Recruiting and Expanding the Team

Data Scientist, IoT Software Developer, User Experience Design Expert, Product Owner, Scrum Master. These are job titles from the digital world. But do you know what the job titles actually mean, or what drives these people? Two things are certain: they’re needed and there aren’t enough suitable candidates. Where can they be found, and how can they be recruited?

Job fairs have only limited success. Above all, digital natives need to be lured by exciting and meaningful work through the channels where these new, mostly young stars of the future spend most of their time. Social media, blogs, and start-up conferences are good places to start. Use the new formats like hackathons and start-up competitions to get to know digital natives. Be present at the leading digital events and conferences such as the Consumer Electronics Show (CES), Disrupt SF Hackathon, South by Southwest (SXSW) Interactive, Launch Festival, or competitions within academic institutions such as HackMIT and the UC Berkeley start-up competition.

These are all good opportunities for traditional enterprises. Digital talent isn’t put off by a big corporate name, but by a dull job profile or the lack of concrete challenges. Recruiters need to weave interesting stories and stoke enthusiasm for the new work ahead. Potential candidates are generally attracted by authentic values and strong corporate stories. Interviews should be conducted by top-level managers, even as high as the CEO, with people who exude the passion needed to attract talent and build the fledgling employer brand. Finally, the company must strive at least as hard as the candidates to present itself as an appealing prospect, and to fend off the attractive employers who top all the relevant rankings.

Skilled digital natives love ambitious projects and big ideas. They want to rewrite the future of industrial robotics and automation rather than simply optimize the logistics processes in a plant. For recruiters, that’s often only a matter of tone. The recruiters themselves should also be part of the digital community, and not come across as people from a distant planet. This is a challenge that many HR departments often find overwhelming. There are specialist agencies and freelancers who can step in to fill in this gap, at least for the early setup phase. An experienced digital recruiter, then, must be right at the top of the list of recruitment targets.

If, despite all the good advice, companies still fail to put together a digital team, they can just go ahead and buy one instead by acquiring a start-up with all the necessary talent. One prominent example is Walmart. In 2011, the retailer paid $300 million to acquire the social media company Kosmix.

And since it’s so difficult to find talent, it’s even more important to retain it. Work must be challenging and future-focused, and the working environment must be appealing with open working areas in attractive locations. Creativity is directly proportional to the number of restrictive walls. Training and one-to-one coaching must also be on the table, as well as intensive mentoring and personal development plans for each individual.

However, it’s wrong to assume that all open positions must be filled with experienced digital talent only. Companies need to learn to develop talent themselves. They need to be open to young people, and, more than ever, to recruit by potential rather than references and reputation. Companies should be able to give everyone in their organization the opportunity to experience and learn the new digital technologies, and this includes providing the space for talent to develop naturally. Google, for example, gives its employees the freedom to spend up to 20 percent of their time working on their own chosen tasks, and 3M introduced a similar measure years ago.

Ability to Establish Fast Concept Iteration

Fast concept iteration is something that Steve Jobs believed in. When the Apple founder launched the first iPhone in 2007, it still only used the slow Global System for Mobile (GSM) transmission standard even though his rivals were using the faster Universal Mobile Telecommunications Service (UMTS). The early iPhone couldn’t even receive GPS signals for satellite navigation. Digital natives refer to it as the minimum viable product (MVP), a product that offers only the minimum possible number of essential features. For the product to be a success, it needs to address a pain point, a place in the market where customers encounter problems. With its touch screen design, Apple displaced number pads and keyboards and hit on one such pain point. With Apple’s open interface, a rapidly growing range of apps soon followed that could be downloaded to the device, thus greatly increasing the appeal of the iPhone. Customers did the rest: the Apple engineers fed reactions and comments of customers back into development virtually in real time, and before long they had the most popular smartphone in the world.

Companies pursuing a digital transformation should adopt the MVP approach even if it means their engineers and designers will need to rein in their quests for perfection. It prevents expensive and protracted product development based purely on assumption. U.S. innovation guru Steve Blank even goes so far as to encourage businesses to see the customer as a partner in the product development process. Early adopters in particular should be seen as kindred visionaries, and should be utilized. However, companies still have to identify a particular pain point for the first version of the product, which is no easy task.

