There are two ways to look at transformation: the insider view, and the outsider view. The way you approach it can have significant impact on your results.
​
When we think about transformation, we commonly confuse two terms that take the insider’s view: change management and transformation. Change management as a practice has been around for more than five decades and focuses on implementing and managing finite change objectives in an organization by structuring and supporting the way teams and individuals manage change. Propelled by the excellent writings and research of Harvard professor and author John Kotter, change management took hold in the corporate world over thirty years ago and has turned into its own discipline with the aim of helping organizations overcome obstacles and effectively implement discrete changes.

Likewise, transformation, while a broader effort to improve an organization, is largely internally focused. Different from change management, transformation is vision-driven, cross-discipline, and primarily focused on improving company performance. But that vision is often focused on a certain operational transformation (digital, strategic, operations, cultural, organizational, financial, distribution, human capital, customer service) or defined by financial metrics that indicate increased efficiency and profitability. For example, strategy giant McKinsey describes transformation as, “an intense, organization-wide program to enhance performance (an earnings improvement of 25 percent or more, for example) and to boost organizational health.”[1] 

Contrast this inward view of change to the second, more outwardly-focused view of being transformative. In contrast to transformation, the term transformative is active and descriptive, denoting that a company, organization, or team takes actions that result in a marked change or outcome on something else. It is an act of exerting outside influence and making change happen. This view more closely aligns with the distinction that Bain and Company makes in contrasting ordinary transformation to “full-potential transformation,” or “a cross-functional effort to alter the financial, operational and strategic trajectory of the business, with a stated goal of producing game-changing results.”[2] The emphasis of these transformative efforts is not on what is being transformed, but in changing the game.
This outside, transformative view is important because it dictates that organizations take action that results in significant outward change that favors their organization. This starts with changing customer outcomes. It’s the difference between saying “We are going to transform to become a digital business.” and aligning with Steve Job’s outward-focused questions, ‘What incredible benefits can we give the customer?’ ‘Where can we take the customer?’” 

This transformative, outside view is so powerful because it most often results in:

1.    Changing the set of customer benefits and related buying criteria, in turn producing a new interest and set of customer requirements.
2.    Paving the way for a shift in the market away from incumbent products and services. 
3.    Opening up larger market opportunities by generating higher demand and/or serving new sets of customers
4.    Lowering the chance for competitive response by creating a new basis of competition in the short-term and providing more structural barriers to competition in the long-term in the form of new ways of achieving the customer outcome

Examples of this type of transformative thinking include Intel’s approach to the PC microprocessor market, Amazon’s Prime service, and Netflix’s approach to providing a broad range of content that could be individually curated. These each focused on creating a new customer outcome that wasn’t previously available, changing the reason why customers purchased, and resulted in incredible shifts in the market for computers, online shopping, and the way we consume media.

The insider view of transformation, and change management is important to align an organization to its objectives. But without the outsider’s view, an organization will never achieve truly game-changing results.

[1] Transformation with a Capital T, McKinsey Quarterly, Michael Bucy, Stephen Hall, and Doug Yakola, November 2016
[2] Choreographing a Full Potential Transformation, Bain Bried, 09 April 2014

As I finish up the last chapter of my upcoming book, The Transformative Playbook.  I have been looking at the across these high-performance, transformative companies to find similarities in their leadership and culture.  
 
One commonality I have found is in the priorities that their leaders set for the organization.  What is more important than individual leadership styles is leadership priorities, those things they must foster to be successful, and the recognition that the best way that to achieve those priorities is through developing a strong organizational culture.  

1 Communicating a common vision and mission for the organization. Ensuring that there is a universally accepted aspirational vision and mission for the organization and communicating it consistently and frequently.

“Having a clear mission and making sure you know that mission and making sure that mission comes through the company is probably the most important thing you can do.”
– Brian Chesky
 

2. Establishing a priority for and an advantage in attracting and cultivating a diversity of talent. Creating an advantage in attracting new employees and actively developing existing employees.

“The true measure of a successful leader is their ability to discover the hidden talent in those they lead and challenge them to achieve greatness. If you think you can do a thing or think you can't do a thing, you are right.”  Henry Ford
 
3. Fostering a deep-seated sense of curiosity and a method for sharing and cultivating new ideas and innovation. Building an intense interest in solving problems and exploring new solutions and the means to facilitate sharing them throughout the organization.

“When a good idea comes, part of my job is to move it around, just see what different people think, get people talking about it, argue with people about it, get ideas moving…get different people together to explore different aspects of it quietly, and, you know – just explore things.” Steve Jobs

4. Encouraging independent decision making and pushing decisions to the lowest level possible. Ensuring that decisions are made at the right level and that employees feel a sense of empowerment in making them.

“I pride myself on making as few decisions as possible in a quarter.  Sometimes I can go a whole quarter without making any decisions.” Reed Hastings

5. Creating a high-performance orientation and competence in taking on large challenges. Establishing above average team and individual performance and developing structure and incentives to enable it.

“It is easier to make progress on mega-ambitious dreams. Since no one else is crazy enough to do it, you have little competition.” Larry Page

6. Establishing a truth heuristic. Basing decision making on data and debate, enabling frank and constructive feedback, tolerating failure and requiring the study of failure points.

​“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”  Jeff Bezos

These are pretty much universally found in each company.  Do you have others?  Reach out if you have any addtions you would make to this list.
​

Whatever Netflix’s moves will be in the movie industry, you can be guaranteed that it will be a different and better customer outcome, just like they did in movie rentals with Netflix 1.0.
 
