Six Interdependent Principles

Interdependent principles

Summary

The six principles behind the Digital Manifesto are interdependent. They reinforce each other, creating a positive feedback loop.


 

Information technology is not a neatly packaged box with a guaranteed return on investment stamped on it. Information Technology is like a kitchen: spending $25.000 on a new kitchen does not automatically result in a great dining experience. You also need a cook. In this case, the cook is the IT professional, embodied by the principle less defensive, more offensive. The IT team no longer delivers a piece of hardware or software to the business, but a solution or even better: a value proposition. A value proposition fulfills a specific want or need of the business, creating value (e.g. additional benefits, less risk).

While advanced automation and robots are substituting humans in several service-related areas of the value chain, employees remain necessary for truly added value activities like strategy setting, innovation, performance improvement and exception-handling.

Employees serve Customers

For the foreseeable future that is. In 2016, Google launched a research project to see if computers can be truly creative. It is only one of the projects part of a global effort to create machines with artificial intelligence and ‘deep learning’ capabilities.

The constantly evolving technology landscape also has a profound impact on the value propositions offered by the business to its customers. Music lovers used to record their favorite music on tape, replacing them over time with DVRs, hard drives, MP3 players, and more recently, streaming from the cloud.

Customer have (increasingly differentiated and technology-rich) needs

The rate of change is not constant, but increases both in volatility and complexity. The tape recorder was invented around 1930 and enjoyed a stable and predictable lifecycle for almost half a century. No such luck for more recent substitutes.

Customer needs change over time (at an accelerating rate)

More generally, every new product is more capable than its predecessor, but also far more difficult and expensive to design and produce. This translates into a network of hundredths, if not thousands, of specialized companies to deliver one coherent value proposition from a customer perspective (I).

Six interdependent principles of Digital Manifesto
Figure 1: Six interdependent principles (source: book Digital Manifesto ).

Together, these companies form a virtual entity, bundling a broad set of capabilities, skill sets and other assets to realize one or more shared objectives. The larger and more complex the value proposition and network, the more organization (as in “the act or process of planning and arranging the different parts of an event or activity” (II)) is required to achieve the required effectiveness and efficiency. Do this well and the result is wealth for all the stakeholders involved.

Constantly changing needs require organization (e.g. end-to-end approach, leadership, investment in new skill sets)

Done well, organization results in added value (read: improved revenue and margin, reduced risk)

By investing part of that wealth into the quality of the working environment, employee satisfaction is improved, the first step in the so called service-profit chain (III). The service-profit chain establishes relationships between value creation, customer loyalty, and employee satisfaction. Loyal customers buy more and generate referrals, both key drivers of growth and profitability. To become loyal, they need to be consistently satisfied by the value proposition offered by the company.

The larger the service component of the value proposition, the higher the impact of those responsible for designing and delivering the service. Hence, the emphasis on employee satisfaction as content employees are more productive, go that extra mile, and are less likely to look around for other job opportunities.

People are the most important asset a company can invest in

The end-result is a positive feedback loop, from which all stakeholders benefit.

 


Notes and references

(I) Sustainable success requires companies to invest the available resources (e.g. available budget, management attention) its distinctive or core competencies. Other competencies should be sources from external partners. Prahalad and Hamel consider a competency core when it is not easy to copy by competitors, can be used for other products and markets and contributes to the end consumer’s experienced benefits and the value.

(II) Source: Merriam Webster dictionary.

(III) Heskett, J. L. , Jones, T.O., Loveman, G. W., Earl Sasser, W. Jr., Schlesinger, L. A., Putting the Service-Profit Chain to Work, Harvard Business Review, 2008.

Leadership in a Digital World

Summary

The environment in which we live and work today is more uncertain and complex than ever before in history. To survive, let alone thrive, the leadership team has to boost its capability to sense and act on both foreseen and unforeseen events quickly and decisively.


 

Introduction

According to McGrath the downfall of Sony, BlackBerry, Blockbuster, Circuit City and even the New York Stock Exchange can be attributed to failing to sense and act on both foreseen and unforeseen events quickly and decisively.

“Their downfall is a predictable outcome of practices that are designed around the concept of sustainable competitive advantage. The fundamental problem is that deeply ingrained structures and systems designed to extract maximum value from a competitive advantage become a liability when the environment requires instead the capacity to surf through waves of short-lived opportunities. To compete in these more volatile and uncertain environments, you need to do things differently.”

Of the 500 largest companies in 1957, less than eighty were still part of the S&P 500 forty years later. Some were taken over but most shrunk or simply went bankrupt.