Even Lufthansa followed the MVP route when it digitized its check-in process. This critical core process was adapted to the technological possibilities and customer needs over several stages, following a continuous and iterative method. Time and time again, a crucial question had to be answered: How much change are passengers willing to accept? Nonetheless, the airline had identified a real pain point—standing in line in front of a check-in counter has always been one of the downsides of flying.

As a first step, Lufthansa installed check-in machines, where friendly employees were on hand to help passengers with any problems. Customers welcomed the service. In the next stage, the airline offered customers the option of checking in at home on a PC and printing out the boarding card themselves. The move promised more convenience, and was only one step removed from using the check-in machines. Again, customers welcomed it. It also meant that Lufthansa was able to significantly reduce costs since the customer now provided the necessary hardware. And as the process went mobile with the spread of smartphones and apps, the digitally attuned Lufthansa customers could now free themselves of the PC and printer altogether, and now simply scan the boarding passes on their smartphones.

The process is far from over, however. Just as with lean production in the past, continuous improvement is the order of the day. Lufthansa rival KLM, for example, as one of the first partners of Facebook, uses a chatbot on Facebook Messenger as a new channel for communication and interaction. KLM customers can now call up their digital boarding cards on Messenger. The service also means that KLM can provide its passengers a far more personalized offering via Facebook. Just like WhatsApp, travelers receive a push notification telling them they can now check in or notifying them of any changes. The development has personalized the check-in process.

A key component of the digital operating system is its specific ways of resolving problems. If digital companies want to redevelop or improve products or processes, they tend to rely on design thinking. This is where cross-disciplinary teams tackle problems by using the classic methods of designers: observe, understand, develop ideas, translate quickly into prototypes (rapid prototyping), test on the market, and immediately feed customer reactions back into product improvements. The aim is to produce a simple solution that is also simple from the point of view of the customer. After all, the solution is ultimately being developed from the customer’s perspective and for the customer’s benefit.

Above all, the customer interfaces must be as simple and intuitive as possible. The mobile apps of today will likely become the voice-based interfaces of tomorrow. Voice assistants like Alexa from Amazon, Google Home, or Apple’s Siri provide simple and intuitive input options that are much easier than screens and keyboards. Online retailers are developing check-out processes that enable the customer to complete purchases in a single click rather than running through multiple steps. Digital natives like PayPal and Amazon already offer this. There are other examples of innovative design concepts that are focused on the needs of the customer, and that radically simplify the buying process. One of these is Amazon’s Dash Button, which allows customers to order replenishments for frequently used items like laundry detergent with just the push of a button.

To anchor design thinking in the innovation and product development process, management itself must understand these technologies, and ideally have experience of them. Participating in hackathons—team events geared toward the shared improvement of a digital process—is a good starting point. An effective exercise is for a team member, for example the manager, to play the role of the customer, and always argue from the customer’s point of view. Although all companies claim to focus on the customer, too often the customer’s voice is overheard or taken into consideration only at the end of the process.

Establish Steering by Milestones

What marks a digital enterprise? The fact that it forms fact-based hypotheses and takes data-driven decisions. To come by these facts, new data needs to be collected, whether self-generated or acquired from third parties. Companies should therefore ensure they always follow measurable targets—for example, reducing process costs or increasing customer acceptance, conversion rates, or process speed. Naturally, multiple targets can be pursued at the same time.

These targets must be anchored with KPIs with meaningful metrics defined for each process to be digitized. The targets for the milestones to be achieved can be derived either from the company’s business targets or from benchmarking. The targets and the actual results on the given dates are then reconciled to determine whether the milestones have been hit. The third section of this chapter explains how this is done in practice.

Developing a Work Environment

How does a business develop a corporate culture that fits with the digital world? The transformation starts with the work environment. That includes flexible working hours, an office landscape in which teams feel at ease, and technical equipment that not only is up to the task, but is fun to use.

