Craig Miller, Managing Partner, M5 Alliance and DIA Equity

Video transcript

Marcelo De Santis: Hello, everyone, and welcome to today's episode of HITEC Tansform.ed series, sponsored by ThoughtWorks. My name is Marcelo De Santis. I'm the Chief Digital Officer of ThoughtWorks for North America, and I will be your moderator today. Both HITEC and ThoughtWorks believe that knowledge should be shared openly. We have designed this series to provide you with the opportunity to learn directly from C-level executives, about their personal experience in leading transformations in their organizations.

For today's interview, it's my pleasure and privilege to introduce Craig Miller, Managing Partner in M5 Alliance and DIA Equity. He specializes in digital growth strategies, investments, board advisement, consulting, and interim C-level assignments. He's also former Chief Digital and Information Officer of Planet Fitness and Sonic, and a well remember client of ThoughtWorks. Craig, welcome. Thanks for making the time to be with us.

Craig Miller: Thank you, Marcelo. It's a pleasure to be here.

Marcelo: Excellent. Let's dive in with the first question. Let's start to explore the transformation you have been leading at Sonic and Planet Fitness. Tell us about it. What are the business outcomes you were going after?

Craig: Yes, happy to. I'll probably bounce back and forth, but there's a lot of consistency, even though they're two different businesses. I start always, in all cases from what are the strategic sales and profitability strategies, because that you can ladder into that for every company. Now, in the case of Sonic, their sales are driven predominantly around check traffic, and frequency. We begin to model our objectives in our digital transformations for how do we leverage digital to drive top-line growth in terms of that traffic, check, and frequency. Then we look at our bottom-line drivers, which in the restaurant business is really centered around labor and food costs, and operational efficiency. We anchor to those objectives.

In the case of Planet Fitness as an example, completely different business, but still sales and profit. Both have P&Ls. In the case of Planet Fitness, a recurring revenue model, and those key objectives are around acquisition and around rate, which is the average as a couple of different memberships and retention. We anchor to those metrics and how do we use digital transformation to drive those. From a profitability perspective, again, operational efficiency-type metrics. That becomes the model and those were the two starting places for Sonic and for Planet Fitness.

Marcelo: Excellent. Were there any specific metrics, Craig, that were about customer satisfaction or anything like that, that you were measuring?

Craig: Absolutely. As a secondary to our traffic and our check and frequency, underneath that, we looked at customer satisfaction because that becomes a leading indicator of whether they're going to come to the restaurant or whether they're going to acquire membership from Planet Fitness. That becomes extremely important. I will tell you, we start with more survey-oriented customer satisfaction, but what becomes even more valuable is, we track behaviors, and we see where in the journey they're satisfied and where they're not. We get down to the level of the entire engagement cycle, where we tend to delight and where we don't.

Marcelo: Excellent. That's pretty sophisticated CX strategy and execution. Congratulations, Craig. Tell us a bit about your career. Before you got into these executive roles at Sonic and Planet Fitness, how the early experiences in your career prepare you for those roles?

Craig: My academic background is computer engineering, but my undergraduate and graduate work I worked as a software engineer and an architect. Initially, always want to started my own company though, so partnered with someone to start a software development and consulting practice. This would have been back in the early '90s, late '80s, early '90s, and had the opportunity to go in and out of a lot of different businesses and industries initially to fix broken problems. We'd come in and fix broken problems, and then get on a path.

I started my career as a technical expert looking at broken technical situations, began to learn the business aspects, how it broke the business, or how it enabled the business. Then we saw patterns of how different situations in different companies or industries were broken and we created this methodology, we could almost go into any industry, because there were very common patterns of why things were broken. As the years went on, we were able to get into these companies and more quickly figure out what was broken, and then how to resolve.

Then you fast forward, and I was becoming more of a business specialist in the second half of the year, because I had to understand how the technology could or couldn't drive the business, or how it became a liability to the business. My lens flipped and while I was still a technical expert, I began to really work with my business counterparts and leads to understand the business, figure out what was important, and then determine how technology could either enable or disable certain things. The second half of my career, I would say, I became more of a business leader who specialized in technology, and then that really positioned me for the C-suite, and to really partner at the table in a very strategic way.

Marcelo: Excellent. That's a very interesting journey, and amazing transition from being a pure technologist to a business executive with strong backgrounds dealing in technology. There are a couple of terms that I always I’m amazed about the different definitions I get when I ask this question. People talk about digital transformation, people talk about the technology revolution. Again, many, many different definitions. How would you define those two terms? What do they mean for you or for your previous experiences in Planet Fitness and Sonic?