Even today, Facebook, Twitter, LinkedIn and other young multibillion companies are not exempted from these economic forces. Yahoo was one of the pioneers that turned the internet into a billion-dollar business. Today it is struggling to find its mojo back.

Facebook had attracted a huge teen following, an important demographic group for marketeers, at its inception. However, privacy concerns in combination with Mom, Dad, Aunt Edna, Uncle Jim and the rest of the uncool lot joining Facebook is affecting engagement with this age group. Consequently, they move on to apps like WhatsApp, Snapchat or others to communicate with their peers. For now, between today and a couple of years from now, a startup introduces a new value proposition, starting a new cycle.

Technology is therefore both a key enabler of new business models and at the same time a major source of strategic risk.

Data follows a similar path. The continued miniaturization of sensors, CPU’s and other components turns ‘dumb’ products into ‘smart’ ones. This too is a potential source of billions in revenue for both IT service providers and the companies using their solutions. Downsides include bankruptcy for companies ignoring the Internet of Things and Big Data all together, and waste for companies unable to effectively realize the potential value represented by these buzzwords.

Combine data with advanced algorithms and you have a tool to automate knowledge-intensive work, create robots maintaining other robots and autonomous driving trucks, cars and airplanes. However, until Artificial Intelligence (AI) becomes mature enough to dynamically solve myriad situations, both foreseen and unforeseen, weaknesses in either data set or algorithm could result in dramatic distortions in the value chain or a car ending up in the ditch.

Budget is only part of the solution

It is important to note that the changing role of technology does not equal asking the CFO to double the IT budget or adopt every new technology entering the market.

The success of Apple’s iPad doesn’t come from any introduction of a new disruptive technology. It is a winner because Apple combined easy-access to a wide variety of books, music, games and movies with a good looking, high quality device. Additionally, the iPad actually provided so much more functionality than the average e-reader that it created a new market. Consumers did not know they had the need until Apple launched the product.

As a result, the iPad sold more than 3 million units in its first 80 days, making it fastest selling electronic device at the time. Number two, at a considerable distance, was the DVD player with 350,000 units in its first year.

The creation of new (uncontested) market spaces as a means to break away from traditional competition models is described by Kim and Mauborgne in their book Blue Ocean Strategy. They argue that the traditional fighting for competitive advantage, battling over market share, and struggling for differentiation, has resulted in a bloody “Red Ocean” of rivals fighting over a shrinking profit pool. The authors argue that tomorrow’s leading companies will succeed not by competing head-to-head with competitors, but by fulfilling a new demand in an uncontested market space, creating a “blue ocean.” Oceans that will in most cases be full of technology and data.

The need for technology and business departments to act fast and decisive is amplified by the infusion of information technology into our day-to-day lives. Today, some 450 million people have internet on their mobile phone and with 4 billion people using mobile phones, and that number is expected to grow fast. We can consume information 24 hours a day, purchase a book at 3 am and read a memo from a colleague at the breakfast table. Information technology is not only changing business models, but also the way we spend our free time (e.g. checking our Facebook account, playing mobile games).

Technology overcomes many boundaries, enabling companies to tap into new markets and enriching the private lives of billions of people. We are part of a global eco-system, with all its opportunities and challenges. To thrive as a company in this world, companies need to invest in the capabilities reflected by the six principles introduced as part of the Digital Manifesto.

 


Additional Reading

Biological ecosystems consist of multiple interdependent species that need each other in order to survive. Species use natural selection mechanisms to adapt themselves to their environment and the most successful ones produce more offspring. Kelly’s book “Out of control uses beehives, the economy, intelligence and evolution as examples of systems where the sum of parts create more than all the individual parts (e.g. one bee, company or brain cell) can. Especially his nine ‘incubation’ principles are worth a look when faced by uncertain and complex needs and wants from internal and external customers. Another interesting article with the same topic is The Biology of Corporate Survival from Reeves, Levin and Ueda. They point out that:

“Business environments are more diverse, dynamic, and interconnected than ever—and far less predictable. Yet many firms still pursue classic approaches to strategy that were designed for more-stable times, emphasizing analysis and planning focused on maximizing short-term performance rather than long-term robustness.”

The article provides business and IT leaders with several strategic pointers to improve the alignment between external environment and the  company.

Kelly, K., Out of Control the New Biology of Machines, Social Systems and the Economic World, 2008.

Reeves, M., Levin, S., Ueda, D., The Biology of Corporate Survival, Harvard Business Review, January-February 2016.