Disruption comes from both expected and unexpected sources. There are the expected players in the disruption game that many organizations keep their eyes on—for example Amazon, Airbnb, Uber, or Tesla. But the reality is that the least-expected disruptors might present the greatest competitive threat to your business, especially when we never see them coming.
It’s Possible to Prepare to Be Disrupted
Associate Professor Randy V. Bradley spends most of his time teaching students at the University of Tennessee about information systems and the supply chain. When he’s not in a lecture hall, you can find him speaking to business leaders, industry groups, and SAP customers about digital disruptions. He’s passionate about helping organizations shore up their business practices to defend against that least-expected competitor coming around the corner. Professor Bradley has even brought his message to the attendees of our SAP-Centric EAM conference.
Ann Marie Gray, VP of content strategy and research at ASUG, had a conversation with Professor Bradley about the three key approaches to disruption organizations can watch out for. He described what he calls the “kryptonite” that you can use to keep your disruptors at bay. And he spoke about what’s missing from most digital transformation initiatives that would truly help organizations meet the lofty goals they’ve set out to achieve.
Ann Marie: In your presentations, you often talk about the kryptonite to disruption. What is that?
Randy: Innovation is the key. That is the kryptonite to disruption. Whether they’re new organizations or whether they’ve been around for hundreds of years—the reason they are disrupted is because they stop innovating. And when they do innovate, they tend to innovate around the next iteration of their products or services. They’re not transforming them. They’re not changing the ways customer engage with these products and services. They’re not changing how customers get value from them.
Often, we stop innovating because we think we can innovate only so far because that’s what we’re capable of doing. Well, that’s not innovation because the goal is to not think about what we can achieve, it’s to think about anything that could possibly happen.
I always say you’ve got to reimagine your supply chain, reimagine your organization. And then, the question that comes up is, “Well, where do you start?" And I say, "Look for inspiration from industries that are different from you.” Look at what they’re doing, and then ask yourself, “If I brought that into my industry, maybe that could be the first move that gives me a competitive advantage.” And the other thing is this: Simply ask your customers what they want and listen to them. That’s how you continue to innovate.
Ann Marie: Why do you think it’s so hard for organizations to innovate once they’re set on a particular path? Are there practices or philosophies that companies can put into place to help keep them from getting stuck?
Randy: If you’re not an innovative company, know that you’re not one. But at the same time, if you know that, then you need to admit, “We can’t bring this under our roof because we’ll kill it. Because that’s not who we are.”
What you must do is create a separate strategic business unit, whether it’s a function that acts as an ideation center or a think tank or an innovation center. You separate this group from your revenue, meaning that they’re not responsible for generating sales or affecting the bottom or top line. Their goal is to imagine what could be possible. And if it is possible, how can we go about achieving it?
You don’t want people under the main tent of your business to be in that space because they can’t think the same way as the people who are in this side tent. When you see companies who excel, it’s often because they separate their innovation centers from their primary activities.
Ann Marie: Yes, but I think something else must happen under the main tent where leaders are willing to take a risk on certain things that come out of their R&D. Take Xerox PARC, for example, which developed advancements that were way ahead of the competition but sold these off to others rather than capitalizing on them.
Randy: Here’s where you avoid that, particularly if we’re talking about publicly traded entities. Even if they’re not publicly traded entities, it comes back to looking at the expertise that’s on your board or in your boardroom. Look around the room and ask yourself, does everyone look the same? Does everyone think the same? Does everyone, for the most part, come from a similar career? Because if that’s the case, then your business will forever be the same.
If you have constraints that prohibit you from building your board out with that talent and expertise, then go out and find someone to speak to your board. I’ve seen CEOs say, “I know we’ve got to innovate, but my board doesn’t seem to understand this. We don’t have anyone with this expertise internally. Will you come to our next board meeting and enlighten them?"
Ann Marie: What are the three key approaches you see from organizations that are disrupting their industry?