The office of the digital age is as flexible as its employees. Very few people will always sit at the same desk in the same room. Instead, most will sometimes work from home, on the way to the customer, or even in a different branch office. Whenever they come into the office, they simply look around for a free desk. There are work cafés as well as standard conference rooms for the frequent work involving teams. If quiet contemplation is needed, rooms are available with comfortable seating. And of course, everyone is always available online and on the firm’s network wherever they are.

Cultural Transformation: Addressing Four Dimensions at the Same Time

At least as important as the hardware are the immaterial assets. Do the values and standards of the company foster the new spirit, from collaboration and open communication to cross-hierarchy togetherness? Do the management principles fit with the target culture? Do employees feel empowered by their managers in the cultural change? And have managers been offered the right incentives to drive the change forward? To align your corporate culture with the needs of digitization, four dimensions must be addressed: generate understanding, create formal structures, build skills, and act as a role model.

Communication: Talk Digital and Act Digital

Without effective communication, both internal and external, there can be no cultural change, and the digital transformation will fail. Although it could be argued that this applies to all companies whatever their current state, when it comes to digital transformation, the importance of communication is taken to a whole new level. It’s not just about informing employees, but about motivating them to get involved and be passionate about the change. This is possible only by overhauling the old, traditional values. Other players in and around the business also need to be convinced—most importantly, customers, shareholders, suppliers, and partners. Clear and active communication is needed that takes into account the needs of all target groups.

Today, the traditional communication channels are supplemented with effective new media. Town hall sessions where employees can engage with the management, blogs, and newsletters replace the in-house journal or holiday message, while external communication now takes the form of tweets and YouTube videos. With digitization, the frequency of messages increases all the time. Instead of scheduled annual or quarterly cycles, employees and external parties expect information on tap. Firms exhibiting at major events like the Consumer Electronics Show (CES) in Las Vegas or the Auto Show in Detroit accompany their exhibits with live streams and a constant stream of tweets, blogs, and Facebook posts.

Unlike in the past, good communication today is no longer a one-way street. Town hall meetings give employees and managers the chance to connect and discuss issues. Comments and replies can be posted to blogs and Twitter and Facebook posts. Companies that find all this a little awkward haven’t quite arrived in the digital world, where all comments and criticisms from employees and outsiders are opportunities to improve.

The most important thing is that all communications and messages follow a well-thought-out and orchestrated communication strategy. Three factors are crucial:

1. General communication should focus on brief, clear core messages—less is often more.
2. A clear communication plan and process should be followed, with the key questions being: who provides the content, which subjects are covered and which media are used, what are the best occasions, and which external and internal channels are used?
3. A communication product owner is needed who keeps the content up to date, analyzes measurable findings, and delivers improvements in communications.

And yet, despite all the enthusiasm for the new communication channels, the traditional media can still be an important strategic weapon in the digital transformation. Once again, GE sets the standards. Its 2015 annual report was simply titled “Digital Industrial,” demonstrating above all else the importance of digitization at GE.

CDO: Hero or Fig Leaf?

The digital transformation needs more than just a pacesetter; it needs proper management in the team, from an open-minded supervisory committee and an involved executive management that includes a modern chief financial officer who dynamically adjusts budgets and management instruments, to a chief digital officer (CDO) with comprehensive authority. Take the difference between rowing and white-water rafting: while rowing involves constant, predictable conditions, rafting throws up unexpected challenges at all times. This is why the helmsman in the white-water rafting of digitization must be more like a coach and a team leader rather than just a pacesetter.

The CDO plays a key role, demonstrating passion for digital and igniting this passion in all employees. The CDO is a strategist, customer analyst, product innovator, technical expert … the role demands everything. The CDO links organizational departments, establishes cross-functional teams, uses networking skills to recruit external talent, motivates people, and represents them effectively at board level.

