Digital Leadership in Action, Part 2
Continuing from last week, below is the second half of my conversation (both audio, and written transcript) on leadership in the digital era, from the Wharton School’s “Leadership in Action” program on Sirius XM radio.
If you missed it, here is Part 1 of our conversation from last week.
Part 2: Summary
In this second half of the interview, Anne Greenhalgh and I discuss:
My five-step framework to overcome the barriers to digital transformation
Lessons from Walmart, which has embraced DX by focusing on its unique advantages and experimenting to find solutions to customer problems
Advice for the higher education industry in embracing DX
Top-down vs. bottom-up organizations and the history of the US military
Rethinking leadership beyond “make as many decisions as possible”
The three roles of a leader: author, teacher, and servant.
Audio: Part 2
Transcript: Part 2
Narrator (00:00):
You are listening to Leadership in Action on Business Radio.
Anne Greenhalgh (00:08):
Welcome back to Leadership in Action on SiriusXM Business Radio, powered by the Wharton School. I'm, Anne Greenhalgh, and I am joined today by, David Rogers, who is a world's expert on digital transformation. He's written a good number of books, including a previous landmark bestseller “The Digital Transformation Playbook,” and now has a brand new book coming out called “The Digital Transformation Roadmap.”
David, in the first half we were talking about some barriers. And I would love to hear you tell us: we know what the barriers are; how do we get over them? Can you give us an example of a company that has embraced digital transformation?
David Rogers (00:57):
Sure, thanks Anne. So that was really the question that led me to write the book, right? There's a lot of awareness of these kind of sources of friction and what seems to be gumming up the works: the inertia, the emotional resistance, the inability to make change happen in established bureaucracies, the backward-looking allocation of resources, misalignment of metrics… all these kinds of things are there. The question is how do you address them? How do the companies that are doing this right, what do they do different? And that was what I synthesized into this framework that I call the Digital Transformation Roadmap, and it really comes down to five things.
So the first step is defining a shared vision. You cannot really bring people together, get past the sort of natural fear and aversion to change unless you are able to spell out a clear vision of where you are going and why, and that has to be rooted in your particular business. I see a lot of companies who talk about, "Oh, we're going to become digital." In a very generic sense, right?
(02:08):
"Oh, we need to be a digital first business. We need to future-proof our company." They point to the same classic examples of disruption from a few industries that everyone talks about, but they don't really say anything about their particular business, their customers, their market. So you've got to root it in your business, your company, your customers, and then you've got to give people a positive vision for change.
It is not enough, this old sawhorse saying, "Oh, you need to find the burning platform. You need to tell them what terrible things are going to happen to the company if they don't get off their tails and start making change happen." That does not work, right? That does not motivate people. You have to show them what is going to be possible to accomplish. How are you going to change the lives of your customers, maybe of your employees, maybe have an impact on society at large? If you do the hard work of changing the organization and the work that you do every day.
(03:02):
You've got to have that positive vision and it needs to be about the impact you're going to have in the world, the problems you're going to solve, and also you need to have a what I call a business theory. Spelling out how based on your unique strategic advantages this is going to actually pay off and capture value for you. So that's the first step, right? You've got to have that shared vision.
The second step is about priorities, and this is what I call picking the problems that matter most. You cannot just start jetting off in 100 different directions, which is very easy with digital innovation. There's so many interesting new opportunities and technologies and ideas out there. You need to have the discipline to pick a few strategic problems that you're going to solve, whether it's for the customer or for the company, specific growth opportunities. Articulate those and then be willing to say no to a lot of different ideas in order to really say yes to a few that matter most.
(04:03):
The third thing, third step of the roadmap is that you need to get really good at what I call validating new ventures, right? This is all about experimentation. So it's about not doing what CNN did. It's about sort of what I hinted at CNN could have done, which is take an interesting idea, take a sketch of a venture that you might build. Okay? What if we did an app? Sketch out all the hypotheses of what that business model might look like. Okay, who do we think the audience might be? Who might be the early adopters? What would the usage be? What are they going to be looking for? Which content? Which features? What services matter most? When we launch what's the most essential things? What's the customer journey? When and where are they going to use this and how are they going to discover it? What's the total addressable market, the customer lifetime value, the acquisition costs, all these financial elements. All these things are unknown, so if you spell these out at the beginning as hypotheses then you can vary cheaply and quickly...
