A digitally transformed organization is one that is “alive and awake to everything that is going on around it” and knows how to leverage connections to take advantage of its place within a complex ecosystem.
That is one of the key points made in the inaugural episode of Domo Connects, a podcast that explores matters related to digital transformation and organizational optimization through compelling conversations with some of the brightest minds in business.
In the episode, I speak with Peter Sole, Helen Mumford-Sole and Julie Rufo of digital transformation insight provider Mumford Sole Partners about a report the New York-based firm released in 2019 that looked at the biggest barriers to digital transformation and how to knock them down:
Scott Resch: Welcome, Team Mumford Sole. Thanks for joining me to discuss your recent research on digital transformation today. Like anyone who has had the chance to read the whitepapers that have come from it—which can be found on the Domo website, I should note—I found it fascinating. It really gets at what true digital transformation means by exploring it from the standpoint of how we all need to start thinking about it. What prompted you to conduct this study? And how did you decide on where to begin?
Helen Mumford-Sole: I guess where all this started out was from conversations that we were having with colleagues, with friends, with clients who were mainly in the C-suite of organizations of different sizes. This was all taking place about a year or 18 months ago. What was a really common thing we were hearing was just how difficult it is to do digital transformation, just how difficult it is to deploy technology in order to transform their organizations. So, we were kind of reflecting on this, on all these conversations, and thinking about them, and within a few days of us really identifying this pattern and talking about it, we were also approached by some tech start-ups and scale-ups—actually, some CEOs and founders of those—who were saying, “Please can you help us work out how to approach companies?” They really felt that their technology could make a difference, but they were finding it hard to get into them. So, as a consequence of that, we were thinking, “You know what? All this really says is that this ecosystem isn’t working so well. So, let’s do a piece of research and let’s have a look at how partnerships between start-ups and scale-ups and enterprises should work.” If we could work out what those partnerships principles were, we could make this ecosystem go around.
Scott Resch: That must’ve been quite the undertaking.
Helen Mumford-Sole: It really was. But you can imagine the kind of best practice you glean from that. This is a new area—there’s not really much wisdom. There are pockets of people who are trying different things, but they’re spread all over the place. Our goal is to bring all those things together and share it. That’s the only way this thing is going to go faster is—by building on the shoulders of others who are doing these things. It’s that sharing of best practice that is so important.
Scott Resch: And you looked worldwide for this, didn’t you?
Helen Mumford-Sole: We did.
Scott Resch: You also looked at Tetris, the ‘80s video game that became wildly popular. It played a role in getting this research off the ground. Can you talk a little about that and what connection you found there?
Helen Mumford-Sole: Yeah, this is something that came up in our research. Everyone knows Tetris. It first came out in 1984, and a decade later, hundreds of millions of people were playing it around the world. Now, you would think the highest scores emerged at that point. But actually, that wasn’t the case. There is still a hardcore group of people playing today. They are getting the highest scores, and the high score is being set faster than ever before. What’s interesting about this is these players are not just interested in the game and their own personal score; they’re interested in what the highest score is overall and that everybody continues to get better and better. So, they share their game play, they take videos of what they’re doing, they communicate tricks they’ve found, things that worked and what didn’t work. So, they’re sharing amongst themselves so the scores get higher and higher. Why we liked that story is because we think it’s a little like digital innovation at this time, because if we can share and get best practice out on the table, then the whole standard, the whole game, is going to carry on and increase and increase. So, that story that came up by chance became a real influence for us in terms of how we wanted to conduct our research and how we wanted to bring people together so they could share their best practices. That is one of the most fun parts about what we do.
Scott Resch: Why is it so important for people to better understand digital transformation? Research suggests that most companies are going through some level of it, but a lot of them are failing. Why do you think that is?
