Culture of Experimentation is the New Competitive Advantage in the Age of Digital

(also published in CEO Insights in their Feb edition) Link

Seema is the Vice President of Digital Transformation in BigCo. It is her third year in this role. She loved the challenge and the prestige that came with this role. But last six months have not been smooth for her. She went live with three substantial pilots in new technologies inside BigCo. Unfortunately, none of them had the desired impact on the business. Pressure has been mounting on her since. She feels like swimming against the tide each day.

On a cold December morning, as business activities have slowed with approaching Christmas and New Year, Seema finally got time to step back and think. She is no novice. She knows that big businesses are built to withstand volatility and risk. There are strong processes that by design ensure stability in the way operations are conducted. The goal is to turnout predictable financial performance quarter after quarter. BigCo was no different. She was thinking step-by-step of what happened in the last 15 months.

Stage 1:Developing the Business Case: Before each of her ‘new tech’ projects, she had to put-in a detailed business plan on how it would impact financial performance. She proposed small pilots which would require much less funding. But nevertheless, the leadership asked her to commit to long-term benefits of the pilot if it is scaled. She did her best. After eight weeks of the business case bouncing inside BigCo, she got the green light. She still remembers the celebration that evening.

Stage 2: Delivering the Project: This phase turned-out to be more challenging than anticipated. It was difficult to get time and commitment from subject matter experts from business operations. Her team made a bunch of assumptions and moved forward. During user acceptance, suggestions started pouring-in from experts, which created changes in design and dragged the timelines. She wished the experts participated earlier as enthusiastically as they were testing, but nonetheless, she did not make any noise.

Stage 3: The Celebration of Going Live: She remembers each of the days the pilots were put in production. Her team celebrated the Go Lives and lots of appreciations came from Senior leadership to her and the team for the commitment to bring-in new technology to drive BigCo in front of Digital Transformation.

Stage 4: The Adoption Gap - Nobody was Using the New Technology: Soon after the Go Lives came the phase of darkness. Eight weeks into the pilot, there was hardly any adoption. She was pressing the business ops leaders to carve-out capacity to ‘experiment’ with the new tech. Otherwise, she cannot collect any metrics. But they were too busy with current operations and this was not their priority. However, Seema was hauled-up in multiple Leadership meetings to 'report' on the status of her pilots. She did not know whether she needed to escalate every meeting or there was some other trick she is missing.

Stage 5: Decision Taken to not Scale the Pilots & Shelve Them: Finally, after five months of paltry usage of her new tech pilots, the management decided to shelve them. There was no data to merit further investment. Seema was crest fallen. Though she was convinced that these would have been game changers to the business and changed the current business model, she could not prove her case. 

If this looks like a familiar case in your company, you are not alone and neither is this new. In fact, business literature is galore with stories of Kodak, Nokia and several others who squandered pathbreaking inventions originating inside the firm. The sad part is that these same inventions eventually ate them up. Management hierarchies of most big companies are designed to withstand change. Business cases with ‘sure shot’ financial benefits are approved first and the ones with possible gains in the long future are often set aside.

Just like BigCo, today, all companies are investing in leadership for Digital Transformation. Some of the best minds are holding these positions; but this is just the start. What additionally is required is to increase the ‘experimentation quotient’ in these companies. The C-suite needs to hold themselves accountable to try or support something new. These must be initiatives with relatively long payback periods and ones which completely transform the current business model. C-suite and SVPs of successful Digital leaders include in their strategic goals to map-out the changes happening in external world and make bets on which parts of their business will become obsolete within a decade.

Digital Transformation is hard; unless strong leadership from the top embrace volatility & change and force everyone to adapt, it does not happen. There are numerous companies that play with small scale pilot projects in new tech, but unable to make the leap to join the leaders club. The key to the future in this age will be to increase ‘experimentation quotient’ right in the C-suite.

Smile Communicate and Show Courage

Don't know why I waited so long. There was a time when I thought "listening" to books isn't for me. I have to "read" them. But after I signed up for Audible, have been reading (listening) three books a month. As life gets busier, this is the only way I can keep up with books. 

Read two excellent books recently - Art of the Start 2.0 by Guy Kawasaki and The Hard Things About Hard Things by Ben Horowitz. Though both were authored targeting young entrepreneurs starting up a new business - there are some fantastic leadership lessons from both the books. In these fast changing times, even in big companies leaders rarely can settle down in a groove. Every leader has to run their division or organization like a startup and instill energy to create new value for their customers in a hyper competitive marketplace. 