(05:00):
Not $300 million, not a year of planning, but start to measure and test and validate specific questions and then you start to really figure out is this an opportunity? Is the market ready for this? What's the path for us to go forward? If we really do, who's the customer who needs this most? All these most essential questions. All right, that's the third step. Getting good at everyone doing this, validating new ventures.
But now you come to the fourth step. It's one thing to set up a team who's really good at running out and iteratively testing and building a new digital product, but you're a business. How do you do that across the organization? How do you allocate resources? How do you allocate people? How do you sponsor things? How do you shut things down? This is the challenge of what I would call governance. And so the fourth step is managing growth at scale, right? You cannot do this in an ad hoc fashion. You actually have to have established processes for resource allocation, people allocation, assigning different metrics to different ventures at different stages of development.
(06:03):
All of these things actually have to be created with new operating rules. Because so many companies just wind up using their same old business as usual, their BAU [business-as-usual] rules and procedures that have been developed for the old established business and they try to just carry this over to the new business, to new ideas, new opportunities, and it kills them every time.
And then the last step, the fifth step is growing... It's all about capabilities, building, investing in the capabilities you need for the future. So I call this growing technology, talent and culture because really those are the three pillars that I found are most important. You need a digital ready technology stack. You need one that is modular and adaptable and is not locking you into some old legacy ERP system or other kind of monolithic software that's incredibly inflexible that we see in so many companies. But you also need digital talent, you need people with the right skills for new technologies, for new problems you need to solve. People who can work together collaboratively around them, and that leads to the last point which is culture.
(07:12):
You need to figure out, do we have the culture that we need to really move forward and continuously change as an organization to keep up with this constant pace of change? And every company I've seen, if they take an honest assessment they'll find there's at least one thing that has to change in their culture. Right? The culture they have, that got them where they are today that led to their success. They're an established business, they've stuck around, they've made it. That is not going to be exactly the culture they need to carry them forward in this rapidly changing digital era. So being clear about the culture change you need and as a leader how you're going to support that and enable it. That's the last piece of the roadmap.
Anne Greenhalgh (07:52):
David, so give us an example of a company that's done this well.
David Rogers (07:58):
Sure. So one company that'll be familiar, a different industry but folks will be sort of familiar with who I think has done this very well is Walmart, a traditional retailer. And of course their whole industry was upended by the growth of e-commerce, the arrival of Amazon, and they've been very clear about the fact that Amazon is their top competitor. They're not just competing with the Kroger's, and Aldi's, and other businesses, sort of traditional big box retailers. And yet they're not going to beat Amazon or compete with Amazon by following their playbook, right? Amazon's a very different company. Amazon's biggest source of profit is actually its enterprise computing division, Amazon Web Services.
So Walmart had to figure out how do we become an incredibly relevant part of our customer's retail experience in this what I would call an omnichannel era. Where we are buying things online and offline, and that has become their guiding focus and they're really focused on how do we leverage what is unique about us and the most important... There are various factors.
(09:10):
But in this case for this company, the most important unique advantage they have is their retail footprint. 90% of people who live in the United States live within 10 miles of a Walmart store. So that becomes a really interesting strategic asset for even digital delivery, all kinds of services, new business models, etc. So they have this clear vision of what they're trying to do, and then they've really focused on picking problems that matter.
One of the biggest problems they're focused on is online grocery order it and that is a really important strategic problem to them. It's something that matters to customers. It's also matters to Walmart because it leads to a lot of repeat purchase, it's a very sticky and influential category. If you've got people buying groceries, they'll buy other things from you and it's a category that is tricky. You can't really solve it with a pure online classic e-commerce play. Amazon and others have learned that, that's why Amazon bought Whole Foods among other reasons.