Peter Sole: Let me take the first part of that question first, which is why is it important to understand. The first thing to recognize, and we all know this because we work with it daily, is that the IT industry is blessed with cyclical height—as in, it’s one thing after another. So, it’s really important to be able to distinguish the things you should pay attention to and the stuff that people are touting as the latest fad or craze. Digital transformation is a little bit different because it really encompasses all the efforts to deploy some very new and very major technologies such as cloud computing, AI, machine learning—that sort of thing. And bringing these together with a whole lot of data is becoming more accessible by the hour. It’s creating lots of new opportunities, not just to make things more efficient, but to bring completely fresh insights that were previously impossible to discover because we didn’t have the ability to operate at scale. So digital transformation is a really big deal. It’s on the order of when the Internet came along. And we want people to understand that. It’s about rethinking the markets and rethinking the relationships and opportunities that your business has in front of it. So, that’s why it’s important.
Scott Resch: Right, and the idea of failing? Research suggests that most companies are going through some level of it.
Peter Sole: Yes, it’s pretty striking actually. Because hardly anybody would say, “Well, no, we’re not doing anything about digital transformation.” But when you actually scratch the surface what you find is somebody’s been given the job and been sent away to do it. But with organizations that are succeeding, there are patterns emerging about what amounts to success. It’s not the same across the board, but there are some common themes. One would be that the CEO is personally committed to digital transformation in a way that’s not the same as just applying technology to make it more efficient. It’s embracing the new opportunities.
Scott Resch: As succinctly as you can put it, what does your research say about what it means to be a digital company?
Julie Rufo: I think this speaks to a lot of what Peter just talked about. We have all these major innovations, but what does that actually add up to? For us, talking about what it is to be a digital company at the highest level is a simple sounding thing that is pretty momentous. So for us, a digital company is one that sees itself as a node in the ecosystem and adjusts its strategy, operations, and behavior accordingly.
Scott Resch: Your report is also great in that it holds up so many examples of companies that are moving markets in their favor. Do you mind talking about one or two of those for a minute? How did you find them? What exactly are they doing to move that needle?
Julie Rufo: Yeah, sure, but before we go into the examples, I’d like to dig into this idea of moving markets in your favor, because I think it’s a pretty big idea to unpack. If you just think about why is it possible to move markets in your favor, we have to start with the definition of digital. The purest definition I’ve come across comes from McKinsey. They’ve written that it’s the “nearly free, instant, and flawless ability to connect people, devices and physical objects, anywhere.” That’s huge, right? This is more connection than we’ve ever had in human history, but it’s an end state, and we’re not there yet. As we get closer, life changes significantly. So, with where we are today, it’s theoretically possible for companies to start taking advantage of those connections. If you’re acting like a node in an ecosystem, then you’re gathering data from all these people and devices constantly, so you can be constantly monitoring markets from all different angles to identify opportunities and threats as they arrive in real time. A lot of the way we think about company strategy today is, “Ok, well, here is our value proposition and these are the problems we solve.” What we’re talking about is a major shift from that. We’re talking about being able to get market data constantly from all these different angles, to be constantly reassessing what the best opportunities to pursue are. So, the first half of that equation is just being able to analyze all the data coming in and see where your opportunities are. This kind of goes to the idea of real time. For the longest time, the advice around real time was, “It’s just not worth the cost of getting information in real time unless you’re in some very specialized industry like high speed training or some heavy industry safety situation.” But that actually is not true. What is true is that real time is only worth it if you can execute on it. So, this is really what companies have to learn how to do. They have to learn how to execute in a different way. So, the point is if you can harness both this ability to get insights from every corner of the market and execute on them in real time, that’s when you’re going to be able to move markets in your favor. And in the digital era, we believe that is actually going to be the generic source of advantage.
Peter Sole: Or disadvantage.
Scott Resch: Right. And so, companies that you found that are executing in real time?
