Planning for successful digital transformation? Go past the cloud natives
- 04 July, 2018 07:00
Joseph Pucciarelli at the IDC InTEP event
Outsource your IT ‘pots and pans’ and focus on your people, your creative talent that create business
‘Where are we now?’ is the most important question organisations can ask when assessing their digital journey, says Joseph Pucciarelli of IDC.
“Where am I trying to get to,” is the next one, says the group vice president and IT executive adviser at IDC.
In a recent presentation for New Zealand CIOs, Pucciarelli covers the gamut of concerns organisations face today as they aim to break through what he calls the “digital deadlock”.
He says an IDC global research about organisations undergoing digital transformation finds that 59 per cent remain stuck in the early stages of their transformation journey.
While some digital projects have been implemented and are progressing, most companies report they are still struggling to digitally transform their broader organisation.
Interestingly, when Pucciarelli talks about organisations that have been more successful than others in their digital transformation, he points to companies that have been operating for decades, or even more than 100 years.
One of these is the manufacturer of Oreo, which first sold the cookies in 2012.
In 2007, sales of Oreo cookies were less than a billion dollars each year. The product manager for Oreo knew that the company was pushing a product that was not fresh, and not healthy.
But what the company did was implement three types of innovation.
Adaptive, where they launched different flavours across the globe (like dimsum, tiramisu, carrot cake) with over 30 flavours in North America alone.
Incremental, which covered packaging, positioning and channels. They released Oreos in regular sizes, family packs and in 100-calorie packages.
Disruptive, where they rolled out Oreo machines printing custom cookies.
“They figured out people are willing to pay premium for cookies in different flavours,” he says.
Oreo took these machines to strategic locations like country fairs and university campuses.
“It was not about selling cookies but to see flavours in each region and use that information to feed into the supply chain so they were shipping the right weird flavour to each different city,” says Pucciarelli. “Genius.”
Last year, he says sales of Oreo cookies reached US$1.4 billion, double that of a decade ago.
The strategy was simple, he points out. “Somebody with a lot of energy and a lot of drive can move the needle in something that is not supposed to succeed.”
He hurls a challenge to the CIOs in the group: “Can you do better?”
“You work on a whole lot more stuff than Oreo cookies.”
“Are you facilitating, guiding this kind of energy, [the] consistent application of effort applied to move the needle?”
Beyond building ‘better railroads’
During the hour-long presentation, Pucciarelli delves further into insights from a recent IDC survey of 2000 organisations in 23 countries, including New Zealand.
He says IDC sought to find out where these companies were in their digital journeys.
He points out the importance of the survey. The pace of change is such that in the past 50 years, the average lifespan of companies in the S&P 500 companies has shrunk from around 60 years, to around 18 years.
He says 75 per cent of the companies that are currently in the list will probably not be independent entities in seven years, he says.
Thus, in the world stage, companies are much more aggressive in their digital transformation, says Pucciarelli.
Three years ago, organisations were experimenting with emerging technologies which saw the likes of crowdsourcing for design, using mobile phones to open doors, or having robotic bartenders in a cruise ship.
“We were talking about proof of concepts, this was all razzle dazzle to show how the technology works.”
He says today, at scale enterprises are deploying digital transformation.
Walmart, for instance, has shelf-scanning robots in over 50 stores. Steinway Piano starts the self-playing Spirio piano and digital music services. Boeing launches the B787-9, of which 17.5 per cent frame is 3d printed, with Air New Zealand as launch customer.
“From playing toys, we are seeing scale implementations from companies that are at the world stage,” he says.
In the case of Steinway, the high-end piano manufacturer was facing flat sales. Spirio, a high resolution self-playing piano, digitally records the velocity and impact of each key and can replay the performance that somebody has played on the piano. The piano does not record the sound but the actual motions inside the piano. The owners can essentially listen to piano music as performed by professional artists.
Consider what might be missing or what might need to change
For Walmart, the use of a robot allows it to undertake an inventory of stocks every two days, not just once a year. It leads to a completely different inventory model that will revolutionise the business.
“A better railroad,” is how he he puts it, a reference to how the railroad transformed businesses in the United States in the 19th century.
The survey shows how companies range from least sophisticated to most sophisticated (the transformers and disruptors)in their digital journeys.
One in four companies has a solid digital strategy in place.
But, 15 per cent of companies across the globe (though only 6 per cent in New Zealand) are resisting and have no digital strategy in place.
The issue for most industries is they do not know what the endpoint for their digital strategy is going to be, says Pucciarelli. “We will take two to three iterations of technology in the next seven to 10 years, before it is clear what the winning strategy or the winning technology platform is going to be.”