(10:12):
And so they [Walmart] picked that as a key problem, but they did not then say, "Well, we're going to go off and have a leadership retreat and decide what's the best path forward, and then we're going to launch our big play on online grocery ordering." Instead, they took this mindset of we are going to validate and test different solutions to the same problem. Right? Not knowing in advance which one is going to work. So it's been amazing to see them. I was on their campus meeting with their COO at the time, Jeff Shotts, at Walmart Labs when they were pivoting and pioneering a bunch of different models at the same time really not knowing yet which was going to work but they tried. Who delivers it? Were they going to establish a bunch of Walmart vans that would deliver the groceries to you? Would they have they tried a third party service working with DoorDash and other partners?
(11:07):
They even piloted a process where employees when they left work would check out and they'd get a little notification, "Hey, if you're driving home here's a package for you to deliver to a customer on your way home because they're sort of on your route." They tried lots of different things. One of the big things they tested was pricing, because this has to be profitable for them. Right? They're not a venture backed startup that's got 10 years to turn to profit. It's not that they think their groceries are going to be profitable in a quarter. But they say, we've got to do this relatively quickly and so they said, "We can't just make this free and subsidize it. So what do we do? Will people pay for it? Would they rather do a membership? Do we have a minimum basket size? What would that number be? How would people respond?"
So they tested and they validated. It turned out there was an appetite among a good number of customers for a membership program, sort of like Amazon Prime.
(12:01):
So you pay an annual fee and then you get free grocery delivery anytime, all year round, plus some additional benefits at the Walmart stores. So they launched that as Walmart+.
But they also knew that some customers didn't want to pay. They were more price sensitive. So they said, "What could we do for them?" Well, they found a solution. They said, "We're going to make it completely free, no membership, and you don't even pay for the delivery. But guess what? We're going to give you half the experience." You get that digital ordering experience where it's an app and you've got all your past orders there. It's very easy to put together your shopping list and do it all on your phone on the go and when you do, we will put your whole order together. And we'll bag it all up in the bags for you, but you have to drive to Walmart, right? You've got to drive by.
(12:49):
We've got a special lane in your car, you pull up and you don't even have to get out of the car. Just open your trunk and we'll bring out the groceries and put them in the back. Right? Doing it that way, they were able to make it work financially without charging anything to the customer. It turned out a lot of people liked that. What happened next? Quarantine, COVID. And so there was a huge explosion in demand for that business model, the "buy-online pickup-at-the-store.” They already had it in the market, they were able to grow it incredibly quickly.
Now customer needs expectations are changing, right? We're out of the COVID lockdowns and they're continuing to experiment and seeing new customer needs. It turns out there's some customers who are willing to pay and they don't just want you to drop the groceries on their front doorstep, and let that ice cream start to melt. Or maybe a sorbet, if you're me.
(13:42):
They actually want you, someone they recognize, a known Walmart employee whose name they know to come inside the house and put the groceries away. Put them in the freezer, in the cabinets and so forth for you. So they've created a new premium service called Walmart InHome. So they're continuing to test to learn to follow the market. These are really the hallmarks of a company that's doing this right.
And they have really, throughout, they focused on putting in place the processes. Change in governance, giving power to small teams who are able to work on any single one of these ideas and move very rapidly and build it themselves. So with very clear goals of what they're trying to achieve, they've changed the culture, brought on new talent. Continuing to rebuild and improve their technology stack to allow all of this greater agility and allow everyone to move faster and test things out without waiting for an IT backlog.
(14:40):
So they've really done, I would say all five of the steps to the Roadmap effectively, and that's why they are really at this point helping to push the market forward and not just following the moves of Amazon and others.
Anne Greenhalgh (14:54):
That's great. A great example. Everyone, you're listening to Leadership in Action on Business Radio, SiriusXM Channel 132. I'm your host, Anne Greenhalgh, and my guest today is David Rogers, and we are talking about his brand new book, “The Digital Transformation Roadmap.” David, we're coming around the bend here, and I'm going to ask a risky question.
First let me say to our listeners that your book is filled with wonderful examples, and you include at the very end an appendix and give a whole list of companies by industry who have succeeded and at this moment... this is never ending… so at this moment have succeeded in embracing the digital transformation.
And I am just curious, what advice would you give to those in the higher education industry to embrace digital transformation?
