the it leader challenge creating innovative business uses of technology and creating value for...

The IT Leader Challenge Creating Innovative Business Uses of Technology and Creating Value for Customers

September 27, 2007

Amy Muller Director, Strategos

[email protected]

Strategos® Proprietary & Confidential 2

The IT Leader Challenge: The IT Leader Challenge: Management Innovation Management Innovation

IT and Innovation Operational Innovation Business Model Innovation

Management Innovation What it is and why it is important Gary Hamel on Management Innovation Why IT is so important to management innovation


The Eras of IT The Eras of IT

1980 – 2000 Productivity: IT + REENGINEERING

2000 - ? Value Creation: IT + INNOVATION

1960 – 1980 Cost Savings: IT + AUTOMATION


Innovation Innovation

CIOs expect to focus more on strategy and

innovation in the form of new technologies and

new ways to exploit information in the years ahead

….as they step back from overseeing day-to-day

operations, process improvement, data quality,

projects, standards …….

- CIO Insights’s Annual Survey


Your IT life today? Your IT life today?

Dealing with legacy systems?

Assuring 100% uptime while trying to improve the systems?

Ridiculous deadlines?

Overwhelmed resources?

Tight budgets?

Project overload?

Unplanned or unbudgeted initiatives?

Business – Technology Relevance gap?

Massive cost pressure

Relentless internal demands for high service at low cost

Industry turbulence: outsourcing, open sourcing etc.


The Third Era:The Third Era:Value Creation: IT + Innovation Value Creation: IT + Innovation

Operational Innovation

Business Model Innovation

Management Innovation


Operational Innovation Operational Innovation

Supply chain management applications “Retail Link”: Data on sales, returns, shipments,

forecasts, etc. shared with 17,000 suppliers in 80 countries

Used to optimize assortment and pricing and anticipate and prepare for demand spikes

From backwoods of Arkansas to Fortune #1

Leveraging technology to radically improve operations

What did he have that Frank Woolworth and S.S. Kresge did not have?

Computers.

Sam Walton

Forbes Magazine, “Captains of Industry, October 8, 2007


Operational InnovationOperational Innovation

From upstart to UPS challenger

Pioneered the package tracking system

Now the world’s largest cargo airline

Leveraging technology to radically improve operations

Just in Time supply chain management

Eliminate waste, reduce inventory, and continually improve production

Now world’s #1 auto maker


Business Model Innovation: Netflix Business Model Innovation: Netflix

Market Cap $1.3B

Market Cap $1.1B

Low overheadAdvanced website and logisticsAnalytics anticipate customer behavior and buying patterns

Leveraging technology to enable new business models


Total Rewards frequent gambler program 4-tiered loyalty program, with 40 million customers in data base Uses smart cards that plug into slot machines

Fast Cash program Real time incentives based on ongoing game play Knows every individual transaction of 80% of its customers

Uses IT to Adjust availability of slot-machine games based on variables including day of

week, time of day and game popularity. Dynamically price hotel rooms to attract guests more likely to gamble Improve marketing, on-site customer service and online interactions

Business Model Innovation Business Model Innovation

Business Model Innovation Business Model Innovation

Innovation #1: Taking the flea market online

Innovation #2: Supporting 40,000 independent developers with its (free) open API’s A network of companies that help make eBay work better, grow

faster, and reach more customers Allowing people outside eBay to write services that communicate

with eBay Making big sellers more efficient: Infopia Inc. connects directly

eBay sites to help high volume sellers price and list more efficiently Extending the platform: bringing bidding and buying tools to

television, IVR platforms, and mobile devices – extending the platform

Moving eBay into new markets, and new geographies : localizing applications for countries and cultures

Inside eBay’s Innovation Machine, CIO Insight, December 6, 2006


What do we provide? Benefits/solutions Products & services

How do we provide it? Channels Partnerships Value chain configuration

How do we make money? Value levers Cost levers Pricing rationale

How do we differentiate & sustain advantage?

Brands Quality, consistency Competence leverage

Translating technology innovation to Translating technology innovation to winning business modelswinning business models

Where do we play? Target customers Value chain locations Roles performed







Translating technology innovation to winning Translating technology innovation to winning business modelsbusiness models


• What benefits does the technology deliver?