Apart from the many well known "leadership rules"on which hundreds of articles are written every day, I personally made note of the following simple ones:

(1) Demonstrating optimism every single day. There would be days where you feel like being on the edge and on the verge of quitting, it is times like these that one has to master and ensure the inner feelings do not spill over to the teams.

(2) Ability to articulate a vision and also "operationalize" the vision via clear goals that are communicated and laid out in a manner that everyone can feel the progress. Great leaders are able to inspire a shared ambition among all the teams that drives collaboration. They celebrate small successes that help drive towards the broader goals to create motivation

(3) Demonstrating courage to stick to "individual" decision when others in the group don't agree. Leaders are always faced with the difficult choice of whether to conform to a decision arrived at by the "leadership group" or force their own decision. And that too when they are not sure. Experiments show that even for very simple scenarios, where an individual is 100% confident of his decision, when he is confronted with a "group arrived decision" (that is different from his own decision), he would find it very difficult to stick to his own. Doubts will creep in. It is known that most humans like to be "wrong with the whole group" than "right alone". We like to conform to the group we are part of. 

All of the above can be developed through practice. Just like muscle memory, these have to tried out in every situation till they become a habit. Leader does not mean a CEO of a company, even a lead of a small team or even the head of a family is one. It's all about how do you attract a bunch of free willed individuals to follow you ... 

It's all about Value on Investment than Return on Investment in the Digital Age

Early in my career, I had a mentor who was a wonderful human being. He used to tell me: "Do what you love, follow your dreams and never think of money and recognition. They will follow". I never quite believed in him. Now after more than a decade and (hopefully) wiser, I do see what he meant. All top performers in any field, be it movie actors, athletes or any other profession - they all do exactly that. They never stop to think whether they are earning enough or are they getting more followers in social media or some such superficial metrics. They are in a flow. As I write this, Roger Federer at almost 36 wins his 19th Grand Slam!

There is a reason I started with this tangential story. I think we are seeing a similar mindset playing out in the business world today at an unprecedented scale. Today's young business leaders and Investors who are digital natives and have grown up in the Information Age build their ventures with a singular passion to solve real world problems. They hardly think of Return on Investment. Everyone knows that if you are trying to become an entrepreneur to be rich, you are choosing the most awful way for that. There are other better ways to be rich.

Right from the digital leaders like Google, Amazon, Facebook to the upstarts, they all think in the same way - "solve real problems - profits will follow. Just make your users happy". When I first read this piece on Uber, I wondered how a company disrupted the stable and profitable cab hailing market with a business model that lost a ton of money. Could this business model have passed 30-40 years back, I doubt! To me, it is evident that this is the new mindset that will rule the next few decades in business. If we look at the Unicorn list today, most of them are not making money but they are trying to make the world a better place. Profits will follow some day!!

I see traditional companies trying to compete in this fiercely Digital Age will also stop thinking (OK! that's difficult - I meant think less) about RoI for every initiative. They will replace their "RoI" cap with the "VoI" cap - Value on Investment. Leaders will ask only questions like "is this set of digital initiatives going to be super valuable to my customers? Are my customers' lives going to be easier? Will the frictions reduce?" If the answers are yes, yes and yes, well then move ahead. Don't waste time in sharpening an Excel model to calculate profits. Profits and margins will follow if you make customers happy.

The term VoI was coined by Gartner in 2001 and it is only now that I think it is playing out to its full potential. We are all excited to see the amount of innovation that is going on in every field today with a singular focus to solve difficult problems to make our lives easier and more comfortable. We are living in an age where top investors are pouring in funds for projects which will provide the greatest value for the consumers. This is truly the age of consumer surplus as we read in Econ 101!

The increasingly absurd case of building a business case inside large organizations

Somany of us have gone through this. Though I don’t have exact statistics for this but I believe creating elaborate business cases for new projects or initiatives has to be one of the biggest energy suckers in large organizations. Think of the cycle time from creating it, to aligning with a bunch of other people, adjusting it multiple times and then going through tons of reviews to finally get it approved. Or worse, to have it rejected! And this exercise can take six to nine months or more. At the end of it all that is there is a bunch of Word docs and powerpoints.