Netflix’s announcement last week that more than 45 million viewers had watched its newest movie release Birdbox seems to be a turning point of the company’s intention to take on the movie industry.  But if things follow Netflix’s normal course of action, the company won’t just take on the movie industry, they are going to transform it. 
 
While Netflix has shown success in creating its own content since it launched House of Cards in 2013, its annual investment is content development is at $13 billion and it is paying off.  More than 85% of Netflix viewers are watching Netflix-developed content, an astounding number given its vast library.
 
More than anything Netflix is good at transforming industries, making old industry frameworks, dynamics, and ways of creating value obsolete.  While many look at Netflix as the company that killed Blockbuster Video and late fees, the reality is they won by providing something much different than Blockbuster.  Netflix produced a new customer outcome by not by focusing on a different way to provide what Blockbuster provided, the newest movie releases, but something much different and more valuable.  In Reed Hasting’s words from years back,
 
“It’s possible to totally misunderstand Netflix. Some people think of us as just a DVD-rental service. But the real problem we are trying to solve is, ‘How do you transform movie selection so that consumers can find a steady stream of movies they love?”
 
What Netflix 1.0 the DVD company did was provide a vast library of DVDs to new the owners of new DVD players on a subscription basis. Instead of renting just blockbuster movies or buying a collection of DVDs, Netflix has access to a vast library of 50,000 DVDs that were curated for them with using an analytics-based recommendation engine. That was a much different outcome than the slog to a corner video store to fight lines and overpay to watch the latest blockbuster movie release (sound familiar?). They used that library plus convenience, friction reduction, and personalization to produce something entirely different that changed the way customers consumed media. Then, by wrapping that entirely new customer outcome in a new business model and supported by their unique capabilities, Netflix made it hard for Blockbuster or anyone else to compete. 
 
For an industry that thrives on big blockbusters, Birdbox was a strong showing.  To put its 45 million view in perspective, big opening in the industry may get 20 to 25 million views in the opening weekend.  Of course, the response by the film industry has been more negative.  Derision from incumbents is always a positive sign when you are about to transform an industry.  One incumbent with the National Association of Theatre Owners, who has interest in the preservation of the status quo commented, “Netflix’s model can’t disrupt theatrical if it’s not playing on 99.7% of screens.”
 
Actually, Netflix can disrupt without big screens and not playing in theatres is exactly what should cause worry in the industry.  Netflix has a lot of things going in their favor, and screens is one of them.  As more consumers are willing to watch on small screens, and the price of large home screens is decreasing, anywhere outside the theater is looking like a good option. 
 
Netflix has no vested interest in maintaining the current dynamics and structure of the industry, screens or otherwise, and is only interested in what gives the customer the best experience.  And there are plenty of things that they can improve upon, including convenience, personalization, and business model.
 
Netfix’s number one asset is its ability to understand what its customers want to consume, which it has proven to consistently use to its advantage.  With its direct customer relationship and deep analytics expertise, it has something that the film industry struggles with: an ability to produce content with a high confidence of success.  So, while the movie industry supports itself with formulaic blockbuster movies, sequels, and remakes, Netflix can create content with consistent wins. 
 
Maybe the most important element in Netflix’s favor is business model.  It has many options to choose from and any of them will be a win, even staying with distributing new movies under its current subscription model.  To really compete in the movie industry, it may not need to change a thing.  It’s the film studio’s market to defend.
 
Back at the beginning of Netflix 1.0, one of the early indicators of potential success for CEO Reed Hasting was that the economics of distributing DVDs by mail worked in his favor. With $20 DVDs and inexpensive shipping, he knew he had a model that would work. Before entering the market he wanted to confirm that the DVDs would survive shipping so he went about testing them by mailing similarly durable CDs to himself to see if they would survive postal handling. One gets the impression that with Birdbox, the company’s first big opener with big star power, he once again sees a new customer outcome and business model, and may just be running a few tests on the market before the real launch.

Sometimes a little technology adoption can be a dangerous thing. A recent survey by Gartner of CEOs found that 41% of those in the corner office think of their companies as “innovation pioneers,” a self-assessment that is 52% higher than it was in 2013.  

Interestingly 37% see their organizations as “fast followers” who quickly adopt new innovations.[1] Fascinatingly, the sum of those two groups leaves only 22% of CEOs who would be classified as anything other than a significant leading or fast following innovator. Are the risk averse majority now the minority?

To fully grasp this, take into account a normal technology adoption curve. Despite its purpose at looking at technology adoption, not innovation, it’s a pretty good benchmark of who should be an early innovator and the masses of companies that follow. A normal distribution of technology innovators should be small, like innovation adopters, at 2.5%. Fast followers, comparable to early adopters, is 13.5%. The rest, which include early majority, late majority, and laggards, should be the rest of the 84%.  

Are there really that many early innovative companies out there? Hardly. But with all the focus on digital business today, we seem to all think we’ve moved close to the bleeding edge. Here’s a good explanation why:

“With innovative information technology…executives sometimes lose their rational decision approaches. Certainly, it’s true that in times of radical technological change there’s a lot of figuring out to do. Executives have to understand what new technologies can do, and understand their impact on markets, products/services, and distribution channels. These decisions are inevitably influenced by hype from vendors and the media, expensive consultants offering “thought leadership” insights, many high-profile experiments, and a few exciting success stories that keep people wanting more. A charismatic CIO or chief digital officer may make it even harder to be level-headed in those heady times.”[2]

These actions we take of going through the pain of transformation and technology innovation proscribe positive feelings towards those action. Just the act of embarking on a transformation project may create a bandwagon effect, a cognitive bias that reinforces leaderships’ overall positive assessment of their organization and their actions, just because they have committed to organizational transformation, even if it ultimately fails to achieve positive transformative outcomes.

