digital transformation alc - · pdf filecore assumption was that at&t would ......

Digital Reconstruction and Transformation Karim R. Lakhani | Harvard Business School

k@hbs.edu | @klakhani

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Most Technological Predictions Are Wrong

In 1982 - AT&T asked McKinsey to forecast US cell phone market in year 2000 McKinsey noted:

Heavy handsets

Low battery power

Patchy coverage

Exorbitant prices per minute

Forecasted 900,000 subscribers by 2000 Delayed serious entry into market by AT&T for several years

By 1992 - AT&T Had It Figured Out?

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What Happened?All key innovations were forecasted by AT&T Core assumption was that AT&T would deliver both devices and services Major business model impediment of providing “pipes” Major missed opportunities

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Connected Car Tablets Streaming Video eCommerce Messaging Social Digital Assistants SmartWatch Etc.

AT&T’s Future Vision Delivered by an Ecosystem

RIP Nokia

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What Killed Nokia?

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Note the following Nokia firsts

1999: first phone w/ web browser

2000: first smartphone that allows third-party apps

2002: second in offering camera phone

2003: first phone with touchscreen

2007: Ovi appstore, acquiring Navteq (digital map), Symbian market share: 67%

Why Did Google Buy

Nest for $3.2 Billion?Company launched in 2011 Selling 40,000 units /month

Annual revenue : ~$200-300M

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Digital Transformation in Home Thermostats?

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Install Furnace

Install Thermostat Buy Fuel Set Temp Sense

temperature Turn on/off

furnace

Install Furnace

Install Thermostat Buy Fuel Set Temp Sense

temperature Turn on/off

furnace

Data Local Intelligence (Analytics, Control, …)

DIGITAL

ANALOG

Digital Transformation Can Change Value Creation and Capture Models

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Install Furnace

Install Thermostat Buy Fuel Set Temp Sense

temperature Turn on/off

furnace

ANALOG

Install Furnace

Install Thermostat Buy Fuel Set Temp Sense

temperature Turn on/off

furnace

Cloud Infrastructure

Advise Energy Companies

Advise Consumers

Other Home Automation

Trigger Maintenance

Analytics

Data Local Intelligence (Analytics, Control, …)

CLOUD

CLIENT

DIGITAL

NETWORK CONNECTIONS

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Is a Pizza Company a Tech Firm?

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Domino’s Invests in Massively in Digital Technologies to Re-invent Firm

IT is the largest department in the company

“Ordering pizza is Domino's entire business. What we saw then and continue to see now, is consumers prefer digital ordering over any other type. "It’s got better repeat, higher spending, customer satisfaction is higher, they order new products at a two-to-one ratio, and then there’s all the data to learn from.”

New technologies improve same store sales by 14%

$2B in digital sales (35% mobile)

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The Future of Pizzas?

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Contest to Solve Highly Complex Analytics Problem

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Broad Engagement (459 Competitors & 2000 Code Submissions)

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Broad Engagement (459 Competitors & 2000 Code Submissions) & High Performance

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Solar Power Output W/h

0

30000

60000

90000

120000Internal NASA Solution

Recent Contest to Improve Performance of Genomic Data Processing (Kraft Gift for Precision Medicine - May 2016)

Objective: Improve accuracy and speed of standard sequence alignment algorithm (BWA) developed by Broad Scientist Hang Li (paper cited > 8000 times). (Already fully optimized?)

Relevance: Both academia and industry are faced with a data glut from genome sequencing - typical run will yield 50 - 400 million base pair reads in a single run. Mapping to genome is a massive computational and time intensive task. Can be a bottleneck in processing.

Contest: Design a 3-week long contest - $20,000 prize pool - TopCoder Platform.

Participation: 1198 people registered - 96 competitors submitted 410 programs (368 scored > 0).

20 Contestants > Benchmark, 17 > Benchmark +5%, 9 > Expectation Ceiling (Benchmark + 50%), Leader = Benchmark+ 87%

20 Contestants > Benchmark, 17 > Benchmark +5%, 9 > Expectation Ceiling (Benchmark + 50%), Leader = Benchmark+ 87%

Best Solution Increases Accuracy from 91% to 97% & Increases Speed by ~15X

Value Creation and Value Capture Core Aspects of Firm

Financial Model

Operating Model

Value Creation

Value Capture

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Digital Challenges to Legal Profession

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Digital Technology Changes Business Models

Machine Learning and AI will “automate” legal analysis

On-Demand models will pressure legal firm partnership structure

Digitization of in-house counsel work will pressure existing relationships

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Innovation Paradox: Why Do Winners Become Losers?