Julie Rufo: I wouldn’t say that anyone has cracked this yet. Companies of interest really do two things. The first thing that they do is they give more autonomy to people at the edges of the organization, which just means they give them more authority and ability to make decisions on information as they receive it. So, if you figure, “Why people at the edges?” It’s because they’re the ones interacting with the market all the time. And if they have more ability to react on that information, and create innovations on their own, they are going to get a little more speed. Probably the simplest example that we have is from BP (British Petroleum). They really engaged in innovation partnerships with start-ups in order to speed up their innovation capabilities, because they were realizing—and this was in the early 2000s—that a lot of the innovation was happening outside of their company and outside the oil and gas industry. So, instead of taking the very common tactic of building out millions and millions of dollars worth of innovation lab, they created a team of 12 people whose job it was to not only deeply understand BP’s business units and the business problems they were facing, but create a strong personal network out in the emerging technology ecosystem. Their job was to just understand both sides of that equation and bring them together where they thought they saw opportunities. Then they would oversee a pilot for 12 weeks and if things went well it was up to the business units to really take this on. I believe within the first three years that this group was in existence they were already generating $250 million worth of benefits for BP. If you consider there’s about a 60% failure rate for corporate innovation labs over the course of two years, that’s a pretty incredible win.
Scott Resch: I thought one of the really interesting sections was the one where you explain why consumer generated reviews and wealth management banks are good ways to think about the way value gets created in these digital ecosystems. Would you mind touching on that aspect for a moment?
Julie Rufo: Yeah, this really helps to explain why we say a digital company acts like a node in an ecosystem and changes its behavior accordingly. And that’s because digital markets behave differently than industrial-era markets, simply because there are more connections in them. So instead of value moving in these predictable linear value chains, in a single direction, to the end customer, we now have value flowing in loops. One of our favorite examples for showing this are customer-generated reviews. They’re really common. You see them all over the place. Pretty much every retailer today is reliant on them. And that’s because they’re incredibly valuable. We came across a number of really impressive statistics that show just how valuable they are. One in particular that sticks is going from 0 reviews to 1 review on a product can change the rate that online window shoppers click on the button by 65%. The really interesting thing about these reviews is that it’s not just the company that’s creating this value that fits into our expected mental model of how value gets created in the market, it’s actually customers generating this value, and it’s being consumed directly by other customers. So, we have a value feedback loop that doesn’t really even include the company itself—except that these customers are also generating reviews that give value back to the company, because as we saw people buy a lot more things when you have reviews about them. So, it directly also benefits the company. This goes really against a lot of our traditional value chain thinking, because we knew that value traveled in one direction to end customers, but now we’re seeing value flow in all different kinds of directions, and that’s because we have data flowing from customers back up.
Scott Resch: What is involved for companies to become part of such a digital ecosystem?
Peter Sole: You start by waking up. So, imagine if you’re a corporation, sitting there, looking to the outside world, you’re largely asleep. There are only a few lights on, and there are only a few touchpoints.
Helen Mumford-Sole: You sound like our kids talking about people being woke.
Peter Sole: Yes, exactly. The big lumbering organization is kind of snoozing along with its front door open, maybe a side door, but nothing much more than that, and all business comes and goes through the front door and maybe the delivery dock at the back. A digital company is one which has almost all of its interfaces lit up all the time. So, everybody that’s got the opportunity to interface with the outside world, in whatever form, is given all the information they need to be really successful in that interaction. A digital organization, or digitally transformed organization, is one that looks really alive and awake to everything that’s going on around it, with its customers but also its competitors and partners in the marketplace. So, hundreds and hundreds of points of connection, all firing off in random, as opposed to the in-step march of the traditional organization—some would call it the death march—where everyone’s in-step and doing the same thing and doing it in a strictly prescribed fashion.
Scott Resch: And lots of doors and windows open.
Peter Sole: Yeah, but all the attendant risks and opportunities.
Helen Mumford-Sole: It involves loosening up. Frameworks are still needed but it involves kind of relaxing with that framework, because if everything has to be prescribed and thought through, then it’s very difficult to identify the opportunities and the connections that would be useful.
