The world is still flat: how economic change is straining our ability to remake public services

I want to talk to you about what is arguably the greatest domestic policy challenge facing governments over the next decade.

How to create the conditions for a sustained transformation in our public services in a way consistent with the fundamental values that underpinned their creation.

In this first in a series of blogs, I want to anchor the debate about public service reform in the context of a number of global pressures affecting governments.

Every government is challenged by a similar set of pressures. The most significant of these is when a combination of rapid technological change leads to profound transformation of the economy. This has significantly increased prosperity. But governments are struggling to maintain a consensus of support, particularly as communities experience periods of insecurity and upheaval when technology is introduced.

The change unleashed is provoking tough and searching questions for governments of all political persuasions.

How do we reconcile rising flows of goods, services, capital and labour mobility with the need to create and sustain socially cohesive communities?

At the same time the capacity and capability of health, education, social care, housing and other public services to respond to change is curtailed by continuing austerity. And our ability to build cohesive communities is even more difficult when the very mechanism for reconciling competing tensions within communities – the institution of government and the process of democracy – has never been more questioned.

People’s sense of ‘connectedness’ with government and the political process looks increasingly weak and shattered.

Next week, I’ll post about how business has responded to the challenge of technological change. The most successful businesses are agile – attempting to reinvent their their business model to meet rapidly evolving customer needs.

Meanwhile if you enjoyed this you might also enjoy my summary of our government digital trends survey. We asked civil servants how their work is influenced by new digital ways of working and the benefits for the public

2020: Retail as a Service?

Digital disruption is typically seen as a form of “waterfall innovation” – where a new entrant unseats legacy players by adopting a radical new approach to service delivery using technology (like Amazon leveraging its own cloud based e-commerce platform capabilities to beat incumbent Retailers on convenience and price). Yet a challenge to this view is that such disruptors are actually applying a form of “agile innovation”, where through incrementally developing their own live services they gradually transform and re-shape a market – a detailed look at Amazon finds its approach to customer service improvement is not disruptive but iterative; where over the last ten to fifteen years it’s used its own net revenues for R&D activities (not for short-term profit) to continually drive massive grow.

The implication is that a Retailer can exploit the competitive advantages of digital disruption by using an iterative service delivery approach – so what could be the benefits and challenges of this “Retail As A Service” model? Here are some ideas…

OpEx Funded Innovation – A major blocker to Retailers investing in digital transformation is that it can involve significant upfront capital expenditure to deliver a return in investment that is difficult to forecast and realise. Applying an “as a service” approach, an alternative could be to deliver small, incremental improvements using a portion of Retailer’s margin earned during the same financial year. No big financial risks, the Retailer can only invest what it earns from the market with the added benefit that such OpEx funded innovation can rapidly pivot to changing customer demands. Yet any slicing of margin will impact a Retailer’s profitability – its owners or shareholders would need to tolerate a different form of financial risk to make this approach acceptable; reduced, variable short-term profit for potential significant long-term gains.

Zero Physical Asset Operating Model – Could the application of a service-based approach to delivery be extended beyond the traditional areas of IT and back office transformation into other parts of a Retailer’s operating model? For example, a Retailer could run a “zero physical asset” business; where front-end services like stores, supply chain management, even sales staff resources are provisioned on a pay-as-you-go basis. A key benefit would be that the Retailer doesn’t run the risk of owning fixed term assets like property or technology that may become commercially unviable or obsolete. However, this would create new risks – a key one being that the Retailer becomes wholly dependent on other service providers’ availability and ability to innovate to meet its competitive needs.

If you would like more information about how digital transformation can benefit your retail business, leave a reply below or contact me by email.

“More is More”: Why retailers need to get even bigger to succeed in The Digital Age

With Tesco’s recent acquisition of the wholesaler Booker and Sainsbury’s buying the Home Retail Group (parent of Argos) last year, key UK market players are using inorganic growth to rapidly expand their physical retail channels. Yet given the ever-growing threat from digital disruptors like Amazon, and discounters (notably Aldi and Lidl), why would any retailer be looking to increase their bricks and mortar liabilities given this channel could be in long term decline? Here are some ideas…

The IKEA experience – perhaps ironically it is a pre-digital retail format that may offer the right approach to combining the unique strengths of the physical store experience with the choice, availability and (critically) lower prices offered by online channels. IKEA’s gigantic stores across the UK combine a compelling in-store experience where customers can physically explore a range of products with the convenience and price competitiveness of a wholesaler’s warehouse. In comparison, Amazon offers price and choice but it can’t replicate the tactical experience of interacting with a product, nor the instant fulfilment.