How do we overcome this cognitive bias? Here are two prescriptions.

First, take the simple VRIO test. With every innovation you are pursuing, ask yourself:
​

1. Value: Is it valuable? Does it produce a better or different outcome for our customer? Does it help our organization increase customer value or lower value loss?
2. Rare: Is it rare? Am I really the only or one of a few organizations that could do this?
3. Inimitable: Is it inimitable? Is it very difficult to copy, imitate, or substitute?
4. Organization: Is it organizational? Can our company organize itself to take advantage of it?

By these standards, few of today’s transformation efforts would pass the test for adding long-term sustainable value to an organization. Drop or deprioritize those that don’t.

Second, spend more time thinking about innovation away from the product or service and specifically around business model innovation. Think about the majority of innovations you’ve seen in the market—most have been accompanied by a business model innovation. 

A review of innovation in top performing companies by McKinsey indicated that only 27% of top quartile performers felt that they were getting their business model right—that’s of the top performing companies. The second quartile performers were significantly worse: only 10% of second quartile performers said they were good at business model innovation.[3] Business model innovation is hard, but it’s an indication that you are doing something right, valuable, and differentiable. 

Netflix, Amazon, Apple, Dollar Shave Club, Costco, and more have succeeded because they have fundamentally changed the way they provide customer outcomes and the way they make money. A little more time focused on choosing the right innovations and enhancing it with a better business model innovation will go a long way.

#innovation #transformation #digitaltransformation #netflix #Apple #Amazon #Costco #transformative #technology

[1] 2018 CEO Survey: CIOs Should Guide Business Leaders Toward Deep-Discipline Digital Business." Gartner, 6 April 2018
[2] Why So Many High-Profile Digital Transformations Fail, Thomas H. Davenport and George Westerman, Harvard Business Review, March 2018
[3] The eight essentials of innovation, McKinsey Quarterly, April 2015.

In the last blog we discussed the fact that 70% of company transformations fail and explored General Electric’s downward spiral since launching their digital transformation effort in 2014. 

GE is not alone. Notable companies that have stumbled on their path to transformation include Nike, Ford, the BBC, and many others. Why do companies like GE fail to obtain the outcomes and benefits from transformation that they anticipate? Some of the reasons certainly include the traditional behavioral, cultural, managerial and organizational issues that change management addresses. 

While most companies look to better manage their transformation journey, the issues really start at the beginning. Indeed, as we covered previously, most transformation efforts are focused on inward improvements to productivity and efficiency. These are great for improving profitability, but that shouldn’t be confused with customer value or competitiveness.  

In general, this inwardly-focused transformation efforts fail due to four major pitfalls. They include:

1. Not Making Customer Outcomes the First Priority. The intense focus companies place on maximizing operational efficiencies has made the delivery of better customer outcomes, including the customer value and experience, a third priority for most organizations. A recent IDG survey found that increasing customer experience was an objective for only 46 percent of the organizational transformation efforts, well behind employee productivity and business performance. Another survey found that improving customer experience was seen as an advantage of their transformation project in only 34 percent of the cases.

This may be a result companies’ perspective that they either adopt digital transformation or they are disrupted by it. Four out of five businesses expect to see a negative impact on revenue in the next twelve months if they fail to complete digital transformation initiatives.[1] For many organizational heads, transformation is a gun to their head, not a way to benefit their customers or derive meaningful advantage.

2. Failing to Articulate Vision and Create Alignment. The second pitfall that companies fall into is failing to make transformation a point of company-wide alignment. Most employees simple don’t know the why and how of the transformation journey. In a recent survey of IT managers in organizations undergoing transformation, 69% said that they wouldn’t be confident explaining the concept of their company’s transformation to someone else.[2]

This lack of clear, motivating, aspirational vision is a result of the operational focus of transformation. No one but management gets behind a vision to increase earnings by 20%. Failure to create illuminating the path to get there is a significant barrier to transformation success.  As an example, former CEO Jeff Immelt said of GE’s transformation process, “One of the things I’ve said during every transformation is, ‘We’re on a forty-step journey. Today we’re on step twenty-two. I don’t know exactly what step thirty-two looks like yet. But we’re going to explore that together.’”[3] 

Step twenty two of forty? While forty-step journeys may be necessary, that journey is not going to garner the attention, understanding, and motivation of employees to support the efforts. Great leaders know they need to create a vision that is simple and outcome oriented, and then over communicate that vision by 10x to employees to turn it into a company-wide journey and effort

3. Confusing Effort for Effectiveness and Tools for Outcomes. The third pitfall of transformation efforts is that the actual effort put into transformation, especially digital transformation, tends to have an appeasing effect for organizations that they are making some effort toward change, with little regard for whether its effective. With the prospect of returns from and the effort required for transformation, it is easy to get caught up in the hype the process and potential for returns and lose sight the real outcome.  
Interestingly, the act of embarking on a transformation project may create a bandwagon effect, a cognitive bias that reinforces leaderships’ overall positive assessment of their organization and their actions because they have committed to organizational transformation, even if it ultimately fails to achieve positive transformative outcomes. This is reinforced by an already high self-perception by senior leadership that their company is technology leaders. A recent CEO survey found that 41% think of themselves as “innovation pioneers,” a self-assessment that is 52 percent higher than it was in 2013. Another 37 percent believe they are “fast followers” who quickly adopt new innovations.[4]Fascinatingly, the sum of those two groups leaves only 22 percent of CEOs who would be classified as anything other than a leading or fast following innovator. Are there really that few laggards out there?

