CEOs have long seen the potential for technical innovation to steal a march on their competition. Some like Google and Amazon have consummately reinvented their industries this way. Achieving the goal is however desperately difficult. What could you do to define the vision, business model and deliver appropriate technology to support them?
The Prize
Strategists have long spoken of the “First Mover Advantage”. They researched the differential returns to organisations that lead their categories.1 The difference in return between those that come to dominate their category and those that follow can be colossal in terms of market share, growth, profitability and share price. Some who once were famous and lauded (Yahoo!, Ask, Altavista, AOL Time Warner) lose their mojo. Newcomers supplant them (Google, current market capitalisation $337bn). Past success is no guarantee of future prosperity.
Technology stocks have a reputation for establishing such a lead (Apple, Google, Amazon). However, the range of organisations that has applied digital techniques successfully is now broad. This almost renders the concept of a “technology” stock meaningless. Some organisation types traditionally far from innovation have successfully re-defined themselves (not yet generally in the UK). This is greatly to the benefit of their stakeholders.
Winning the Race
The reference to the fall of the mighty indicates that there is more to success than being the first. If this were true many current leaders would never have left the garages in which they started. Some leading authors turn to customer experience as an explanation of the difference.2 What is necessary is the establishment of a coherent process that delivers stunning value to which users flock, and works consistently end-to-end. The visionary leader who can paint a compelling picture of the future around which others can rally and contribute has an important role here. This is definitely not is an application that can be bought off the shelf. Getting there is hard. Most fail in the attempt. This makes the risks of trying great: just as are the risks of not giving it a go.
The Challenges
If your CEO commissions you to bring market-beating innovation, where are the issues that make this difficult? There will be situation-specific issues, but the following are often present:
- Greatest asset becomes your greatest liability: Kodak’s strength in film seems to have blocked its exploitation of digital photography, despite inventing significant elements.
- Vision: The leaders of the organisation must share a compelling vision of the future, understand and be passionate about achieving it. Generating and achieving consensus on such a vision is far from trivial.
- Coordination: Many parts of the organisation need to move at once. Sales, incentives, finance, skills, technical, logistics, customer service, suppliers. If your CEO sees this as a technical issue, change the perspective. Bringing these elements together for the new service at the same time as maintaining revenue is a major undertaking.
- Persistence: It is likely that the first attempt will face significant issues, perhaps failing completely. Writers on start-ups talk of “getting to Plan B”. The first try will probably need to be reworked in the light of early customer experience.3 Will the organisation kill the initiative at this point, or recognise that there is value in elements that can be salvaged for a second attempt?
- Strategy for competition: your competitors are unlikely to sit still. Some fight very dirty, knowing that the easiest time to kill a threat is before it has become fully established. Jeff Bezos of Amazon is said to be belligerent,4 as has been Microsoft.5 How are they currently developing and what are they likely to do when they spot your moves?
- Technology expands the range of possibility but is not in itself the root. Vendors come in with fascinating possibilities which glint attractively. Some are genuinely valuable and should form part of the solution. You build a complete solution by progressing from business problem through architecture and benefits. Life normally turns out to be more involved than the first draft of the plan supposed.
- Agility: the Agile approach of “fail soon, fail early, test progressively before committing” is very attractive. It works well in some areas, for example where it is unclear how users will react in practice. Infrastructure is not as good a fit.
- Accountability: stepping into new markets, deploying new channels and methods can be a highly risky proposition. The downsides often loom large, for example Kodak’s market share in film. If the costs flow to one area and the benefits to another, resistance can be difficult to overcome.
- Contractual certainty: traditional sourcing contracts for services require long durations. Many fund initial development through later savings by effectively writing a lease. These are inflexible, or at least have a significant change cost that renders them unsuitable for experimentation. Contracts for Agile development have their challenges too, as it can be difficult to establish the milestones for delivery.
The Role of Competence
Leading strategic thinkers like Hamel and Prahalad,6 Sun Tsu,7 have long held the view that the competitive battle is effectively won by out-manoeuvring your competitors through assembling competencies and strategic assets that others cannot match quickly enough.
