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Digital Transformation is about fundamentally changing the way your organization creates value. The challenge in building new business models is partly generated by the resistance from the existing operations. Managers will logically argue against the cannibalization of high margin business units in an effort to protect the current income statement. Many great new ideas have been dismissed as they were not considered priorities.
As an example, innovators at Microsoft reportedly went to Gates with the concept for a device very similar to a Kindle. This was years before Amazon would create such a device. Reportedly, Gates responded he was “too busy” to look at the concept and suggested the product managers at Office could be interested. The idea died without ever even being tested. The Kodak and Netflix/Blockbuster stories have been told so often that CEO’s repeat them from memory.
In my work with organizations on Digital Transformation we repeatedly confront this challenge:
How can you break out of the “great idea, let’s shelve it” cycle of doom?
This starts with you and your board challenging the Strategic Assumptions of the future. Linking your Strategic Assumptions to your forecast of future outcomes is fundamental. The challenge boards and management face is that the past does not help us in predicting the future. While the budgeting process in most organizations is built off an X+1 type of model, the reality is that the future will not stably resemble the past over time.
Writing down Strategic Assumptions and confronting what they imply to the firm is a powerful start to breaking the cycle of doom.
For example, I was on a call with China recently where business leaders recognized that when the country begins to open up from COVID restrictions, there is predicted to be a massive spike in physical retail and a correlated decline in ecommerce sales.
Once the participants all agreed this would be the most likely outcome, we could begin discussing concrete plans to invest more funding and resources in technologies that will support physical Points of Sale, and in a platform to effectively build loyalty and omnichannel experiences. This decision was a departure from a budget that had initially emphasized only ecommerce following two years of exceptional online growth. 2023 will not resemble 2022 in retail.
Deciding what to do and achieving results however are two different things. You will struggle to generate new exploratory business models within your existing operational structures; the capabilities and metrics are different for your core business models as compared to new growth and explore options. The challenge arises because you are attempting to measure the success of entirely new concepts with metrics more suited to your core business. For this reason, I strongly recommend you consider NOT having the CFO as a member of the investment committee for this activity, as this results in many great opportunities being screened out prior to testing..
What does work well is to set up a small Corporate Venture capital unit and begin investing in some smaller scaleup potential businesses.
This is a low risk way to commence building a portfolio of business models and to test new market ideas for acceptance. Some organizations have even followed on from this experimentation to create large and very successful Corporate Venture Capital portfolios.
Salesforce Ventures today have more than 120 businesses and investments in their Corporate Venture Capital portfolio, and leverage this not only internally and also to assist their customers in learning about the future of digital transformation.
While your management and board will most likely not jump today at the idea of setting up a multi-billion euro or dollar portfolio, they may see the value in starting with just one or two smaller investments. This does not even need to be big ticket expenditures. For example, I have worked with organizations who have started with just a couple of €150K investments or a small joint venture (JV) to commence their learning journey before going on to scale.
Digital Transformation holds the promise to revolutionize your business, and this starts with a clear set of assumptions, a strategic direction, and the ability to develop entirely new capabilities that do not exist in your organization today. Corporate Venturing can help to get you there as a low risk approach to accelerate your strategy for the future.
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