Chapter 11. EDGE: Exploring Your Transformative Future
You’ve seen the “hockey sticks” in every book on change. Whether they represent population growth, microchip density driven by Moore’s Law, or the shrinking of polar glacial ice, hockey stick curves indicate the accelerating pace of change. But big change events have been around for a long time. Less known than the extinction event surrounding the disappearance of the dinosaurs was the more catastrophic late Permian event, 225 million years ago, when 96 percent of all living species vanished from earth.1 Hundreds of species, many superbly honed as the fittest in their environment, died in the Permian extinction. Some, barely surviving in small Permian ecological niches, accidentally happened to have characteristics allowing them to flourish in the subsequent Triassic period. The bigger the change, particularly in the external environment (markets, technology, economy), the larger the chance of failure—it might be survival of the luckiest.
1. Gould, Stephen Jay. Wonderful Life: The Burgess Shale and the Nature of History. NewYork: W. W. Norton and Company, 1989.
Are we living through a Permian extinction for businesses and other organizations? Can we improve on the survival of the luckiest? Darwin and other evolutionary biologists give us a survival of the fittest strategy, and many say the key fitness capability is adaptability. Another group of biologists, led by John Holland,2 postulate that survival of the fittest isn’t powerful enough and that arrival of the fittest— that is, cooperation and collaboration rather than competition—is more important. Do these biological analogies extend into the business world?
2. Holland, John H. Hidden Order: How Adaptation Builds Complexity. Reading, MA:Addison-Wesley, 1995.
An organization’s answer to the question how can we adapt fast enough may mean the difference between thriving in the future economy (which starts tomorrow) and going the way of buggy whip companies or bricks-and-mortar bookstores. It isn’t an easy question to answer. Who do you need to be faster than? How many hotel chains anticipated Airbnb? Who anticipated the sharing economy that Airbnb epitomized? How did hotel chains respond? How do you stay in business while you adapt?
Take the example of JC Penney. Several years ago, the firm brought in a new CEO from Apple’s retail operation who tried to remake the company. The changes were devastating to sales and profitability, and the company turned to previous executives to right the ship. But the entire retail market is in a state of confusion and uncertainty. The real question for JC Penney and many others remains: Which business model means success in the long term? Maybe the revised model was the correct one for the future but the transition cost was just too high. Time will tell if going back to the traditional model just bought the retailer a few more years or will bring a bright future. Was the company too slow to adapt in the beginning or too fast to discard the model changes? Your digital transformation timing will be important because your business model will change as well. Being late and operating in a catch-up mode to competitors is an uncomfortable place to be, as many enterprises are learning, but being too early and losing existing customers before your new strategy kicks in can be just as uncomfortable. However, becoming something different and being uncomfortable go hand-in-hand.
Leading into your future first requires that you turn a vast sea of opportunities into targeted goals that support your organization’s purpose and vision. We will assume that because you are here and have read most of this book by now, your vision involves becoming a digital enterprise. To become an Envision–Explore rather than a Plan–Do organization, you need to think about how you measure success—your high-level fitness function. Return on investment (ROI) is now a necessary, but insufficient, Measure of Success (MoS). Customer value, even though it is more difficult to measure, measures success in a way that encourages the changes needed.
The Lean Value Tree (LVT) embodies the process of breaking the vision into goals, bets, and initiatives. At every level, some opportunities are refined into more detail while others are discarded. Critical to this refinement is coming up with good MoS, focusing on customer outcomes—things that provide value to your customers.
However, coming up with a well-populated LVT is only half the process. Concurrently with developing the LVT, you need to understand the capabilities required to achieve those goals and realistically assess yours, including how you can acquire capabilities that are lacking. We should point out here that technology provides both opportunities to be analyzed and capabilities to implement goals. We have found that a realistic assessment of capabilities is often one of the most difficult tasks.
Think of a metaphor from another endeavor—mountaineering. Is your goal to do a strenuous climb (basically a hike) up a moderate Colorado fourteener,3 or do you want to climb one of the most dangerous mountains in the world, K2?4 Generally, people know something about Mount Everest and the dangers there, as the press has reported on a series of fatalities in the last several decades.5 K2 is much more challenging and dangerous. Think about the capabilities needed to hike a fourteener versus K2—from physical conditioning, to climbing skills, to planning and logistics, to mental toughness, to risk assessment. Executing business goals is no different: There are K2-like goals and fourteener-like goals, and it’s best not to get them mixed up. Many climbing teams have the endurance and skills to ascend that moderate fourteener; few highly skilled and fit teams have succeeded on K2. Matching goals and capabilities isn’t as straightforward as it might seem.
