This week’s podcast is about digital transformation, which is a long-term and complicated effort by established companies. This podcast is about what really matters.
If you’re interested in talking digital strategy and transformation for your business, contact us at TechMoat Consulting.
Here are the three rules:
Rule 1: The Need for Speed
Rule 2: Intangibles – You Need Invisible Engines to Win
Rule 3: Leadership – Everybody Falls the First Time
Here are the 4 intangible assets mentioned.
- Ant Financial Is 3 Platform Business Models Combined. (Jeff’s Asia Tech Class – Daily Lesson / Update)
- Ant Financial’s Big Money is in Asset-Light Credit Tech (Jeff’s Asia Tech Class – Daily Lesson / Update)
From the Concept Library, concepts for this article are:
- Digital transformation
- Leadership digital divide
- 4 intangible assets
From the Company Library, companies for this article are:
Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy Podcast where we analyze the best digital businesses of the US, China and Asia. And the topic for today, three rules for winning big in digital. Now this is really about digital transformation, which is this big sprawling topic. You know, most of the digital, there’s kind of three things that most, that People talk about digital strategy, which I do a lot of. Digital transformation, which is taking an existing company and digitizing the operations, the people, the codes, all of that, it’s a huge topic. And then digital disruption as well. What’s your biggest threat? So more companies on all of those. But transformation is definitely the big one. It’s very difficult, actually. And lots of big books on this. Lots of big consulting firms do work in this. But we’re working on a book which is in the final review stages, which is kind of the opposite. It’s like, look, there’s only a couple things you really have to do right in digital transformation that matter. You got to do 100 things, but just a handful really matter. And we have a book on that coming out, which is hopefully this month, I’m not sure. But I thought I’d talk about at least three of the rules. There’s more than three, but I haven’t really mentioned these that much in this I find it helpful and I kind of always repeat this to companies all night, pretty frequently. You know, just stay on to the stuff that really matters. So anyways, that’ll be the podcast for today. Three of our short list of rules that we think really matter. Let’s see, any housekeeping? As mentioned before, there is a retail, we’re going to do a China tour. We’ve done a couple of them this year. We’re going to do one in November. which is focused on retail technology. So, you know, this is e-commerce, retail, this is good for CPG companies, brands, merchants, and China really is the frontier of this stuff, especially e-commerce. It’s so far ahead, it’s really kind of amazing. Anyways, that tour’s gonna be in November. If you’re interested in that, go over to techmoatconsulting.com, you’ll see the tab for the Asia tours. Just send an email or just reach out to me on LinkedIn. Whether you’re thinking about this as an individual or for your company, we do both. Companies are more customized in terms of content. That’s that other thing. Tecmo Consulting, we’re doing a lot of strategy and sort of transformation work for companies, Asia, Europe, to some degree Latin America, but mostly Asia, Europe. If that’s something of interest to we focus on, you know, what’s the winning strategy? How can you grow faster? What disruption do you really need to worry about? What disruption do you not need to worry about so much? If that’s something of interest to you, go over to techmoconsulting.com. You can see the information there or send us a note. We’ll do, you know, we can do a quick call if you wanna talk about it and just see where you are and if something makes sense. We do that quite a bit, that tends to be helpful. Anyways, that’s sort of stuff for today. Standard disclaimer. Nothing in this podcast or in my writing or website is investment advice. The numbers and information from me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment, legal or tax advice. Do your own research. And with that, let’s get into the topic. Okay, the concepts for today. Well, I guess these aren’t really concepts, just ideas. Over on the concept library on jeffthousand.com, you’ll see a pretty good list of the main sort of frameworks to think about for digital strategy and transformation. This is kind of half on that list. One is to think about intangible assets, often called digital assets. And I’ve talked a bit about this in the last six months is it’s almost like you gotta start disregarding the balance sheet. If we were looking at a traditional company, factory, utility. retailer, the balance sheet is a big part of what you look at. You know, the assets, the physical, the land, the merchandise, the inventory, and so on. It’s as important once you have a digital business or a business going digital, but the balance sheet is of no help. So you really need a different framework that is equally important. And the one I’ve been pointing to is sort of the four categories of intangible assets. You can find that on the web page pretty easily. We’re going to talk about that a bit today. That’s it’s super important. I think about businesses, I think about business is more in terms of four buckets of intangible assets than I do about physical assets anymore. At this point, I kind of look at the physical stuff second, distant second often. And these are the things I’m looking at. So that’s one, it’s that same idea. That’s not really a concept. It’s just the list. The other one is to think about the digital divide. which is a description of management and leadership that is digital versus not digital. And thinking about it