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Your Business Is Too Complex to Be Digital

| Charlie Ranalli

Abstract: For most mature companies, operational complexity, rather than lack of strategic thinking, will limit their ability to compete digitally. They result from years of new operational and commercial processes built next to (and on top of) legacy systems and ways of working.

This kind of organic evolution has made many companies too complex to adopt digital solutions. To compete digitally, business leaders must attack that complexity.

Your Business Is Too Complex to Be Digital
Jeanne Ross
Principal Research Scientist, MIT Center for Information Systems Research

Agility@Scale: Solving the growth challenge in consumer packaged goods

| Charlie Ranalli

Conducting research for a customer project I came across this paper.

The premise is that the reconfiguration of the US market has undermined traditional growth models for consumer-packaged-goods companies, particularly large ones.

The authors argue that there is no single solution to the growth challenge; rather, changes along multiple dimensions are necessary.

While not directly focused on digital innovation, the correlation between what growing consumer packaged goods companies are doing and the traits of digital leaders is astonishing:

  • Build an agile, streamlined organization
  • Develop triple-A capabilities: Advanced analytics and automation
  • Fuel growth through agile resource reallocation
  • Ditch the stage gate for ‘test and learn’ innovation
  • Reset customer collaboration: E-commerce and small format
  • Deliver next-generation consumer engagement: ‘Consumer 3.0’
  • Use Agility@Scale to go broader and smaller

Highly recommended reading for executives in consumer packaged goods companies revising their strategies to revitalize growth strategies.

Agility@Scale: Solving the growth challenge in consumer packaged goods
Jan Henrich, Ed Little, Anne Martinez, Kandarp Shah and Bernardo Sichel
McKinsey & Company, July 2018

Solving the digital and analytics scale-up challenge in consumer goods

| Charlie Ranalli

McKinsey argues that consumer-goods companies have invested in digital and analytics, but that more than half of the time those investments have failed to yied the desired results.

Their research shows that only 40 percent of consumer-goods companies that have made digital and analytics investments are achieving returns above the cost of capital. The rest are stuck in what the authors call “pilot purgatory,” eking out small wins but failing to make an enterprise-wide impact.

But digital leaders are showing they way – with four core elements leading to digital and analytics success:

  • Set a bold long-term aspiration
  • Pursue ‘domain transformations,’ not unrelated use cases
  • Ensure the coherence of enablers across domains
  • Reconfigure your operating model for speed and flexibility

Solving the digital and analytics scale-up challenge in consumer goods
Ford Halbardier, Brian Henstorf; Robert Levin and Aldo Rosales
McKinsey & Company, 2020

Six habits of digital transformation leaders

| Charlie Ranalli

Companies investing more in new technology make more money.

Research finds that companies that excel at digital transformation share six habits. Digital transformation leaders that exhibit these six habits enjoy better financial performance than companies that have yet to adopt them.

To catch up, the rest of the pack should learn from the digital transformation leaders who are:

  1. Focusing on customers first and foremost
  2. Accelerating AI to drive growth
  3. Driving innovation through ecosystems and partnerships
  4. Nurturing talent with new incentives and strategies
  5. Activating governance plans for emerging tech
  6. Powering innovation by leveraging data and being agile

Six habits of digital transformation leaders
By
Jim Little
EY Global Microsoft Alliance Lead and EY Americas Technology Strategy Lead
Savi Thethi
EY Americas Consulting Services Technology Transformation Leader

Five major trends which will underpin another decade of digital innovation

| Charlie Ranalli

EY surveyed senior leaders and executive management team members from 500 corporations and 70 start-ups across a range of global geographies and sectors, in order to pinpoint where they are on their transformation journeys, and where they are heading.

According to the research, today, almost half (44%) of corporate companies said they are making good progress with their transformation plans and are starting to embed them across their businesses. An additional 4% of corporates said they were even more advanced, with their transformation fully embedded and optimized across the organization. In two years’ time, two-thirds (66%) of corporates expect to be making good progress, and 17% expect their transformations will be fully embedded – demonstrating that they are on a steep transformation maturity curve.

