Digital Transformation Insights and Challenges

Hello, I'm Michael Fitzgerald, contributing editor at MIT Sloan Management Review. We're here today to talk digital transformation with an all-star panel. Here with me today are Kim Stevenson, the chief information officer at Intel Corp. The iconic $53 billion semiconductor maker, also has a substantial security software business. It drives change in the technology industry that ripples through the world economy. Mark Norman, president of Zipcar, now part of the $7.4 billion Avis rental car group, Zipcar used web and mobile technology to change the way people think about their lives. people rented cars and has helped spawn a trend towards short-term sharing of all sorts of goods. Avis bought it to help transform its overall business. Didier Bonnet is global practice leader at Capgemini Consulting, heading its digital transformation practice. Andy McAfee is principal research scientist at MIT's Center for Digital Business and author of Enterprise 2.0 and co-author of Race Against the Machine. Thank you all for joining us. We're going to talk today about how businesses can adopt technology in ways that don't just automate. but that drive real change across operations, in customer relations, and even for their business models. Kim, let's start with you. You work at Intel, which makes transformative products in their own right, but also has to manage through the transformations it creates. What current technologies are you looking at as potentially transformative? As the CIO, I have a view that four fundamental technologies are going to form the basis for the future modern company. So cloud computing being foundation, ultra-mobile computing, social, and then advanced data analytics. Change is really how companies are connecting with their customers, how they run operationally, and I'd say weaving security all through that because there are security implications across that spectrum that have to be addressed as we go forward. And so it's an exciting time because of the layering of technology and the capability that you get with that. Thanks. Mark, your business actually exists because technology was used in a transformative way. What do you see as being valuable to Avis as a company going forward? And separately, are there new technologies that you're looking to bring into Zipcar's portfolio? Absolutely. I mean, the whole reason for being for Zipcar, I mean, this disruptive innovation of self-service wheels when you want them, of a better way to use a car in cities, was enabled by a lot of developments in technology over the last 15 years. It wasn't even possible. through smart key ignition and things like that. But then with what we're seeing now, with the migration of activity onto smartphones being really the least common denominator, where it was a touch-tone phone 10 years ago and a desktop computer more recently, that's enabling a mobile experience integration with travel and as a platform. So to be more seamless, to have reservations be automatically transferred to a car so you don't have to think about how you pick up a car and have that more integrated work with your life, then that enables a number of different vehicle technologies. I mean even things like autonomous or semi-autonomous vehicles to be able to say, hey to call up the car from parking or to have it park itself, you know again lawyers aside, little things like that can really make that experience really transformational on how you use moving around in cities. So did he gets paid to say that? of course, but when you go in and talk with companies about the challenges of digital transformation and the opportunities, what opportunities in particular are they excited about in terms of new technologies emerging that they think they can leverage? So I think in terms of technologies, exactly as Kim said, the social, mobile, analytics, all this, I would probably add all what's happening right now with embedded device. And if you look at the auto industry, and I'm sure your mark is looking at that pretty closely. All these sensors that we're putting into care are going to provide more analytics but also more possibilities. To the question of which one is transformative or not, I would say all of them or none of them. I think the transformative bit comes from what Mark's done is weaving them together into an experience for a consumer that's way better than we've seen up to now. And that's really, to me, I would say the technology doesn't really matter if I want to be at one extreme. What's really transformative is the way that you actually put it all together. in the way that Mark has done with ZipCast. And that's really more process work and applying to, you know, starting from the customer experience backwards. And Andy, you've been thinking about companies and technology for years now and the way that it works and doesn't work or should work. Why is digital transformation a topic that's emerging now? And how would you explain what digital transformation is versus what we've been seeing with IT for two decades? The drumbeat that I hear in the background of the economy Is Moore's Law, just making digital stuff better and cheaper? And a few years back we started to cram that digital stuff into little devices called phones at the time. But these things were essentially really powerful computers. They were connected, they had bandwidth, they also had a bunch of sensors in them. Again, digital. So they had GPS transceivers, they had Wi-Fi, they had near field communications. All these became small enough, powerful enough, and cheap enough. that you could stick it into a handheld few hundred dollar device. And then the founders behind Zipcar said, wait a minute, this device has very good GPS technology on it, it's got payment systems in the background, it's got a near field communications. This is all we need to deeply rethink the way people rent cars. And to not have to take the shuttle at the airport and rent it for three days, but to walk down the street, walk up to a car, go beep beep, and drive it away for a few hours if that's all you want. So innovation is a process of recombining building blocks that are already there. What's amazing about digital transformation these days is that the building blocks are getting more numerous and they're getting much much cheaper and more powerful over time. That lets the innovators keep on reconfiguring them and keep delivering us good stuff. So Andy, it sounds like what you're saying is that we have reached a kind of inflection point with technology and the way that it works across our economy and our culture. And so, Kim, I'm curious, from a management standpoint, what is the biggest challenge to getting transformation from technologies, from the kinds of technologies that you're trying to bring to bear? Really, the hard part is looking at the business processes that you execute. The. Once you understand what you're executing and what your potential to execute and going through that change process, that's the hard part. The technology will enable you to do that change. And so you need a combination of deep business understanding and not just people that understand your business today, but really that ideal state. And then some great technologists that... can help implement, but it's a combination of those things that are important. I find a lot of companies today are too stuck in, especially if you're a leader, right? It's that complacency when you're the leader problem because they've gone through so many. They've gone through ERP. They've gone through BYO, and they've gone through cloud, and they think they've done it all, but the reality is We're only at the very, very beginning of this next generation of computing, and I think that every industry leader will be the ones that transform first. I don't care what industry you're talking about. I get the impression sometimes that a lot of the management teams at companies say, would you please stop the technology innovation? We can take a break from this and just digest what we've been doing for the past few years. Unfortunately, that's not going to happen. So a critical skill at the top of a company is to have someone who can keep scanning the technology landscape and explaining it to the rest of the management team to say, gang, this is the cloud. It's actually a big deal. It's a big deal for us. Here's why. And make sure that conversation continues so the inertia and the complacency can't take hold. It's deadly in the world that we live in today. And Didia, you've been meeting with companies that are traditional companies that are not technology-oriented companies. that have already some built-in resistance demonstrated. Do you find that they are more receptive to looking at transformation through technology in certain areas, like operations or customer relations, something that is easier for them to look at and say, I think we can do this and let's seize this day and move forward? Focusing on the traditional industries that we looked at, I think definitely there's a stronger perception that You know, digital is going to transform something. So I would say there's an awareness from most boards, which doesn't mean everybody's tech-savvy, but at least there's an awareness that this is important. I think the difficulties we hear a lot of people say, you know, I know it's important, it's probably one of the three items at the top of my agenda, I just don't know what to do with it. And that's the dilemma that people have right now. And I think the people that move forward the best is people who start with the customers and try to say, OK, how do we increase the experience? Now this is what we're trying to do and then try to apply the technology at the back of that. The biggest mistake we see is people use technology as a substitute for an existing process rather than really transforming your process through the power that this technology has. And I think it's also gymnastics. If you do that well two or three times, as Andy said, we're going to get a ton of technology coming in in the next few years. Once you get good at that, you can potentially get huge performance improvements. Technology in itself isn't going to get you the optimal results, but it can be a catalyst for change inside the company. So give the people a reason to reexamine the business process. Give the people a reason to... look at their business model in a different fashion. Well, it's a cultural challenge, and Mark, I wanted to turn to you because you are obviously, you've been in a startup which has become a medium-sized company. It's not startup size anymore, but you're also now part of a much larger and more established company. So culturally, what kind of challenges do you see at Avis? On the discussions that we've had, I mean, the start with experience to say, what are we trying to solve? Little examples in our business like, How do I make finding the car easier? How do I make finding parking easier? Navigation, for example. I mean, it's crazy that you're punching in your address when you're in the car, figuring out where to go or yelling at Siri to, you know, take me here kind of thing, versus being able to