Five years ago, when I was a full-time tech consultant, one of my go-to business texts was The Discipline of Market Leaders, by Michael Treacy and Fred Wiersema. At this time, the tech startup I was working for was going through the "what kind of company are we going to be" phase, and this text was as relevant to a startup as it was to the longer-established companies I was consulting for.
If you're not familiar with the book, the core concept is that for any business to lead its market, it must excel in one of three areas:
Operational Excellence - best delivery of product or services for best value. Think classics like WalMart, FedEx, and McDonalds, and disruptors like Netflix, Uber, and Warby Parker.
Product Leadership - best product through innovation. Think athletic footwear like Nike, or tech like the Apple iPhone.
Customer Intimacy - best customer knowledge and therefore best customer experience. Think luxury brands, high-end hotels and fitness centers, and experience-oriented businesses like Disney World.
The book, published in 1995, detailed the key features and disciplines for each of the three areas, and I found it to be an effective lens for viewing a business. It acknowledged that there was overlap - that many businesses performed well in at least one of the other areas - but the notion was that no one business could excel at all three, nor should it.
Today, that notion seems quaint, given the pace of technological change and consumer expectations. The truth is that businesses must now excel at all three disciplines simultaneously in order to survive.
Recent examples support this. Consider how Tesla's Model 3 production delays were all over the news in Fall 2017 - Spring 2018. This Innovation-oriented company received lots of negative press and sentiment because it didn't have solid operations. Meanwhile the operationally-focused United Airlines stumbled badly and publicly in its treatment of customers. Product leaders Pepsi, Dove, and Adidas all thought they were speaking to their customers with messages that would resonate, but got the tone wrong and received significant backlash.
These public failures, plus the daily news coverage of other companies' technological disasters (data breaches, outages and downtime, regulatory lapses, supply chain failures, quality issues) make it difficult for any company to believe they can continue doing business as they've always done. For companies who know they need to transform in all areas, and whose competition is pulling ahead, how to take on such an overwhelming transition?
In my work with global enterprises over the past two years, I've seen most of their journeys take a typical technology progression. The IT department is at the center of this massive change; sometimes the business is driving them, and sometimes they are pushing the business to evolve.
"Let's get out of the datacenter business."
Though by no means easy, it's often clear and straightforward to cut bottom-line costs and reduce maintenance overhead. Companies start here by moving IT operations to the cloud in an IaaS model, so that they're essentially delivering the same functionality to their customers, but with greater ability to scale out, to withstand disasters, and to reduce costs and maintenance tasks. More successful IT organizations also make the shift here toward standardization over customization, as they realize that all the heavy customizing they did in the past has left them with unsupported platforms and dwindling knowledge of all the intricacies.
On the business side, this effort is usually accompanied by restructuring and outsourcing.
"Now that we've got our base of operations in the cloud, let's take advantage of the services we didn't have access to before."
Many companies put a stake in the ground at this point, mandating that any new applications are to be created in a PaaS architecture, and starting the work of refactoring or rearchitecting their older applications. The goal here is to free up developers from maintaining outdated, monolithic codebases, so that they can focus on innovation and faster feature delivery. There's often an additional cost reduction in moving from IaaS to PaaS.
On the business side, companies at this stage may fund a new internal group focused on innovation, usually with keywords like "digital," "transformation," "accelerator," and/or "lab" in their names. They may also start hosting an annual hackathon or idea-generating event.
"What can we offer our customers that we couldn't offer before?"
As organizations start to get out from under all that technical debt, and "keeping the lights on" is no longer a full-time job for an entire team, they're able to focus better on what their customers have been asking for (and what their competition may already be delivering). With their foundation in place, they can apply machine learning to their data and user interactions, and start to really understand their customers and build an intelligent journey for them. This is the most strategic of the three efforts, and can have the biggest top-line payoff.
On the business side, they'll typically invest in strategy consulting to review and refresh their plan, and may be making painful, overdue decisions like killing off underperforming product lines or letting go of legendary long-time employees.
The progression looks like this:
This is a multi-year journey, and a many-year journey. Each step in the progression takes longer and costs more than the organization thinks it will. In my experience, companies waste a lot of time in the following ways:
- Stuck in denial, doing nothing when they need to be changing
- Going it alone, usually without the necessary skills or experience in-house
- Under-investing, not budgeting for the true cost of change (typically because they're not taking inputs holistically from their vendors and partners - see "going it alone")
- Still working in silos, not communicating and standardizing across all the divisions, offices, departments, etc.
To remain competitive, companies can't rest on a single discipline. They need to be good at all of them. This takes a long time, and most aren't starting soon enough and moving with enough urgency. They're also not using outside resources as much as they could. The good news is that technology has advanced so far it is becoming a great leveler - even the smallest company can launch a new application in months (even weeks), scale out to millions of users around the globe, and create an intelligent, rich experience for the end-user.
This is also the bad news.