Digital Transformation Is Not About the Technology

We recently hosted a breakfast briefing for CIOs of FTSE organisations and invited John Thorp, an experienced ex-CIO to share his advice and guidance on the opportunities and pitfalls associated with major technology change. John jokingly describes himself as “the Ghost of Systems Past” – a CIO with more than thirty years’ experience leading major transformations for easyJet, Dixons Stores Group, Laura Ashley, The Burton Group and Compass Group. John holds a Masters degree from Cranfield University where he is also a visiting lecturer. John’s latest book ‘Three Funerals and a Wedding’ provides his reflections on what made a range of big IT implementations that he was directly involved in fail or succeed, and the lessons in that book served as the starting discussion point for the CIOs in attendance.

Buzzwords can be business killers

We’re all increasingly told that the new digital world turns everything on its head. That the new digital strategy says that we should look at the latest buzzwords and build business cases around why they are appropriate for deployment. However, anyone who thinks that the IT strategy and the business strategy should be different probably doesn’t understand what an IT strategy or a business strategy is.

George Westernman who works for MIT Sloan business school has a test he suggests for anyone wondering whether to jump on the bandwagon around a new technology buzzword. The test involves taking the buzzword and replacing it by the word ‘better’. Rather than focusing on a ‘blockchain’ or ‘cloud computing’ strategy, George argues you need a ‘better’ strategy. Whenever a buzzword is being touted as the next key ‘technology killer’, John is reminded of the sobering tale of Webvan – an American dotcom company that achieved a staggering $6 billion market cap at the height of the dotcom boom despite only having revenues of $5 million. Three months later and after spending $800 million the business was dead.

History is littered with cautionary tales of businesses that ‘bet the business’ on a certain strategy or approach. Webvan highlights that sometimes when you bet the business, you lose.

Strong steady leadership and succession planning are critical

The reality of most big technology projects is that it’s the management, people and culture that determine whether the project will deliver on its promises or fall short. John joined Laura Ashley as a systems engineer in the same year that Laura Ashley herself passed away. Laura Ashley as a business was in a good place up to that point, steadily increasing market share and growing its customer base. However, Laura’s unexpected passing left a significant leadership gap. With the company facing a leadership crisis, the management consultancy that Laura Ashley had appointed at the time decided that the best plan of attack would be to dismantle the vertically integrated business that had been set up and create a series of strategic business units or SBU’s while aggressively expanding the business into other geographies. This created problems, however, as the business units started to focus more on internal metrics than on delivering great products to the customer. On a visit to one warehouse in Holland, John noticed that they had a huge amount of materials in stock. When pressed as to why this was, it transpired that the manufacturing business had given such a good price for all the stock they had that the warehouse manager had bought the whole lot. The problem was, Laura Ashley didn’t even have a business in Holland yet! The writing was on the wall, and soon after the stock tumbled down to pennies after sharp declines in revenue and profits – where it’s stayed ever since.

You can’t buy simplicity

John joined Dixons Stores Group in the last few months of then CEO John Clare’s tenure. It was a business in a difficult place. It had generated a lot of cash through its late 90s Freeserve adventure, but the internet darling at the time, Amazon, was eating into its margins. The acquisition of a business called Pixmania was supposed to be the antidote to Amazon’s progress, and catapult Dixons back to the forefront of online retailing. Pixmania were beating Amazon in mainland Europe, were an internet based and therefore, theoretically, a low-cost business. The idea was to buy this business, replace all of Dixon’s online systems with those of Pixmania and that would enable Dixons to make the magic leap into the new world.

Unfortunately, that leap never materialised, and the reasons why were cultural. Yes, there were Anglo/French challenges, but the bigger problem was that the two businesses had completely different ways of looking at the world and how they measured success. Pixmania were looking to acquire as much cash as they could to re-invest into the business, however Dixons wanted to leverage what they currently had to make money in the short term. Dixons thought they could buy simplicity but creating low cost models is not easy as the airline industry has shown. For example, many competitors including BA, KMG, SAS and others tried to replicate easyJet’s low-cost business model, but they could not make it work. For Dixons, within a few years it became clear that they would never realise the benefits from Pixmania’s IT systems and the business was sold. In hindsight, it was already too late for Dixons when they embarked on their Pixmania acquisition. If you try to catch up on the back of a change wave, a lot of the time the business will burn all its cash and fail to succeed. At that point, for many companies it’s already too late.

Learning from amazon

As the briefing moved into a roundtable discussion, one company came up repeatedly – Amazon. For the CIOs around the table, Amazon is a business that deserves to be feared and admired in equal measures. While it’s clear that few if any businesses would be able to replicate Amazon’s business model with the same success that they have had, several CIOs had experience dealing with Amazon directly and seeing what they do behind the scenes that makes them so successful.

Customer centricity

Amazon isn’t about technology, it’s about thinking about the customer and the way of doing business. One technique Amazon use when planning a project is to start with the press release and work backwards. By drafting what the final release should say to the market, teams at Amazon then work out what needs to be done to make it a reality and ensure that the product is focused on customer benefits.