seamlessly transmit that when you're planning the trip. You know, again, tying it with your calendar. Well, I'm going to need to be here, so have the car tell me how to get there. or tell the taxi or the sedan or whatever. And little things like that. So if we've got an experience vision that we're trying to solve and this array of this landscape of what's out there and what's coming, so, again, smart strategists and department leaders and others can say, hey, you know, that's interesting. We need to pay a little more attention to that as we continue to drive at these experience challenges. Because otherwise it ends up being kind of the chase, the whack-a-mole of kind of business. You know, stoplight charts, you know, where you go, oh, you know, we're off on this metric. Is there a technology silver bullet that we can solve here? And, again, you get, you know, board decks on iPads and incremental improvement, but not necessarily transformative improvement. What we can do now is say, what do we want to accomplish? What business are we in? What need are we trying to satisfy? Instead of saying, how can we take our existing processes and make them better, back up a big step. What do we want to accomplish here? The technology suite to help you accomplish that is unbelievably robust these days. And then to something that Mark said, which I think is really important, there's this dizzying array of stuff we could possibly do with technology. So to continue your example, do we want to integrate with calendars and destinations and have that be part of the GPS? Do we want to try to have the keyless system work better? You have no shortage of opportunities. You make your best guesses about which ones the customer is actually going to value. And then the critical thing I think to do these days is not assume that that guess is correct. Experiment, run a pilot, run a test. The costs of experimentation have fallen through the floor because you can enable them with some segment of your customer base. You can do an A-B test, get the feedback, and keep iterating that way and improving on that kind of incremental iterative basis as opposed to having to do a series of moonshots. led by some management vision of what's going to happen. I think that's a really old-school way to think about it. Are we really seeing a phenomenon of all companies can use technology to effectively be consumer-oriented companies? Is that what you're seeing, Didier? I believe the notion of B2B and B2C is eroding pretty fast. Because most of the B2B company I talk to, their main aim is to say, OK, how do I go direct to customers without challenging this distribution or these brokers or this layer in the middle? And some companies are succeeding extremely well because the answer is you do something different. You provide more information, you provide some better experience because I think one of the problems... Our opportunity we have with digital is that it's very cross-functional. It challenges the barriers that we've designed in an organization for hundreds of years. And hence, what is a difficult challenge to transform. Your experimentation is not expensive today, so you don't have to have 100% certainty. You do have to understand what experience you're trying to create for your customers. I think that's the key to it. So, operationally, how do you lead to this? cross-functional, non-silo, kind of utopia. We've got a view on our workforce of the future that it's much more of a swarm. So think of like a movie. If you're building a movie, if you're making a movie, all these people that effectively are independent contractors come together, they do their part, and then when the movie's finished, they disband and they go work on another project. That is the work style of the future. You need organization structure to handle sort of, you know, People issues and stuff, but the work, the way work gets assigned, it becomes much more about the project and the work, not the department's mission. Because then you can get these cross-organizational issues addressed. And in a hierarchical structure, you find everything is, the problems are at these seams, and no one really takes ownership for the seams. Hierarchical organizations are very hard to change, especially when they're on the order of tens of billions of dollars. Historically very successful. those hierarchies get deeply embedded and making things actually flow across the network and become more linked it's really tough and I think that's the work of the absolute top of the company and it's a leadership and organizational change challenge our culture internally has been for years twenty years or more competitive because we were the market leader in servers and PCs and we didn't have any challenges we competed with each other site against site design team against design team And it worked very, very well, kept us at the top of our game. Well, as we go into phones and tablets, guess what? We're not. We're not the market leader. So a collaborative culture is more desirable, but it's very hard for us to change. So we're using technology as a catalyst to change that behavior, to bring. We're simply trying to solve two things first. Find people in the company. We have experts for everything. Finding them is hard. And then find the information. So we are protective of our IP. We lock everything down. So we're exposing more to our employees so that we can find so they don't recreate. And recreating is waste and causes a lot of delays. And that's the beginning of changing that culture to be a more collaborative culture, where we can do better system on chip designs instead of just simple microprocessors. So a little more about how you're doing it. How do you actually approach it from a management perspective, and what's the technology you're trying to apply? Yeah, so from a management perspective, at the top, so last summer I led for the corporation with our senior VP of HR a corporate strategic discussion. We had the top 25 executives in the company buy in to the strategy, admit, first thing, you have to admit that your competitive culture needs to change to be successful in the future. And we want to change before. before it's evident on the outside that we need to change. And I think that's a really key premise. We got that bought in, and then each of those business leaders picked certain areas that they wanted to focus on. So the sales team wanted to focus on account management and advancement of opportunities in the pipeline. Our engineering teams wanted to focus on design document availability to these system-on-chip teams versus the microprocessor teams. And so... We went to the sharing there, so we did some very simple things first. Like we put pictures out there on expert profiles. They used to be like a half inch by half inch. You couldn't see them. We made them three inches by three inches so I could see who you were. We've added more than 220 video conferencing rooms. For the design engineers, we're adding electronic whiteboarding. We're opening up the SharePoint sites. so that we can search SharePoint where previously we locked it down. On the sales side, we're slowly working our way off of email to more real-time live engagement in a social collaboration model. And we've set up their communities based on account teams, not based on org structure, so accounts that they support. Does this come from you at the management level or is this coming from the CEO level? Is it a combination of things? IT is going into the business units and we're saying, here's what's possible. But the business units are deciding what problems they want to tackle first. And then we bring the technology and I say, use it as a catalyst to change. I insist that each business unit has a transformation leader, somebody in their team that is responsible. for that transformation. So it's a partnership because again, sort of like Didier was saying, that one functional organization cannot do that change. You can't make someone change. You have to help them through the process. For us, I mean, we had to set core values that were around. I mean, we had to collaborate in the early days because a small company, even today, we view ourselves as a technology and a marketing company that happens to run a fleet of cars. But we can't do Autonomous vehicles and hacking into different car systems and duplicate engineering innovation, but we can partner to see where we plug in and how that happens then is in values even how we even assess every single person on our leadership team to drive and solve for collaboration in a way that might have been more competitive five years ago. So that and then creating spaces I mean we're moving into a new office here in Boston and smaller desks. larger collaboration spaces and it's a change for some but it's really natural once you get going. Are you in a cubicle yourself? I'm not but in the new space there's much more leadership out in the open and stuff. Again, we see Mayor Bloomberg and stuff and how they run the trade floor there and that's a model for working. I just want to note then that we basically have two cubicle CEO type companies on this panel. Are they outliers from what they're talking about in terms of the ability to collaborate and to adopt technology? Or are they becoming more of the norm? We've trained a generation of business leaders to like big offices and private elevators and all these things. But this is the wave of the future when I go look around the really cutting edge companies in the valley in San Francisco. And I look at some of the great companies. technology companies here in Boston, I see absolutely what you described, this really flat looking physical space. Here's a room if you need to have a private meeting or a conference, but otherwise we're all, we're in this thing together. And they're not the old five foot tall, you know, like a groundhog looking over the top cubicles. These are very, very flat spaces. And that makes a difference. In our cubicles, we've always been a cubicle company, it's California. But we've... changed our cubicles from those gray cubes to colorful lower walls. And then the next phase where we're starting this year, my floor will go to 95% mobile. And that doesn't mean people don't come to work. It means that it's completely open. You don't have a signed desk space. So you go to a neighborhood. So you go to the neighborhood for the project that you're working on. So I might be working on with the design team this year. So I'll go to the... go to the design neighborhood and maybe next week my project is in manufacturing, I'll go to the manufacturing neighborhood. And then people collect. So it's the beginning of these swarmings start to happen through making their physical space conducive to swarming. Didi, I have to say I'm feeling a little skeptical again that we have two outliers talking about organizational change. Culturally, the companies that you are meeting with and sort of talking about the value of digital transformation with, you know, Can you imagine them having neighborhoods as a matter of course that they show up in and then you know they go someplace else with their and they put on a different cardigan like