Quick takes

Citation

(2001), "Quick takes", Strategy & Leadership, Vol. 29 No. 2. https://doi.org/10.1108/sl.2001.26129bae.001

Quick takes

Editor's note

"Quick takes" presents the key points and action steps contained in each of the feature articles. Catherine Gorrell prepares these summaries.

Page 4Becoming a digital business: it's not about technologyAdrian Slywotzky and David Morrison

Many executives equate "going digital" with specific phenomena such as the advent of the personal computer, the growth of enterprise resource planning systems, or the popularity of the Internet. But to think of digital business design (DBD) as the sum of high-tech innovations is a fatally incomplete view. The discipline of DBD is about serving customers, creating unique value propositions, leveraging talent, achieving order-of-magnitude improvements in productivity, and increasing and protecting profits.

For example, Dell Computer uses a digital business design to reverse the traditional value chain. Digital technology allows Dell to activate the production process after customers place their orders. This process reduces inventory and allows the company to collect revenue before paying suppliers. Weyerhaeuser Door's digital system for designing and ordering doors and transmitting key information directly to the factory has cut order-processing time for a custom-made door from two weeks to less than an hour.

Firms that have adopted a DBD have taken advantage of eight concrete benefits:

1. 1.

   From guessing to knowing. Guess work leads to stockpiled inventory, markdowns, and blowout sales; knowing exactly what customers want leads to profits.

2. 2.

   From mismatch to perfect fit. DBD allows you to craft a value proposition that fits perfectly with customer needs, as Charles Schwab has done with its online tools for investors.

3. 3.

   From lag time to real time. DBD shifts the flow of information to real time; it allows the Mexican firm, Cemex, to access vital information quickly and to dramatically reduce delivery time.

4. 4.

   From supplier service to customer self-service. More and more customers actually prefer online ordering and customer service.

5. 5.

   From low-value-added work to maximum talent leverage. DBD shifts employee time to more productive, customer-centric tasks.

6. 6.

   From fixing errors to preventing errors. Mistakes cause frustration for customers and higher costs for suppliers.

7. 7.

   From achieving 10 percent improvement to 10X productivity. Digitization allows tremendous gains in the management of capital, costs, and cycle times.

8. 8.

   From separate silos to integrated system. Rapid organizational response to challenges and opportunities requires a high degree of internal integration.

The combination of speed, accuracy, flexibility, and external focus that DBD makes possible enables a company to respond to change and evolve along with its customers and markets, therefore maintaining true differentiation.

Page 10Making friends with disruptive technology: an interview with Clayton M. Christensen

Most business leaders are aware of sustaining technologies, which can be simple incremental improvements or radical, up-market technology innovations that leap-frog ahead of the competition. However, they tend to ignore disruptive technologies, which initially provide neither a better product nor acceptable margins. By ignoring disruptive technology, companies forfeit the opportunity to ensure long-term growth and prosperity.

Joseph Schumpeter's creative destruction theory showed that continually applying an existing technology solution will eventually reach a point where improvement stops and a new technology must emerge to supplant it. Disruptive technology is a different type of creative destruction in that it affects the entire business model. Like a technology solution, a business model cannot continue to do better forever. So the ability to creatively destroy existing business models actually becomes the key to growth.

Business leaders must help their organizations develop new business models that utilize the disruptive technologies if they are to survive and evolve over time. The most difficult step is recognizing the threat and opportunity of the new technology and taking the first steps to embrace it during the very years in which the company's core business is booming.

Leaders must then assess their resources, processes, and values – the major internal factors in an organization's business model – and determine what the company can and cannot do. Resources (people, technology, and cash) are flexible. Processes and values are inflexible. To innovate successfully, leaders must allocate resources in an organizational context in which the processes facilitate and the values prioritize innovation.

Digital Equipment Corporation, for example, could not switch to personal computers because its processes favored mini-processors, and its values would not allow prioritizing the personal computer business because of lower profit margins. The inflexibility of processes and values is neither good nor bad, just a statement of fact. Understanding this fact will help managers to know when they can set up an innovation inside the existing structure and when they must move it out to a separate organization.

Business units and their business models mature and die over time. By using the lens of the disruptive technology theory, strategic leaders can learn how to cause their organizations to evolve successfully.

Page 16Business value analysis: coping with unruly uncertaintyRussell Thomas

Business value analysis (BVA) is a technique that attempts to analyze the factors and forces that shape the future, rather than forecasting the future itself. Although it is still in the developmental stage, the technique provides a much-needed tool for use in making the major investment decisions needed for cross-organizational, digital-economy, transformation projects. In considering the business case for a hypothetical project, the author compares the efficacy of traditional and emerging decision-analysis tools.

The underlying assumptions and time horizons for the typical discounted cash flow (DCF) analysis are reviewed and compared to the realities of transformational projects. The most difficult period for analysts is the time between the forecast horizon and the commitment horizon, sometimes called the "Faith Period," because investment decisions must be made with limited solid information.