Outsource your IT ‘pots and pans’
He also talks about the importance of setting the right KPIs for the digital era.
He says IDC survey shows around 78 per cent of New Zealand organisations do not have digital KPIs. These include customer advocacy metrics, employee advocacy, data capitalisation (measuring return on data related investments including new revenue), DX ROI (return on DX-oriented investment within applicable market segments) and participation in digital markets.
He says the model to aim for is to embed digital business across the organisation, “where frankly, digital does not matter anymore. It is just what you do, and the knowledge and expertise is embedded into the leadership.”
He likens it to 50 years ago when a company is being organised, it will have a director or a vice president of engineering, with all engineers working under this role.
Today, there are engineers in every business unit and they do not even think about it. “That is the model that is going to succeed for digital transformation.”
On the other hand, there are companies that treat the digital business unit as a special place, occupying a transient space in organisations.
Santander Bank in Spain established a ‘digital twin’ in 2016, which experienced massive growth. The bank has now meshed the two together, rationalising technology inside the bank.
Pucciarelli cites another example, Northwestern Mutual. Its vice president and head of digital innovation transformed 20 IT job descriptions into seven core jobs.
The IT organisation is now called client and digital experience group. The 3500 IT professionals shifted their focus from IT projects and support, to digital products and engineering. The teams, all using Agile/Lean and DevOps, are assigned and re-assigned depending on work requirements.
“He outsourced the IT pots and pans to someone who can do pots and pans well,” he says.
“You don’t create competitive advantage by running Exchange,” he says. “Get rid of it and focus on your people, your creative talent, on what creates business.”
Pucciarelli talks about security in the digital era. Putting a castle on a hilltop and having people pour hot tar on intruders is not the model for the future, he says.
“You are looking for new insights from data so you can create competitive advantage and you swirl it with data outside your organisation.”
“The concept I would like you to think about in security is the concept called digital trust,” Pucciarelli tells the CIO audience.
“You have to know who you are doing business with, you have to verify and when you exchange data with them it has to be a verified source. If you do not know who you are doing business with then you should not be doing it.”
He says Facebook had a digital trust model but they were not vetting the people they were doing business with, hence the incident with Cambridge Analytica.
“Going forward, as we talk about security, it is not about stacking your security applications. It is identifying and creating a model of who you trust and don’t trust.”
“Have a discussion around governance,” he says. “Are you making decisions around your data model or not?
“Either way you are making decisions and those decisions will have consequences for your successor.”
Customer centricity is a critical part of digital transformation, he states.
He cites the case of DBS Bank in Hong Kong, which had the lowest rated customer bank and is now the highest ranked in customer satisfaction.
The CIO started insourcing the IT operation, “a carefully orchestrated process.”
The bank integrated a robust online experience, advanced technology and a human advisor, and this approach resonates with clients seeking comprehensive financial planning services.
It was about building an engine of innovation grounded with customer engagement, thereby creating a ‘22,000-person startup’, says Pucciarelli.
Spotlight on shadow IT
He talks about another area faced by CIOs, budget for technology programmes.
“IT is not the sole source of budget, not the sole source of truth and not the only decision maker where the money is invested in technology,” he says.
He says the IDC Line of Business Sentiment Survey among 1500 respondents in the US finds that in funding technology initiatives, ‘IT only projects’ represent 20 per cent.
Nearly a quarter, 24 per cent, are business-led. IT is not involved in implementing or supporting the project but is aware of it. Forty per cent are joint IT and business projects, where IT is heavily involved. Shadow IT accounts for 16 per cent of all technology spending.
In some organisations, ‘shadow spending for IT’ is where the CIO consents to experimentation, and business units “go off and play in the sandbox”.
“You have to be a whole lot better statesmen in your organisation, it is not about being a technology engineer,’ he says, on how this impacts CIOs. “You have to be a visionary, how technology can fuel the business, how it can lead the business, and shape the business.”
As to how today’s ICT leaders will work with the new generation coming in, Pucciarelli says, “The issue for millennials is it is very important for them to understand their role in the organisation, that what they are doing is relevant to the organisation, and how it affects the world.”
“You have to take a broader view and articulate their vision,” he adds. “I don’t think that is a terribly unreasonable thing.”
So,“What are you doing about change management inside your organisation?” he asks the New Zealand CIOs.
Keys to break through the digital deadlock:
Recreate the customer’s experience of interacting with your organisation.
Identify current and future states.
Consider what might be missing or what might need to change.
Get the latest on digital transformation: Sign up for CIO newsletters for regular updates on CIO news, career tips, views and events. Follow CIO New Zealand on Twitter:@cio_nz