Mr. Rogers? Not all of them. Okay. Is the polite answer. But more than none of them. But more than none, yeah absolutely. And I think it's very important because we spent ten years ago a lot of time doing culture program and all which to me were complete waste of time. Because the way you change the culture of companies, you change the way people work. And it's quite critical on social platforms. We've seen that the people that got the best adoption is usually because the senior management have really involved themselves also in showing the way. So there is a direct link in terms of working differently. be it open space or the involvement into this new platform of the senior management. That makes a difference. Whether you will be performing better, whether you don't have offices at all or not, we don't have the data, I don't know. There's probably hype on each side. There's probably a nice balance to have. But I think if you want to influence the change of culture, like you were describing, Kim, you have to change the way people work. Otherwise, you can preach forever. Nothing will change. But I would say with technology, I mean, the megaphone that customers have. now that they didn't have shortens the synapse between you know big-state old enterprises and customer feedback and loyalty and and what we're solving for with sort of lifetime value of customers. So you're saying the customers are using technology and kind of forcing the change on businesses? People don't want to change naturally so what changed them is the competitors is doing something different you just got to respond but very often it's a customer that are putting the pressure. on the organization to do things different because otherwise they're gonna walk and it's in the public it's it's amplified ten times with social media and all sorts of stuff and that's a there's a real powerful change in very traditional industries like manufacturing banking and others it adds significance and mission to frontline employees that waterfalls up and down the organization so that short synapse when it works well is very reaffirming and so people say wow I am here bettering people's lives That's worth coming to work in the morning. And that is contagious into management and driving change as well. So it's not all a big stick. It's a big carrot too. So we've been talking really about extolling what technology can do for companies and what companies should be trying to do with technology. How much risk is there when you go to adopt? One of these new technologies. Well, I think the greater risk is to stop looking at technologies and stop adopting new technologies. The vexing thing about innovation and disruption is they don't stop once you do it. Other people are going to continue it. We got a great example here in the automobile industry. Zipcar was this amazing disruptive innovation, added a huge amount of value. It's still a fantastic service. Now, though, the peer economy comes up, and we've got sidecar and relay rides. and they've taken this idea that you had and pushed it down so that I can rent out my car from my driveway when I'm... What? And then there's a service called Lyft now where, at least in a couple cities, I can summon a taxi that turns out to be someone else's car. I hop in and he drives me across town. The car has a pink mustache on it to signal that it's a Lyft car. I think I'm supposed to fist bump the guy when I get in because that's the culture. That's what you do. I'm supposed to fist bump the guy when I get out to evade the regulators and to keep the the lawyer is happy, there's no set payment, they just suggest a donation that I'm supposed to make to the person. Boom, happens, they take care of the payment. Huh? Now, some of this... This is where we're talking about business model innovation versus technology innovation, right? I mean, there's elements of GPS and billing and things like that that are part of lots of other things and you say, well, where's the pivot? Is it in the technology or is it in the business model? And there's a big TBD on that. We spent, there's a lot of cases on early days of Zipcar. what is it and can it ever make money and you know what's with the late fee things like that and spent a lot of time sorting out a business model that was pretty disruptive and that was about the underutilized asset and very different from rental or car ownership and so then to your point adopting technology was how can we not i mean i still remember when we were doing the iphone app three or four years ago and it was of course we have to do this did we know that a majority of mobile of reservation transactions were going to move within a couple years years. To the app, we didn't know that, but it's been, again, a pleasant surprise and one of these pivots that we run with. Let me point out, say, JCPenney, right? So it's a company that is going through some really difficult times right now, but when its now-fired CEO came in, one of his big things was, we are going to adopt embedded sensors. We're going to sort of use technology to transform the operations. It's going to create a different business model for us that's going to then provide a basis for some of the operational strategies that I want to implement. It's failed. I mean, that's a real risk, right? The JCPenney example to me is really interesting because as I understand it, he came in and he said, I know exactly where this huge company in this new industry needs to go. I'm going to do a bled from the top, moonshot, transformational change. I'm not going to iterate. Data free. I'm data free. I'm intuition heavy data free. I'm not going to experiment. I'm not going to iterate. And I'm not really going to listen to what the market's telling me over and over. So on a hypothetical basis, I mean, if you. If you are the CEO, And you are, in effect. And is that a case where somebody is not listening to, say, the CIO or other senior leadership? What's happening there from a leadership dynamic? Is it common to get into a fork in the road on strategy where you say, I'm not happy with where we are, where do we need to go? And these moonshot sorts of calls. And, again, I think the earlier discussion around is how do you de-risk that? How do you make that an incremental step so it's not this crazy bet to farm? And. And what are other stakeholders who are a half a step ahead saying, hey, you know what, we're already here in this other piece of life that we interact with. So customers, employees, we've got lots of other partners, government, things like that, to say, hey, there's transit integration, things like that that can help de-risk that. So it doesn't have to be this moonshot. And that's where I think data analytics and predictive modeling can help de-risk these types of changes. There was no doubt that. companies need to change. You're going to either disrupt or be disrupted. That's the situation we're in now. But if you have there's so much data, it is actually cheap to get the data, it's cheap to store the data, and then providing the analytics is a little bit harder. Skills are in short supply, but it's getting better. And you can very easily run a bunch of scenarios and create milestones to de-risk some of these types of types of changes. So, you know, really if you're going without data, if you're, so we actually have in one of our Intel values, it says know when to take a leap of faith. And that's true. Leadership, you do have to make some gut calls, but you do that with as much data and foresight into the events as possible. And so you've got to do some scenario planning, risk mitigation all the time. And it's just tremendously easier to do that today than it was five years ago. But you mentioned the skills that are in short supply, and we talk about data scientists and how rare they are, which is accurate. I think the skill that's in even shorter supply is to be an honestly data-driven manager, leader, executive. Because what I observe over and over is you've got somebody at the top of an organization who says, we've got to make a call here. Bring me the data, bring me the analysis, and I will incorporate that into my basically intuitive and experiential decision-making. process and the data is one input to what I do you know based on based on the gut that I've built up that's it yeah and if it doesn't confirm my assumption I'm gonna ignore the data because after all it didn't confirm my my assumption that's the wrong way to proceed and to actually be humble and to say if the data if the analytics are done well and they don't agree with my intuition my intuition is wrong and I need to get out of the way and go where the data lead me that that's a tough rare skill you have to coexist for a while I'll give you an example. So we've been running a crowdsourcing game at Intel. And we predict things like product milestone dates. And we predicted, starting early last year, so early 2012, we started projecting our quarterly revenue. And we played the game with determined, knowledgeable people. And what you learn in these games is that Most people bet on the known, which is the published date or the published revenue forecast. And then the people that are the outliers actually possess some unique information. And so in March, April of 2012, we had outliers predicting that we were going to be short of revenue in the third quarter. The formal process said we were going to make the revenue number for the quarter. Sure. And so everybody said, no, no, no. We wanted to totally discount that input. It spent months looking at it and trying to figure out what those outliers really knew. And in fact, we were going to be short in the third quarter. And we had to do a preannounce. We preannounced our earnings in the third quarter that we were going to be short revenue. And so now we went through that. We lived through that experience. Now the crowdsourced game is a critical component. component to the revenue. We did not throw away the old forecasting process. We now have another input source to make sure that we have visibility into that outlier data. So that's how you actually drive through a more data-driven culture. I love, by the way, how prediction markets, which Intel has been using for a number of years, have now become crowdsourcing games. A good sign of cultural change. So let's talk a bit about transformation and leadership and management. We have talked in this series a bit about the idea of chief digital officers, digital czars. Didier, you've done some research in ways that companies can implement these things. Can you talk a bit about what... What you see in terms of the CEO-CIO dynamic and where things like Chief Digital Officers fit in? Yeah. So yeah, I think what we've alluded to what the problem is. The problem is how do we get cross-functional collaboration working. within the corporation starting at the highest level. And I mean, CDOs are kind of in fashion right now, but it's not the only model. You can start with committees. People are creating independent units with marketing, IT. And if you have a Nike is a good example of putting several skill set into one place to actually design new product and new services. So people are trying to look