BVA is an umbrella concept for techniques that address this uncertainty and extend the value of DCF and other traditional financial analysis techniques. A fictional case study based on a composite of actual client engagements describes a typical, large-scale, e-business and IT project and explains how these techniques might be used.

• •

  Real options. Most digital economy projects are permeated with options, rarely a single go/no-go decision. These decisions have value, and real options provides a quantitative tool for making good decisions about those options. It is less useful for understanding intangible assets, so a second technique is needed.

• •

  Intellectual capital. Intellectual capital (IC) can be viewed as the resources that can produce value, either now or in the future. IC operates differently than conventional economics: its value increases with use and decreases without use. A transformational project must build sufficient IC of the right variety and availability to add value to the next phase or new project.

• •

  Business model dynamics. Business model dynamics helps a firm understand its capabilities and how they must change during the transformation. This technique has the potential to bridge the gap between detailed process, information, and financial models and high-end performance.

• •

  Synthetic markets. Shareholder value alone does not capture the value that is created when a diverse group of stakeholders with different concepts of value are brought together in a transformational project. The synthetic markets tool can be used to align these interests by creating incentives to seek change.

Page 24Velocity management: creating organizational instinctPierre Mourier

Velocity management is the methodology that allows executives to focus on strategic decisions and empower their employees to make the tactical decisions that are required to carry out the vision. Velocity management also creates an organization "instinct" that helps a company remain competitive in a fast-moving, information-driven,global economy.

Velocity management has several important bases:

• •

  The critical levers of business performance are clarified expectations (for individuals and the organization), which must be aligned with enablers, and both must then be aligned with consequences.

• •

  A system of proactive metrics is needed to balance organizational and individual expectations, enablers, and consequences.

• •

  There is a difference between reactive metrics (such as ROI, net margins, and expenses) and proactive metrics, which are activity-based. Proactive metrics are powerful because they can be collected faster, and they create a direct link between the employee's day-to-day work and productivity outcomes.

• •

  Behavior drives proactive metrics, because it is the thing employees can control. Thus, the only drivers it makes sense to measure are the behaviors that people exhibit. For example: Did they make more cold calls? Did they pack more boxes? Behaviors drive the ultimate outputs.

• •

  Management needs to act immediately when a disruption occurs. (A disruption is an event or result that is outside the range of expectations.) The key is speed of awareness and reaction to the disruption. Velocity management creates an instinct by which management can address the disruption at the earliest possible time and enact follow-up mechanisms to ensure improvement in off-schedule conditions.

There are four rules of velocity management:

1. 1.

   Intelligence should be gathered at the point where behavior for a metric occurs and information should be retained with common access.

2. 2.

   Intelligence should be used to immediately identify both positive and negative disruptions and should be the cause for immediate management action.

3. 3.

   Technology is an enabler of intelligence, therefore, data-gathering should be automated.

4. 4.

   Velocity leadership requires the ability to make decisions promptly, handle confrontations with employees immediately, delegate responsibility, and provide accountability for results.

Page 29Are you L.E.A.D.ing your troops?Gerald A. Kraines

Leadership, at its best, leverages other people's full potential. To accomplish that goal, consider the acronym L.E.A.D., which stands for leverage first, then engage, align, and develop. Following the L.E.A.D. process can spell the difference between truly outstanding achievements vs run-of-the-mill practices that achieve far less.

Leverage judgment. When it comes to making decisions and taking action in complex situations, judgment is more important than an employee's prior knowledge, skills, and experience. To leverage judgment, the complexities of work must be translated into a level of complexity appropriate to the manager's own plans and then further translated to a level of complexity that is useful to subordinates.

Getting engaged. When subordinates are engaged, the judgment and "mindshare" they bring to their jobs is maximized. The basis for employee engagement is the psychological contract that describes expectations about what the company will do to help employees achieve individual success, whether it would ever lay people off, whether it would ever skimp on the quality of its products, and so on. Violations of the psychological contract produce feelings ranging from embarrassment to betrayal. Fulfilling the psychological contract nourishes trust, loyalty, and engagement.

The line on alignment. Employees are aligned when they understand the relationship between their activities and goals and those of their organization, managers, and co-workers – when they have been given enough context to apply their judgment in a way most beneficial to the company. To be truly useful, context must be translated into a fully developed decision-making framework. With such a framework, employees not only understand the context in terms of their manager's thinking and intentions, they also understand the umbrella of alternatives under which they operate.

The developing world. Employee development, as a continual, career-long process, represents the surest path to a workforce that functions at its full potential. For the company's leaders, this means understanding what development entails, creating an employee-development system, and holding managers accountable for developing their employees.

The L.E.A.D. program follows neither the old command-and-control style of management nor the more laissez-faire approaches that have emerged. Instead, L.E.A.D. begins with a clear mandate for managers to leverage their people to their highest levels of achievement, as individuals and as a group.