Is the Red Queen right about digital?

The ever-changing business landscape reminds me of what Lewis Carroll’s Red Queen says to Alice, “It takes all the running you can do, to keep in the same place.” Today, I see legacy enterprises in a similar state of flux where they are trying to maintain a status quo, while digital is fast becoming the overwhelming norm. This Red Queen Effect highlights the dilemma of any large enterprise that’s trying to differentiate itself in the digital age.

Why is going digital not as easy as you thought it is?

Digital transformation is leveraging digital technology for all aspects of a business, from hiring to sales. Done right, it often implies an operational and cultural shift with the aim of accelerating, expanding and improving business processes.

Enterprises that weren’t prepared for this rapidly paced transformation are playing catch-up. I believe they weren't prepared because their leaders have been looking at industry trend reports like one would look at fashion magazines. While climbing atop the digital transformation wagon, leaders have been basing key decisions on popular trends, rather than analyzing the context of success for any given trend.

With most business leaders feeling pressured into taking the fastest (and most generic) way out of digital obscurity, this four-pronged approach, that also takes inspiration from a first of its kind report by Thoughtworks,‘The Next Big Disruption: Courageous Executives,' can help leaders draw their very own and very specific digital transformation journey.

Only customer experience matters

There is a visible difference in how legacy enterprises (that I’d like to call, Digital Immigrants) and younger companies, built with digital technology at their core (or Digital Natives) are responding to market changes.

Digital natives like Amazon and Uber, are more tuned in to the nuances of user behavior and are able to leverage sophisticated technology to drastically improve user experiences. Digital immigrants, although disadvantaged on the tech-front, have their own unique strengths in the form of physical assets and data amongst others.

Experian, a consumer credit reporting agency and a digital immigrant revolutionized the credit rating industry when it shifted focus from data reporting to data analysis. They replaced cumbersome phone calls and paperwork with automated credit data and turned their data warehouses into data labs. Today they’re building data models to analyze social media activity along with geographic and industry factors to calculate credit risk.

Customers are not really concerned about which business is using the latest technology. It’s more important for them to make maximum use of the business’ unique services/products. In that sense, failure at digital transformation is owing to the organization’s inertia in improving customer experiences, rather than shifting its technology paradigm.

Apart from being customer-centric, digital organizations should also be built for scale because growth comes with scale. Customer-centric social networking companies while focusing on adding billions of users, continue to orchestrate ‘moments of delight’ for every current user. Meaning, as scale grew, so did the algorithms that give customers what they are looking for on social networking platform. Booking.com, for example, has redefined reservations of accommodation by focusing on both, the supply and demand. For hotels, an agency model is adopted with flat commissions. And, for consumers, it's about frictionless digital experiences - free cancellations, an unparalleled selection from across the globe and more importantly instant confirmation. In fact, Priceline's acquisition of Booking.com is one of the greatest acquisitions in online travel history, and probably among the top three in Internet history in terms of annualized return.

Products are created. Markets evolve.

Certain disruptions may seem sudden, but the truth is that they’ve been a long time in the making. Take for instance Uber; it wasn’t the first taxi-hailing service to be introduced to the world. In 2008, Taxi Magic had seen the light of day long before Uber’s market entry.

Taxi Magic was a premature service because users were still unaccustomed to mobile apps. Add to this, the lack of widespread adoption of smartphones, unpreparedness to leverage the sharing economy, deep operational challenges like poor understanding of user experience or lack of a driver-side app. And, last but not least, the lack of courageous leadership and deep pockets that are very important to market category leadership.

When indulging in futuristic thinking, leaders need to keep the limitations imposed by the market, in mind. In startup parlance, this is called the ‘Product-Market-Fit.’

Your obvious question - How does the business know when customers are primed for the latest innovation? I’d recommend business leaders ask themselves or their innovation teams three questions. One - is our product or service removing evident friction in the customer’s journey? Two - are we giving customers a new, more effective way to fulfill a need? Three - have we timed it right?

Your culture is as unique as DNA

A McKinsey study finds that 25% of companies fail at digital transformation because their organizational culture is averse to risk-taking. Also, important is that culture is like DNA and is unique to each organization. No amount of copy-paste from successful organizations can benefit an organization that does not develop and nurture its own cultural DNA.

Every leader would look at herself and say I am courageous, and risk taker but the outcome and their behavior would suggest otherwise. One way to identify few traits would be the oft-quoted Peter Drucker’s comment - If you want something new, you have to stop doing something old.

I love the classic example of Intel. A company that should have been eclipsed by an upstart competitor with a better mousetrap. Intel’s success should never have happened–it was an anomaly, an outlier, a freak. It was the company's CEO, Dr. Andrew S. Grove's singular ability to inhabit both roles at once–subject and object, actor and audience, master and student–that set him and Intel apart. This example is significant of how leaders need to revolutionize the way they look at change (evolution). 

According to a Mashable article, “Amazon knows that optimization is neither a tactic nor a project but rather a competitive advantage woven into the heartbeat of their business. According to shareholder letters, the company runs over 1,900 experiments each year.” This makes Amazon a learning organization.

Leadership is about disruption

Over the last few years, we are seeing more Chief Digital Officers being appointed, than ever before. Businesses realize that digital leadership transcends hierarchy, because transformation is exhaustive and pulls into review, every aspect of the business.

Nvidia, digital native and of mobile and gaming chips fame, while an overnight success, was also 24 years in the making. Its founder and CEO, Jen-Hsun-Huang steered the organization with resources, time and of course millions of dollars in turning graphics processing units, GPUs into mainstream computing power. This was even before the likes of Intel woke up to the reality of desktop processors waning in its usage, due to the proliferation of chips and higher computing power in mobiles, sensors, and non-desktop based devices.

According to the Courageous Executives report, to keep pace and anticipate future technology shifts, leadership conducts research, analyzes their competitors, troubleshoots tech challenges and hires subject matter experts. Which means enablers of tech should work closely with digital leaders of large enterprises because they understand that apart from technical expertise, people, culture, and leadership play a highly critical role in making enterprises, digital. Which means, we can prove the Red Queen wrong.