Craig: For sure, I'm going to love to answer it because I'm passionate about these definitions, because I think you never get consistency and I believe they're a bit overused sometimes, and no one really understands. Everyone has a different definition. I will tell you, I'll start with the technology revolution, with digital revolution. We've seen this written all over in terms of the fourth industrial revolution. If you look at the last 200 years of the Industrial Revolution, we're in a place in this fourth generation where technology has become such a big part of the economy, of our businesses.

If you look, there really has been a pattern, I've studied the pattern. Back in the '70s, computers were just big, massive computer in the back room for finance and HR. Then as the '80s came, and the advent of the PC, and everyone having a computer on their desk, all of a sudden computer technology moved from back office to now front office. Then with the advent 10 years later of a laptop, now, all of a sudden, it's such a shift now from front office to the field. Then of course, as we got into the new millennium, and you had the advent of web and mobile, now you're shifting into the hands of consumers.

There is this pattern and shift, and you could see it pervade its way through the business model to now it is in the hands of the consumers. It really is evolutionary, not revolutionary. What's revolutionary is how through the last 40, 50 years, how the technology is being applied to solving business problems. That becomes the revolutionary piece. The technology really quite as evolutionary, I would tell you today I did my thesis for my master's in artificial intelligence. That was in 1988 and '89. When you talk to people today, it sounds like artificial intelligence is a new emerging technology. It really isn't.

There is a long lead time and a tail and then all of a sudden-- You can almost predict the cycles of how technology is going to evolve in the early stages and when it becomes important for business. That's technology, it's not to me revolution, it's more evolutionary. In terms of the digital transformation, the first thing I'd say digital transformation is a paradox. It's not a technology transformation, it's really the business transformation. While the technology has evolved, what becomes transformative is how it's applied to solve business problems and grow and drive business results.

It's one of the first things I do when I either consult or advise or even work at companies is the first thing we have to do is, let's stop looking at this as a technology strategy. It is a business strategy that leverages technology. The transformation is really about the business, not the technology.

Marcelo: Excellent concept. We are seeing more and more decisions about these kinds of transformations are in many cases owned directly by the CEO or a sponsor, at least, but the CEO for organization because of what you just said. It's a very pervasive transformation across the business.

Craig: That's exactly right.

Marcelo: Since we are talking about that, I'm curious, specifically what you say it's a business transformation. It's less about technology more about other things. What's your take around the impact of these kinds of transformations in the organizational structure, in people talent, in the business processes of organization? How do you see those dimensions of change being affected by a transformation of this size?

Craig: Yes, very much so. I've broken the transformation to three stages. The first stage is what I call the digitization and that's really the technical infrastructure and the plumbing, which is the foundation. That will require different talents on the technology team to embrace. It's quite frankly how years ago I partnered with ThoughtWorks is I typically went into a company, they really didn't have the talent technically to build the foundation on the technical infrastructure, and so I leveraged ThoughtWorks as my partner in a lot of different scenarios.

The second phase is then operationalizing it and this is where it really impacts organizational process and practice across the organization. Every aspect of the company's practices will be impacted in some way, predominantly marketing and operations but even finance and legal, there are impacts. It really is, and there was a book written years ago Digital to the Core. You really have to think through organizationally. Not that you're becoming a digital company, but digital becomes a very critical part of how we're going to run the business.

What processes have to change? How does the organization have to change inorder to support those processes and how do we rethink what we do? One of the biggest impacts is marketing. Digital marketing is very different than traditional marketing. It’s still the fundamentals are the same it's about reaching your prospects and consumers. It's about engaging with them, but very different tactics and using very different tools. Not unlike a carpenter who learned how to use a hammer and now they have a power nail gun. It's very different in how they achieve-

Marcelo: Nice analogy, by the way.

Craig: -what they achieve, and operations is the same. A great example like in the Sonic world, we knew that food and paper costs was a primary driver of costs, and by lowering that we improved our margins and our profitability. We implemented these tools in the restaurants' inventory tools. Now, these are restaurant operators that were used to doing inventories on paper and they had a very intuitive gut for what they needed to order. A lot of them didn't want to embrace it, because, "Why do I take time to do this, I just do inventory once a week, I don't have to do it every day." We had to convince them to change their behavior and that while they'll invest a little more time, change the way they were doing inventory, use this tool.

We made a bet, "If we do not drive your food and paper costs down by a percentage and a half within the next six months then we'll take them out of your restaurants.” When we had a core group of operators, when we got them comfortable to use it and we achieved more than the 1.5% then all of a sudden, they all bought in. They had to change the process and their behavior, so those are a couple of examples of how operationally. The third tier is commercializing, and commercializing is well now that you've built the plumbing and the infrastructure, now that you've changed some of your practices to take advantage of these new tools, how do I now start to drive the metrics of my business?