as a divide, as almost like a canyon, is pretty accurate. Most management teams, including the senior leadership, CEO, board members often, they have to cross the divide, which means you have to do a lot of training, they have to start thinking differently, and… Most companies struggle to cross the digital divide in terms of management, ability, expertise, training. It’s a huge challenge. You can absolutely see it in companies. So I like the idea of a divide or a canyon almost between companies that have made it and those that haven’t. And as I’ll talk about that, so that’s more of just an idea, let’s say. So two ideas for today, intangible assets, the four buckets that matter in digital. and then digital divide as a description of management or leadership more generally. Okay, so those are the two ideas for today. All right, let’s get into all the three rules. Number one is kind of the easiest. We try to come up with clever little sayings for these. So rule number one, which I’ll put in the show notes, rule number one is the need for speed, right? Right out of the top gun. You know, you just have to get… greasy fast speed into your decision making, in many cases into innovation, but not always. But for virtually every company, it’s gotta be fast in terms of management decision making, which really means you have to be data driven. You can’t make quick decisions if you are not a really data driven company. The ones that are looking at dashboards full of data can make decisions in… incredibly quickly, see the results, change their mind, change it back. So those things kind of go hand in hand. When we talk about speed, it’s really about management decision making. In some cases, it can be in certain operating activities, like in certain types of businesses, your speed of innovation is what matters. Tesla. Byte dance, I would put into that category. But if you’re Coca-Cola, speed of innovation doesn’t matter. It’s speed of decision making, which really means being data driven. Now, for those of you who are older, you might be like, Greasy Fast Speed. There’s basically a couple movie references in here. There’s that phrase, Greasy Fast Speed is from Rocky II, the movie back, I don’t know, 30 years ago, when Rocky’s gonna fight Apollo Creed for the rematch and he’s like, you’re gonna get killed, so you gotta change your fighting style and… It’s quote from Mickey, his coach. First, you gotta get speed, demon speed. We need greasy fast speed. Anyways, if that one helps you remember it, fine. If not, Top Gun helps. But you’ve heard this from other people. McKinsey for years has been saying speed is the new scale. Elon Musk quotes, what matters is the pace of innovation. That’s the fundamental determinant of competitiveness. So you hear about people coming at this all the time. And once you talk about speed, then it’s kind of like, okay, what do you mean fast? Like fast at everything? Fast at what? Like, it’s kind of, it’s not very good advice to give to people. You got to be fast. So we all skip lunch. I mean, that doesn’t help. So we kind of detail that. Look, you got to be fast at decision making in the core operations. You don’t have to be super fast in doing your accounting. Doesn’t matter. But in your core operations, the decision making has to be very, very quick, which means it has to be data driven. And for those of you who’ve been sort of following, you know, my frameworks for a while, that’s basically about operating performance. That’s the digital operating basics. You have to be fast, data driven in your tactics. You have to be fast and data driven. Same thing. So it’s really about operating competitiveness and operating performance. How do you do that? Well, I mean, this is where we get into transformation work, which is generally the digital core comes first, that sort of digital operating basics number three. As you get basic information into the system about your key workflows, you start to do continuous real-time analysis. That analysis feeds into management, which suddenly can make decisions much quicker. At a certain point, you can sort of automate some of those decisions. You know, you go into certain fairly digitized retailers, you will see that they have little LEDs for the prices on every shelf and those LEDs update in real time. based on what competitors are offering on the web. So you can have the search engine searching the web for the same product on Amazon or whatever, and it will continually change the prices on the shelves. So one, you get continuous real-time analysis, very data-driven, that gets fed into management, they can make calls. to some degree you can automate it like the LEDs. Then two things kinda happen after that. Number one, you can start to do lots and lots of experiments, you know, not just A-B testing, you can test lots and lots of things, you start to get the data, so your speed of decision making feeds into your sort of speed of experimentation, very important. And then over time. you start to basically deploy more and more advanced analytics as you get more robust in your data and decision making. You go from historical analysis to predictive analysis, AI, machine learning, and so on. So it’s a process. So the way this works in practice is you kind of look for management that has digitized certain of their key workflows and is getting faster and faster in decision making. And you really want to look at it over one to two years. Nobody gets fast quickly. It’s kind of like the way I always talk to management about this, as I say, identify the key decisions that matter and then look at whether they’re increasing in speed every three to four months. We want to see them step up. It’s in some extent, it’s like growth. You know, you don’t say, oh, we’re going to get big. No, you look at growth month after