• What problem can it solve?








Where do we play? Target customers Value chain locations Roles performed• What are all the components

needed for the solution (short term question)?

• What are all the key capabilities needed for delivering the benefits (long term question)?

• Who are the best at providing the components or capabilities?









• What customers should I go after?

• What role could/should I play in the solution value chain?









• How do I win in the long run? – What if some one copies my offering?– What if a new technology comes along?

• How do I communicate my differentiation with customers?









• What are cost drivers?• What is the best way to

charge for the product/service– Preferred by the

customers– Difficult for late comers to

take away market shares


The Next Frontier: Management Innovation The Next Frontier: Management Innovation


Which has changed more in the last 100 Which has changed more in the last 100 years?years?

US life expectancy was 47

years

14% of homes had a bathtub

6% of homes had a telephone

8000 cars in the US

144 miles of paved roads

42% of the work force was in

farming

Life in 1900

Standardized job descriptions

Production planning and

scheduling

Cost accounting

Profit analysis

Financial controls

Incentive based compensation

Personnel departments

Business in 1900


Examples of Management Innovation Examples of Management Innovation

Perfected research lab management that bought discipline to the chaotic process of scientific discovery

Originated capital-budgeting techniques that standardized the evaluation of performances and investment decisions

Advanced brand management practices for creating value out of intangible assets

These pioneers invented management practices that are now generally adopted or frequently imitated

Source: Gary Hamel, “The Why, What and How of Management Innovation” (Harvard Business Review, February 2006)

If you look at a hundred year period of

industrial history, typically it is management innovation that

has allowed organizations to reach new performance thresholds -- more than any other kind of innovation.

The challenge is instilling management innovation into organizations. Often, the technology you need to do new

things is there long before you change the management processes in a way that allows you to use that technology.

Gary Hamel on Management Innovation

What do we mean by “Management Innovation?”What do we mean by “Management Innovation?”

Fundamental, continuous, creative change in how we organize, lead, coordinate, motivate, and influence

Challenging orthodoxies about how we manage

Encompassing a range of processes and methods

Part of an ongoing, compounding program

Adapted from “The Why, What, and How of Management Innovation,” Gary Hamel, HBR Feb. 2006


To Start: Challenge long held management beliefs To Start: Challenge long held management beliefs

Is this a belief worth challenging? Is it debilitating? Does it get in the way of an important organizational attribute (like strategic adaptability) that we'd like to strengthen?

How does this belief serve the interests of its adherents? Are there people who draw reassurance or comfort from this belief?

Have our choices and assumptions conspired to make this belief self-fulfilling? Is this belief true simply because we have made it true - and, if so, can we imagine alternatives?

Is this belief universally valid? Are there counterexamples? If so, what do we learn from those cases?

Retail Grocery: What’s the Management Retail Grocery: What’s the Management Orthodoxy? Orthodoxy?

Success in retail is all about discipline:SOPs, tight supervision, role definitions, and reviews by bosses

Freedom plus Discipline is a constant

If everyone is off innovating, who’s minding the store?


Freedom plus Discipline is a ConstantFreedom plus Discipline is a Constant

Is this a belief worth challenging? Wouldn’t everyone like to have more freedom to innovate AND more

discipline?

How does this belief serve the interests of its adherents? Makes the boss more comfortable (who is afraid of losing control)

Is this belief true simply because we have made it true ? “If we allow more freedom to innovate we lose control” and everything

conspires to support this

Is this belief universally valid? Are there counterexamples? If so, what do we learn from those cases?

http://www.wholefoodsmarket.com/sitemap.html

Challenging the Discipline beliefChallenging the Discipline belief

Self-directed teams: Basic organizational unit is the small department team, not the store

Teams select new employees, control pricing, and select product

Teams meet regularly to discuss issues, solve problems and appreciate each other's contributions. Adapted from “Break Free,” Gary Hamel

Fortune, October 1, 2007

Teams are accountable for profitability of their department

Bonus for teams that exceed targets

Teams’ performance

visible across the company

What’s the Management Innovation at What’s the Management Innovation at Whole Foods?Whole Foods?