for answers. There are two issues. There's one is there is an IT issue, which is we're asking the poor IT people like him. to be industrialized the hell out of our IT, and at the same time innovate the hell out of our IT. And it's asking a lot from one person usually. And by the way, you have budgetary constraint on top of it and all this kind of stuff. And either you're a very transformative IT leader, and then you can do both and orchestrate the shift between the cost savings and the investment, and some people actually can do that very effectively. Or you said, okay, leave IT where it is into sort of cost reduction environment. environment and create a new innovation IT through a CDO, which doesn't necessarily need to be an IT person. Sometimes it's a marketing person, sometimes it's a mixture of marketing and IT. And the CDOs works well when people talk to each other and find the delineation between traditional IT and innovation IT, it can work. I've seen clients where it's a warfare between the CDO and the IT people and it actually slows down the organization and then accelerates, which was the original purpose. How does it work at Intel? in that dynamic and how are you working with the CEO and with other C-levels? So yeah, and we sort of, we're ambidextrous as we're IT. You know, we have to drive and run IT as efficiently as possible, but we use that capacity that we create. I mean human capacity and budgetary capacity to fund innovation. And so I work with the CEO and all the senior leaders of our business. I have a staff member that sits on the staff. of every business unit leaders. They're considered a member of the staff. They're measured by me and the business unit leader and they're measured on the business value they create. And it's very clear. You can only be successful if you met the IT metrics. You can be no more than successful. As you create business value, you can exceed expectations or become an outstanding performer. So it's embedded into how we do performance management. management, manage career paths. We do a lot of rotations with the business unit. I had a hundred people last year we sent to the business unit for anywhere from three months to a year to do the job and then come back to IT and figure out how to provide solutions for the job. So we call those walk in the shoes. We have ride alongs where people shadow their customers for periods a day. We do all sorts of you've got to live, you've got to your customer in order to really figure out how to best service your customer. How much time do you actually get to spend on things that you hope will be transformative? I have about 160 people in my strategy, architecture, and innovation organization. Most of them spend most of their time on innovative stuff. I probably run 100, any given time I have 100 to 120 POCs, proof of concepts, experiments going on. I have a small IT innovation lab. We're happy to kill things, you know, so there's no punishment for that was a bad idea, let's kill it. But I probably spend anywhere from 20% to 30% of my time driving specific transformative initiatives at Intel. So I spoke about collaboration. Big Data is the other one I spend a lot of time on. How are we going to use it? What are the analytics capabilities we need? And how much time do you expect your... your IT person to be spending on something transformative? I would say all of that, and I mean, seriously, up to half. I mean, there's a certain roadmap type thing. Remember, we're this technology and marketing company that we're not going to exist if we're not innovating, again, on how to marry the best of these various technologies out there. What's your sense of how it actually works at Avis? It's a little bit, again, more traditional in that regard. There's a shared sort of outsourced group that can lever up on our vision. vision, by the way. We're benefiting because we can run faster, but we're saying where to go. And that's a nice compliment, frankly. One of the challenges of the CEO, of course, is that you don't necessarily have time to be the visionary, the strategist, the futurist. How much of your own time do you get to spend on things that you hope will be transformative? I would say it's got to be a third because, again, we've got to set the vision for the team on where we're going. And it helps with values. It helps with break prioritization things. And again, we get more from, we say at Zipcar, all of us are smarter than any of us. But if we can craft a clear vision on where we want to be, we're going to get the best of that innovation out on the margin of, you know, hey, should we go A or B? You said that it's okay to fail once in a while with some of the experiments that you run. That's profound. It really, it's part of the American business genius. One of the things we really do well, that a failure, as long as it's not JCPenney magnitude failure, but a failure is not this indelible black mark on your record. It doesn't tank your career. So, you know, the Monopoly game, right? There's chance cards, right? So I gave out these cards that were similar. They were orange in color and they said on it, Hey, I took a risk and it failed, but I learned something and applied it. And I gave them out last year to all the leaders in our organization, and then I gave them a packet to give to their employees. And I said, when you failed, then you just turned it into your manager. Your manager can decide if they give it back to you to use again or not. It made a huge symbolic change in the organization. And so then the employees came back and they said, wait a minute sometimes I take a risk and it works so they created a green card that said I took a risk and it was successful and so you know you don't we're in these cubes and neighborhoods you don't have a desk anymore to put a trophy or a plaque on right so they carry the cards around in their binders like take to the front of their binders on the back of their laptop and stuff and you see the green and the orange cards that that they created and and it's I mean, that's part of... create in a culture that it is okay to fail. But you learn something and you always apply what you learn. What have you seen in general in companies when you've talked with them about prospect of failure? The tolerance of failure is part of the journey because we're talking about business model. You can have the most clever and exciting business model with the technology that makes it work and still fail miserably because there's a commercial model behind that. And I think you alluded to it. And I know very little, even startups that have started with their business model and their. their technology and got it right first time. Usually the strategy evolves over a number of years, and it's similar in big companies. If you're changing your business model and venturing like you've done a few years back, wow, nobody's ever done that before. So you're either going to wait until somebody does it, and then you'll be a follower and probably lose the game anyway. Or if you want to be first and try, you have to tolerate a little bit of failure. And it's not necessarily betting the sharp. I think that there's a lot of ways that you can actually de-risk those kind of ventures. Zipcar represents a kind of interesting approach to transformation, which is, you know, Avis, which had nothing of this, was trailing the two market leaders, the two rental car market leaders, in having a kind of Zipcar-like strategy. now is the dominant player amongst the rental car companies. So they're kind of attempting to achieve transformation through acquisition. Through acquisition. How and I will say in your case that the stock analysts who follow Avis feel pretty comfortable. about the potential for that to happen. Obviously, we'll have to see how it plays out. But in general, Didier and Andy, this is really more for you, but what is the prospect of achieving transformation through acquisition? As long as you can learn to listen and internalize what the acquired company is bringing to you and bring that DNA into the home organization, that's great. A lot of companies struggle with that. It's more about the ability of the larger company to absorb because you're buying a business model. In this case, you're buying a successful business model, which it should be. on paper a really good thing to do. It's the ability to actually take the best out of that without destroying what you've bought that makes a difference. And it requires both sides changing a little bit. Or a lot. I mean if you leave brand technology, experience things alone and say okay, that's what was different, that's what was transformative. But you say then there's this railroad stuff underneath that weren't buying cars, insurance, things like that. We're changing that a lot and we're really grateful and it's better business models. You know, we couldn't go to airports for example otherwise because they've got all the concession agreements figured out, things like that. So there's a lot of change on both sides, but if focused, it can be really positive. We talked a little bit about skills and acquiring skills, and there's leadership skills that have to come to bear and have to be developed. So from a skill set perspective, how much of a challenge is it for companies that are trying to achieve digital transformation to find the people who actually know how to make it work right now? It's huge. So one of the biggest, I guess, blockers in digital transformation that we find everywhere was skill set. And then, you know, there's no miracle. You hire them, you train them, you buy them, you partner with them. And you have to be smart at all four of these because none of the single one will be sufficiently scalable. So the best company we've seen do exactly that. They have a big training program, big hiring. They partner with external companies like Intel to sort of say, okay, well, you're ahead of us. Let's come and join forces and see where we can find a business model that's worth for both of them. And these are the people that are really moving forward. One of my real disappointments, I guess, in looking at all these 450 companies that we looked at was I didn't see the HR community stepping up to the plate. I was expecting that this would be a real rebound for the HR community. And I think you mentioned you're working closely with your HR. That's very rare. This is really transformational. And yet we saw very few examples where this actually happened. And I think it's huge because this is not a problem of the next two years and then we'll all be okay. This is a problem of a generational gap that's going to change. And people like us are going to, or me at least, are going to retire. There's a new guy coming in. So you have to really plan forward for the new skill set that's going to drive this kind of business model that we're creating. Well, this has been a terrific discussion of what it takes to make digital transformation happen in a business. I want to thank you all. been a great panel. Thank you. This is Michael Fitzgerald with MIT Sloan Management Review. Thank you for joining us for this discussion on digital transformation. We'll see you again soon.