But because transformation is a continuous cycle, it is never complete, and companies will need to continually evolve their programs to meet customers’ changing expectations.

EY identifies five major trends for the next decade of innovation:

  1. Cloud is the digital foundation
  2. Businesses are pivoting around data
  3. Experience is everything
  4. Ecosystems and partners help bridge the skills gap
  5. Security and privacy are soaring in importance

Five major trends which will underpin another decade of digital innovation
By
Jim Little
EY Global Microsoft Alliance Lead and EY Americas Technology Strategy Lead

Organizing for Digital Acceleration: Making a Two-Speed IT Operating Model Work

| Charlie Ranalli

McKinsey has long argued that delivering an enriched customer experience requires a new digital architecture running alongside legacy systems.

Furthermore, by adopting a digital product management model, companies can get the most from their IT architectures and deliver innovative online customer experiences faster.

A digital product management approach requires that companies systematically incorporate customers’ needs and insights into their products and services. Teams are held accountable for implementing specific improvements to digital products or digital experiences. Other groups, such as marketing, logistics, and customer service, may be collaborators, but ultimately digital product managers are measured on outcomes associated with the revised product or experience

Oliver Bossert, Martin Harrysson and Roger Roberts
Organizing for digital acceleration: Making a two-speed IT operating model work
McKinsey Insights, October 2015

Smart Strategies Require Smarter KPIs

| Charlie Ranalli

Following-up on his 2018 article and self-assessment tool, Michael Schrage, a research fellow at the MIT Sloan School’s Initiative on the Digital Economy, explores how digital leaders are transforming the strategic role and purpose of key performance indicators.

Their research shows digitally sophisticated organizations have flipped traditional KPI purpose and processes inside out. Instead of seeing KPIs primarily as analytic outputs for humans, leading organizations increasingly use them as inputs for machines. Leaders rely on KPIs to train, tune, and optimize machine learning models for business impact.

Michael Schrage, “Smart Strategies Require Smarter KPIs“
MIT Sloan Management Review, September 2019

A Two-Speed IT Architecture for The Digital Enterprise

| Charlie Ranalli

Delivering an enriched customer experience requires a new digital architecture running alongside legacy systems.

Unlike enterprises that are born digital, traditional companies don’t have the luxury of starting with a clean slate; they must build an architecture designed for the digital enterprise on a legacy foundation.

A two-speed IT architecture will help companies develop their customer-facing capabilities at high speed while decoupling legacy systems for which release cycles of new functionality stay at a slower pace.

Oliver Bossert, Chris Ip, and Jürgen Laartz
A two-speed IT architecture for the digital enterprise
McKinsey Insights, December 2014

The Transformation Advantage

| Charlie Ranalli

One of the key insights of the Digital Transformation Framework presented in this blog is that the “Transformation” part is as -if not more- important than “Digital”. A team at the MIT Center for Digital Business proved the point.

They studied over 400 large firms in a two years of study and “found that most large firms are already taking action. They are using technologies like social media, mobile, analytics and embedded devices to change their customer engagement, internal operations and even their business models. Our research points to a real ‘digital advantage’ to those that do.“

In The Digital Advantage: How digital leaders outperform their peers in every industry, they developed a digital maturity model to show how different companies are reacting to technological opportunity, and cleverly analyzed how business invest in Technology, but more importantly, how the true leaders create the leadership capabilities necessary to drive change, which they called transformation management intensity.

The numbers speak by themselves, with the truly transformational leaders achieving 9% more revenue, 26% more profits and a 12% valuation premium versus their industry peers.

Particularly illuminating is how the Digital and Transformation variables of the equation work differently: Digital Intensity generally drives up revenue, while Transformation Intensity trickles down to the bottom line and impacts profits.

A must read.