Peter Sole: Yeah, it’s pretty often found in the software industry, because people seldom have an all-embracing solution, so to go to market, they often combine with other adjacent capabilities to present a more complete case to an end-user customer, as opposed to saying, “Here’s my bit, now go away and find the other bits you need to make this work.” We see quite a lot of that successfully done.
Scott Resch: On this idea of partnerships—you can partner as much as you want, but that doesn’t guarantee success. So how do you pursue more successful partnerships?
Julie Rufo: I think that companies underestimate the importance of trust. A high value business relationship is founded on many of the same things that other relationships are founded on, which is mutual understanding—really understanding the needs of the other side—and listening, and what comes out of those two things is trust. We’ve created a whole set of partnership principles that is really a specific set of guidelines for both enterprises and start-ups going into these kinds of relationships. But I think the high level that I described is actually exhibited by Sweetgreen, this one case we came across in our research. Sweetgreen is a vegetable-forward, fast-casual restaurant chain. It’s basically McDonald’s for millennials. They’re a really innovative ecosystem company, and we love to draw on them for examples because they really exhibit what it is to be an ecosystem company. But I also think that they are a really good example to hold up for what kind of partnership we’re talking about. So, in the northeast, in their restaurants, they had this peach harvest grain bowl—it had peaches and goat cheese and it was their top seasonal seller. It was a really big product for them. But one year there was this freak snow storm—it was really late in the spring—and it basically destroyed all of the peach crops from their usual suppliers. Now, pretty much any other company would just find a new supplier. “We have to have our top selling product, right?” But that’s not what Sweetgreen decided to do. The teams on the ground in those restaurants worked with the same farming suppliers, and just said, “Well, what crops do you have?” And they invented a berry bowl that was sort of around the colors of the New England Patriots, and lo and behold they came up with their new best-selling product, because, you know, what’s better than sports team pride to help you sell things? That’s just an example of what trusting catering to the other side’s needs are. You could say, “Well, we have our best performing product and we have to drop you as a supplier this year because we still have to have it.” But instead, they just went outside of the lines and came up with a great new innovation just by working with their existing suppliers.
Helen Mumford-Sole: It’s worth mentioning, when we put the partnership principles together, that that was where we were really drawing from good and bad experiences throughout the ecosystem. Now when you read it through, there’s quite a lot in there that you’d think, “Oh, I’ve got that. We know that already. We do that already.” Some bits of it sound pretty simple. But actually, perhaps one of our biggest findings was that while everybody knows what these things are—or let’s say most people know some of them—what actually happens is hardly any companies, whether they’re on the enterprise side or tech side, do everything that’s in there. So, what we discovered was that trust is quite a delicate object, and in order to really honor the trust of it, then part of that is making sure that you do all the right things in order to make it happen. Just doing 50% doesn’t achieve half of what you want to achieve. Doing 80% doesn’t achieve 80% of what you want to achieve. No, 100% is what’s needed in order to ensure that that partnership works well and that that trust is maintained.
Peter Sole: That’s exactly right. And I think the other thing is that it’s really important that people approach partnerships of this kind not with a win-lose mentality—which is kind of the traditional way big companies go about partnering with suppliers. They kind of beat the heck out of them to get the best price and hope they stay in business long enough to serve them. Rather, there has to be a spirit of generosity that comes into play where it doesn’t matter if someone has a slightly better deal than you do, because if it’s an ecosystem thought process, and if you’re truly acting as a node in an ecosystem, then you understand it’s important to contribute as well as to extract value.
Scott Resch: That kind of leads into another principle you came across, which was that you really have to define what success looks like for both parties, don’t you?
Julie Rufo: So, I think, this is going back to what Helen was saying about our partnership principles, you could look at the list of principles and think, “Oh, all of this is completely obvious. Why do we need to have a list of principles about this?” The reason from our research is that companies aren’t doing it. Why aren’t they doing it? Well, sitting down and really laying out what success looks like seems really obvious to you, and when you’re used to working with other big companies or software vendors that are going to bend over backwards to make sure they can keep and/or grow your account, they have people whose entire job it is to understand what success looks like to you. A start-up is not going to understand what success looks like to you. They are so busy trying to make sure that they’re still in existence next year. They know what success looks like to them. On the other hand, enterprises really don’t get that constant “are we going to be able to continue to exist” anxiety that start-ups have. So really understanding that they need to lay out “this is what our expectations are,” even when you’re signing up for a 30-day pilot, I think that’s really critical.