It drives change in the technology industry that ripples through the world economy. Mark Norman, president of Zipcar, now part of the $7.4 billion Avis rental car group, Zipcar used web and mobile technology to change the way people think about their lives. people rented cars and has helped spawn a trend towards short-term sharing of all sorts of goods.

Avis bought it to help transform its overall business. Didier Bonnet is global practice leader at Capgemini Consulting, heading its digital transformation practice. Andy McAfee is principal research scientist at MIT's Center for Digital Business and author of Enterprise 2.0 and co-author of Race Against the Machine. Thank you all for joining us.

We're going to talk today about how businesses can adopt technology in ways that don't just automate. but that drive real change across operations, in customer relations, and even for their business models. Kim, let's start with you. You work at Intel, which makes transformative products in their own right, but also has to manage through the transformations it creates.

What current technologies are you looking at as potentially transformative? As the CIO, I have a view that four fundamental technologies are going to form the basis for the future modern company. So cloud computing being foundation, ultra-mobile computing, social, and then advanced data analytics. Change is really how companies are connecting with their customers, how they run operationally, and I'd say weaving security all through that because there are security implications across that spectrum that have to be addressed as we go forward.

And so it's an exciting time because of the layering of technology and the capability that you get with that. Thanks. Mark, your business actually exists because technology was used in a transformative way. What do you see as being valuable to Avis as a company going forward? And separately, are there new technologies that you're looking to bring into Zipcar's portfolio?

Absolutely. I mean, the whole reason for being for Zipcar, I mean, this disruptive innovation of self-service wheels when you want them, of a better way to use a car in cities, was enabled by a lot of developments in technology over the last 15 years. It wasn't even possible. through smart key ignition and things like that.

But then with what we're seeing now, with the migration of activity onto smartphones being really the least common denominator, where it was a touch-tone phone 10 years ago and a desktop computer more recently, that's enabling a mobile experience integration with travel and as a platform. So to be more seamless, to have reservations be automatically transferred to a car so you don't have to think about how you pick up a car and have that more integrated work with your life, then that enables a number of different vehicle technologies. I mean even things like autonomous or semi-autonomous vehicles to be able to say, hey to call up the car from parking or to have it park itself, you know again lawyers aside, little things like that can really make that experience really transformational on how you use moving around in cities. So did he gets paid to say that?

of course, but when you go in and talk with companies about the challenges of digital transformation and the opportunities, what opportunities in particular are they excited about in terms of new technologies emerging that they think they can leverage? So I think in terms of technologies, exactly as Kim said, the social, mobile, analytics, all this, I would probably add all what's happening right now with embedded device. And if you look at the auto industry, and I'm sure your mark is looking at that pretty closely. All these sensors that we're putting into care are going to provide more analytics but also more possibilities.

To the question of which one is transformative or not, I would say all of them or none of them. I think the transformative bit comes from what Mark's done is weaving them together into an experience for a consumer that's way better than we've seen up to now. And that's really, to me, I would say the technology doesn't really matter if I want to be at one extreme. What's really transformative is the way that you actually put it all together. in the way that Mark has done with ZipCast.

And that's really more process work and applying to, you know, starting from the customer experience backwards. And Andy, you've been thinking about companies and technology for years now and the way that it works and doesn't work or should work. Why is digital transformation a topic that's emerging now? And how would you explain what digital transformation is versus what we've been seeing with IT for two decades? The drumbeat that I hear in the background of the economy Is Moore's Law, just making digital stuff better and cheaper?

And a few years back we started to cram that digital stuff into little devices called phones at the time. But these things were essentially really powerful computers. They were connected, they had bandwidth, they also had a bunch of sensors in them. Again, digital. So they had GPS transceivers, they had Wi-Fi, they had near field communications.

All these became small enough, powerful enough, and cheap enough. that you could stick it into a handheld few hundred dollar device. And then the founders behind Zipcar said, wait a minute, this device has very good GPS technology on it, it's got payment systems in the background, it's got a near field communications. This is all we need to deeply rethink the way people rent cars.

And to not have to take the shuttle at the airport and rent it for three days, but to walk down the street, walk up to a car, go beep beep, and drive it away for a few hours if that's all you want. So innovation is a process of recombining building blocks that are already there. What's amazing about digital transformation these days is that the building blocks are getting more numerous and they're getting much much cheaper and more powerful over time.

That lets the innovators keep on reconfiguring them and keep delivering us good stuff. So Andy, it sounds like what you're saying is that we have reached a kind of inflection point with technology and the way that it works across our economy and our culture. And so, Kim, I'm curious, from a management standpoint, what is the biggest challenge to getting transformation from technologies, from the kinds of technologies that you're trying to bring to bear?

Really, the hard part is looking at the business processes that you execute. The. Once you understand what you're executing and what your potential to execute and going through that change process, that's the hard part.

The technology will enable you to do that change. And so you need a combination of deep business understanding and not just people that understand your business today, but really that ideal state. And then some great technologists that...

can help implement, but it's a combination of those things that are important. I find a lot of companies today are too stuck in, especially if you're a leader, right? It's that complacency when you're the leader problem because they've gone through so many.

They've gone through ERP. They've gone through BYO, and they've gone through cloud, and they think they've done it all, but the reality is We're only at the very, very beginning of this next generation of computing, and I think that every industry leader will be the ones that transform first. I don't care what industry you're talking about.

I get the impression sometimes that a lot of the management teams at companies say, would you please stop the technology innovation? We can take a break from this and just digest what we've been doing for the past few years. Unfortunately, that's not going to happen.

So a critical skill at the top of a company is to have someone who can keep scanning the technology landscape and explaining it to the rest of the management team to say, gang, this is the cloud. It's actually a big deal. It's a big deal for us.

Here's why. And make sure that conversation continues so the inertia and the complacency can't take hold. It's deadly in the world that we live in today. And Didia, you've been meeting with companies that are traditional companies that are not technology-oriented companies.

that have already some built-in resistance demonstrated. Do you find that they are more receptive to looking at transformation through technology in certain areas, like operations or customer relations, something that is easier for them to look at and say, I think we can do this and let's seize this day and move forward? Focusing on the traditional industries that we looked at, I think definitely there's a stronger perception that You know, digital is going to transform something.

So I would say there's an awareness from most boards, which doesn't mean everybody's tech-savvy, but at least there's an awareness that this is important. I think the difficulties we hear a lot of people say, you know, I know it's important, it's probably one of the three items at the top of my agenda, I just don't know what to do with it. And that's the dilemma that people have right now. And I think the people that move forward the best is people who start with the customers and try to say, OK, how do we increase the experience? Now this is what we're trying to do and then try to apply the technology at the back of that.

The biggest mistake we see is people use technology as a substitute for an existing process rather than really transforming your process through the power that this technology has. And I think it's also gymnastics. If you do that well two or three times, as Andy said, we're going to get a ton of technology coming in in the next few years.

Once you get good at that, you can potentially get huge performance improvements. Technology in itself isn't going to get you the optimal results, but it can be a catalyst for change inside the company. So give the people a reason to reexamine the business process. Give the people a reason to... look at their business model in a different fashion.

Well, it's a cultural challenge, and Mark, I wanted to turn to you because you are obviously, you've been in a startup which has become a medium-sized company. It's not startup size anymore, but you're also now part of a much larger and more established company. So culturally, what kind of challenges do you see at Avis?

On the discussions that we've had, I mean, the start with experience to say, what are we trying to solve? Little examples in our business like, How do I make finding the car easier? How do I make finding parking easier?

Navigation, for example. I mean, it's crazy that you're punching in your address when you're in the car, figuring out where to go or yelling at Siri to, you know, take me here kind of thing, versus being able to seamlessly transmit that when you're planning the trip. You know, again, tying it with your calendar. Well, I'm going to need to be here, so have the car tell me how to get there.

or tell the taxi or the sedan or whatever. And little things like that. So if we've got an experience vision that we're trying to solve and this array of this landscape of what's out there and what's coming, so, again, smart strategists and department leaders and others can say, hey, you know, that's interesting. We need to pay a little more attention to that as we continue to drive at these experience challenges. Because otherwise it ends up being kind of the chase, the whack-a-mole of kind of business.