Business case is of course the first document that is used in the investment seeking process inside organizations. The expectation is that it must articulate the story in the most compelling manner about why the proposed project or product or a change must be made. Then follow that with a solid strategy and outlines of an execution plan. The entire process takes 100’s of hours of brain time with as much as 70–80% going in wrestling with the documents (Powerpoints, Word docs) to make them look sleek.

This situation often creates what I call a “word trap”. The problem is often compounded if the final decision maker is far removed from the subject area and has a vague idea. There are far too many assumptions hidden in this exercise. Firms can spend way too much time strategizing and circling around a “Word document” without actually diving head long into the opportunity. In today’s fast moving environment, opportunities come and go in months. We all know what happened to Nokia even after building working models of touch screens seven years before Apple took this concept to market.

Smart firms are creating models inside their organization that promote low cost experimentation. They know it is impossible to assess from “words and excel graphs” whether an idea can break into the market. There is a growing emphasis on rapid prototyping of innovations and testing in a controlled way in the real world. Internet companies have perfected the art of prototyping. Don’t make the mistake that all this is for software products only.

My belief is traditional companies would find avenues to come out of this “word trap”. They would force their people to build small scale experiences of their ideas to test in the real world. Maybe VR technologies would one day be used for all this. The way to fuel all this would be to create the right incentives along the full continuum of idea generation to designing to prototyping to market testing to validating the results and plans to scale. There will be no more free lunches.

This last 12 months have been all about how firms are throwing away their performance appraisal system in this new age. Waiting to see a flurry of news in coming years how large organizations finally discarded lengthy processes of business case approval and just jumped to prototyping their ideas and testing in real life before committing to any investments.

Leave a comment below how your organization generates ideas and ensures they come to life.

Be brave, no one ever makes bad decisions

Seriously, I don't know of anyone who made a bad decision. I am sure I have never made a bad decision. But yes, so many of my decisions have truly been poor.

As humans, I guess we do exhibit strong hindsight bias or outcome bias. We routinely judge the merit of a decision based on the final outcome often months, years or decades later. I have myself fallen into this trap numerous times and killed myself by tracing bad events to a decision and thinking “What a fool I was – I should have known better”.

This bias is quite cruel to agents whose decisions have wider impact on society. Politicians and corporate leaders get convicted and thrown to prison for making “bad decisions” whose impact may have played out over decades. Professional sports present the perfect stage to observe this bias every day. Modern day coaches and captains get ridiculed in the press after a game is lost for making awful decisions. (Armchair) experts rush in to proclaim how the writing was on the wall when the decision was made.

Let’s not ignore the flip side to this bias too. Favorable events also get attached to “good decisions” often made a long time back and heroes are made out of that.

One way to reduce this uncertainty is to carefully codify the rules how decisions would be made in certain situations and then follow them rigorously. The hope is if the outcomes turn bad, public would be forgiving since the decision making process was transparent. But then anything that can be codified should be automated. No one needs ‘experts’ to follow set rules. It does not matter even if the rules require analyzing a million complex patterns. In fact, the more the patterns, the more reliable and consistent will be algorithmic decision making. Today simple chess playing programs in personal computers defeat humans without a sweat. Don't want to get into how AI is breaking into all the “human frontiers” each passing year.

That leaves those situations which are truly random and chaotic as the only remaining playing field for the human decision makers. It is scary. It takes tremendous courage to make decisions in such setting especially if the impact is broad. And here is where the game of reward and risk comes into play. The truly brave ones (call them risky, reckless, arrogant, whatever) who do not chicken out to make decisions in this random game are the ones who get rewarded with high office. Most of them know deep inside that that their ‘act’ of decision making have little bearing on the final outcome. It will only be by chance that things will fall in place. Knowing all this, still they are willing to play this high risk, adrenaline filled game. May be that's why they get handsomely rewarded too.

It requires one to conquer fear to make decisions detaching the mind from thinking disastrous outcomes. Kids excel in this. They hardly think of outcomes when they do their mischief. A good thrashing now and then helps them grow up. Adults are no different; being bold and decisive in ambiguous situations is the only thing that separates men from the boys.

Is diversifying our learning the only way to survive?

Last week had an interesting conversation with an old friend on the current ‘hot skills’ that rule the job market. We both have young kids. We also debated what could be the ‘best’ disciplines for them when they grow up. As we talked, what was evident to both of us was that this list of sought-after skills changes every decade. The conversation led me to think something adjacent. Let me bring up the topic here and invite your ideas.