4. Settling for Efficiency vs. Long-Term Differentiable Advantage. The fourth major pitfall for organizations is confusing the pursuit of efficiency with the concept of creating advantage for their organization. With a largely operational-efficiency focus, the outcomes most organizations create have little to do with improving an organization’s competitive position and long-term competitive advantage.  While investment in digital transformation is the theme of the day, these efforts alone often go toward strategies that can be copied, internal processes that are replicated, and new technology that can be similarly acquired or developed, providing, therefore only a transitory advantage. If every other organization has access to the same consultants, open source code, cloud computing partners, machine learning engines and algorithms, and so forth, is there a long-term advantage?

Stepping back, these pitfalls open up the question of of whether transformation efforts sustainable if transformation don't create a better and differentiated outcome for the customer and a long-term advantage for the organization. The answer is no, and the solution lies in not focusing just on transforming the organization, but in transforming customer outcomes. 

Next week we’ll discuss outcome transformation, and what steps organizations can take to improve the likelihood of transformation success.

#Transformation #digitaltransformation #transformative #strategy #changemanagement #generalelectric #GE #customeroutcome #customerexperience


[1] Connectivity Benchmark Report 2018, Mulesoft Corporation
[2] Not Everyone Understands Digital Transformation, Salesforce survey, June 2018
[3] Inside GE’s Transformation, Harvard Business Review, September-October 2017
[4] 2018 CEO Survey: CIOs Should Guide Business Leaders Toward Deep-Discipline Digital Business." Gartner, 6 April 2018

 
In the world of digital transformation, there are three key data points to know:
 

• 40% of CEOs recently acknowledged that the digital transformation of their organization was a top priority.[1] 
• They are spending $1.3 trillion to do it.[2]
• 70% of those projects will fail to reach their objective.

 
That may sound like a dire prediction, but a recent survey by McKinsey found that,
 
“After years of McKinsey research on organizational transformations, the results…confirm a long-standing trend: few executives say their companies’ transformations succeed. Today, just 26 percent of respondents say the transformations they’re most familiar with have been very or completely successful at both improving performance and equipping the organization to sustain improvements over time.”[3] 
 
Other estimates show an even higher rate of failure: seven out of eight digital transformation projects failed to reach their intended objectives.[4] 
 
This data should stand out to senior management engaging in or currently considering digital transformation in their organization.
 
One very public example of this type of failure is the decline of General Electric that commenced during its attempt at digital transformation. In 2014 the venerable, 125-year-old company embarked on a company-wide effort of transformation. Focusing primarily on redeveloping itself as a technology company, the organization has invested billions to shift the company and its three hundred thousand employees into the digital future. GE Digital, the internal group that was given the mandate of making a profit and even started selling its services as transformation consultants to outside businesses. In the fall of 2017, Harvard Business Review published an article by then CEO Jeff Immelt entitled, “How I Remade GE.” Promising to take readers “inside GE’s transformation,” Immelt outlined the massive undertaking, touting how he had learned “to lead a giant organization through massive changes.”[5]
 
The results of GE’s transformation efforts, however, have been anything but spectacular. During the time of Immelt’s transformation efforts, the company fell from number nine on the Fortune 500 list in 2014 to number eighteen in 2017. Earnings per share and dividends have dropped, and the company increased its debt by almost $80 billion. With this rapid decline, the company fallout was widespread, with the CEO, the CFO, the head of the largest business unit, and half of the board exiting within ten months. In late 2017, the company announced a layoff of more than twelve thousand employees. In 2018, Fortune published an article on GE’s drop entitled, “What the Hell Happened at GE?” in which it stated, “few corporate meltdowns have been as swift and dramatic as General Electric’s over the past eighteen months”[6]
 
Atop it all, the result for GE has been a huge decline in shareholder value. At the time GE announced their initial transformation plans in 2013, GE’s share price hovered over $27 per share. Today the stock is down to $7.28 per share.  That equates to a loss of $180 billion in GE’s market capitalization in four years.
 
Unfortunately, the story of GE’s decline is not different from that of many other companies. In fact, it is reflective of the fate of many companies in positions similar to GE’s. 
 
Much of this poor performance at transformation can be chalked up to basic issues with change management and the cultural resistance to change.  Change management guru John Kotter has found similar failure rates among businesses he’s studied over the last four decades.  In other words, it’s not just about digital transformation.  We are just really bad at change.
 
Why do organizations continue to persist in their transformation efforts, despite these seemingly unbeatable odds?  The answer is because they have no choice.  The promise of digital transformation is too alluring, and the threat if they don’t is even higher. 
 
A recent survey of more than 2,000 CEOs and senior executives by global search and advisory firm Russell Reynolds, found that more than 50% of executives expected to face moderate to massive disruptions in the next year from digital technologies in the following industries: media, telecom, financial services, retail, technology, consumer products, education, non-profits, insurance, education, and professional services. 
 