You know, stoplight charts, you know, where you go, oh, you know, we're off on this metric. Is there a technology silver bullet that we can solve here? And, again, you get, you know, board decks on iPads and incremental improvement, but not necessarily transformative improvement. What we can do now is say, what do we want to accomplish?

What business are we in? What need are we trying to satisfy? Instead of saying, how can we take our existing processes and make them better, back up a big step.

What do we want to accomplish here? The technology suite to help you accomplish that is unbelievably robust these days. And then to something that Mark said, which I think is really important, there's this dizzying array of stuff we could possibly do with technology.

So to continue your example, do we want to integrate with calendars and destinations and have that be part of the GPS? Do we want to try to have the keyless system work better? You have no shortage of opportunities.

You make your best guesses about which ones the customer is actually going to value. And then the critical thing I think to do these days is not assume that that guess is correct. Experiment, run a pilot, run a test. The costs of experimentation have fallen through the floor because you can enable them with some segment of your customer base.

You can do an A-B test, get the feedback, and keep iterating that way and improving on that kind of incremental iterative basis as opposed to having to do a series of moonshots. led by some management vision of what's going to happen. I think that's a really old-school way to think about it.

Are we really seeing a phenomenon of all companies can use technology to effectively be consumer-oriented companies? Is that what you're seeing, Didier? I believe the notion of B2B and B2C is eroding pretty fast.

Because most of the B2B company I talk to, their main aim is to say, OK, how do I go direct to customers without challenging this distribution or these brokers or this layer in the middle? And some companies are succeeding extremely well because the answer is you do something different. You provide more information, you provide some better experience because I think one of the problems... Our opportunity we have with digital is that it's very cross-functional.

It challenges the barriers that we've designed in an organization for hundreds of years. And hence, what is a difficult challenge to transform. Your experimentation is not expensive today, so you don't have to have 100% certainty. You do have to understand what experience you're trying to create for your customers. I think that's the key to it.

So, operationally, how do you lead to this? cross-functional, non-silo, kind of utopia. We've got a view on our workforce of the future that it's much more of a swarm. So think of like a movie. If you're building a movie, if you're making a movie, all these people that effectively are independent contractors come together, they do their part, and then when the movie's finished, they disband and they go work on another project.

That is the work style of the future. You need organization structure to handle sort of, you know, People issues and stuff, but the work, the way work gets assigned, it becomes much more about the project and the work, not the department's mission. Because then you can get these cross-organizational issues addressed. And in a hierarchical structure, you find everything is, the problems are at these seams, and no one really takes ownership for the seams.

Hierarchical organizations are very hard to change, especially when they're on the order of tens of billions of dollars. Historically very successful. those hierarchies get deeply embedded and making things actually flow across the network and become more linked it's really tough and I think that's the work of the absolute top of the company and it's a leadership and organizational change challenge our culture internally has been for years twenty years or more competitive because we were the market leader in servers and PCs and we didn't have any challenges we competed with each other site against site design team against design team And it worked very, very well, kept us at the top of our game. Well, as we go into phones and tablets, guess what? We're not.

We're not the market leader. So a collaborative culture is more desirable, but it's very hard for us to change. So we're using technology as a catalyst to change that behavior, to bring. We're simply trying to solve two things first. Find people in the company.

We have experts for everything. Finding them is hard. And then find the information. So we are protective of our IP.

We lock everything down. So we're exposing more to our employees so that we can find so they don't recreate. And recreating is waste and causes a lot of delays.

And that's the beginning of changing that culture to be a more collaborative culture, where we can do better system on chip designs instead of just simple microprocessors. So a little more about how you're doing it. How do you actually approach it from a management perspective, and what's the technology you're trying to apply? Yeah, so from a management perspective, at the top, so last summer I led for the corporation with our senior VP of HR a corporate strategic discussion. We had the top 25 executives in the company buy in to the strategy, admit, first thing, you have to admit that your competitive culture needs to change to be successful in the future.

And we want to change before. before it's evident on the outside that we need to change. And I think that's a really key premise. We got that bought in, and then each of those business leaders picked certain areas that they wanted to focus on.

So the sales team wanted to focus on account management and advancement of opportunities in the pipeline. Our engineering teams wanted to focus on design document availability to these system-on-chip teams versus the microprocessor teams. And so...

We went to the sharing there, so we did some very simple things first. Like we put pictures out there on expert profiles. They used to be like a half inch by half inch. You couldn't see them. We made them three inches by three inches so I could see who you were.

We've added more than 220 video conferencing rooms. For the design engineers, we're adding electronic whiteboarding. We're opening up the SharePoint sites. so that we can search SharePoint where previously we locked it down. On the sales side, we're slowly working our way off of email to more real-time live engagement in a social collaboration model.

And we've set up their communities based on account teams, not based on org structure, so accounts that they support. Does this come from you at the management level or is this coming from the CEO level? Is it a combination of things? IT is going into the business units and we're saying, here's what's possible.

But the business units are deciding what problems they want to tackle first. And then we bring the technology and I say, use it as a catalyst to change. I insist that each business unit has a transformation leader, somebody in their team that is responsible.

for that transformation. So it's a partnership because again, sort of like Didier was saying, that one functional organization cannot do that change. You can't make someone change.

You have to help them through the process. For us, I mean, we had to set core values that were around. I mean, we had to collaborate in the early days because a small company, even today, we view ourselves as a technology and a marketing company that happens to run a fleet of cars.

But we can't do Autonomous vehicles and hacking into different car systems and duplicate engineering innovation, but we can partner to see where we plug in and how that happens then is in values even how we even assess every single person on our leadership team to drive and solve for collaboration in a way that might have been more competitive five years ago. So that and then creating spaces I mean we're moving into a new office here in Boston and smaller desks. larger collaboration spaces and it's a change for some but it's really natural once you get going.

Are you in a cubicle yourself? I'm not but in the new space there's much more leadership out in the open and stuff. Again, we see Mayor Bloomberg and stuff and how they run the trade floor there and that's a model for working. I just want to note then that we basically have two cubicle CEO type companies on this panel. Are they outliers from what they're talking about in terms of the ability to collaborate and to adopt technology?

Or are they becoming more of the norm? We've trained a generation of business leaders to like big offices and private elevators and all these things. But this is the wave of the future when I go look around the really cutting edge companies in the valley in San Francisco. And I look at some of the great companies.

technology companies here in Boston, I see absolutely what you described, this really flat looking physical space. Here's a room if you need to have a private meeting or a conference, but otherwise we're all, we're in this thing together. And they're not the old five foot tall, you know, like a groundhog looking over the top cubicles. These are very, very flat spaces.

And that makes a difference. In our cubicles, we've always been a cubicle company, it's California. But we've...

changed our cubicles from those gray cubes to colorful lower walls. And then the next phase where we're starting this year, my floor will go to 95% mobile. And that doesn't mean people don't come to work.

It means that it's completely open. You don't have a signed desk space. So you go to a neighborhood. So you go to the neighborhood for the project that you're working on.

So I might be working on with the design team this year. So I'll go to the... go to the design neighborhood and maybe next week my project is in manufacturing, I'll go to the manufacturing neighborhood.

And then people collect. So it's the beginning of these swarmings start to happen through making their physical space conducive to swarming. Didi, I have to say I'm feeling a little skeptical again that we have two outliers talking about organizational change.

Culturally, the companies that you are meeting with and sort of talking about the value of digital transformation with, you know, Can you imagine them having neighborhoods as a matter of course that they show up in and then you know they go someplace else with their and they put on a different cardigan like Mr. Rogers? Not all of them. Okay. Is the polite answer. But more than none of them.

But more than none, yeah absolutely. And I think it's very important because we spent ten years ago a lot of time doing culture program and all which to me were complete waste of time. Because the way you change the culture of companies, you change the way people work. And it's quite critical on social platforms. We've seen that the people that got the best adoption is usually because the senior management have really involved themselves also in showing the way.

