We were only designed to go one way; now we're trying to design to go both ways.
That’s the assessment offered by Geoffrey Moore, author of the seminal business tome Crossing the Chasm when asked about the importance of the connected enterprise at this week’s conXion 2021 conference. That such a connected enterprise matters is not in doubt, he said, but while there have long been efforts at connection, there have been some underlying false premises to contend with:
We spent time connecting ourselves and then we connected to our supply chain. We were looking from the product toward the customer. But as we got closer and closer to the customers, who are actually less and less connected, we had partners in the way, we had distribution channels and we never really saw the end user. We might have seen the buyer, but by the time it got to the end user, it was in the customer’s domain and we lost visibility. With this new world, with cloud computing and mobile computing and Internet of Things, we can now get signals all the way from the actual operation of the things that we sell and deliver to our customers and bring them back. That means we have to re-instrument our infrastructure.
That’s a deceptively short statement of intent, but one that is doing a lot of heavy lifting. Things, as you might expect, aren’t that simple. Moore cautioned:
It's not enough just to have a digital infrastructure. You have to change your operating model because our operating model was very siloed, very internally centric. It was for our own productivity and not so much for the outcome success of our customers. But the new competitive landscape is increasingly [that] you need to be aware of the outcomes and you need to be continually responding. The good news about that is when you do that, customer satisfaction goes up, cross-selling and up-selling is better, all kinds of good things happen. But the behavioral operating model and the way we organize has got to be much more outside-in as opposed to historically more inside-out.
There's a couple of things you want to think about to start with. One is the value of time in this new world. Latency is the thing that we can most impact now with this new infrastructure. Instead of having to remediate problems, we can prevent problems. We can anticipate inventory requirements and be ready for them as they as they come. So all of a sudden your business metrics, even for your traditional business, which tend to be cost-oriented first, now it's like, 'Wait a minute, let's think about time, not just cost'.
How to do?
If that sounds as though significant change management is about to take center stage, you’re not entirely wrong, There’s a lot of work ahead, said Moore, starting with the need to put in the right sort of infrastructure to build around:
There's an infrastructure layer that you have to put in place before you can do this. But the infrastructure model doesn't change your business, it just changes the ground upon which your business sits. The operating model is what changes your business, and if you have a big operating model running today, you can't change that in one day. You can't change it overnight.
The key to approaching this challenge is to think in terms of what Moore calls Zone Management. He explained:
The Zone Management model says, for your core business today, let's call that the Performance Zone and be very careful with that because that's what's paying the bills. It isn't perfect, and it's not perfectly digital, but it works and people understand how it works, so don't be careless with that. And there's a Productivity Zone behind the scenes today, that makes it work, more manually than we would like, not as much automation as we would like, but it works. Having said that, that's not the future and it's not where we're headed, but those two zones need to be respected.
The other two zones of note are the Incubation Zone, and the Transformation Zone, the latter being where the real heavy lifting takes place. Moore said:
You want to start an Incubation Zone and the way to start there is not by saying, 'Let's digitalize everything we can find'. Rather what you do is say, 'Where are the places in our core business today where there's trapped value, where if we could just re-engineer this one piece of it, a whole bunch of better value could come through because we're making more timely decisions that are more informed'. You want to experiment with the Incubation Zone and you want to run narrow interventions to say, 'Can I move the needle and change this?'. Initially, you'll make mistakes and that's where you want to correct them. So the Incubation Zone is the 'fast failure zone'.
Once you get the process in order, then the Transformation Zone is the change management moment. That's when you say, 'We are now going to actually re-engineer our Performance Zone under the new model and by the way, we're going to get worse before we get better'. To change, you have to get people aligned with the new thing. So the Transformation's got to be one where you put enormous focus on it. You go as quickly as your culture can allow you to go, but quickly. Every day in the Transformation Zone is not a good day, so you want to get through it as fast as you can.
That all sounds very structured with clear demarcation lines, but inevitably things aren’t going to be that straightforward. The lines blur, said Moore:
In the Incubation Zone, it's not just a technology we want to incubate; it's actually the business processes that we're debating. So you have to involve people from the core business in that work. But at the same time, you can't hold them accountable to your traditional metrics, because they're experimenting. So you want to have the Incubation Zone fenced off, because it's going to play by different rules, but at the same time, its ultimate direction is to get back to the Performance Zone, so we don't want to alienate the Performance Zone. But initially, we create too much too much error or change in the Performance Zone to deal with. So again, you start isolated and then you build a bridge to say, 'Okay, now that's what the Transformation zone is - it's a bridge to take anything from Incubation to Performance’.
At the center of all this needs to be people - internal and external to the organization - and their default behavioral reactions to effort and change. Moore explained:
If we think about ourselves, we're not going to want to change. It's like, I don't want to go to the gym and work out, I don't want to diet and lose weight. If you're thinking about yourself, it's always, 'Well, I can just kind of put it off, I can wait'. But if you think about your customer and you also think about your competitor, both of those are outside of you and you realize, 'Boy, my customers are really getting less than what they need' and 'My competitor is giving them more than I am, I better change my behavior'. So I think when you want to change people's behavior, get them focused on realities outside the company and don't focus too much on the changes inside the company
True transformation is going to demand sacrifices from everybody inside the company, not just from one department, he added. Chief Transformation Officer as a staff function isn’t useful, nor is a Digital Transformation Officer:
That can be useful for the infrastructure layer, for getting an infrastructure in place, but when you're changing operating models within functions, within engineering, within manufacturing, within supply chain, within sales, within marketing, you can't have a staff person go into those organizations and tell people to change their behavior. That's the CEO's job. When you have to make sacrifices across department, the CEO has to lead. The CEO needs to rethink the compensation program because it doesn't do any good to preach unity if our compensation program rewards silos.
So you have to re-think every part of your operating model to get your company aligned to this new opportunity. Again, the best way to do that, in my view, is get them focused on customer outcomes, focused on competitor challenges and keep them focused. Look, we've got to get there. Let's work together to get there. When we get internally focused, we tend to squabble with each other. We're a family, we like to squabble. But the point is, we don't perform well. The CEO is like the conductor of the symphony - they have to get all the instruments playing playing together.
For more diginomica coverage of Software AG's conXion 2021 virtual event, visit our conXion event hub. The event will be live from October 5-7th and sessions will be available afterwards to view on-demand until the end of the year. Click here to register for the event and view the sessions.