As the business landscape becomes more brutal, two out of three companies will need a new business strategy to stay alive. That’s the conclusion of the recent book Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth, by Chris Zook, head of Bain & Co.’s Global Strategy Practice.
However, notes Rudy Puryear who heads IT for Bain in the Americas region, there’s a problem: It’s hard to create a new business strategy and find new customers when complex IT blocks the way. Puryear, who contributed research to Unstoppable, spoke to Associate Online Editor Diann Daniel about why IT has become too complex and how companies can use data to innovate.
Diann Daniel, CIO: Why do companies have trouble staying competitive?
Rudy Puryear, Bain: First of all, business change continues to accelerate—what I oftentimes call the MTBS, or mean time between surprises, continues to get shorter. In an environment where that happens, the mean time between surprise and response also has to get shorter. A core notion in Unstoppable is that if you look back at Fortune 500 companies over the last couple of decades, a third ended up in bankruptcy, got acquired, or otherwise became integrated into another company. About another third had to fundamentally change their core strategy in order to be successful. Only 28
percent experienced no significant change, compared to the period from 1985 to 1994, when 51 percent of companies were stable. And the survival rate is likely to continue to decrease in the next decade because of the pace of change, because of the difficulty of change. The problem is that a lot of organizations have built unnecessary complexity into their business, and this complexity is beginning to act like reinforced concrete. It’s a barrier to change.
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The second point relates to IT. In many ways, IT reflects the complexity that’s been built into business. Unnecessary complexity in the business has resulted in a lot of unnecessary complexity in IT. That’s slowing down the cycle times in IT.
The cycle times in IT are increasingly much slower and out of sync with the cycle times required by the business to stay competitive.
Can you give me an example?
A high-tech manufacturing company I’ve been working with had pushed business autonomy out to its manufacturing plants. It woke up to discover that it had over 25 different manufacturing platforms. Virtually nothing was shared and common from a business or business process standpoint, and therefore it wasn’t from an IT standpoint.
IT, as it has tried to serve uniqueness in the business, has a lot of times not had the clout to say, “No, we’re not going to build 25 different manufacturing platforms.” They’ve basically said, “We’re going to try to be as responsive to what the business believes are its unique needs.” Company after company is waking up today and saying, “IT’s too expensive and it’s too slow,” but when you peel back the covers, you discover a lot of that is because there were a couple of decades of unnecessary business complexity that’s now mirrored with significant unnecessary complexity in IT.
What can IT leaders who face a legacy of business complexity do about the problem?
There are two broad objectives. One is to think about ways to simplify IT. For example, for a lot of the undifferentiated areas of a business, off-the-shelf, plain vanilla packages may be good enough. There may be only a few core areas where the complexity is actually necessary. The overarching rule should be “simple as possible, but complex as necessary.” Second, in the book, we point out that the companies that have been able to succeed by making fundamental changes in their core strategy often did so by uncovering and leveraging what we referred to as hidden assets. Those hidden assets could be customer assets, hidden platforms for doing business or hidden capabilities. Oftentimes we find that those are information-based assets—deep information you have about the customer. So, the CIO also has to work with the business to uncover the hidden assets in order that they can be leveraged for fundamentally reinventing the core of the business.
I was with a CEO recently who said, “Our problem is that we can’t innovate as fast as our competitors. We think it’s got something to do with IT.” In fact, a significant amount of IT spending at this company was for keeping the lights on, managing the complexity. That squeezes out dollars for spending on innovation. We have observed that in most organizations 70 to 90 percent or more of the IT spend is locked up in depreciation, business as usual, “keeping the lights on,” and managing the complexity, often leaving a very small portion of the spend that can truly make a difference in business performance.
What are some ways in which companies mine data to innovate?
In the ’90s, American Express did a great job of mining internal data about how customers spend money, in order to develop new card products, reward programs, cobranded partnerships. UPS and FedEx have changed their business model from package delivery by taking the lead in [allowing customers] to track their packages instantly. Nike collects performance data on athletes in order to link the data to improvement programs that drive new product design.
The ability to segment customers and then customize value propositions to segments of customers is a core element of any successful competitive growth strategy. And yet so many of those customer data assets are hidden in organizations. I was at a company recently where the CEO was saying, “We know more about our customers than any other player in the space, and yet that insight is locked up in our information systems. Because we’ve got 30 customer systems instead of one, because we’ve got 16 different ways of referring to a customer and naming conventions for a customer, we can’t get at it.” It’s locked up because of the business and IT complexity, and the discussion we’re having with them is how they can unlock that data and unleash the insight.
And how do you use technology to do that?
Enterprise architecture and governance are at the core. As you look top down through the enterprise architecture, you’ll understand which business capabilities are going to be required to enable and unleash innovation. And you can make sure that as you make decisions about IT, you can highly skew them toward those capabilities that support innovation. I think business architecture is a huge tool, and leveraging service-oriented architecture (SOA) is going to be incredibly important. Then you can position [other] kinds of tools in the right context.
For example, you need the ability to cleanse and sync a lot of data, then provide analyses that enable product developers or salespeople or customer service people to have deep knowledge of the customers at the point of interaction. Call center technology, for instance, is making available to the call center rep the history of all the interactions with the particular customer on the line. We potentially have the intelligence to map that person or route that person to the call center agent who has the greatest probability of meeting his needs, which increases the probability that you will have a satisfactory customer interaction.
Does every company need to follow the path you have outlined in order to succeed? Or is innovation not a priority for everyone?
I don’t think innovation is a priority for every single company. For some companies delivering a least-cost product on a least-cost platform is really important because they’re in an industry where innovation is not key. Beyond that, innovation comes in different flavors: ranging from product innovation to process innovation or to customer experience innovation. The quality of the innovation and the time to innovate are both critical in many industries. Unnecessary IT complexity constrains