Let’s talk digital.
Virtually every organization, from your local art museum and fitness club to your IRA custodian, electric utility, bank and hospital is now a digital business.
Ditto the automaker that produced your car, the airline you flew last week, the distillery that makes the ‘hand-crafted’ spirits you prefer and the agribusiness conglomerate that packaged the popcorn you munched on while watching March Madness.
For companies large and small, publicly held and private, digital transformation has become a fact of life—if not a matter of life and death.
The change has been speedy and dramatic. Some companies, it goes without saying, have segued into their new digital identities, have adopted new digital business models, or have adapted their operations to digital technology with far less trauma, to greater economic advantage, and more to the satisfaction of their customers and employees than others.
There’s no one “correct” way, of course, to “go digital,” whether it’s a full-blown transformation or a more-limited activity, such as improving your supply chain. There are a lot of moving parts. But what we’ve found over the past several years is that when companies have pursued more ambitious digital initiatives that involve new business models, the more successful ones typically have done so from the outside in.
This may seem counterintuitive. But it makes perfect sense if you understand the insular nature of many organizations.
By their very nature, organizations can be risk adverse. Disruptive innovation is seen by some as the enemy of life as we know it. Consciously or subconsciously, some of these individuals, while professing enthusiasm, may at times subvert genuine change efforts.
These aren’t bad people; it’s human nature. When there’s a perceived threat to the status quo—perhaps to the amount of office space allotted or the piece of the budget pie they receive—they may circle the wagons; erect roadblocks; even sit on their hands and study the situation to death. In one form or another we’ve all seen it happen.
The various delaying and blocking tactics work. As a top executive at a major corporation lamented to a colleague of mine, “We’ve been studying the Internet of Things for four years and have nothing to show for it.” Duh! That’s exactly what some people were hoping for: studying something to death rather than taking action provided many employees with four more comfortable years of business as usual.
This is where Clayton Christensen’s “The Innovator’s Dilemma” comes into play.
A Harvard Business School professor, Christensen—well-known to Forbes readers—makes the case in his landmark book that “No matter the industry,” successful companies “will get pushed aside unless managers know how and when to abandon traditional business practices.” The trouble is: The organizational dynamics I described above work against such change. Managers, including some senior managers, may prove to be turf protectors, rather than bold pioneers.
The way around that, we advise in certain cases, is to externalize (not outsource, but externalize) new initiatives.
This applies mostly to the potentially most-disruptive digital initiatives—those radically different from the existing business model. Efforts that merely use digital technology to improve current operations should stay within.
The best way to externalize the more radical initiatives is by establishing a new unit, a wholly owned subsidiary, or an entirely new business, with its own budget, its own leadership and staff, and, perhaps most importantly, its own “out-of-sight, out-of-mind” office space. Let them do their thing, reporting to the CEO, or another designated high-level executive, but no one else in the parent company. And when the time is right, if and when they’ve proven they can earn their chops, bring them home as part of the family.
Two companies that have done this especially well in the digital arena are Allergan and UPS.
Allergan is best known as the company behind Botox, the (botulinum toxin) miracle injection.
Until recently, Allergan marketed Botox mostly to medical providers, with some consumer advertising. Not anymore. Last year, Allergan CEO Brent Saunders established a new digital ventures unit, which launched an online hub known as Spotlyte. Broadly aimed at consumers, both those with a general interest in beauty and skin care, and those considering “medical aesthetic treatments,” the outside-the-box—and outside-the-building—site is part news aggregator, part advice column, part navigator to medical providers and part referral system. In the first four months alone, more than a million consumers visited the site. In addition to Spotlyte, a second digital venture, Regi—described as a “destination for discovering and booking aesthetic and curated beauty treatments”—was launched earlier this month.
I asked Saunders, with whom I worked closely on this project, what other senior leaders might learn from his experience with the project. “Lean in,” he said. “When you’re launching something like this, something that’s radically different than what you’ve done in the past, it’s important for the CEO and senior leadership team to ensure that the effort gets the air and the sunlight it needs to grow and prosper.”
Another company that’s been successful with an outside-the-box—and outside-the-building—venture is UPS, which last year launched a new digital initiative called Ware2Go. Ware2Go is designed to solve the logistics headaches of small and medium-sized businesses, providing them with warehouse space around the country, inventory control, and order fulfillment services—in short, enabling them to go mano-a-mano with much-larger competitors.
There’s no one magical formula for succeeding with digital. The one thing we know for sure, however, is that if you’re launching new business models, it’s wise to bypass potential internal roadblocks—and to do so deliberately. If you do that, you’re probably half way there.