Sainsbury’s wants to exploit the supply chain capabilities of Argos – not just in terms of same day fulfilment, but the warehouse capacity its stores carry on the high street – physical retail as an unbeatable customer experience Amazon can’t imitate.

Best of both worlds – Arguably a challenge for both Aldi and Lidl is that their focus on lower prices constrains their ability to innovate their supply chains to deliver personalised, contextual experiences to individual customers. In response, not only can Tesco lever the supply chain capabilities provided by Booker to drive greater efficiencies across its operating model to drive stronger competitive pricing, the additional store capacity it now has available means offering greater customer convenience for its digital offerings (such as hundreds more Click+Collect points across the UK). This will enable Tesco to better blend its digital and physical customer experience together while delivering competitive pricing to rival the discounters.

If you would like more information about how digital transformation can benefit your organisation please contact the Sopra Steria Digital Practice.

2020: The Product Owner C-Suite?

A key source of competitive advantage for digital disruptors is their ability to effectively apply Agile ways of working to deliver increasingly responsive, personalised marketing offerings. Such success has triggered a wide debate about the suitability of the “traditional C-suite” to strategically lead and shape these new forms of organisational capability.

This can be evidenced by the emerging significance of the Chief Digital Officer (CDO) as a key leadership role, the proposed re-invention of an organisation’s lead technologist as a Chief Internet of Things (IoT) Officer or even formally embedding continuous improvement in C-suite by hiring a Chief Process and Innovation Officer.

Although the maturity of these roles varies considerably (most large organisations in North America are expected to have a CDO in place within the next five years for example); they all share the same concept of C-suite defining and owning integrated capabilities that directly serve customers – something arguably not possible using its conventional functional silo structure of Finance, Marketing, Operations, HR etc.

This notion of the “Product Owner C-suite” is reflective of the disruptor’s approach to market; the use of Agile to remove barriers between senior management and sources of competitive advantage.

So what are the potential benefits of a Product Owner C-suite for an organisation? Here are some ideas…

Improved customer experience: By focusing C-suite accountability and responsibility directly on the performance and innovation of front-end products and services; frontline employees should be empowered to deliver a consistent, quality service to all customers.

Enhanced innovation/balanced risk: An iterative approach to continuous improvement, based on the rapid sharing of customer feedback between strategy and delivery teams, can enable these organisational stakeholders to adopt a more collaborative open approach to innovation strengthened by a balanced, informed appetite for shared risk.

Increased asset liquidity: Because a C-suite Product Owner has clearly defined ownership of an organisation’s resources and capabilities; he or she can make timely decisions about how these assets should be provisioned and managed – strategic decisions to procure or sell assets can potentially be made at tactical speed to drive cost optimisation.

Unique organisational learning: Although it would need to be sensitively managed; C-suite’s ability to use feedback and insights gained from applying the Agile approach “fail fast, fail often” to inform its decision making and delivery could be a source of considerable competitive advantage – a context specific, people-led learning process that competitors can’t directly imitate.

Integrated employee advocacy: C-suite can use the Product Owner role as a platform to positively promote its on-going commitment and passion to its organisation’s brand daily using marketing and social media channels. Not only does this form of top-down employee advocacy drive customer engagement, it can also intrinsically motivate employee performance.

If you would like more information about how Agile Transformation can benefit your organisation please contact the Sopra Steria Digital Practice.

Digital vision in 7 simple steps

Recently, I read (and posted to LinkedIn) two articles that both highlighted a) the need for organisations to have a digital vision outlining how digital technologies will reshape the business environment they operate in and b) the absence of such visions in most organisations with an ad hoc approach typically being taken.

Both articles begged the question – how do you go about generating a digital vision for your organisation?

So here’s a seven step guide:

Step 1 – Agree the purpose and focus for your digital vision

There is no point developing a digital vision unless it is going to help shape the long term direction and investments that need to be made.  Hence our recommendation would be that the focus should be on how the markets currently served will differ in 10-20 years, how emerging digital forces will or could reshape them, and what successful participants in those new digital landscapes will look like.

Step 2 – Catalogue the problems you solve

The father of modern marketing, Theodore Levitt, used to teach: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”  Or as Clayton Christensen has put it, “Customers want to hire a product to do a job.”

So as the starting point, rather than use current offerings directly, use them indirectly – create a list of the customer problems you solve or the jobs you enable customers to perform to uncover the fundamental needs that you are meeting.  Generate a long list of problems solved encompassing all segments served then cluster to create a manageable number of higher level ones.