Bill Ruh, CDO at GE, is one of the best in the business. He’s not only responsible for the cross-divisional development of GE’s industrial Internet strategy and for software development in all business units, but he’s also the CEO of GE Digital, which in 2016 turned over $6 billion delivering software and services to industry. This combination of responsibilities ensures that Ruh has an important voice in all decisions. In short, the CDO must not be seen just as a digital expert, but must also have executive responsibility. CDOs must be assigned their own budget with sufficient funds, over which they have full control for talent recruitment and so on. Siemens assigned its new unit next47, established in October 2016 to seek out investment opportunities, a budget of $1.1 billion over the next five years.

In organizations with multiple independent divisions, the CDO needs support. Internal digital transformation officers (DTOs) are therefore assigned to each division, but remain part of the cross-company digital transformation office. The DTO is the engine of change in his or her business unit. The job demands confident and independent people who understand their business model and who think and act digital.

Manage Like a VC: Link Budgets to Milestones

When it comes to budgets, managers should take a page out of the venture capitalist playbook. They need to move away from their mentality of deterministic budgets set for a number of years, and instead adopt a strategy of releasing smaller, more manageable tranches when investing in innovative products and businesses. Once a development has reached a defined milestone—for example, the production of the first minimum viable product (MVP) or the successful capture of the first customers—subsequent funding is quickly and nonbureaucratically approved. It is equally important to take appropriate measures—reducing the budget or even ending the venture—if key milestones such as receiving positive customer feedback are not achieved. The most important milestones are defined across the innovation process, from the concept and the first MVP through to market launch and scaling.

Traditional companies find it particularly difficult to scrap projects, and often keep failing initiatives alive to save the reputations of those responsible. Not only does this cost financial and human resources, but it also wastes valuable time in the race to find truly standout innovations. It’s irrational behavior. Why would a product that fails even with the early adopters suddenly become a roaring success later? Companies need a body similar to the investment board of a start-up that continuously asks critical questions.

Measure, Analyze, Optimize: Resolute Application of New Steering Systems

To enable data-driven decisions, the company must establish continuously monitored KPIs in all functions, measuring indicators that go beyond order entry, revenue, and profit. Cosmetics group L’Oréal even uses them for strategy, and steers its digital transformation according to three KPIs. The company calls it the 20-50-100 program: by 2020, L’Oréal wants to realize 20 percent of its revenue through digital channels, have a direct relationship with 50 percent of its customers, and enjoy an approval rating of 100 percent in its internally defined “brand love score.” It provides management and employees with a clear target and measurable success.

The day-to-day management of digitization, however, tends not to be about strategy; instead, KPIs are set for digital processes. These should meet two criteria: first, the KPIs should be simple, and second, the person who is measured by the KPI should be able to influence it. For example, in Amazon’s premium service Prime, the performance of the responsible product manager is assessed based on two KPIs: the growth rate of Prime customers and the churn rate—the number of customers who cancel their Prime membership. Other KPIs such as the profitability of Prime customers are not a measure of performance because they depend on many other factors such as the gross product margin, which can’t be directly influenced by the Prime product manager.

Google operates a simple KPI system to assess the performance of its employees and their projects. One of its early investors, John Doerr, brought in objectives and key results (OKR) from Intel. Everyone in the company sets their own targets—from the executive management and department heads, all the way down to individual employees. These targets are quantified as multiple KPIs for a maximum of five projects. Those who manage more must prioritize. Web designers, for example, don’t set themselves the target of “the website must improve,” but instead state the improvement needed: “30 percent faster site building.” Digital natives assess each KPI by a zero-or-one logic, and an average is formed from the KPIs for each project. Target achievement of 75 percent is considered adequate, while a higher value indicates the targets were set too low. A lower value suggests the project should be reviewed to determine whether it should be continued. The projects and their OKR values are published at Google, including those of the CEO. This isn’t so much to find the employee of the month, the company says, but rather to ensure that everyone knows what everyone else is working on. Many start-ups such as Spotify, Splunk, and Slack use OKR. However, the methods are equally applicable to large enterprises, Google being the perfect example.