How do I commercialize it? How do I drive traffic and check? How do I drive acquisition and retention? That's the third and final phase which is how you really achieve the ultimate goal is commercializing the new tools, the new way of operating and now you're driving the sales and profit at the top of the house.

Marcelo: Excellent. Let me double click on the organizational structure for a second. We typically know in the role you have in Sonic and Planet Fitness you may be exposed to interact with the C-suite. I'm sure you also had to present and convene and influence the board of directors in many aspects, right? We know boards have the remit to look after business strategy among many other things. What's your point of view on the role that technology conversations play at board level? Do you think that we have enough technology representation at board level?

Craig: The quick answer is no, there is a fundamental gap and also even just understanding in language, there's a fundamental gap in language. The good thing is unlike let's say 15 years ago, you no longer have to convince a board that technology plays an important role in the growth and the strategies of the business. You don't have to sell that anymore. The biggest challenge is because just about every company I go in the last probably now 15 years, “Craig, we know technology is going to play a big role in our business strategy and the growth of the company in the future we just don't know what that looks like or how to do it.”

I typically start with why I can paint that picture and I can paint that roadmap for you but understand it's not simply just buying and installing tools. It goes into the operational piece. It goes into commercializing, and I said it's going to be a little painful. Harvard studies wrote an article called The Messy Middles where at the beginning of the cycle, the boards and the executives know it's important, it's exciting and of course, they want to see the other side of the cycle all the benefits of it. When you get in the middle it gets messy, because it typically requires change in the way you do things and the way you run the business, and people generally don't like change.

I usually have to put that right up front and you have to have that stomach for it from a board because we may-- Bob Iger, he wrote in his book and Disney did a great job, he told his board there's going to be a period of time where we may even impact our earnings for a couple of years, but we're going to have to go build this other way of distributing content because if we don't do that and we don't have the pain now it is going to damage us in a big way five years from now and then that was the Disney+. You have to tell the board this is what you have to experience and even telling them really you need partners.

To your point you don't have enough representation so you need advocacy, you need to partner typically with your head of operations and your head of marketing at the very least, and really your CFO because the financial aspect of it is different. You need to early on partner so you're not the only on that CIO, CTO, CDO I'm not the only one in there, and of course you want the CEO by your side. Some of the first things I do is because there is a gap, I try to educate my executive peers so I'm not going in there one against the board, we're going in there as a team. That's how I address what is currently a gap. I think boards now are recognizing that and they're bringing on more technical-oriented people on the board. We're seeing that slowly shift, but there's still a gap.

Marcelo: Absolutely. I see that. I see more technologists joining boards, which I'm very proud of saying that. Someone said a few years ago, at the end of the day, every business will become a technology business. It's happening, happening across all industries. Boards should be worried and concerned and busy trying to get technologies at the board level. Absolutely. Completely different question. In HITEC, we advocate for minorities in the technology industry, specifically, Hispanics, what's your take on the importance of diversity in the technology industry?

Craig: Critical. In general, you end up with a better outcome when you have diverse experiences, diverse thinking, diverse backgrounds. Some people get uncomfortable with the debate and the different points of view. You've got to create an environment where you're encouraging that and you're making it okay to debate and disagree. I aspire to and embrace the idea that you can never drive consensus, you have to drive alignment. What that means from my perspective is, when you walk out of the room, not everyone is going to completely agree, but you have to be aligned and stand by it.

Companies that tried to drive consensus, they spend the next six months a year trying to get there, but if you drive alignment, and early on, if you have different points of view from different experiences and different backgrounds, you end up in a much better place, better outcome a lot faster. To me, it's critical that diversity.

Marcelo: Thank you. Great answer and great perspective, I agree with you 100%. Let's go back to you. As a leader, having been in these large companies, super nice businesses, by the way, Sonic and Planet Fitness, when you were embarking in these transformations, you were arriving to the company, maybe your first day was about getting your variance where things are, getting to know the people, but how were the first 90 days? What would you suggest to any person that wants to follow your successful career, what do they need to do in the first 90 days?

Craig: Yes, that's great. The first 90 days, one important part is just listening and learning, but the first 30 days is purely listening and learning. You need to understand where the organization's mindset is at. First of all, you need to understand where the business is at, but you need to understand culturally, emotionally, where their mindset is at, what their goals are because again, as we go back, you have to change behaviors, you have to manage perceptions and expectations. You need to know where your starting point is.