month after month. Oh, we grew a little bit more than last month. We grew a little bit more this month. That’s how you get big. Well, it’s the same thing with getting fast. We’re a little bit faster in the key decisions this month than last month. And next month, we’re a little bit. And then you look back over a year and you’re really quite fast. It’s the same. It’s a process. Achieving digital speed is a process just like achieving scale. Step by step, step by step. Nobody really gets there that quickly. All right, so that’s kind of point number one. That’s kind of, it’s not complicated. It’s just, it’s actually kind of difficult to put into practice because it’s, you don’t know what matters. But once you sort of see it as a process, a step by step process in key activities and that it’s mostly about data, then you can kind of see. Okay, so that’s rule number one. Rule number two, intangibles. you need invisible engines to win. Now there was a very good book written, must be 15 years ago now, called Invisible Engines. And it was basically about building software systems that like regular engines in the real world are just constantly running and doing things. And I’ve always thought that’s a great way to think about software, that they’re invisible engines that are in your business. And that’s really when we look at intangibles, intangible assets. You can also think about them as invisible engines. Now, the four that I have been citing for quite a while. Well, I mean, why do assets matter? You know, for those of you who read motes and marathons, the way I view the world is you do operating activities. You know, if you’re, if you’re a retailer. You buy your goods, you stock your inventory, you sell your goods, you take your returns. I mean, it’s a series of activities that matter. And as your operating performance improves, you get better, smarter, more efficient, more effective at those things. Most businesses are a very short list of key operating activities. Okay. But what also happens in the process is out of those operating activities, you start to create assets. So as you are opening stores, managing stores, managing the inventory, opening warehouses, managing your inventory, managing your supply chain, over time as you do that, you start to accumulate more stores, more trucks, more warehouses, and those physical assets are kind of what matters. And you’re always sort of building these assets. Now, My argument is those assets, if in some cases end up sort of manifesting as a competitive advantage or a moat. You know, Walmart was a series of small stores in Arkansas. Very good at operations and over time they built up a network of stores and warehouses and logistics in the central United States that had serious competitive advantages. The assets manifested themselves as economies of scale and logistics. economies of scale in purchasing and to some degree customer loyalty. So competitive advantages, barriers to entry. I always see those as the flip side of the coin of resources and assets. So it’s like if you look at strategy as a resource based framework, they call this like resource based strategy. You would look at all the stores and the capabilities and the resources. That’s one way to look at a business. I’ve always considered that the other side of the coin of competitive advantage. And so it’s sort of these three things go together. You do the operating activities. Out of that, you create certain assets over time. In some cases, those assets then manifest themselves as competitive barriers, moats, competitive advantages, barriers to entry. Okay, that was a physical version. It’s the same thing for intangible assets. As you start selling something as an e-commerce company, you start to build up your IT system. Maybe you built some degree of a logistics network to basically support your IT system and your web services. Maybe you build up loyalty programs with your customers. You build up customer habits. Those would be your activities, but that’s also the assets that matter. You have the operational IT capabilities. That’s an asset. You have the logistics and supply chain. That’s an asset. You have captured customers to some degree, like loyalty points programs. That is an intangible asset. Those are all intangible assets. Well, I mean, I guess the logistics is a bit physical as well. That’s kind of how I break down companies when I’m looking at what assets they’re making. And sometimes those assets, which are intangible, can manifest themselves as competitive advantages. Anyways, that’s kind of how I look at all of this. So this rule is basically you need to keep investing in key capabilities, resources, and assets. That all businesses have to do that. But increasingly this means building digital, intangible assets. And most people don’t know how to think about those because you look at the balance sheet and it doesn’t help you. So the framework I’ve put in, which I will link to it in the show notes, is basically it’s a McKinsey type framework, which I’ve edited a bit, which is four buckets of intangible assets. Number one is innovation intangibles. Number two is digital and analytics intangibles. Number three is human and relation intangibles. And number four is brand intangibles. If you’re curious about those, just go onto the webpage. You’ll see it on the concept library. I’ve written about those at pretty good length, and there’s a McKinsey paper on that, which I link in there. That’s pretty much what I look at when I’m looking. This plays out when you’re doing digital transformation and digital strategy. If the management can tell you what intangible assets they are building over the next one to two years. then you can really assess their strategy. Because most of the important intangible assets, they don’t happen on their own. They