Proximity as an advantage

One of Amazon’s successful strategies has been to reduce the proximity between it and the customer. First through their innovative use of online re-marketing, then through the development of a best in class app, it’s Kindle and now Alexa, Amazon has brought itself closer and closer to the customer while continuing to improve the shopping experience, making it easier and faster. It’s not just Amazon who has impressed at this. Recognising that less people are visiting high street stores, WHSmiths are popping up increasingly in airports and train stations, looking to build a captive monopoly market in travel concessions.

Retail on the high street does have two fundamental issues however – long term leases and business rates. To pivot as WHSmith have requires fresh leadership. As John points out, the management team who helped you dominate on the high street are probably not the same people who are going to reinvent the business for a new world because ultimately, they have too much of a vested interest.

Amazon’s excellence at fulfilment allows it to ignore industry boundaries

By creating the most advanced fulfilment business in the world, Amazon have developed arguably the most powerful route to market, enabling them to quickly capitalise on opportunities as they present themselves. Their supply chain makes them a threat to industries that have nothing to do with retail. Take construction for instance. For big construction companies, commercial success and failure is less about pouring concrete and more about complex logistics management, getting materials and crane’s in the right place at the right time. On projects that often run into the billions in terms of spend, efficient supply chain management can be the difference between hundreds of millions in profit or loss. Could we see Amazon in construction?

Culture and Standards

For those that have had an inside look at Amazon, one thing struck them in particular. Their culture and values. Whereas many businesses struggle to get their values to go much further than their web page, Amazon employees are fully committed to the ethos behind the business, and if they are not, they are promptly shown the door. From Bezos’s “day one” approach requiring everyone to behave as if each say is the first day in Amazon’s history to it’s bootstrapping which requires everyone in the company to fly in coach class regardless of seniority, Amazon embeds its culture and values better than anyone, enabling it to achieve extraordinary consistency and success at scale.

Is awareness changing at board level?

Given the meteoric rise of businesses like Amazon, several CIOs wondered whether technology awareness is improving at board level. Cathy Holley, partner in Savannah’s Digital & Technology practice explains that ten years ago, CEOs said they wanted a CIO or a CTO without really understanding the difference. They were told that they needed one but weren’t really interested in the actual position itself. Now, when Cathy meets CEOs, while they may not all understand the intricacies of the various technologies, they do at least know of them and want to know what could be relevant to their business.

The results from our recent study “The Digital Benchmark” suggests that awareness is improving at Board level, with 82% of Board members and Chairs indicating that they have thought through the opportunities and threats digital giants present to their traditional business model and 74% of CEOs, both ranking among the highest scores within the C-suite. Of course, ‘thinking through’ is subjective and should not be seen as an indication that there is increased understanding, but it is at least showing an increase in awareness.

Figure 1: Savannah Group Digital Benchmark survey 2018

Cathy’s advice for any CIO joining a business is to pick up the phone to the outgoing CIO/CTO and get their view on the organisation. You can ignore them if you wish, but at least you get another perspective to help you with your due diligence.

The pervasiveness of short-termism

There were a number of CIOs around the table who agreed that in some organisations it is nigh on impossible to implement the digital transformation necessary to close the gap to the digital giants due to a pervasiveness of short-termism. The average tenure of a CIO is currently two years. For a CMO it’s sixteen months. In some businesses, tenure is falling across all of the C-suite members, with CEOs and COOs given only a couple of years to plan and execute a business improvement strategy. Faced with such a small window of opportunity, CEOs will often be forced to focus on a short-term target (often cost reduction) which may not be aligned to what the organisation needs to achieve long-term. Organisations caught in this trap tend to tread water while longer-thinking competitors continue to gain ground.

Bigger businesses should leverage disruption

It might be hard or impossible for a big established business to take on the digital giants, but there is a layer below most big businesses where disruption is rife and there are juicy margins to compete for. As a bigger (FTSE) organisation, it was felt that there is an opportunity to battle with the disruptors beneath them, steal market share and ultimately kick them out. In some scenarios, this may even complement the traditional business model.

The Importance of ecosystems

It’s never been easier for businesses to participate in ecosystems which could include digital giants, digital startups and sometimes traditional competitors. Due to the increasing popularity of open APIs, businesses can plug their technology into other systems with relative ease and draw benefits from that other platform. For example, Amazon have taken the external ecosystem model and used it internally, with all their internal systems linked together through an API, allowing them to rapidly scale and then integrate new technology solutions.

Businesses need to decide where they want to play within an ecosystem and that discussion should be taking place at board level and involving strategy teams. There seems to be a pattern among bigger businesses where really good companies tend to have really good strategy teams, which then opens up partnership opportunities between CIOs and Digital or Marketing to help execute.

What next?

John’s experiences proved valuable to the CIOs in attendance, who are facing many similar challenges today as John experienced through his thirty-year career. Although just scraping the surface of considerations when embarking on major change and transformation, John’s message was clear: proceed with caution with new technologies, focus on delivering increased customer value, and ensure the organisation has the leadership, culture and people to deliver and embed technology change.

John’s book ‘Three Funerals and a Wedding’ which provides much more detail on the examples above and other IT implementations and is available to buy online or via your local bookstore.

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