Step 3 – Brainstorm how digital technologies can better solve these problems

There are multiple emerging digital forces that will have a very significant impact over the next ten years.  These include new data sources, analytics and artificial intelligence, biometrics, mobile and wearables, social interactions, cloud and usage-based models, and augmented or virtual reality.  For the groupings defined in Step 2, look at how each of these technologies could enable customers to do those jobs cheaper, with better performance or quality, with greater customisation, more conveniently, more responsively, more securely or more pleasurably.

Step 4 – Broaden and deepen

Step 3 should deliver a series of ideas, but a bigger transformation risk or opportunity may be missed.  Hence there is a need to widen and lengthen your perspective.  Firstly, by considering the offerings supplied by other companies that are bought in conjunction with yours – what jobs do they enable customers to perform?  This enables a more holistic, higher level view of the problems customers want solved.  Secondly, by considering the upstream dependencies and downstream impacts of what you are doing to provide a more value-chain or societal definition of the problems you are part of solving.

Step 5 – Brainstorm digital solutions to these larger problems

Repeat Step 3, but using the more holistic customer and societal problems defined in Step 4.

Step 6 – Draft the vision

From Steps 3 and 5, a series of themes will emerge.  Take these themes and use them to describe how the future will be different.

Step 7 – Start again with a different group (without sharing findings)

No one group has a monopoly on imagination or insight into how events will unfold.  Hence future-gazing is an ideal task for crowd sourcing.  So the more groups that are put through the process the better, so long as each group is not influenced by previous sessions – the wisdom of crowds only works when people decide independently and are not biased by what others think.  The outputs from all the different sessions provide the inputs for the senior team to pull together the organisation’s vision, informed by the richest sources of insight that the organisation can muster.

If you would like help in facilitating this process in your organisation, please leave a reply below or get in contact by email.

Liquid Big Data: the next digital disruption?

Liquid Big Data is when competitors use Cloud technology and ways of working to openly share and analyse large volumes of data together for their mutual benefit. Yet an organisation engaging in this form of co-opetition risks losing competitive advantage over its peers and increases the threat of new entrants stealing market share. But could the strategic value of such a move outweigh these risks? Here are some ideas…

The customer comes first

Using Liquid Big Data to join up the customer experience across not just an individual organisation’s sales channels but complementary and even competitor offerings would demonstrate its commitment to personalisation. Customers themselves are already using digital services (such as price comparison websites) to disrupt the silo experience of individual brands to personalise their customer experience – how can organisations gain shared competitive advantage by working together to supercharge this form of empowerment? This approach could help address falling demand in physical stores being experienced by the UK Retail sector for example.

Agile supply chain performance management

Liquid Big Data can drive greater collaboration between organisations and their large (and small) suppliers to help reduce the risk of producing unwanted stock or inventory and deliver better resolutions to other supply chain issues. For example, by sharing real-time sales and operating performance data enables them potentially to work closer together to deliver more accurate, timely forecasting of demand that improves their management of Lean or Agile-like approaches such as just-in-time manufacturing. In addition, it creates opportunities for both partners to adopt new ways of working to further strengthen the agility of their own supply chains.

Data as currency

Given the rise of digital currencies for business to customer transactions using the Cryptocurrency approach, could there be an opportunity to extend this model to enable the trading of Liquid Big Data between organisations instead of cash payments? These business to business transactions could be occurring at different speeds – for example, the instantaneous sharing of insights between organisations wanting to sell tailored complementary services to the same customer or one-off trading of large volume, complex service performance data between suppliers to help them build collaborative services for the same client.

Increased resilience against cybercrime

Every day, many organisations face the risk of hackers trying to disrupt their digital services or steal their large volumes of customer personal data. To mitigate such risks, organisations could collaborate to build and jointly manage secure Cloud services to protect these critical Big Data assets together. Although this approach does not mean these competitors are sharing data with each other, potentially it could enable the creation of a secure Liquid Big Data platform that could be sold as a service to other organisations for their mutual benefit.

Component full life view

Some organisations are trialling the use of IoT sensors in their goods or products to track their performance through the supply chain and customer experience. This approach could also be used to gather data on “long life components” used in consumer electronics, cars or aircraft. Such Liquid Big Data could then be shared with competitors to help validate sector-wide benchmarks for component longevity or be combined with other information (such as environmental factors) to identify other issues that affect their performance.

If you would like more information about how Digital Transformation can benefit your organisation please contact the Sopra Steria Digital Practice.

What digital transformation can learn from the Hollywood Studio System

The past still matters in our digital age

If anything, we should be learning as much as possible from the industries of yesteryear to understand how they used new ways of working and technology to drive competitive advantage.

