Written by Michael Cote, Staff Technologist at VMware Tanzu
Early digital transformation applications often focus on business outcomes. Improving ‘customer experience’ consistently features as a top goal for most projects. However, there’s a lot more that can be done to direct and determine digital strategy beyond this today.
Organisations need to go beyond just transforming IT — they need to transform the entire business.
Successful innovation strategies rely on good market senses
Changing enterprise strategy is costly and risky. Do it too early, and organisations deliver perfectly on a vision but are unable to scale if users aren’t ‘ready’. Do it too late, and organisations find themselves in a battle to win back customers, often with price-cutting death spirals and comically disingenuous brand changes.
An effective innovation strategy relies on knowing the best time to enter the market. You need a solid strategy to continually sense and time this. Like all useful strategy tools, it should not only tell an organisation when to change, but also when to stay the same, and how to prioritise funding and action.
When the iPhone and Android were introduced in 2007, the definition of the PC market changed without anyone really noticing. In just ten years, these devices came to dominate the PC market by all measures that mattered: time spent staring at a screen, profits, share increases, corporate stability, innovation, growth, and customer joy. Meanwhile, traditional PCs were deemed work horses or commodities like pens and copy machines, bought in refresh cycles with little regard to differentiation. You probably remember the last time you bought a mobile phone, but not an operating system.
Companies today need to find the type of data that fits their industry and the trends to base a strategy on. Tracking shifts closely and paying attention to the rate of change is critical. Spotting shifts in the very definition of a market is key. Ideally, companies want to create the shift. If not, they want to enter the market as soon as the shift is validated, even if the new entrant has single-digit market share. Deploying corporate resources, time, attention, and money often takes multiple years despite the ‘overnight success’ myths of start-ups.
Why calling market shifts can be easier from the other side of the fence
Measuring what customers think can be difficult. Metrics like Net Promoter Score and churn give trailing indicators of satisfaction, but won’t tell a business when customer expectations are changing, and with that, the market.
Especially in today’s climate, understanding how customers spend their time and money and what ‘problems’ they’re ‘solving’ each day is vital. Frameworks like customer journey mapping can systematise this, and by using a small batch process to implement an application, companies can direct strategy by observing how customers actually interact day to day. When product teams building applications are put in place, strategy teams have a rich source of customer information. A continuous stream of validated data will give strategists a huge advantage over competitors. The benefits of scale will also be amplified, helping existing organisations to compete with start-ups.
Trying new things is important too
The best way to understand and call market shifts is to actually be in the market as a customer and producer. Being a customer of your own business, so to speak, might be difficult for some sectors, but for many it’s possible. It means more than trying competitor products too. Companies need to know the benefits of new technologies entering their markets and get to grips with any suffering products can cause when they don’t work as intended.
The goal of trying new things is to experiment and use the insights gathered to direct strategy and new ways of doing business. If companies have the capability to test new products, they can systematically sense changes in market definition too. Tech companies regularly float new ideas as test products to sense customer appetite and, thus, market redefinitions. We laud companies like Google for their innovation successes but easily forget the long list of failed experiments. The website killedbygoogle.com catalogues over 200 products that Google killed. Not all of these are ‘experiments’, some were long-running products that were killed off.
Why innovation needs failure
Innovation requires failure. There are few guarantees that failure will lead to success, but without trying new things, nobody succeeds at creating new businesses or preventing disruption. Historically, strategy has been hampered by the long feedback cycles required to tell if strategy has ‘worked’.
Budgets are traditionally allocated annually, meaning strategy cycles are annual too. Even worse is how businesses often frontload the budget cycle, meaning companies need to establish a strategy even earlier. Most of the time, this leads to the genesis of a current strategy being a couple of years old. With the current business disruption being experienced across the world that kind of idea-to-market timespan is damaging. Competing against companies that have shorter loops and more feedback about their markets and customer demand will be key for organisations to survive now.
Lean start-up methods, and later lean design, have adapted this model to software development. This same loop can be applied ‘above the code’ to strategy too and is how companies can use failure-as-learning to create a validated strategy.
Due to the long cycles used by most companies, most corporate strategy is is effectively theoretical. The time between creating, agreeing on, and then putting into place a strategy can be a year or even longer. Implementation details can become dicey, and then we have to see customers will actually buy and use the product. In short, until the first customer buys and affirms the ‘strategy’, companies carry the risk of wasting huge amounts of time and money. The risk might pay off, or it might not. Not knowing either way is why it’s a risk.
The constant feedback opportunity
This mentality has been unavoidable in business for the most part. Now, however, when a business relies on software, it’s possible to better control this kind of strategy risk. Small batch process focuses on shorter release cycles and incremental changes to an application. This allows companies to get almost constant feedback on the validity of strategic theories through the apps that are bringing that strategy to life. It also means that organizations can more quickly sense and respond to changes in customer behaviour and market shifts, significantly reducing risk. By starting small, you build smaller chunks making it a lot easier to build, test and validate…and change course if you’ve learned that a different approach is better.
Done well, software costs relatively little and is incredibly malleable. It is, as they say, ‘agile’. You just need to connect the agile nature of software to strategy.
Originally published at https://digileaders.com on July 30, 2020.