David Rogers (15:56):
So I think I give pretty much... It's funny, almost everyone I speak to wants a perspective on their particular industry, and my perspective is always pretty much the same. It's not really defined by the industry. The words may be a little different. You say “Customers, well, who's that?” In higher ed, you've got key customers who you've got to be focusing on, and those are your students first and foremost. But also those who pay for their education if you're in higher ed. And you've got to focus incredibly much on talent, and that's of course your faculty who are teaching. But it's not just them, it's everyone else around them who is also helping to create those learning opportunities for the students in that intellectual sort of ferment and discovery of new ideas. Universities cannot operate in a vacuum, they have to be constantly just like businesses bringing in new outside ideas. So I mean, I think I would say to a senior leader at a higher education organization the same thing I would say to any senior leader.
(17:06):
The challenge for leaders today is about driving continuous change and that is not something that you drive from the top down.
Anne Greenhalgh (17:14):
Right.
David Rogers (17:14):
It has to be something that is actually driven from the bottom up and that leaders allow for what I would call a bottom up organization. Now, this does not mean there's no job titles, there's no hierarchies. It's just anarchy or something. But what it means is three things.
One is: every decision that has to be made, you try to push it down to the lowest level possible, right? This is something I've learned from the companies like Amazon and Netflix and others who have managed to stay nimble and keep moving quickly as they've gotten really large. They all have this habit of pushing decision-making down to the lower levels.
The second thing is information flows. They have to be continually flowing from the outside in and from the bottom up, not just from the top down. As I said, that's constant for sources of new ideas, for discovering what the market needs, what's emerging topics that are important and critical to society, to business if you're a business school, to medicine if you're a medical school, etc.
(18:22):
And then the third is innovation has to happen at every level of the organization. Meaning you don't want people at different levels, different parts of your business or your university to be sort of waiting for the official word from on top of here's what we should be doing this year. You want a clear vision of where the organization is headed, the problems you're trying to solve and the customers you're trying to serve. And then you want to do everything you can to empower and enable others to act on that, right? Because they're going to know in their particular wing, in their department, in their division, in their team what this looks like for them and how can they translate that sort of strategic goal or that mission goal if you're a nonprofit into the work that they're doing every day.
Anne Greenhalgh (19:17):
Yeah. David, I think you make such an important point here and you emphasize it in your conclusion about just pushing that decision-making from the top down to bottom up. And I really appreciated your reference to, Stanley McChrystal's, book Team of Teams.
David Rogers (19:36):
Yeah.
Anne Greenhalgh (19:36):
This is not something limited to for-profit, nonprofit, it includes the military and I had the pleasure [inaudible 00:19:45].
David Rogers (19:44):
Oh, go ahead.
Anne Greenhalgh (19:46):
No, please. You go ahead, please.
David Rogers (19:48):
I was just going to say that the history of the US military or modern militaries is really enlightening on this point, because they were traditionally very top down. The whole kind of model of command-and-control management that large organizations are mostly still run by was developed in theory in academia and in practice in the US military. That's where it was first applied and developed and then it was sort of saying, how can we do this in large organizations? As a way of controlling what's going on in a very large distributed organization. When you didn't have information technology, how would you know what was going on in that factory in another state? Well, you had to get them very clear numbers and manage top down, manage by measurement.
And McChrystal's book among others, but he's absolutely from that world, sort of tells the story of how the military realized that is completely unsustainable today. Right? Today it's so much more volatile, uncertain, complex, and ambiguous. Their acronym in the military, they call it VUCA.
Anne Greenhalgh (20:52):
Right.
David Rogers (20:52):
That you need to empower people at every level of the organization to take action themselves in these smaller highly aligned, but loosely coupled organizational teams and units.
Anne Greenhalgh (21:06):
Yeah, thank you. A beautiful elaboration on his book and his point when he spoke with, Mike Useem and Jeff Klein, and he had a wonderful expression. It may be common in the military, but it was new to me. He said, it was very important, he learned to “Keep eyes on, but hands off."
David Rogers (21:26):
Yes.
Anne Greenhalgh (21:26):
And I thought that really captured that notion of being attentive, listening, aware, and yet not top down control, command and control.
Now, David, this is a show called Leadership in Action and I really appreciate it. In the conclusion of your book you talk about rethinking leadership and I would love for you to speak about the roles or the job of the leader in an organization as you see it.