So, the question is, what can companies do to improve their odds of transformation success?  To start, before even getting into the management, leadership, skills gap, and cultural issues with transformation, and they need to recognize two key problems.
 
The first problem is that, despite best branding efforts, transformation has largely become a codeword for improving operational efficiencies.  In fact, by a factor of more than two to one, organizations cite operational efficiencies as the main goal of digital transformation.  Improvement of customer experience is a distant, very distant third goal. 
 
This is largely supported by big consulting firms who often describe transformation in terms of financial performance, calling transformation any effort that produces an earnings improvement by 25% or more.  They often delineate between “Big T” “full potential” transformation and “Little t” transformation, focused on financial gains.  They advocate the former, while helping mainly with the latter.  This is ironic as a recent study by Bain found that digital transformation efforts only fully reached or exceeded their expected results five percent of the time, and in a full 75 percent of the time they actually diluted performance and achieved mediocre results.[7] 
 
Operational transformation is largely driven with shareholders, not consumers in mind.  It takes a cost accounting view of looking for improvements in company performance, not customer outcomes.  And that means that others who seek better customer outcomes will eventually win.
 
The second problem is that most transformation efforts would fail to pass the test of long-term strategic advantage.  A simple VRIO test: Is it Valuable, Is it Rare? Is it Inimitable (i.e. hard to copy), Is it Operational?, would indicate that few of today’s transformation efforts would pass the test for adding long-term sustainable value to an organization. 
 
While investment in digital transformation is the theme of the day, these efforts alone often go toward strategies that can be copied, internal processes that are replicated, and new technology that can be similarly acquired or developed, providing, at best, a transitory advantage. If every other organization in your industry has access to the same consultants, open source code, cloud computing partners, outsourcing partners, machine learning engines and algorithms, and so forth, is there a long-term advantage?
 
In fact, by the last standard of whether it creates long-term advantage, we might question how much, in the long run, the 30% success rate actually is a success. 
 
In my next post, we’ll discuss the four major pitfalls of transformation that are the cause of these two problems and how companies can avoid them to create transformative outcomes with a higher probability of success and long-term advantage.
 
William Kilmer is an executive, founder, venture investor and author of the upcoming book, The Transformative Playbook, which will be published in 2019​


[1] Digital transformation top priority for CEOs, says new BT and EIU research, 12 September 2017

[2] Worldwide Semi-annual Digital Transformation Spending Guide, International Data Corp (IDC), 15 December, 2017

[3] How to beat the transformation odds, David Jacquemont et al., McKinsey Global Survey 2015.

[4] Why 84 percent Of Companies Fail At Digital Transformation, Bruce Rogers, Forbes, 7 January 2016

[5] How I Remade GE, Harvard Business Review, Jeffrey Immelt, September-October 2017.

[6] What the Hell Happened at GE?, Geoff Colvin, Fortune Magazine, 24 May 2018

[7] Orchestrating a Successful Digital Transformation, Bain Briefing, 22 November, 2017.

Nearly every day we hear of yet another company that is engaged in a corporate transformation of some sort. In fact, given the amount of press provided to companies that are transforming themselves from something to something else, you may rightly question a company that is not talking about it. It has reached the point where global consulting firm McKinsey has declared that “Transformation is perhaps the most overused term in business. Often, companies apply it loosely—too loosely—to any form of change, however minor or routine.”

In a recent survey of over 400 CEOs, 40% cited that the digital transformation of their organization was a top priority, and 25% were actively and personally engaged in transforming their organization.[1] It is expected that by 2020 that number will grow to 60% of enterprises worldwide that are in the process of implementing a fully articulated, organization-wide transformation strategy.[2]  

Even with this notable rise of investment in transformation, there is no sign of it ending any time soon. Digital transformation in particular, which focuses on transforming an organization’s operations, products, business model, or sales and marketing through the adoption of digital technologies, has taken the lead in these efforts. International Data Corp (IDC) recently estimated enterprise spending on digital transformation in 2018 at $1.3 trillion. Further, they project that it will reach $2.1 trillion by 2021, an increase of over 60% in just three years.[3] 

What’s driving all this transformation focus? One side is fear. As more companies face the reality of industry change, they are responding to keep up. Recent research has shown that the average lifespan of companies on the Fortune 500 list could be as low as 15 years. At that rate, over 60% of the companies could fall off the list by 2030! 

The other side of the transformation focus is the drive for increased profitability. In a recent study by IDG, the number one reason organizations pursued digital transformation was to increase productivity, followed by improving business performance.[4]

Yesterday’s announcement by General Motors that it would restructure, cutting six relatively successful cars from their lineup, were part of the company’s anticipation of the future of what it means to be an auto manufacturer and to transform themselves accordingly. As part of their announcement, they will be doubling their investment in autonomous and electric vehicles. According to a statement by GM CEO Mary Barra, “The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future. We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”
In other words, GM’s design was to build more corporate agility in anticipation of more change ahead. Transformation will continue to become more and more a part of our vocabulary because markets will continue to change, and organizations will need to change with it. In other words, transformation is the new normal.