Front line employees are responsible for results Team members have access to real-time performance data They have decision authority over the key variables that

influence performance outcomes There’s a tight coupling between results, compensation,

and recognition

Empowered front line employees don’t need a lot of top down discipline if …


Innovating Management Innovating Management

Planning: deciding what you should do

Organizing: structuring ideas and allocating resources

Motivating: encouraging and rewarding participation

Monitoring: tracking progress and results

Designing processes to support the broader

distribution of decision-making and innovation

within the firm


The Big Challenge The Big Challenge

Designing processes to support the broader distribution of decision-making and innovation within the firm

Cost effective scalability

Maximizing the creativity of employees


IT: Enabling Management Innovation IT: Enabling Management Innovation

1. Communication

2. Collaboration and decision making

3. Knowledge sharing

Requires a shift in mindset :

Risk Mitigation

Value Creation

Tools of value creation:


Tools of Value Creation Tools of Value Creation

TransactingPower Tools

CommunicatingSharingThinkingCreatingExpressingTools

Web 2.0 is these tools

Applications over the Web

Social networks

Rich media

Most CIOs understand the Web as a powerful tool for

driving operating efficiency and they understand the

Web as a catalyst for new business like digital music. I

don't think they yet see the Web as a tool for

dramatically reinventing the work of management.

-Gary Hamel in CIO Insight, Sept. 13, 2007

Most CIOs understand the Web as a powerful tool for

driving operating efficiency and they understand the

Web as a catalyst for new business like digital music. I

don't think they yet see the Web as a tool for

dramatically reinventing the work of management.

-Gary Hamel in CIO Insight, Sept. 13, 2007


Management Innovation: Management Innovation: What What it might it might look like look like

Increased use of distributed and peer group decision-making and evaluation

Use of internal judgment markets – “wisdom of the crowd”

Real-time collaboration and discussion tools

Low-effort participation methods to engage a more diverse set of informed people

These tools are finding their way into the These tools are finding their way into the EnterpriseEnterprise

FreeLess complicatedMore accessible

More focused on the features that matter


What to DoWhat to Do

Get serious about your desire to innovate as a business partner

Recognize the shift from “cost effective scalability” to “maximizing the creativity of employees”

Dig into the beliefs that hold back innovation

Emphasize designing systems for people, not just tasks


Further ReadingFurther Reading

Julian Birkinshaw and Michael Mol, How Management Innovation Happens, MIT Sloan Management Review, Vol. 47, No. 4, Summer 2006

Gary Hamel, The Why, What, and How of Management Innovation, Harvard Business Review, Feb. 2006

Gary Hamel, Break Free, Fortune, Oct. 1, 2007

Allan Alter, Strategist Gary Hamel Re-Imagines Management, CIO Insight, Sept 13, 2007


Example: Financial services organization

Functional units have their own pipelines IT, Risk and Capital Mgt, Transaction Mgt

The Global IT Group(London, Hong Kong, Frankfurt, US) 12 months to create an active community and a sustainable pipeline Approximately 300 active members in the IT innovation community(~10%) Simple ideation sessions, small ideas coupled with a drive for action helped

create engagement Mostly small ‘i’ ideas in the pipeline; now focused in increasing the ratio of big ‘I’ 1 manager & 2 part time coaches create challenges, sort, filter and connect ideas

to resources Horizontal feedback, dialogue across locations starting to take off


How Management Innovation HappensHow Management Innovation Happens

Stage 1: Dissatisfaction with the status quo Future threat Current problem Means to escape a

crisis Stage 2: Inspiration

from other sources Stage 3: Invention Stage 4: Internal and

external validation

Julian Birkinshaw and Michael Mol, How Management Innovation Happens, MIT Sloan Management Review, Vol. 47, No. 4, Summer 2006

Become a conscious management innovator

Create a questioning, problem-solving culture

Seek analogies and exemplars from different environments

Build a capacity for low-risk experimentation

Make use of external change agents to explore your new ideas

Become a serial management innovator


Management Innovation is about:Management Innovation is about:

Designing processes to support the broader distribution of decision-making and innovation within the firm

Being “skeptical and thoughtful” about how our management processes can be modified both to achieve their intended objectives and to tap the initiative and creativity of our people

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