leadership in the digital economy - six challenges for ceos

© Marko Luhtala 2017

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Leadership in the digital economy6 CHALLENGES FOR CEOs

June 2017

MARKO LUHTALA


My personal journey in digitalization

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Early adopter eBusiness director at Nokia, 1999–2002

Solution provider Sales director/Enterprise solutions at Nokia, 2002–2005

User of digital technology widely in commerce Director/ VP of Retail at Nokia, 2006–2010

Solution provider, SaaS-entrepreneur CEO at NearMe Services, 2010–2016

Advisor and implementer Digitalization consultant at Ajantasalla, 2016-

MARKO LUHTALA



Discussion topics

Digitalization is the fourth industrial disruption since the 1700s

Six leadership challenges in the digitaleconomy

Final note: How to predict whether you will fail or succeed?


We have the fourth major industrial disruption since the 1700s

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ElectricityLate 1800s

Computers1980s Digitalization

Now

Steam engineMid 1700s

How was your industry before computers and electricity?


Impacting both your products and business model

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Product

Digital services enhancingcurrent products

New digital products

New pricing models

Operating model

Sales & marketing

Operations

People & skills

Customer support

Customer experience

Market

Who are your competitors?

Who are your customers?

Who belongs to your value network?


As a CEO you should focus on the end game

6

Consider digitalization as a transition to THE ERA OF DIGITAL ECONOMY

not a project with a completion date

THE ERA OF DIGITAL ECONOMY

IMPORTANTUnderstanding how to

get there

MORE IMPORTANT!

Understanding how to lead your business when you are there


Don’t get caught in the transition

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Don’t prepare a separate digital strategy – look for digitalization opportunities in all strategies

If you appoint a Chief Digital Officer, make sure his role is to make digitalization become business as usual – and then terminate the role

Resist the temptation to focus on shiny IT solutions before concluding what you and your customers need

STRATEGY?

CDO?

IT?


A competitive edge and digitalization go hand in hand

Challenge #1


Companies say they don’t invest in digitalization yet…

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…because they have more important priorities in their strategy, such as:

scalable sales and marketing models…

new business models…

exceptional customer service…

offering innovation…

internal productivity…

data as a source of strategic value creation…

€


At the same time, winning companies…

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…invest in digitalization because they want to gain a competitive edge in those particular areas

Because digitalization

delivers:

• Higher impact

• Faster speed

• Better cost efficiency

in strategy implementation


Your shareholders have a clear interest in digitalization…

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…because companies who apply digital technologies typically:

1€ one-time revenue equals 1€ in valuation1€ recurring revenue equals 3–4€ in valuation

Example: software business Innovative companies generate total shareholder return premiums of

7.5 percent over their industry peers

Source: BCG

GROW FASTER

BUILD A UNIQUE

ADVANTAGE

COMMAND HIGHER

VALUATION


Would you know if there was an industry disruption

around the corner?

Challenge #2


Before setting up the digital agenda for your company

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Is there a risk (or opportunity)

of a tectonic shift in your industry fueled by digitalization?

ASK YOURSELF


© Marko Luhtala 2017 14

CEOs in most industries are expecting disruption

Source: “Digital Pulse 2015”, Russell Reynolds Associates


You can disrupt the product or the business model

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Change the pricing model and earnings

logic

Elevate customer service and

experience to a new level

Change the core offering features from physical to

digital

Build a de facto platform or

“operating system” for the industry

Bypass middlemen

Typical ways of creating a

digital disruption


Disruptors redefine the rules and roles in the industry

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A new set of competitive requirementsFor example: 24/7 availability, personalized customer service, predictive maintenance, excellent user experience

Change in what customers are paying forFor example: usage instead of ownership, benefits instead of work done, data instead of experts, software instead of hardware

A new ecosystem and roles in itFor example: OEM roles, access to ecosystem only through disruptor’s platform, licencing programs, developer networks


Will your industry attract external disruptors?

Value of industry.Data intensity.Amount of old habits.

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If high, the chance ofexternal disruptors isalso high

What would Google do in your business?

ASK YOURSELF


The nature of work is changing

Challenge #3


Machines are rapidly entering white collar roles

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HUS – The Hospital District of Helsinki and Uusimaa – is

using artificial intelligence to support specialist medical

care diagnostics and treatment decisions.

DLA Piper in the first law firm in Finland to adopt artificial

intelligence. AI will first reduce routine tasks from lawyers.

Software robots, digital automation and AI will reduce at

least half of our routine tasks, estimates Palkeet – Finnish government shared services center for finance and HR.