Yet, despite the need, the focus, and the trillions of dollars spent on transformation, the data tell us that its often done poorly. Both McKinsey and Harvard Business School professor John Kotter have found that 70% of transformation projects fail. A recent study by Bain was more dire: digital transformation efforts only fully reached or exceeded their expected results 5% (that’s right: 5%!) of the time, and in a full 75% of the time they actually diluted performance and achieved mediocre results.[5]  

That data should raise the question of how companies can execute well at transformation? What works? When and how is transformation successful? And importantly, if tranformation was once in a lifetime, now moving to once in a decade event, how can a company build any competency in doing it? Without knowing the answers, we largely go on spending on deeply complex projects, adopting new “disruptive” digital technologies, without reaching what should be our ultimate goal: to create true value for our customers and develop lasting, sustainable advantage for our organizations. 

For a few years I have been researching what makes great, transformative companies successful. The answers are at once straight-forward and achievable. For example, one of the biggest factors is that truly successful transformation efforts focus first and foremost on creating new and valuable customer outcomes. Probably not surprising. Yet, less than 50% of organizations even list improving the customer experience as a transformation objective.[6] 

If we want our organizations to be better, we have to get better at transformation. That includes not just anticipating and responding to change but enacting it ourselves. Proactive transformation that includes significantly better customer outcomes, not reactionary change, is what will create the best opportunities. 

In 2019, I’ll publish a new book, The Transformative Playbook, an overview of some of the most innovative organizations that have used change to their advantage. Starting in December, I’ll be posting some of the thoughts and highlights I’ve gleaned my research and experience of more than 20 years working on company transformation. I hope you enjoy the research and insights and share some of your own on what’s working.  
​
William Kilmer is an executive, founder, venture investor and author of the upcoming book, The Transformative Playbook.
​
[1] Digital transformation top priority for CEOs, says new BT and EIU research, 12 September 2017
[2] IDC FutureScape: Worldwide Digital Transformation 2018 Predictions,
[3] Worldwide Semi-annual Digital Transformation Spending Guide, International Data Corp (IDC), 15 December, 2017
[4] 2018 State of Digital Business Transformation, IDG Study
[5] Orchestrating a Successful Digital Transformation, Bain Briefing, 22 November, 2017.
[6] 2018 State of Digital Business Transformation, IDG Study

Recent research is throwing fuel on the fire that founders make bad CEOs. However, that conclusion is a deductive fallacy with exceptions that are truly exceptional.  
The original research from academics at Duke, Vanderbilt, and Harvard asked the question if founding CEOs make good managers. That question is much different from whether or not they make the best CEOs.

Most already know intuitively that founding CEOs are bad managers. There are exemptions. Having worked at Intel at the end of the Andy Grove era, I have seen one of them. Grove was part of the original traitorous trio that left Fairchild Semiconductor to found Intel. He was not only a great technical visionary, he helped create one of the best corporate management environments of all time.
Being a great manager isn’t the purpose of most founding CEOs. However, taking the data that was published, the media portrays founders as the worst CEOs. They aren’t. They are often simply bad managers. 

Looking at the largest software companies, those that have gone public and achieved more than $4 billion in revenue, it is evident that founding CEOs are still very much in favor. These companies, which include core software (Microsoft, Oracle, SAP, Symantec, CA, Intuit), Internet/cloud (Salesforce, Facebook, Google), eCommerce (Amazon, eBay, Alibaba), and entertainment (EA, Tencent, Netflix) companies, and one catch all (Apple—yes I count them as a software company), demonstrate first and foremost that founding CEOs are generally around for a very long time. 

In fact, the founding CEOs of these companies were around for an average of 15 years, and many of them are still in charge. Of the 19 companies, all but two led the company through their IPO, and one (Pierre Omidyar of eBay) changed out that same year. In addition, the average time they stayed on as CEO after their IPO was another ten years.

The exceptions to this longevity are mostly few and orderly, Omidyar hired Meg Whitman as his replacement six months before IPO. Larry Page stepped aside as Google CEO for ten years, handing over the reins to Eric Schmidt before taking them back in 2011. At Symantec Gary Hendrix stepped down after two years through an acquisition a full five years before IPO, and stayed on in the company in a lesser role.

So, if founders are such bad CEOs, why do they stay around so long at the most successful software companies of all time? Because they are the technical founders and visionaries. It’s no mistake that 13 of the 19 founders have a technical background. More importantly, each of the companies was foundational in its field, and the CEO at the helm was the driving force of creating something new. They were the right visionaries to pull it off. 

Can you imagine where Google would have been with its visionary founding leadership? What would Facebook be today if Mark Zuckerberg had stepped down? You might get a glimpse by looking at the worst exception of the group: Steve Jobs. His infamously bad management was replaced with John Skully, a consummate management professional. However, the years of professional management for Apple after Jobs were the worst in the company’s history: John Skully, Michael Spindler, and Gil Amelio were brought in as great managers and left as terrible Apple CEOs.

On the flip side, you’ll also find that many of these great companies have had the support along the way to create great management underneath. Bill Gates was balanced by Steve Ballmer’s sales leadership, Steve Jobs version 2 was counterbalanced by Tim Cook (where were you in 1983, Tim?), and Mark Zuckerberg has surrounded himself with great advisors, and great managers including Sheryl Sandberg. The right CEOs know or realize what they can do and find support from others for what they can’t or don’t want to do.

So does every founder have it in them to be a great CEO? No. In fact, some should never be CEO. I’ve worked for, with, replaced, and invested in CEOs that were bad managers. Many of them were successful with good management around them. That they stay in place without the right management support is often the fault of the board and investors. Those that are the worst suffer from the king vs. rich dilemma and they should be avoided or removed because they won’t step aside. Yes, there are stories. Bad stories.