The tech piece is easy, I can go in there in a few weeks and understand where the tech piece is, but you have to listen, you have to start building some relationships, understanding what success is to the key stakeholders, who the key stakeholders are. You have to start building some advocacy. Just about every situation is, again, we know it's an important role, we need to do this digital transformation and technology transformation. We just don't know what that looks like. I'm always striving by the end of the 90 days to have assessed, to have listened, to have learned, and to lay out what that looks like, at least high level.

They have an image and an illustration of what a digital transformation means to their business on three levels; the digitization, the tech piece, the operationalization of it, and the commercialization of it. At least now they have a visual, "Now I get it." That also includes how we have to rethink about the funding because funding will be different, how we have to think about the organization and the staffing. As an example, Planet Fitness, I spent the first 90 days again, working with franchisees, the executives, people in marketing and operations. Here's where we are today from a business perspective. Here's where we want to go.

I came up with a way of what it would cost to fund it. They wanted to roll the funding into their annual budget processes. I said, "Don't do that." I said “I'd rather have it separate actually for the first year.” It's a three-year. I always lay out a three-year roadmap. It's a three-year roadmap. This is what we would've to do for year one, two, and three. Very high level. This is what we could expect from a business perspective at the end of one, at the end of two, at the end of three. Here's what we have to do organizationally. Here's what we would need for funding. I preface it is that as we learn, as we get through the first year, we may have to adjust it, but this gives them some dimensionalization to what a digital transformation would really mean and they agreed.

I started in September. I put the first digital transformation road strategy and roadmap and plan and placed the executive team. We went through our annual process. Then at the end of January, I presented to the board this is what it'll look like. This is what we would need. For the first year, I think it's going to be a $30-$35 million type of investment. At least what I'm seeing right now for the first year, I'd like to get $10 million to at least get us kickstarted. To me, that would tell me you put your money where your mouth is, they agreed to fund it. Within the next 30 days, I picked up the phone to ThoughtWorks.

I say, "Guys, I need to talk to you because I need to bring in some staff to do some of the digitization with me." I met with marketing because the first year there's not going to be a whole lot of business outcome. That's the model I use. I used it as Sonic. I've used it quite frankly everywhere. I used it at Bank of America, I used it at Pepsi. What it does is it really helps you to calibrate and get a common ground. Now, in the Planet example, you roll forward six months, and by our Q3 board meeting, our board had already forgotten that I said there's not going to be any business that-- well, Craig, where are we?

Marcelo: At least happens, right?

Craig: The good thing is I got the business on the path. Then just like you do with Agile development, you have to constantly reiterate. I got the board to understand that when you build a house, you have to build the foundation and the plumbing before you could start painting the rooms and fill it with furniture. They got that and they said, "Craig, we got it but we'd like you to accelerate some of your year three and we're going to challenge the team to get some of the benefits in year two." I said, "Challenge taken." At least you're aligning, but you're at least on the path going forward.

The more points of the checkpoints you have that demonstrate that you build because you have to build value early on. You cannot go three years without any value. All along the way, you have to start showing that this investment is throwing off value. Thankfully, year two, we did throw off some value. In year three, we were ahead of schedule when COVID hit. Thankfully, we actually had the digital platform and capabilities in place when we had to shut our doors. This is the importance of that 90-day and then quarter by quarter and then year by year. Keep it in a three-year initially, show the value that your investment is driving. It's not going to go exactly as planned, but you're going to keep going back and forth with the board and the executive team. That's how you keep the bus moving forward.

Marcelo: Absolutely. Great story and also how you explain, how you navigate all those different turning points, which they're always surprises. As long as you have the ability to adapt and continue as you said moving forward in your trajectory, that's always positive for any business. I'm going to ask you two more questions, I promise. I would like to stay here the whole afternoon. I'm enjoying this more than ever, I think. You talk about digital transformation as being a buzzword or an overused term. You talk about a technology revolution. Let me give you another one to see what you think. Metaverse, what does it mean?

Craig: Yes. For me Metaverse, and then I'm going to roll back. Really Metaverse is just taking the engagement to a more virtual model. It is the next step in how we will drive immersive engagement, Metaverse. Let me give you a history, it goes back to the evolution of innovation and then I want to define innovation. I told you early in my career, I partnered with someone and we built a software development firm and consultancy company. This is about three years in was about the time that web started to evolve and then this was pre-2000. Everyone was wondering, where's this all going to go?