The chart shows how a team that wants to optimize a website for online retail chooses meaningful KPIs for the site. Moving from left to right, we see every point in the customer journey from visiting the website to delivery of the ordered goods. From top to bottom, we see the performance to be measured: the conversion rate, the number and duration of site visits, and technical performance. Possible metrics are then listed for each line. Much can be measured; the art is in knowing which figures are the most meaningful.

Customer-specific KPIs aren’t useful just in the end consumer space; industrial companies can also apply them to the classic B2B space. These companies often show glaring weaknesses when it comes to digital communication with the customer, starting with their websites. Employing the right KPIs makes the performance of digital communication easy to measure. And once a company recognizes its weaknesses, it can take targeted steps to resolve them, which will be greatly appreciated by enterprise customers, who, just like end consumers, want things to be clear and simple.

Intelligently applied KPIs are critical to the successful digitization of processes. Metrics need to be measurable, quantified, and relevant. In some ways, it’s an evolution of lean management—lean on steroids.

Top Management Must Lead by Example

The advent of digitization brings challenging times for the top management and middle management of traditional firms. Even before this, these companies were a dying breed with their rigid hierarchies and subordinate foot soldiers. Digitization, however, demands a significant downward transfer of responsibility, and therefore power. The digital transformation starts with the person at the top, and it’s the CEO who must trigger the change in the corporate culture. It’s up to the executive board and top management to take responsibility for the digital change.

Authenticity and conviction are vital. And while a new, more casual dress code may play a role, creative, inspiring, and authentic communication is far more effective than allowing sneakers and ditching ties. Managers who have others print off their e-mails or delegate the task of replying in their name are neither inspiring nor authentic. Not everyone can blog like Facebook founder Mark Zuckerberg or tweet quite as often as venture capitalist Ben Horowitz or Tesla owner Elon Musk, but today’s CEO should at least be confident with the latest social media, be able to use it, and, most importantly, want to use it.

Digital companies are masters of storytelling, usually on social media, wrapping their messages up in witty and inspiring stories, This is a key motivational and management tool. Jeffrey Immelt, CEO of GE, has made this management tool his own. For five years and across all channels he has been relating his often emotional, always engaging story about how GE wants to become the number one company in the industrial Internet. Immelt impresses customers and business partners not only with his stories, but also with his commitment. Each month, he meets with the pilot partners of Predix, GE’s central data and analysis platform, to understand which system functions are really relevant, and how the partners can improve their production and maintenance using big data analyses. Such commitment sends a strong signal: these partnerships are of critical strategic importance, and a matter for the CEO.

License to Kill

Digital natives are on first-name terms. When the successful founder of a large retail group got to know his recently appointed CDO, he left the meeting with the words: “James, if you’re going to complete your mission successfully, you’re going to need a ‘license to kill’; otherwise all the stand-patters and skeptics will leave you to rot.” But of course it isn’t really about getting rid of the stallers; it’s about having the authority and backing to make decisions without having to worry about doing things the traditional way. A new digital unit, for example, mustn’t be hindered by restrictive IT guidelines and directives; otherwise, conflict between the new CDO and the head of IT can quickly occur even over basic things like choosing a modern e-mail system. And again, the new unit mustn’t be restricted by the group’s HR department when it comes to approaching and recruiting new digital talent.

CDOs need to prove their worth in all of these battles. They must recognize when it’s better to fight and when it’s better to retreat for the sake of the firm, which is no simple task. A CDO must not be left to fight alone. This special agent needs the CEO to watch his or her back. It’s the job of the company’s leadership to strengthen its transformation agents, and support unpopular decisions that do away with the old.

Starbucks is a perfect example of why it’s so important to back the CDO: since 2012, Adam Brotman has led the firm’s digitization, reporting directly to the CEO. Brotman has masterminded a digital success story at Starbucks: Wi-Fi in all coffeeshops, mobile apps that allow customers to order on the go, the successful MyRewards loyalty scheme, and much more. The Starbucks digital team played a large part in the massive revenue growth of recent years, the higher customer satisfaction scores, and the increased operational efficiency of the shops. Within five years, the market valuation of Starbucks rose from $19 billion to over $50 billion.