Many others do not need to stay as technical visionaries, especially when the original technical vision adapts dramatically over time. Rigidity and inflexibility are company killers as much as bad management skills. But the fact that a founder shouldn’t manage is different from the founder being the CEO. Most founding CEOs are not there to be great managers. Helping them to realize that and compensate for it early on will make things go a lot smoother.

The end of the cult of the founder may be near because it should never have existed in the first place. The realization that being the founding technical visionary is different from managing, and doing something about it is something everyone should embrace. If a founding CEO isn't willing to accept it, that may tell you much about them and even more about how successful their company won't be.

IKEA’s acquisition this month of TaskRabbit, the gig economy company is just one more proof that smart companies are increasingly competing on convenience. 

Some see the acquisition as a way to overcome the annoyance assembling furniture from IKEA, allowing consumers to hire TaskRabbit assemblers to put together IKEA pieces in your home. It actually portends a bigger opportunity for IKEA in taking the retail giant outside of the brick and mortar building and into the home not only for assembly, but for other tasks as well. In short, it enables IKEA to support the growing trend of providing convenience as a competitive differentiation.

Convenience is an important movement today that is showing up as the inflection point of innovation in many areas, such voice assistants on your phone and within the home from Amazon Apple, and Google, as well as Amazon’s move to purchase Whole Foods, their Prime Now two-hour deliver service. Convenience has become a point of competition and a potentially lucrative one as well.

The Attraction of Convenience

Convenience has become attractive because it requires less of two things that we value highly: time and effort, and has the ever addicting benefit of immediacy. 

It’s not that we don’t have enough time. Despite our continual complaints to the contrary, our time spent working has been dropping steadily and our leisure time has grown. But for many, as their pay goes up, the value of their time rises as well. People simply value their time more because it has the potential to earn more money. And specifically for Millennials, convenience has been commonplace in the world they have grown up in. They often make choices based on convenience because they choose to spend their time on other things, including being online, and because they are accustomed to immediacy. The Netflix generation has given everyone an expectation that the entire season, series, and catalog should be available right now.

The New Basis of Competition

There is no doubt that convenience has been a consumer focus since before the rise of fast food and home appliances. But Convenience has become the new basis of competition, the differentiating benefit to the customer, for nearly every company. It is one of the main reasons for Redbox’s meteoric success: they carved out a space for their kiosks by creating availability at the intersection of the right place at the right time to make DVD rental convenient and replaced a much less convenient solution from Blockbuster. As Mitch Lowe, Redbox’s President noted, “Two-thirds of all films for rental are selected between 4 and 9 in the evening.” As it so happens, that is right around dinner time for most of us. So, Redbox’s bright red DVD machines are at all the places you might stop for dinner or on your way home: grocery stores, fast food restaurants, and convenience stores. It’s a great two-dimensional play that has been successful. 

Walmart and Amazon increasingly intense battle over retail commerce, it driving both companies to innovate around the convenience of shopping. For Walmart this includes, mobile ordering with curbside pickup or giant Pickup Towers at the front of the store to speed up purchasing by letting Walmart workers do the shopping for you. With the new Walmart August service, it may mean Walmart delivery people actually stocking your shelf instead of theirs.

The use of data analytics and algorithms is already changing the face of convenience as well. Uber and Lyft are have become more popular because they take advantage of algorithms to create a fluid pool of drivers when and where they are needed making them more accessible immediately. Eventually the battle for transportation will be won or lost on the convenience of getting you from point A to point B.
The drive for convenience can and needs happen through all stages of the customer journey. Recently, Walmart has launched a test of 30-second customer returns of online purchases using a mobile device. This follows pioneers such as Zappos who delivers on a promise of rapid and unquestioning shoe returns, a far cry from companies that have traditionally buried customer service, cancellation and return options deep in their website.  

At the other end of the spectrum, predictions are that by 2020, 80% of the buying process for customers will be complete before they ever speak with a sales rep. Companies that win will better manager the buyers journey from the beginning to end, including making it more convenient for the customer to find information about them and make their purchase decision. 

Convenience is also one of the most effective ways for companies to enter a market. It was why a startup like Netflix 1.0 (the DVD by mail company) could so effectively take on Blockbuster. It’s also why Google will undoubtedly make inroads in the job search market. The search giant is now providing an AI-based search capability that makes job searches much easier. There is no longer a need to go to multiple job boards when you can now simply search “Software developer, San Francisco,” and get back results.

Does Convenience Add Value?

In 1997 Amazon applied for a patent innocuously named, “Method and System for Placing a Purchase Order Via a Communications Network. The patent, which was granted in 1999, was for one very convenient action: purchasing online with just click.

Despite efforts to reverse it, Amazon retained the patent until it in September 2017. However, before expiration, the patent clearly covered an advantage that Amazon held for years in simplifying the online purchasing process for its customers and preventing others from doing so. How much was that advantage worth? One online estimate put the value to Amazon at over $2 billion in additional sales for one year alone. In addition, it was valuable enough that Barnes and Noble paid a settlement for infringement and Apple paid to license it.

How to Win on Convenience

Customers want convenience. How can companies best deliver it? Here are a few suggestions to get started:

Look to simplify.  Although some consumers claim they want an abundance of features, most would trade off for simplicity. No matter how complex your product, look to present simplicity. The year before Apple launched the iPhone, Nokia had launched 39 new models. Apple won the market with one. Netflix has built an incredibly complex system to present you with the right selection out of more than 13,000 content options to help you choose what to watch in 60 seconds or less.