So there is a direct link in terms of working differently. be it open space or the involvement into this new platform of the senior management. That makes a difference. Whether you will be performing better, whether you don't have offices at all or not, we don't have the data, I don't know. There's probably hype on each side.

There's probably a nice balance to have. But I think if you want to influence the change of culture, like you were describing, Kim, you have to change the way people work. Otherwise, you can preach forever.

Nothing will change. But I would say with technology, I mean, the megaphone that customers have. now that they didn't have shortens the synapse between you know big-state old enterprises and customer feedback and loyalty and and what we're solving for with sort of lifetime value of customers.

So you're saying the customers are using technology and kind of forcing the change on businesses? People don't want to change naturally so what changed them is the competitors is doing something different you just got to respond but very often it's a customer that are putting the pressure. on the organization to do things different because otherwise they're gonna walk and it's in the public it's it's amplified ten times with social media and all sorts of stuff and that's a there's a real powerful change in very traditional industries like manufacturing banking and others it adds significance and mission to frontline employees that waterfalls up and down the organization so that short synapse when it works well is very reaffirming and so people say wow I am here bettering people's lives That's worth coming to work in the morning. And that is contagious into management and driving change as well.

So it's not all a big stick. It's a big carrot too. So we've been talking really about extolling what technology can do for companies and what companies should be trying to do with technology.

How much risk is there when you go to adopt? One of these new technologies. Well, I think the greater risk is to stop looking at technologies and stop adopting new technologies. The vexing thing about innovation and disruption is they don't stop once you do it. Other people are going to continue it.

We got a great example here in the automobile industry. Zipcar was this amazing disruptive innovation, added a huge amount of value. It's still a fantastic service.

Now, though, the peer economy comes up, and we've got sidecar and relay rides. and they've taken this idea that you had and pushed it down so that I can rent out my car from my driveway when I'm... What? And then there's a service called Lyft now where, at least in a couple cities, I can summon a taxi that turns out to be someone else's car.

I hop in and he drives me across town. The car has a pink mustache on it to signal that it's a Lyft car. I think I'm supposed to fist bump the guy when I get in because that's the culture.

That's what you do. I'm supposed to fist bump the guy when I get out to evade the regulators and to keep the the lawyer is happy, there's no set payment, they just suggest a donation that I'm supposed to make to the person. Boom, happens, they take care of the payment. Huh?

Now, some of this... This is where we're talking about business model innovation versus technology innovation, right? I mean, there's elements of GPS and billing and things like that that are part of lots of other things and you say, well, where's the pivot? Is it in the technology or is it in the business model?

And there's a big TBD on that. We spent, there's a lot of cases on early days of Zipcar. what is it and can it ever make money and you know what's with the late fee things like that and spent a lot of time sorting out a business model that was pretty disruptive and that was about the underutilized asset and very different from rental or car ownership and so then to your point adopting technology was how can we not i mean i still remember when we were doing the iphone app three or four years ago and it was of course we have to do this did we know that a majority of mobile of reservation transactions were going to move within a couple years years. To the app, we didn't know that, but it's been, again, a pleasant surprise and one of these pivots that we run with. Let me point out, say, JCPenney, right?

So it's a company that is going through some really difficult times right now, but when its now-fired CEO came in, one of his big things was, we are going to adopt embedded sensors. We're going to sort of use technology to transform the operations. It's going to create a different business model for us that's going to then provide a basis for some of the operational strategies that I want to implement. It's failed. I mean, that's a real risk, right?

The JCPenney example to me is really interesting because as I understand it, he came in and he said, I know exactly where this huge company in this new industry needs to go. I'm going to do a bled from the top, moonshot, transformational change. I'm not going to iterate.

Data free. I'm data free. I'm intuition heavy data free. I'm not going to experiment. I'm not going to iterate.

And I'm not really going to listen to what the market's telling me over and over. So on a hypothetical basis, I mean, if you. If you are the CEO, And you are, in effect. And is that a case where somebody is not listening to, say, the CIO or other senior leadership?

What's happening there from a leadership dynamic? Is it common to get into a fork in the road on strategy where you say, I'm not happy with where we are, where do we need to go? And these moonshot sorts of calls. And, again, I think the earlier discussion around is how do you de-risk that?

How do you make that an incremental step so it's not this crazy bet to farm? And. And what are other stakeholders who are a half a step ahead saying, hey, you know what, we're already here in this other piece of life that we interact with. So customers, employees, we've got lots of other partners, government, things like that, to say, hey, there's transit integration, things like that that can help de-risk that.

So it doesn't have to be this moonshot. And that's where I think data analytics and predictive modeling can help de-risk these types of changes. There was no doubt that. companies need to change. You're going to either disrupt or be disrupted.

That's the situation we're in now. But if you have there's so much data, it is actually cheap to get the data, it's cheap to store the data, and then providing the analytics is a little bit harder. Skills are in short supply, but it's getting better. And you can very easily run a bunch of scenarios and create milestones to de-risk some of these types of types of changes. So, you know, really if you're going without data, if you're, so we actually have in one of our Intel values, it says know when to take a leap of faith.

And that's true. Leadership, you do have to make some gut calls, but you do that with as much data and foresight into the events as possible. And so you've got to do some scenario planning, risk mitigation all the time.

And it's just tremendously easier to do that today than it was five years ago. But you mentioned the skills that are in short supply, and we talk about data scientists and how rare they are, which is accurate. I think the skill that's in even shorter supply is to be an honestly data-driven manager, leader, executive. Because what I observe over and over is you've got somebody at the top of an organization who says, we've got to make a call here.

Bring me the data, bring me the analysis, and I will incorporate that into my basically intuitive and experiential decision-making. process and the data is one input to what I do you know based on based on the gut that I've built up that's it yeah and if it doesn't confirm my assumption I'm gonna ignore the data because after all it didn't confirm my my assumption that's the wrong way to proceed and to actually be humble and to say if the data if the analytics are done well and they don't agree with my intuition my intuition is wrong and I need to get out of the way and go where the data lead me that that's a tough rare skill you have to coexist for a while I'll give you an example. So we've been running a crowdsourcing game at Intel. And we predict things like product milestone dates.

And we predicted, starting early last year, so early 2012, we started projecting our quarterly revenue. And we played the game with determined, knowledgeable people. And what you learn in these games is that Most people bet on the known, which is the published date or the published revenue forecast. And then the people that are the outliers actually possess some unique information.

And so in March, April of 2012, we had outliers predicting that we were going to be short of revenue in the third quarter. The formal process said we were going to make the revenue number for the quarter. Sure. And so everybody said, no, no, no. We wanted to totally discount that input.

It spent months looking at it and trying to figure out what those outliers really knew. And in fact, we were going to be short in the third quarter. And we had to do a preannounce. We preannounced our earnings in the third quarter that we were going to be short revenue.

And so now we went through that. We lived through that experience. Now the crowdsourced game is a critical component.

component to the revenue. We did not throw away the old forecasting process. We now have another input source to make sure that we have visibility into that outlier data. So that's how you actually drive through a more data-driven culture.

I love, by the way, how prediction markets, which Intel has been using for a number of years, have now become crowdsourcing games. A good sign of cultural change. So let's talk a bit about transformation and leadership and management.

We have talked in this series a bit about the idea of chief digital officers, digital czars. Didier, you've done some research in ways that companies can implement these things. Can you talk a bit about what... What you see in terms of the CEO-CIO dynamic and where things like Chief Digital Officers fit in? Yeah.

So yeah, I think what we've alluded to what the problem is. The problem is how do we get cross-functional collaboration working. within the corporation starting at the highest level. And I mean, CDOs are kind of in fashion right now, but it's not the only model.

You can start with committees. People are creating independent units with marketing, IT. And if you have a Nike is a good example of putting several skill set into one place to actually design new product and new services.

So people are trying to look for answers. There are two issues. There's one is there is an IT issue, which is we're asking the poor IT people like him. to be industrialized the hell out of our IT, and at the same time innovate the hell out of our IT. And it's asking a lot from one person usually.