Several studies show:

Machines are better than humans at choosing the best employees

AI


You will need some totally new people and skills

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Examples of new roles in digital economy Digital

marketer

SW architect

Data scientist

UX specialist

SOME expert


Where is the knowledge in your company?

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Remembering information

Experienced people have the

knowledge

Finding information

Knowledge is in people AND

data

PAST TODAY

© Marko Luhtala 2017© Marko Luhtala 2017

The amount of data is exploding

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of all data EVER has been produced during

the last two years

90%

Data sources for knowledge building

In-housebusiness andproduct data

Industry bodies and publications

Public government databases

3rd parties consolidating and selling data

Open source data e.g. maps, traffic, weather

Online industry and competitor data

Public research documents and thesis


The harder it gets for people the easier it is for a machine

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Learning is a core capability for all humans.

MACHINE LEARNING is by far the hottest trend in artificial intelligence.

Hint: Start with use cases and “big business questions”, not technology

Lots of data

Complex dependencies

Figures, images, text

Answers

Predictions

Correlations

Recommendations


A strategic question for your management team

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What should…

PEOPLE KNOW AND DO? MACHINES KNOW AND DO?


How to speak the same language as your digital

specialists

Challenge #4


Do you know how to attract the right digital talent?

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How would you set the targets

and KPIs for these roles?

Can you spot the difference

between a super candidate and a smooth talker?

Where would you look for

these talents?

Do you know what makes them tick and why they

would want to work for you?

Can you list the key tasks for a

data scientist or SOME expert?

?


Are you on the same page?

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SaaS

API

UX/UI

Backend

IoT

Cloud

Machine learning

Software robots

You need to speak the same language as the people who are shaping your future

It means a lot of new terms and concepts in a CEO’s vocabulary


Understanding your digital specialists…

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…is mandatory for you and your

management team,

to understand the future core

assets of your company


But don’t forget your existing people

You need to communicate a vision for your company in the digital economy…

…in a way that EVERY team member finds clear and personally compelling.

Otherwise you will soon have an “us and them” mentality.

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In-house innovation is not enough

Challenge #5


Startups are the main source of digital innovations

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Corporates are turning to startups to:

• complement their R&D• leverage digital talents they are not able to recruit

• accelerate learning speed

HOWEVER There are hundreds of potential startups

80% of them fail at the early stages

Startups have very different culture, clock speed and way of working compared to corporates


Winning companies have clear partner programs for startups

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Ingredients of a partner

program

Communicate clearly which business problems you want the

potential startups to focus on.Provide a clear channel and process for startups to approach you with their proposals and solutions.

Clarify the rules for co-operation including

commercial terms. Be fair: startups don’t have in-house

lawyers to read the small print.

Partnering must be win-win. Measure and nurture the commercial value of your ecosystem systematically.

An effective partner program lets startups be startups while you can operate like a corporate.


Make sure your board is ready for the digital economy

Challenge #6


4 common reasons why boards fail to drive digitalization

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Without digital skills the board has difficulties in crystallizing the impact and direction of the change. Compelling vision, roadmap, and implementation are left vague.

Running existing business and building a new one in parallel is challenging especially if it involves major changes in the business model.

Discussion in digitalization jumps too quickly to technology and IT. This is not helped by dozens of solution providers bombarding you every week.

The board and top management have their schedules filled to the minute running the existing business. There is not enough time to focus properly on the digital transformation.

DIGITAL SKILLS

EXISTING BUSINESS

FOCUS ON IT

AVAILABILITY OF TIME


A good acid test for the board

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are you ready to cannibalizeyour existing business to

build a new one?

When the time comes


How to predict whether you will fail or succeed?

Final note


My opinion: Your chances depend on your company culture

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Is your culture fit for the digital transformation?

HIGH FIT

YouinvestinR&Dandnewcompetencesatleastasmuchasindustrypeers

Trialanderroris acceptedfornew initiatives inyourcompany

Teamsareempoweredtoinnovate,newideasarewelcomedbytopmanagement

Decisionsaremadebasedoninformation

Newrecruitsaresystematicallysearchedfromotherindustries

LOW FIT

Youmaximizeshorttermprofitsandcashflowbylimitinginvestments

Youavoidrisktakingandrathercopytestedindustrypractices

Strategycreationanddecisionmakingistopdown

Decisionsaremadebasedonintuition

Industry experienceishighly-weightedforemployeeselection


ADVISOR, CONSULTANT

[email protected]

+358-50-3879903

www.linkedin.com/in/marko-luhtala-07b02321

MARKO LUHTALA

I HELP COMPANIES WIN IN THE DIGITAL ECONOMY

leadership in the digital economy - six challenges for ceos

Leadership & Management