Not a new phenomenon Common across industries Seen around the world

Why Do Succesfull Firms Fail?Wrong Technology? Wrong Strategy? Stunted Execution? Bad Luck?

Extraordinary Intervention for the Development of Gunfire at Sea

Existing Hierarchies Have a Tough Time with Innovators

Ignore Debate and Denial Personal Attack Fire the Innovator

Uncertainty Cognition Business Model Change

Nature of Innovation Process

Competency Traps Explore/Exploit Tension Leadership Challenge

Organizational Factors

Skills Identity Incentives

Individual Factors

Uncertainty Becomes an Excuse to Not Embrace InnovationGenuine uncertainty

It’s not going to happen – certainly not now

Cannibalization

It will compete with our current products

Margin erosion

It will make less money

Implementation

We’re not going to be able to do it, anyway

Uncertainty Cognition Business Model Change

Nature of Innovation Process

Competency Traps Explore/Exploit Tension Leadership Challenge

Organizational Factors

Skills Identity Incentives

Individual Factors

Competencies evolve over time, creating �competency traps�

Performance

Time

Competence at major innovation is practiced

Takeoff

Maturity

Discontinuity

Competence at incremental innovation most practiced

Firms Have to Deal With Exploration and Exploitation Simultaneously

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•  A single general manager and team •  A common vision and values •  Strong decentralization •  Multiple strategies, structures, processes,

and cultures -- each separately aligned

Exploitation

Exploration

Variation Selection Retention

[Horizon 1]

[Horizon 2]

[Horizon 3]

Growth

General Manager

Senior Team Challenges

• Clear strategic intent that justifies the importance of the ambidextrous form

• Overarching vision and HR practices to emotionally engage everyone

• Aligned senior team with common rewards that communicates a consistent message

• Organizational architecture that promotes exploration and exploitation with targeted integration to leverage firm-wide assets

• Ambidextrous leadership that tolerates the contradictions of multiple alignments and can resolve the trade-offs required

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Ambidextrous Leadership Skills..

• Hold Paradox, Be Consistently Inconsistent • Manage a portfolio of related experiments or projects

• Establish and communicate a clear vision

• Establish a Few Overarching Core Values

• Create an extended team for advice and counsel

• Balance opposing factors to imagine future possibilities that are currently unrecognized market needs

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! Recognize when to continue and when to abandon an idea ! Build and Coach a senior Team that can deal with paradox

Change can challenge every aspect of an organization

Leadership & Strategy

Structure & Process

Incentives

Culture & Mental Models

Individuals become Invested in old

approaches Strategic/competitive problems may provide an excuse for inertia

Existing incentives often work against significant change, and new incentives take time and work

Whole scale changes to structure and process are very

disruptive: Two years of lost time?

Strong cultures & deeply rooted mental

models are extraordinarily

resistant to change

Digital Transformation is Making Every Company into a Software and Services Company

Digital transformation re-architects transactions and processes… Digitizing process components

Distributing transactions more easily

Connecting with other businesses, forming large digital networks, accumulating and communicating lots of data

Generating opportunities for powerful analytics to aide in value capture

… ultimately transforming business models, organizations, cultures and ecosystems

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Digital Transformation is Making Every Company into a Software and Services Company

Digital transformation re-architects transactions and processes… Digitizing process components

Distributing transactions more easily

Connecting with other businesses, forming large digital networks, accumulating and communicating lots of data

Generating opportunities for powerful analytics to aide in value capture

… ultimately transforming business models, organizations, cultures and ecosystems

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New Capabilities & Strategies Needed To Execute Digital Transformation

New Strategies

Shift from products to services + products

Cultivating platforms & ecosystems

Developing new revenue & business models

Talent and new business incubation

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New Capabilities

Data gathering and management

Advanced analytics

Realtime monitoring and control

Software development excellence

“The Future is Already Here, Its Just Just Not Very Evenly Distributed” - William Gibson

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Thanks!k@hbs.edu | @klakhani