One example that provides such insight is the so called “Studio System”, where major Hollywood studios dominated the North American film industry during the first half of the last century. The ways they achieved this and how this “Golden Age” came to an end could help shape an organisation’s competitive strategy today. Here are some ideas…

Value chain dominance

The major film studios owned or controlled the production, distribution and exhibition of films in North America during this period. They achieved this vertical integration of their value chains by effectively combining mass film making technology with a production line approach to content creation.  This meant they could lever significant economies of scale to control costs end-to-end to deliver sustained profitability.

However, their competitive advantage was contingent upon them being able to maintain a monopolistic position with limited government intervention. This led to a federal antitrust suit that forced these studios to give up control of film distribution in the late Forties – effectively ending their monopoly of the North American market.

Today we can see examples of companies being scrutinised about how they leverage digital capabilities to exert ownership or control over value chains. For example, Internet search engine providers have recently been challenged by the European Union about alleged anti-competitive behaviour in the way they handle product search results.  They also find themselves subject to other forms of government intervention relating to their collection of personal user data.

The drive for value chain dominance is set to continue with the expected explosion of Internet of Things (IoT) predicted for 2016. This technology potentially enables a company to capture and use data solely to control any aspect of the customer experience end to end. Consequently to mitigate the risks of government intervention, such a company may wish to embrace game theory approaches such as “coopetition” – collaboration with competitors to deliver IoT services in mutually beneficial ways – to avoid being perceived as monopolistic.

The captive audience

At the height of the “Studio System” era, collectively the major film studios were producing over five hundred feature films a year. Such production at scale was essential in meeting audiences’ thirst for new content (especially given they had limited choice for entertainment apart from studio-controlled cinemas). But such volume of throughput made it difficult for the studios to maintain consistent quality – A grade pictures would often be exhibited to audiences with lower quality budget “B movies” to help drive sales of both.

This cost focus, non-differentiated approach to producing high volume content became a key strategic issue for the majors as the popularity of television surged in the Fifties.  Audiences now had more entertainment options and became increasingly discretionary about their viewing habits.  Television was a “disruptor” – it was materially cheaper to produce quality TV content (and easier to distribute) than film. The majors now faced an unforeseen challenge that exposed their films to materially greater risks of being financial flops as audience demand for higher quality content rose and their switching costs to this rival media channel was virtually nil. The “Studio System” would never recover from the impact of television.

Many of today’s companies face a similar challenge – the risk of competitors stealing customers by using disruptive technology to lower switching costs while simultaneously trying to exploit the same approach themselves to cost effectively deliver quality products or services to sustain market share.  We can see this in the once monopolistic Telco industry, where 3rd party digital-enabled video, voice and text messaging data service apps have arguably decimated incumbents’ revenue from their own telecommunication services.  As a result many existing players are aggressively adopting Agile ways of working to diversify into new digital markets (from app development to over-the-top content).

Is the effective adoption (and adaption) of Agile by companies essential to them delivering as the disruptor and market incumbent simultaneously to drive profitability?

The talent advantage

Many quality actors (or “bankable stars”), directors and writers were contracted to work only for specific film studios during the “Studio System” era.  Effectively a barrier of entry, such a move enabled a major to exploit (or sweat) these assets to their full commercial potential with no risk of them being poached by competitors.

But as the majors lost their control over distribution and the competitive pressure of television grew, these assets increasingly became their main source of differentiation.  Unsurprisingly “the talent” themselves exploited this position through demanding higher salaries and a profit share from their own pictures. Such a move impacted the majors’ ability to turn a profit, further contributing to the demise of the “Studio System” and the emergence of new business models for the North American film industry.

Today a lack of digital talent is a major risk for many companies – with notable examples being the limited labour market supply of experienced DevOps, Data Scientists, Agile Coaches and User Experience Designers. This highlights the critical requirement for organisations to adopt a resource-based view on digital strategy to help grow their existing people capabilities and leverage external market opportunities to pro-actively address skills gaps.

Although such resources are perhaps not “Hollywood Stars”, the scarcity of such skilled talent can mean they can be relatively expensive resources to hire and retain. That’s why it’s essential for an organisation to have an effective talent management function to manage these cost challenges and develop capabilities in-house to reduce long-term dependency on external labour supply. Without such an approach, a company could face spiralling wages not dissimilar in impact to the effect felt by the majors of the “Studio System” era.

If you would like more information about how Digital Transformation can benefit your organisation please contact the Sopra Steria Digital Practice.