Take an empathetic view. Anyone who can look back at their pre-Lyft taxi hailing experience can easily see why Lyft and Uber is a superior service, but can we see the issues in our own product or service? It takes scrutiny and empathy to take a close look at how your customer learns about, buys, uses, and disposes of your product or service. But as you look close enough, and you will find ways to make it more convenient for them.

Look at all points on the customer journey.  Convenience doesn’t start or end with the product or service, so look at every touch point from beginning to the end of your customers’ journey. Walmart, for example, now includes an aisle indicator in its mobile app, telling you exactly which aisle you can pick up a product in the store, facilitating access and purchase. 

Simplify your messaging.  Continually refine and reduce your product positioning to focus on the key benefits of your product or service, and what key items differentiate you. When you think about the reasons you purchase one product over another, there is usually one thing, possibly two that stand out. Focus on those in your own messaging to help potential customers pick you out of convenience.
Competing on convenience requires making choices to optimize availability and access. With a sense of customer empathy and some constructive dissatisfaction any company can improve on it and compete on convenience.
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I'd love to hear your thoughts on how you are using convenience to your advantage.
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There is much that could be discussed about the demise of Juicero, the Silicon Valley company that raised nearly $120 million to develop a $799 (cut to $399) home juicer, which announced that it was shutting down this week.
I don’t know the all the details of the product or the company, but here is a quick overview:

• Even at $399, for a special-purpose appliance, it was expensive
•  The product was loaded with features like wireless connectivity, a built in scanner, and enough smarts to require a microprocessor
• It required packets to make the juice that cost $5-$7 each (In the range of what I can pay at my local pressed juice shop)
• The product produced enough force to lift two Teslas, but it’s not needed because…
• According to Bloomberg’s report in April, you could squeeze the packets by handwith the same results
• The product is over 400 custom made parts

You could spend all day discussing the issues with the product, the way it was conceptualized, designed, built, or even if it was necessary. Then, there is the business model. Was this a wannabe Keurig model in search of a customer? 

Whenever I come across a product like this, it is a reminder that it’s too easy to get stuck focusing on methods (product features) instead of customer outcome.
Really, all I want is a juice. 

At the end of the day, I just want a fresh juice for maybe two or three outcomes. I want it because it contributes to my well-being and makes me feel healthy. That has value to me. Sometimes, visiting a juice bar is a good alternative to meeting someone at Starbucks. That’s a different outcome, with more value, and I am willing to pay more for it. 

We often obsess about product and features, but the reality is that focusing on customer outcomes give us a better perspective on how to maximize value. It may be apparent to others why someone needs Internet connectivity for their juicer. But if it doesn’t enhance the outcome, it’s not only unnecessary, it carries negative value and is a distraction. 

Product and services outcomes are best viewed through the dual lenses of the customer value, the benefits of the offering less the total cost, and customer experience, which looks at the end-to-end journey of the customer’s interaction with your full offering (company included). Getting to optimize optimize customer value and experience are those that really understand the "Why"--the reason customers buy the products.

Great companies get the customer value-experience right from the beginning by discovering the "Why." and building their offering around it.  Ten years ago, when the iPhone was announced by Steve Jobs, he announced that it would be three things: a media player, a phone, and an Internet communications device. Every feature he spoke about that day supported one of those three value components: media player, phone, Internet communications that resonated with they "Why."

Focusing on customer value and customer experience lines up everything else to support those few anchor values and those few customer touch points that make the all the difference. That’s why Apple was so successful with the iPhone; it did those few high-value items right, with layers of underlying advantage. That’s why Zappos was so spot on—those few customer experience touch points that are so critical are done so well.

Truly transformative companies search out and find gaps in value or problems customers are experiencing and reinvent the way a product or service is offered that significantly increases the customer experience by manner the product or service is acquired, consumed, or used. This often involves solving significant problems with current products/services or adding value which tips the balance in their favor. They begin by looking for ideal outcomes and finding frustrations, gaps, value loss, and accepted practices that are no longer viable or helpful. From there they narrow in on developing a product or service that is superior to existing offerings. It also often results in a solution that is democratized: more available, accessible, and simpler. Rather than overloading their offering, they focus on the right balance of capabilities to optimize customer value.  That is when transformation happens.

Alternatively, when companies get caught on features rather than outcomes, we they loading things in with the idea that more is better when the reality is, less is more. Too many features are worse than not enough, if what’s included is of real value. Wireless connectivity and Tesla-lifting force did not make Juicero any cheaper or its juice any better. Great outcomes require just the right amount of features, and no more.

The results of focusing on the right outcome can prevent a multitude of disasters. In the case of pressed juice, the simple test of comparing outcomes would give an early indication of value of Juicero. To achieve the same outcome, I can visit my local pressed juice shop and purchase a fresh juice for $6, or have Doordash deliver five bottles of pressed juice for $6.45 each.  In reality, Juicero may have been more successful at selling juice packets that could be squeezed out by hand or with a low-cost manual machine instead of creating a high-tech marvel, and created a larger market opportunity. 
Focusing on creating the best customer outcome and understanding the "Why" will always result in getting your organization closer to the right product or service. What techniques have you used to optimize customer value and prevent feature overload? 
Feel free to comment below.