don’t really happen naturally. They don’t happen quickly. It’s like, for Walmart to become Walmart, they had to build an extensive network of stores and logistics hubs across one geography of the United States over 10 to 15 years. That became the powerhouse. This is the same. You wanna have a real clear list. of what intangible assets a particular company is building such that in a year or so it’s going to start to manifest itself versus its competitors. But it takes time to build. So that’s what I try and pin down is, okay, I can see what you’re doing operating wise. What intangible assets are you building over the next year and a half that are really going to change the game? That’s kind of a question I think about a lot with looking at companies. And it’s actually a pretty good trick because most people who are doing investment analysis are not looking at companies this way because it’s not listed this way anywhere in the balance sheet or the financials. Like it’s really kind of hidden in the numbers. So if you view companies this way, it’s a pretty cool thing. Now, one company I talk a lot about is JD. which I think is a cool company in China. Coupang, South Korea, very similar. C, or I’m sorry, Shopee, Southeast Asia. One of the reasons I like all of those companies is they have the right combination of physical and intangible assets. That is a really powerful mechanism for some companies. They have the intangible assets, they have the web engines. They have the matching algorithms. They have their customers locked in, but they also have physical assets. They have the nationwide network of logistics centers and trucks. The right combination of physical and intangible assets is pretty spectacular, and you can see it in some companies. I always kind of point to JD. I used to call these like digital physical hybrids. That’s one of the reasons I like these companies more than say, media companies, which are purely intangible. There’s no physical component at all. So there tends to be less of a barrier to entry. Physical assets, as I’ve said many times, they kind of hurt your economics because purely digital economics are quite nice. So they kind of, when you go more asset heavy, they say, your economics aren’t as good, but you get a lot of competitive barriers. because it’s harder to replicate or at least it takes longer to replicate things in the physical world than it does in the digital world. So anyways that’s kind of point two. So rule number two intangibles you need invisible engines to win in almost all cases now and your key capabilities resources and assets increasingly have to include digital assets and the right combination of digital and physical. That’s a pretty good roadmap for success. And that’s kind of how I describe it with clients. You know, when we know what assets we’re building over the next 18 months, we know the roadmap to success now. We can see it. Right? If you don’t have that, it’s all kind of murky. Okay. So that is rule number two. All right. Rule number three, last rule for today, is back to this idea of the digital divide. And rule number three is when it comes to leadership, everybody falls the first time. And that’s another movie reference. You didn’t notice that. That’s actually from The Matrix. The first one, the good one, when Neo does the jump program for the first time and he’s at the top of that super tall skyscraper with Morpheus and… Morpheus goes to Neo like you have to let it all go, doubt display. And he jumps like Superman through the air and he lands on the roof of the distant skyscraper. Then Neo tries the same thing and he falls like a hundred stories to the street below and everybody watching it from the ship. You know, they say, what does it mean? What does that mean? He’s supposed to be the one. And then Cipher kind of famously says, you know, everybody falls the first time. That’s kind of how I view the digital divide with management teams and leaderships. Like if you’re gonna win in digital, whether you’re at, you know, usually this is for established companies that are transforming. Winning in digital requires management and really leadership, often including the board, to cross the digital divide. They have to make the jump. And most everybody falls the first time. Like I can’t even think of a company that didn’t fall the first time. Like they launch all their programs, they launch their digital initiatives and things just go wrong. You know, 70 plus percent of digital transformation initiatives fail according to various consultants. When they fail, what tends to happen is the management, especially the, often the board, then gets cold feet. What really happens and why the management piece is so important is everything goes wrong in business generally and it’s especially true in digital initiatives. Like most digital initiatives fail. That’s just the nature of the game. That’s why we talk about experimentation so much. You have to get past this idea of we’re gonna launch something and it’ll win. It’s like, no, we’re gonna try 10 things, nine things are not gonna work, and one will win. One will work. That’s how it actually works in digital. So you talk about rate of experimentation, but most traditional businesses don’t think about that way. You don’t wanna be a senior vice president or vice president and your initiatives fail. You don’t get promoted. So when you have them start to do digital initiatives, you have to kind of say over and over, look, this is a process of experimentation and failure. Experimentation and failure, that is the process. So when these fail, we can’t have the management get cold feet and pull back. You know, we spent all this money building a marketplace for this retail business, it didn’t work out. Now the board doesn’t want to fund it anymore. Oh, and the person