Randy: The first approach I refer to as augmentation by technology. Essentially, all augmentation by technology means is that you’re going to take a tried-and-true process that people already understand and that they already follow, but you’re going to leverage emerging technologies to execute the process differently. Or in some cases, to give people greater visibility or make them feel as if they have a little more control with respect to how that process takes place.
An example of that is Uber. If you had to break it down, what innovation did it develop? Ultimately, it took a ride-hailing service or the process of hailing a ride, which we’ve done for years. Even when we had horses and carriages, we hailed a ride. The difference is, they took a technology that was relatively new—a social platform if you will—and put it in your hand and said, "Now you dictate what happens. You dictate where it happens.” Rather than you going to a specified spot, you’re indicating the spot where you want this transaction to take place. And by the way, we’re going to give you visibility as your transaction is playing out, so you feel as if you have a little more control over it. That’s all they did. That’s augmentation by technology.
Ann Marie: Right. It’s a reinvention of something existing. What about the next approach to disruption?
Randy: The other one I talk about is customer appeal. Customer appeal is one of the approaches I think is the biggest threat. In particular, very old organizations are likely to feel the effects of this. It’s essentially where your competition is an organization that is not in your industry or sector, but it has relationships with your existing customers.
One of the examples I give of this is the Australian grocery chain Coles, which disrupted the financial sector by offering financial instruments to the people who shop with them. They had no experience or expertise, but they went from being just a grocery store to becoming an actual bank. I’m not talking about putting a little stall within the grocery store. They became a full-fledged financial institution with no history of being in this business whatsoever. And they banked on one thing, which is, “We know your customers better than you know your customers. We see your customers more than you see your customers, so why wouldn’t they trust us?”
Ann Marie: That sounds a lot like how Amazon is moving into new businesses, for example, going head-to-head with pharmacies. What about the third approach to disruption?
Randy: Number three is what I refer to as a “new” product/service push. Here, it’s focusing on the new and the push angle. With this approach, you take an organization that has a tried-and-true product—let’s say LG or Samsung. Look at what they’ve done with refrigerators now, how those have become communication command centers for your entire home. My point is, it’s still a refrigerator that you’re buying, but the new part is that they’ve coupled that with additional technology and then pushed the product out as if it’s something totally different.
Or you take the example of a John Deere or a Caterpillar. They know their customers rely on their products, so they’ve focused on how to make them more enjoyable to use. If you have a love of farming, they’re only going to help you do it better so you’re more likely to enjoy it. Now their products can analyze soil samples on demand and tell you the right time to plant seeds in a portion of a field. They’ve built in a telemetric component that sends information back to the dealership where you purchased the equipment, so the dealership now has a better idea of how to meet your needs. That’s what I call a “new” product/service push.
Ann Marie: What are the ways you’ve identified that organizations can implement a successful digital strategy?
Randy: There are a few overarching digital strategies that we see organizations taking, based on some work done at the MIT Center for Information Systems Research. One strategy is customer engagement, where the goal is to create loyalty and trust. You’re going to do that by providing superior, personalized customer experiences. The companies that use this strategy don’t see it as service. It’s about navigating the customer experience, creating a frictionless environment in which a customer can do business with you.
Organizations try to do this by creating a seamless omnichannel experience. Imagine now if you’re going to buy a car. Why is it that so many people are attracted to Carvana? Well, it’s because I can shop for a car on my phone, on my tablet, or on my PC. No matter where I initiate the interaction, whenever I go back to that platform I can pick up where I left off. I don’t have to start my transaction from zero again.
Take the traditional car buying experience now. Automotive companies may say, “We have a website to help you find your car.” So, you find a car, and you put it in your wish list. But when you go into the dealership, they have no idea what you’re talking about. That’s not a truly omnichannel experience with multiple points where I can enter the engagement process as a customer.