3. In Colorado, there are 53 peaks more than 14,000 feet in elevation that are referred to as fourteeners.
4. At 28,251 feet elevation, K2 (referred to as the Savage Mountain) is the second highest mountain in the world (after Mount Everest) and has the second highest fatality rate for climbers (after Annapurna).
5. Krakauer, Jon. Into Thin Air: A Personal Account of the Mt. Everest Disaster. NewYork: Villard Books, 1997.
While working on the LVT and MoS, the product people on the team and within the product organization are concurrently developing product blueprints to ensure that over the longer term the team, management, and customers have an understanding of how you intend to evolve your products. Organizational structures will also change as businesses morph from functional hierarchies to product-oriented autonomous teams.
Technology provides two potential benefits. On the one hand, the advances in technology create product and service opportunities; on the other hand, technology provides new capabilities to build those products. That raises a set of questions for everyone—executives, leaders, technologists. How can you understand social media if you have never used Facebook, Twitter, or Instagram? Can you visualize how virtual reality might be as big a jump in computer interface design as the jump from nongraphical to graphical interfaces? Do you know how big data analysis might help you better understand customers? It’s not enough for executives and others to fund technology, you must understand technology! That leads to one of our keys to digital transformation—embracing Tech@Core.
Tech@Core, LVT, MoS, and product blueprints are all involved in turning nebulous opportunities into focused plans. Analyzing the capabilities needed to implement those plans follows. But both of these—opportunities and capabilities—require leadership, organization, and governance.
As we make the jump to the Fourth Industrial Revolution driven by the technology, we have to change how we work together. Creativity and innovation needed are more likely to bubble up than to bubble down. Diverse customer needs and diverse technology components require equally diverse teams, at every level of your organization, who can collaborate, make good decisions, learn and adapt, and deliver customer value. Organizations themselves need to be reorganized along value-chain links rather than traditional functional hierarchies. Teams need to be both self-sufficient and autonomous.
You need to tear executives and managers away from their comfort zone. You need to adapt, but not oscillate. You need to establish a clear and consistent vision and adaptive culture, providing your organization with a common core of principles that persists and concurrently a mindset that learns and adapts to evolving conditions. You need to persist and know when not to persist. You need to give up the notion of always being in control and the bureaucracy that inevitably builds up to ensure control. You need just enough governance—a level that is effective, but lightweight.
Accelerating change demands innovation in how we adapt fast enough. It requires more than faster product development: It demands radical changes in how we work together and how we invest in the future. To adapt fast enough, we have to move beyond scaling to infusing a different mindset throughout our organizations. Innovation and adaptation happen at the edge where structure meets chaos—where we all feel uncomfortable but excited. Balancing at the edge of chaos—keeping just enough structure to avoid debilitating chaos, while maintaining the freedom to spark innovation—isn’t easy. A former CEO of ThoughtWorks once remarked, “We had eight key initiatives going into the year. It’s now May and we eliminated three of the initiatives and added two more. I don’t know if we are being adaptive or are just poor planners.”
Have we gone too far in recommending so many changes in this book? Maybe. The different aspects of EDGE include focusing on customer value and speed and adaptability as fitness functions, addressing both opportunity and capability, understanding and applying EDGE principles, using the LVT and outcome-oriented MoS, adopting a product mindset, building autonomous teams, becoming adaptive leaders, and utilizing a lightweight governance model. The combination of these components defines an agile operating model that will assist you in transforming your organization into a digital enterprise that has a greater ability to adapt not only more quickly, but more effectively. As we said in the beginning, every organization is different and should decide to implement different aspects of EDGE—implement faster or slower, implement to different depths. But if your goal is to become a digital enterprise and to thrive in this rapidly changing and uncertain environment, you shouldn’t underestimate the changes you need to make.
As we said at the beginning of Chapter 1, The Big Picture, EDGE is more about transforming than transformation. The path from the Industrial Age to the Digital Age can be long and winding. New technologies will arise. Both opportunities and competition will change. Ultimately, EDGE is more about the journey, the becoming, than the destination. So don’t forget that transforming your enterprise will be hastened by concentrating on evolving your adaptive culture as you move toward that destination.