In the world of financial investments, we have a bunch of asset classes (gold, equity, bonds, real estate, etc) to choose from. There is no way any investor can - leaving aside the ‘lucky’ ones - consistently strike gold, i.e., get spectacular returns in every period. It would mean perfectly timing the jump from one asset class to another – gold to equity, equity to real estate and so on. This is nearly impossible. What is the practical solution? We know it. DIVERSIFICATION. Reduce risks and trace a middle path.

You must be already seeing the parallels with investing in self? We cannot predict which set of skills can consistently produce returns (i.e., high wages) in the labor market. Specially in the current digital age, this has become ever more volatile. Today’s hot skills are obsolete or automated away in 10 years. Can we afford to deeply invest in acquiring one or two skills? This is like investing all your money in the current hot stock and hoping for the best. But then how to intelligently ‘diversify’ when investing in human capital?

The problem is compounded as today we have an unprecedented choice in learning new subjects from the fields of science, art, languages, medicine, management and so on and so forth. Like the fluke investor, you have to be ‘lucky’ to learn the right subjects that keep you employed at the top of the curve for 30 to 40 years. To properly diversify in this tricky marketplace, I think one has to “discover” one’s core underlying skills. These can be as basic as ‘I am good with numbers’, ‘I learn abstract concepts well’, ‘I handle people well’, ‘I can produce original work’, ‘I have an elephant’s memory’, 'I cook well' and so on. And then, invest in mastering new subject areas throughout your life which fully exploit your core faculties. This will ensure you diversify, but not randomly. It is based on your strong foundational skills.

How would you recommend - in the race with machines - we stay relevant for the next hundred years? If you read this, drop a comment. Would love to read them.

Should the captain always go down with the ship?

Like most, for the last few weeks I have also been following the news flow from the Sewol tragedy. As more details keep coming out, it is impossible to miss the rage in the media against the Master and the crew of that ferry. I think it is important to raise a few questions based on the events that unfolded on that fateful day and put things in context.

Let's take a step back and carefully dissect the facts from the different news items. For a moment let’s not judge anything as we read on.

1. Master Lee Joon-seok – the captain of the fateful Sewol - was a genuinely nice human being as described by his colleague with a wealth of experience in his profession – over 40 years at sea.  He has travelled this route before. 10 out of 10 times, if you were told before you boarded, you would not panic if a person of his stature leads the ship. Read a generous profile of the Master here.

2. In what must have been “routine operations” for him, on that day he hands the ship to the 26 year old third mate. He himself takes a break in his quarters.

3. The inexperienced third mate has never been at the helm on this route before. On that fateful day, she unfortunately makes an error at her duty (measuring by consequences it ultimately proved to be extremely costly). She takes a sudden turn which tilts the ship dangerously.

4. As the leader, the Master rushes from his quarter to take hold of the situation but fails to re-balance the ship. The vessel continues to tilt.

5. As the vessel was listing, the captain had to take a set of complex decisions in a crisis situation weighing the costs and benefits with whatever information he had. The one that turned out to be the most calamitous was his judgement to have passengers stay in the vessel since (as he himself later told news persons) “the tidal current was strong and water temperature was cold, and there was no rescue boat”. He must have factored how much time the ship will hold up till rescue boats are arranged.

6. The captain finally ordered evacuation after confirming that nearby vessels are coming for rescue operations (it is not sure the orders reached everyone)

7. Soon after ordering evacuation, the captain himself left the ship not waiting to ensure every passenger is evacuated safely. This action is now being condemned world-wide and the captain and crew are also arrested..

8. The stories of the passengers are the most heart-wrenching. They trusted their captain all along. They knew the ship was sinking but still faithfully obeyed the captain’s orders to stay put and waited for help. The videos that have come out make your heart sink.

What happened here? A seasoned leader in charge of people who depended on him to navigate them through the ocean hits an unexpected crisis and takes a set of decisions to the best of his ability to save everyone. When he thought he has found safety for them, he leaves the ship with his crew without waiting for the last person to be evacuated. And all along the crisis, most of the people placed full faith in their leader in spite of anticipating the worst.

The questions to ask are is this set of behaviours so unique that the leader must be vilified as Master Lee Joon-seok is? What would happen if such high moral standards of leadership (“captain must always go down with his ship”) are expected everywhere, specially in corporations? Under what circumstances is it acceptable for a leader to jump a sinking ship while others are still fending for themselves and when is it absolutely not? I certainly do not have the answers...