Helen Mumford-Sole: Oh, Julie, talk about the elephant and the mouse.
Julie Rufo: Oh, yeah, I was dancing around that. To explain—because, again, these two sides are so different—we use an analogy. This also comes from biology. There’s a concept called allometric scaling, where in mammals there’s this really predictable but non-linear relationship between animals’ body sizes and their metabolisms, so you can actually chart it on a log scale and it’s like this perfect log function. What it boils down to is that an elephant is going to be much bigger than a mouse and they can live in the same biological community—you’ll find them in the same place—but their experience of living in that same area is going to be totally different because elephants grow more slowly, their hearts beat more slowly, and they have vastly longer lifespans compared to a mouse that lives one to one and a half years. So, even though they’re experiencing the exact same reality, their perception of reality is going to be really different. Now does that mean that our enterprise elephants can’t partner with our start-up mice? No, it just means that both sides really have to understand that before they can go into a relationship with each other.
Scott Resch: Another thing I found interesting about the report was the premise that you can’t plan your way to digital transformation success. Can you explain that a little bit, and talk about how and why interactions are so important there?
Julie Rufo: Yeah, we always go back to the concept that digital markets are complex ecosystems. Now you have to really understand the idea of complexity to understand this. Complex problems are not the same as complicated problems. Complicated problems can be really hard to solve, but once you’ve figured them out, you can just use a repeatable process to solve it. So, you can use rules, you can use algorithms. It’s sorted. Once you get it, you can deal with it. Complex problems, on the other hand, have too many interrelated parts and there are too many uncertainties to ever predict it. So, it’s not something that you can solve and just repeatably solve over and over again. You can often model complex problems but you can’t predict them. So, because digital markets have so many more connections, they’re vastly more complex systems than we’ve known in the past. So, what does this mean? With complex systems, you can model them but you can’t predict them. That means we can’t just think about digital transformation as something that we plan and put into a beautiful Powerpoint deck and then execute backwards towards. We can’t even think of digital strategy like that. Obviously big corporations are going to have their plans, but they also have to be deliberately open to opportunities as they arise, just because that’s the nature of existing in a complex ecosystem. It’s not possible to plan everything.
Helen Mumford-Sole: I really like the insight of this expression. There are so many individuals, so many companies, who are looking for the big idea, who are looking for the big way of disrupting themselves, and they think that they’re failing because they don’t have that big picture. But here’s the insight: You don’t need that big picture, you don’t need to know what the destination is. The digital strategy is to start doing these kinds of things, and in so doing, you’re going to discover what that thing is that’s at the end of the rainbow. One of the ways that we talk about this, is that it’s like when you set off on a journey at nighttime, and you’re traveling a significant distance. You can actually only see to the edge of your head lamps (lights), but that’s ok, because that’s all you need to do—travel the distance to the end of your head lamps, and in so doing, the destination will emerge. So, it’s this idea that it’s much more important set off on the journey and continually travel to the edge of your head lamps because it will unfold, it will unfurl, and the strategy is to start doing it, rather than to have a big picture and then work out a plan of how to get there. That picture may never emerge, because this is an emerging thing.
Peter Sole: Yeah, you suddenly wake up one day and find out you’re in a different place, and you say, “Oh, that’s interesting.”
Scott Resch: We’re out of time today, but thank you very much, Peter Sole, Helen Mumford Sole, and Julie Rufo, of Mumford Sole Partners, for a fascinating discussion on digital transformation, and in particular, your 2019 report, Becoming Digital: How Ecosystem Strategies and Start-up Partnerships Are a Path to the Digital Enterprise. Have a great day.