Another strategy we see is called a digitized solutions strategy. This goes back to the “new” product/service disruption approach I described. When you build a digitized solution to go along with that approach, we’re either going to change the solution or we’re going to give you additional information about how to get better value, greater use, and more enjoyment from the solution that you have purchased from us. The goal is to give customers enough information to help them solve the problem they’re trying to solve or to find more value in what they already have—such as a refrigerator that texts you when you are out of something.
Ann Marie: Why is it so hard for organizations to implement a digital strategy?
Randy: Most organizations lose sight of the fact that a digital strategy is a business strategy. I heard one group say, “We don’t have a digital strategy, our business strategy is digital.” That’s a cute, catchy saying, but the reality is that a digital strategy is in fact an integrated business strategy that is informed or inspired by capabilities based on readily accessible technology. You don’t necessarily need to have these technologies already, but they must be in the marketplace. And then, that integrated strategy must lead the decisions you make. It must have the intent of delivering a unique, integrated business capability behind it.
The key here is that those capabilities are integrated, rather than siloed. A good digital strategy allows your organization to execute in such a way that you’re responsive to changing market conditions as well as to evolving consumer expectations. When you do this, now you truly have a digital strategy. The problem is, organizations take on pieces of these strategies, but not all of the necessary components.
Ann Marie: Or they’re not tied into that evolving market data, the evolving customer needs in a rapid enough way.
Randy: Exactly. There was an article I read that talked about why GE’s and Ford’s digital transformation initiatives failed. It talks about the $900 billion reason GE, Ford, and Procter & Gamble failed at digital transformation. It’s a fascinating read in terms of looking at how big, established companies that have a tremendous amount of cash flow can start these initiatives, but they fail on the journey. One of the things that I’ve presented on before is why small and midsize businesses succeed and large businesses fail on their journey toward digital business transformation.
Ann Marie: What is the key? Obviously, the smaller organizations can be more nimble. Is it that big organizations are just too heavy to move at that pace?
Randy: It is, and they think, “If I throw enough money at digital, I can change. I can look different; I can be different.” But we don’t change how we do business. We don’t change how we engage. We don’t look different to the marketplace. We just think we look different.
Ann Marie: Let’s face it, a lot of big organizations hire external partners to do the work. That’s an outside-in approach versus an inside-out approach. And if you don’t change your internal mindset—if you don’t have the right talent to support these changes, then they will never take hold—especially if you have 100,000 employees.
Randy: It’s mind-boggling to see that of the $1.3 trillion that is believed that these three organizations have invested in these initiatives, that $900 billion of that—approximately 70%—was wasted because those programs failed. When I talk about this topic at SAP-centric events, I want to get the attention of SAP customers. When you talk with the consultants, when you talk with a lot of the trade associations, they show you the shiny possible things. But no one’s talking about the hard work of digital. It is hard, it can be costly, and it could cost you everything if you get it wrong.
Ann Marie: Are there ways that you can make innovation more scalable by breaking it down into incremental improvements?
Randy: Organizations have to ask themselves, why are we doing this? And many organizations, say when you ask them, “We’ve got a digital transformation initiative.” I would ask, why? What do you hope to achieve? What are you going to get from it? Sometimes they focus on the how they’re going to do it but aren’t really driven by the why they need to do it.
What I find is organizations who are really high on their desire to embrace digital tend to be very low on the degree to which they engage customers via digital. And so, I always ask the question, “For whom are you innovating? Yourselves?” Because at the end of the day, the innovation has to be for the customers if you’re going to get value from these digital initiatives. Somewhere between 75% and 80% of organizations don’t have a digital strategy, yet every organization that I have met with or done work with all had digital initiatives.
Ann Marie: Yes, there’s a big difference between an initiative and a strategy. Thank you so much, Randy, for sharing your perspective on such an important topic.
Tune in to watch the complete SAP-Centric EAM virtual conference online until May 1, 2020. You can learn about the role innovation plays in times of uncertainty in this interview with SAP’s chief innovation officer Max Wessel. Or, download the ASUG Pulse of the SAP Customer 2020 infographic
to find out what we learned about innovation among ASUG members.