David Rogers (21:56):
Yeah, thanks. Well, as we talk about a bottom up organization some sort of if you will traditional leaders get a little nervous and they're like, "Well, if everything's bottom up what do I get to do? What's my job? Do we even need leaders anymore?" We absolutely need leaders, right? It's just a rethinking of what the job of a leader is. The job of the leader is not to make as many decisions as possible and to sort of direct the action of everybody below them. So instead, the job of the leader is really three things.
One, the first job is to define a vision of where we are going and why are we going there. Why does that matter? And this is about continually learning, talking to others, bringing in many different viewpoints, synthesizing them together, and being able to synthesize in a very simple, very clear ways. Distill what's the key essence? What is the most important thing we're trying to achieve? Or question we're trying to answer? Or a problem we're trying to solve?
(22:56):
And I liken that, somewhat, as an author. An author is someone who studies, learns, listens to lots of people, and then tries to sort of craft some clear, simple, concise idea that captures the essence of something.
The second job of leaders is to communicate that vision. So once you've defined where we're going and why, your job is to communicate it over and over and over to everyone. All your stakeholders, your employees, your investors, your customers, your partners, and great leaders. I have seen in industries far and wide, they are continually communicating and they are doing it in very creative ways, words, stories, symbols, dramatic actions. Things that will surprise people and stick with them and they'll take notice, right? It's not just about PowerPoints. And so in this job the leader is I would say the leader as a teacher. Your job is to constantly be taking those ideas and going out there and advocating and explaining them and selling them and telling stories and making it relevant to all sorts of different constituents.
(24:02):
And then the third job of a leader, and this is critical. Again, it's not about doing the work, making the decisions yourselves. The third job is to enable others to bring that vision to life. You're not going to be the one who does it, right? You have to really spend as much time as you can removing roadblocks, removing obstacles. Find out what is keeping people in your organization back, what is preventing them from doing the kind of work you want them to do because I guarantee there's a lot. It may be that budgeting allocation is completely misaligned. It may be that compliance rules are being applied in a way that's holding them back and you can still meet the goals of compliance, but enable people to maybe move more quickly. It may be that people are split up in silos that make it impossible to collaborate around some of the most important issues they have. Maybe you're telling them to do one thing, and then you're holding them accountable with their performance evaluations for something very different.
(25:04):
There's a long history of management literature on that problem of hoping for A while rewarding people for B. So you've got to remove these roadblocks, give people the tools that they need, the training that they need, get them what they need to do the work and then they will do it. So that really aligns with sort of, Robert Greenleaf's, famous writing on leadership as leader as servant. Your focus is on how do I help others? How do I enable others?
Those three things: defining where you're going and why; communicating that over and over in compelling and memorable ways that really relate to people; and just enabling them to bring that vision to life, to do the work to make it happen. That is what leadership is really about today.
Anne Greenhalgh (25:50):
David, you have given an inspiring conclusion for our show. Leadership to our listeners: Take up leadership as an author, take up leadership as a teacher, take up leadership as a servant.
And, David, I can say firsthand—as the one who's had the privilege of interviewing today—that you have been a wonderful author, a wonderful teacher, and a wonderful servant leader in our conversation today. So I can't thank you enough for joining me on the show.
David Rogers (26:23):
Thanks so much, Anne. It's really been my pleasure.
Anne Greenhalgh (26:27):
All right, thank you again to all of you for joining us. If you have a question about something you've heard on today's show, email us at businessradio@siriusxm.com. Be sure to follow our show on formerly known as Twitter @SXMBusiness. I'd also like to thank our producer, Samantha [inaudible 00:26:47], and our sound engineer, Chris [inaudible 00:26:50]. I'm, Anne Greenhalgh, you've been listening to Leadership in Action on Business Radio. Powered by the Wharton School, SiriusXM Channel 132.
A small request? ★★★★★
If you’ve enjoyed reading, “The Digital Transformation Roadmap,” please consider rating it on Amazon.com (5 stars, I hope!), to help other business readers discover the book.
Here’s the link to rate (US website): https://amzn.to/3P1ybps
“THE DIGITAL TRANSFORMATION ROADMAP:
Rebuild Your Organization for Continuous Change”