And by the way, you have budgetary constraint on top of it and all this kind of stuff. And either you're a very transformative IT leader, and then you can do both and orchestrate the shift between the cost savings and the investment, and some people actually can do that very effectively. Or you said, okay, leave IT where it is into sort of cost reduction environment. environment and create a new innovation IT through a CDO, which doesn't necessarily need to be an IT person.

Sometimes it's a marketing person, sometimes it's a mixture of marketing and IT. And the CDOs works well when people talk to each other and find the delineation between traditional IT and innovation IT, it can work. I've seen clients where it's a warfare between the CDO and the IT people and it actually slows down the organization and then accelerates, which was the original purpose.

How does it work at Intel? in that dynamic and how are you working with the CEO and with other C-levels? So yeah, and we sort of, we're ambidextrous as we're IT. You know, we have to drive and run IT as efficiently as possible, but we use that capacity that we create.

I mean human capacity and budgetary capacity to fund innovation. And so I work with the CEO and all the senior leaders of our business. I have a staff member that sits on the staff. of every business unit leaders. They're considered a member of the staff.

They're measured by me and the business unit leader and they're measured on the business value they create. And it's very clear. You can only be successful if you met the IT metrics.

You can be no more than successful. As you create business value, you can exceed expectations or become an outstanding performer. So it's embedded into how we do performance management. management, manage career paths.

We do a lot of rotations with the business unit. I had a hundred people last year we sent to the business unit for anywhere from three months to a year to do the job and then come back to IT and figure out how to provide solutions for the job. So we call those walk in the shoes.

We have ride alongs where people shadow their customers for periods a day. We do all sorts of you've got to live, you've got to your customer in order to really figure out how to best service your customer. How much time do you actually get to spend on things that you hope will be transformative? I have about 160 people in my strategy, architecture, and innovation organization.

Most of them spend most of their time on innovative stuff. I probably run 100, any given time I have 100 to 120 POCs, proof of concepts, experiments going on. I have a small IT innovation lab.

We're happy to kill things, you know, so there's no punishment for that was a bad idea, let's kill it. But I probably spend anywhere from 20% to 30% of my time driving specific transformative initiatives at Intel. So I spoke about collaboration.

Big Data is the other one I spend a lot of time on. How are we going to use it? What are the analytics capabilities we need?

And how much time do you expect your... your IT person to be spending on something transformative? I would say all of that, and I mean, seriously, up to half.

I mean, there's a certain roadmap type thing. Remember, we're this technology and marketing company that we're not going to exist if we're not innovating, again, on how to marry the best of these various technologies out there. What's your sense of how it actually works at Avis?

It's a little bit, again, more traditional in that regard. There's a shared sort of outsourced group that can lever up on our vision. vision, by the way. We're benefiting because we can run faster, but we're saying where to go.

And that's a nice compliment, frankly. One of the challenges of the CEO, of course, is that you don't necessarily have time to be the visionary, the strategist, the futurist. How much of your own time do you get to spend on things that you hope will be transformative?

I would say it's got to be a third because, again, we've got to set the vision for the team on where we're going. And it helps with values. It helps with break prioritization things. And again, we get more from, we say at Zipcar, all of us are smarter than any of us. But if we can craft a clear vision on where we want to be, we're going to get the best of that innovation out on the margin of, you know, hey, should we go A or B?

You said that it's okay to fail once in a while with some of the experiments that you run. That's profound. It really, it's part of the American business genius.

One of the things we really do well, that a failure, as long as it's not JCPenney magnitude failure, but a failure is not this indelible black mark on your record. It doesn't tank your career. So, you know, the Monopoly game, right?

There's chance cards, right? So I gave out these cards that were similar. They were orange in color and they said on it, Hey, I took a risk and it failed, but I learned something and applied it.

And I gave them out last year to all the leaders in our organization, and then I gave them a packet to give to their employees. And I said, when you failed, then you just turned it into your manager. Your manager can decide if they give it back to you to use again or not.

It made a huge symbolic change in the organization. And so then the employees came back and they said, wait a minute sometimes I take a risk and it works so they created a green card that said I took a risk and it was successful and so you know you don't we're in these cubes and neighborhoods you don't have a desk anymore to put a trophy or a plaque on right so they carry the cards around in their binders like take to the front of their binders on the back of their laptop and stuff and you see the green and the orange cards that that they created and and it's I mean, that's part of... create in a culture that it is okay to fail.

But you learn something and you always apply what you learn. What have you seen in general in companies when you've talked with them about prospect of failure? The tolerance of failure is part of the journey because we're talking about business model.

You can have the most clever and exciting business model with the technology that makes it work and still fail miserably because there's a commercial model behind that. And I think you alluded to it. And I know very little, even startups that have started with their business model and their.

their technology and got it right first time. Usually the strategy evolves over a number of years, and it's similar in big companies. If you're changing your business model and venturing like you've done a few years back, wow, nobody's ever done that before. So you're either going to wait until somebody does it, and then you'll be a follower and probably lose the game anyway.

Or if you want to be first and try, you have to tolerate a little bit of failure. And it's not necessarily betting the sharp. I think that there's a lot of ways that you can actually de-risk those kind of ventures. Zipcar represents a kind of interesting approach to transformation, which is, you know, Avis, which had nothing of this, was trailing the two market leaders, the two rental car market leaders, in having a kind of Zipcar-like strategy.

now is the dominant player amongst the rental car companies. So they're kind of attempting to achieve transformation through acquisition. Through acquisition.

How and I will say in your case that the stock analysts who follow Avis feel pretty comfortable. about the potential for that to happen. Obviously, we'll have to see how it plays out.

But in general, Didier and Andy, this is really more for you, but what is the prospect of achieving transformation through acquisition? As long as you can learn to listen and internalize what the acquired company is bringing to you and bring that DNA into the home organization, that's great. A lot of companies struggle with that.

It's more about the ability of the larger company to absorb because you're buying a business model. In this case, you're buying a successful business model, which it should be. on paper a really good thing to do. It's the ability to actually take the best out of that without destroying what you've bought that makes a difference.

And it requires both sides changing a little bit. Or a lot. I mean if you leave brand technology, experience things alone and say okay, that's what was different, that's what was transformative. But you say then there's this railroad stuff underneath that weren't buying cars, insurance, things like that. We're changing that a lot and we're really grateful and it's better business models.

You know, we couldn't go to airports for example otherwise because they've got all the concession agreements figured out, things like that. So there's a lot of change on both sides, but if focused, it can be really positive. We talked a little bit about skills and acquiring skills, and there's leadership skills that have to come to bear and have to be developed.

So from a skill set perspective, how much of a challenge is it for companies that are trying to achieve digital transformation to find the people who actually know how to make it work right now? It's huge. So one of the biggest, I guess, blockers in digital transformation that we find everywhere was skill set.

And then, you know, there's no miracle. You hire them, you train them, you buy them, you partner with them. And you have to be smart at all four of these because none of the single one will be sufficiently scalable.

So the best company we've seen do exactly that. They have a big training program, big hiring. They partner with external companies like Intel to sort of say, okay, well, you're ahead of us. Let's come and join forces and see where we can find a business model that's worth for both of them. And these are the people that are really moving forward.

One of my real disappointments, I guess, in looking at all these 450 companies that we looked at was I didn't see the HR community stepping up to the plate. I was expecting that this would be a real rebound for the HR community. And I think you mentioned you're working closely with your HR.

That's very rare. This is really transformational. And yet we saw very few examples where this actually happened.

And I think it's huge because this is not a problem of the next two years and then we'll all be okay. This is a problem of a generational gap that's going to change. And people like us are going to, or me at least, are going to retire. There's a new guy coming in.

So you have to really plan forward for the new skill set that's going to drive this kind of business model that we're creating. Well, this has been a terrific discussion of what it takes to make digital transformation happen in a business. I want to thank you all. been a great panel.

Thank you. This is Michael Fitzgerald with MIT Sloan Management Review. Thank you for joining us for this discussion on digital transformation. We'll see you again soon.

Transcript for:Digital Transformation Insights and Challenges

Transcript for:
Digital Transformation Insights and Challenges