a company must think and design itself for deep change if it intends to survive at scale from decade to decade without getting disrupted. According
most companies executives are busy running the business, so taking time out of their schedules to redevelop them to requires some justification. Why
Quicken’s CIO, Linglong He, says Quicken Loans is “a technology company that does mortgages extremely well.” She describes the mental model that Amazon used to digitally remaster the book industry and Netflix to remaster the video industry, and discusses how Quicken Loans is on a similar mission to digitize the loan process to deliver market-leading performance. To achieve this, Linglong He constantly compares herself and Quickens Loans’ capabilities with those of core technology companies. She nurtures a digital culture that closely resembles those found in Silicon Valley, but it’s actually
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The key success factor is to have a company that, while it’s still making lots of money and has lots of capital, actually takes wise opportunistic chances. General Electric does that. 3M does that. But there are companies that, for a lot of reasons, many of them political, are not able to do that. That’s the Kodak story. The folks in charge of the traditional cash flow were unwilling to really let other organizations within the company grow up, they stifled growth. I think that’s a great example of how you should not go about doing it.20
Taking a broader outside–in viewpoint makes a great deal of sense. To convey your ideas successfully, though, you need to inform some very capable and experienced people who don’t always appreciate being told they have missed something important! So how do you teach them without seeming condescending? “Directors don’t like to be told they are being ‘educated’ but directors do like to be told they’re being ‘made aware,’” Daly said. Describe what’s going on out there—developments in the marketplace, products, strategy, commerce—focusing especially on news from outside your industry, because
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Effective communication is essential to winning over boards. “We asked the director community, ‘What is the number-one thing that that would help you in this digital age?’ and the answer was really crystal clear: the language,” Daly said, “they said, if we cannot communicate, we cannot learn.”22
If you have a whole bunch of people who are book-binders, there’s very little likelihood they are going to recognize that the digitized encyclopedia is going to take over their business.24
Cognitive diversity is a root cause solution to narrow thinking that some smart companies have already figured out.
Sometimes you need executives to take on deep introspection exercises in order to change a hardened culture in which people come to work every day assuming that because the company has been around for more than a hundred years, it will automatically be around for another century. Let’s