Sometimes building these takes years. Sony’s early work on miniaturisation that led to the Walkman is an example. Google’s work on search algorithms is notable today. In The Black Swan, Taleb talks of discontinuous change and the shocks that result from this.8 He holds that this is easy to trace in retrospect, but entirely impossible to predict. His reasoning is that many elements to come together at the same time for the change to be effective. Someone in the middle of it may know that there is a gap, without knowing when a solution will arise. He calls this “the scandal of prediction” and is entertainingly rude about those who claim prescience. In Taleb’s view, history is not a smooth accumulation of experience; it advances in jumps. It is completed only by the arrival of the last piece of the jigsaw. The launch of the PC took a vast number of components to be in place before the market took off. Return flows disproportionately to those who make the final connections to deliver a marketable product.
Elements of Competence
The elements that are necessary to build such competence successfully include:9
- powerful networks with people and organisations to create and identify opportunity;
- a clear definition of value, based on an understanding of customer experience for the segments of people addressed;
- the ability to define, build, operate, own and continually improve the processes, including automating where appropriate;
- define the new business model, including sourcing, costing, charging, risk, investment and commercial dynamics;
- to handle the exceptions effectively.
To this list, I would add a competence in delivering transformational change. This brings the stakeholders together and helps them manage the factors above coherently.
Building Capability
I am convinced that one of the most common causes of failure is to start with a technical component. Building backwards to see what else is necessary to make it work or justify it is a distraction. The component may be big data, analytics, mobile, or any other flavour-of-the-month. This is not to discount the contribution these can make when applied well. Your better approach is to start with the definition of the problem to be solved. Then pursue a benefits-led approach to seek the most effective route to solving it.10 If you do this, you will be far more likely to deliver value and realise your vision than those that pursue the first approach. When you next see such an attractive bauble, first ask yourself “what does this tell me about the problem?”
Doing it in Practice
Some years ago, an examinations board engaged me to first conduct an experiment in on-line marking. They faced a problem in that shifting paper scripts around the world to get them marked and those marks validated took time and was prone to loss. So they could not deliver the results as quickly as the schools and universities wanted for admissions. My team built a pilot application to run this for them. In the course of testing it with examiners and scripts, we found a far greater benefit than the transit time expected. We could detect wayward marking, the bane of an examinations board that strives for reliability. At the time of this work, the critical dependency was on the speed of broadband accessible to the examiners. By testing at a small scale, we learned much of what the examiners and the overall process needed for success. This enabled later progress to a full development and deployment. Although facilitated and supported by technology, this was led by the examinations board’s operational and research arms. They subsequently led the full operational implementation. IT was the supplier. This is almost invariably the right relationship.
From the Outside In
So if you are a leader charged with delivering disruptive change, you have the proverbial Chinese “Crisis = Dangerous Opportunity”. Your best approach is to look to the outside world for potential, and to your customers experience for definition of the value. The risk flows centrally from uncertainty regarding your ability to assemble all the necessary components to form a coherent solution.
Expect opposition from within your own organisation if you are a market leader and risk the loss of current revenue. Against that, if you do not take the lead, you can be sure one of your competitors will before long. The delivery of such a transformation rarely if ever happens by accident, but by hard and concerted graft. Are you up to it?
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References
A version of this article was first published in Outsource Magazine 2013 November 13 and is reproduced with permission.
- Competitive Strategy: Techniques for Analysing Industries and Competitors, Michael E. Porter, The Free Press 1980[1] The Discipline of Market Leaders: Choose your customers, narrow your focus, dominate your market, Michael Treacy & Fred Wiersema, Addison Wesley 1995 ↩︎
- e.g. The Loyalty Effect, Frederick F. Richhard, Harvard Business School Press 1996 ↩︎
- Getting to Plan B: Getting to a better business model, John Mullins and Randy Komisar, Harvard Business Press 2009 http://www.getting-to-plan-b.com/ ↩︎
- The Secrets of Bezos: How Amazon Became the Everything Store, Brad Stone, October 10 2013 http://www.businessweek.com/articles/2013-10-10/jeff-bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone ↩︎
- http://europa.eu/rapid/press-release_IP-13-196_en.htm Microsoft EU anti-trust judgement 6/3/2013 ↩︎
- Competing for the Future: Breakthrough strategies for seizing control of your industry and creating the markets of tomorrow, Gary Hamel and C.K. Prahalad, Harvard Business School Press 1994 ↩︎
- The Art of War, Sun Tsu, published around 500 BC. ↩︎
- The Black Swan: The impact of the highly improbable, Nassim Nicholas Taleb, Penguin 2007 ↩︎
- The e-Process Edge, Peter Keen & Mark McDonald, Osborne 2000 ↩︎
- Business Models: A Compelling Story ↩︎