This would have been around the mid-90s, ‘95 or ‘96. There was this notion that-- and this is pre-Amazon, how was the world going to commercialize the internet? Well, until we could truly virtualize the experience commercially, I don't see how it's going to work. There was a group of computer scientists, and I had gotten plugged into them. The notion was that until we go from a 2D web to a 3D experience, that we're never going to commercialize this. This is ‘95, ‘96. They came up with a version of HTML called VRML.

It's a virtual version of HTML, and what it was, and we were building prototypes that you would walk into a virtual mall, and you would see the stores on the left and the right and front of you, and you would walk in, virtually walk in and choose what you wanted to buy and then check it out. This is ‘95, ‘96. Then that was far ahead of where everyone was at the time but those concepts started back then. Then fast forward, ‘97, ‘98, Amazon hits the scene, and then all of a sudden, you got the 2000 bust but you have a bunch of them like Amazon, who break through, and Netflix. All of a sudden, the e-commerce industry and model evolves, but that VRML never went away.

They just said, "You know what, we need to wait until we evolve more because it's way ahead of the time." Now you fast forward 15 years later, oh, I'm sorry, you fast forward five years later, and I'm working with subcontractors for the Air Force and the Navy, doing flight simulation. We are downloading visuals from satellites of places halfway around the world and putting them in 360-degree simulation pods, where we're training our pilots in F-14s, F-18s as though they're actually in the environment.

Now you fast forward 15 years later, you have ubiquitous connectivity. Everyone has connectivity, the cost of connectivity, the cost of software, commercialization on the web now has taken over traditional commercialization in terms of rate of growth. I guess why all of a sudden, this VRML stuff comes back and it's now getting to the point of now starting to get commercialized. The Metaverse is the next level of immersive engagement, where the user and the customer are actually immersed in the experience. It's been around for 30-plus years, but it is now starting to really take off and really become commercialized, and most every company is trying to now figure out what does that mean for me?

Marcelo: Absolutely. There are a lot of different definitions. I am amazed about how many conversations I attend and the different levels of understanding of the concept of Metaverse. Also looks like as you said was not actually invented by Mark Zuckerberg, well was coming from many years ago. It's good to know that. Craig, let's go to the last question. This is maybe a gift from you to the audience. What will be your personal words of wisdom for those that are leading similar transformations to the ones you left in Sonic and Planet Fitness and many other companies or those that are about to start transformation journey like the ones you describe?

Craig: I'll give you a couple. One is fortune favors the prepared. That really is about being a bit ahead of where your customers want to be, and where your business wants to be, not too far ahead like the Metaverse. It's like a surfer. If you take the wave too soon, you're going to crash. If you take it too late, you got to time where your business is, where technology is, and where you’re within striking distance within one to two years of being able to commercialize that in a meaningful way. That's the timing piece. Fortune favors the prepared. The second is that innovation is not a luxury.

Innovation is not just about tech. My definition of innovation is actually not mine. I've read it I think Cotter was the one who I would give credit to but innovation is about unlocking value in new ways. To me technology is an enabler in unlocking value in new ways. It's the change that really drives to the new value. The third is there's no such thing as I would say no such thing as technology strategy. It's a business strategy. Digital is a business strategy. It's about how you harness the data to really drive your top-line growth and bottom-line efficiencies in new ways. You always start with the business, if you start with the technology in my opinion this is why 70% of projects deem to fail.

You always start with the business and the perspective is the technology or the tools to enable the business innovation. Then I'd say probably finally is understand that probably one of the biggest unknown blind spots that really catch people off guard is that no matter what technology you build, however you build it, however great it is no matter what you do, culture can become a derailer. If you do not change the culture in the organization, the mindset the behaviors. It doesn't mean you go away from your core principles. You always stay true to the core principles and the core DNA of your business.

It does require change. It's a cultural impact. Culture is the hardest thing to change. There's been books written around culture eats strategy for breakfast. I completely believe that and embrace that. I've seen it. It's one of the biggest challenges that I have going in to understand and to get buy-in that we are going to have to go through a cultural shift. That doesn't mean lose sight of the core DNA that puts you here. You always protect that. It will require and that's where the messy middles comes in. You have to be able to get your-- and the CEO has to be helping to drive through the messy middles to get to the other side. Those would be the points of advice I'd give.

Marcelo: Thank you, Craig. I'm sure our audience is taking notes as we speak, I hope, and I'm sure those words of wisdom will help them to be more successful in their digital transformation. We have arrived at the end of our interview for today. Craig, thank you very much again for joining us and thank you to our audience for watching this interview. We look forward to connecting with you again for the next episode of HITEC Transform.ed series to hear from other executives on their experiences in leading the transformation of their organizations. Thank you. Take care and stay safe.