in charge of it now, you know, he’s not doing so well. No, you can’t do that, like, and that’s very, very common. So what you have to do when you’re dealing with these companies is you have to say, look, number one almost is management has to cross the digital divide, including the board. You all have to get used to the idea that we experiment in digital, we understand digital, we’re building new tech skills. And we are data driven, we experiment, and we fail, and we keep going. That is what it means to be a digital first management. And most companies, when they try this, it doesn’t work. The first time, they fall. And then they pull back when they have a failure with a digital initiative, and the budget gets cut. We don’t want to spend any more money on this. We built this big thing, and we didn’t get a lot of users. So yeah, I talk about this a lot. Like everybody falls the first time and you just have to convince them to try again and to try again. And generally it’s helpful if you’re dealing with a company that’s just starting to try to cross the divide is you do small projects. You know, small projects where it’s gonna succeed or fail within three to five months, not one to two years. So they can kind of get used to the process, but it’s really common. And how do you cross the divide? I mean, if you’re a famous company, you can hire a lot of people. And what tends to matter is you hire the right leadership for your digital initiatives. And if you get the right leaders in place, which often come from outside the company, they then bring people in. And so it’s a multiplier effect. Now, if you’re a pretty famous company, you can do that. Most companies can’t do that. So. For most companies, what you end up doing is you end up training internally and turning your current people into digital people. And then you’ll hire some consultants guys like me here and there. You might hire one or two people outside with digital expertise, but they’re pretty hard to get. So in some cases, you can sort of do executive training, which we do that actually. Some businesses go further where they will actually create an institute within the company. whose goal is to train digital people. I mean, there was a company in Dubai who did this famously, and Majid Al-Futain, which is a big retailer in the Middle East, or mostly Dubai. And they said, if our business used to be, we were a factory and we need to create tables, well, our new business is we’re a digital company and we need to basically produce digital people. Like we need a factory for producing digital people the same way we had a factory for producing tables. It’s the same idea. That is our asset, right? So it comes back to the idea of intangible assets. You know, one of the four buckets that I just mentioned was human and relational capital, which is human capital in the company. Those are your digitally trained people. That is your asset. So you should have a factory that creates that asset, which is basically an internal training institute. And you put them all through. Now this is actually kind of… I do pretty well in this because I’m kind of a professor by background. So it’s easy to come in and sort of talk to companies and basically put together a master’s program. Look, you want to do a master’s program in digital strategy and transformation? No, I’ve been teaching that for 10 years. So that’s a little bit unusual to be able to do that. But that’s the other way to think about it is crossing the digital divide and viewing it as a chasm. where everybody falls the first time. That’s pretty accurate. I find that, I mean, there’s a famous case of that. Arguably the most famous example of the chasm is GE Digital. And I did a podcast on this probably a year ago. You know, there’s Harvard business cases on this, like that GE was all in on digital. You know, they were gonna create an innovation platform and be the sort of… digital connectivity for machines in the world and data and their uses and developers. They were trying to basically become an operating system for the industrial world, which they call GE Digital. And Jeff Immelt, the CEO, was a big champion of this. He actually used to work with my old boss, Prince Walid, in Saudi Arabia. So I used to end up sitting across the boardroom table from him in Riyadh, like 15 years ago. I did a decent number of projects with GE back then. And they launched this massive DE Digital thing, but big surprise, they ran into problems because that always happens. And at least as of a couple of years ago when they wrote this Harvard Business case, you know, the senior management basically pulled back. And GE Digital as an idea kind of disappeared. Same exact scenario, big plan, something went wrong, which always happens, and they pulled back. And no, that’s why I would have argued that this is too ambitious. Go for something small and train people. so that you can try and jump the divide, as opposed to doing something big without training the management first, which maybe they did. Anyways, that’s kind of a famous Harvard business case on this, but it’s pretty common. Anyways, that is kind of the three ideas for today. Yeah, that’s kind of a lot of digital transformation today as opposed to digital strategy, but rule number one was the need for speed. Rule number two was intangible assets. You need invisible engines. And then rule number three was leadership. Everybody falls the first time. Yes, we have a couple other rules we’re doing in our book, but those are three I think people don’t necessarily talk about enough, especially for established companies that are launching digital initiatives. If you’re a purely digital native, if you’re born digital, They tend to see the world this way already, and they don’t have to transform their existing operations, which makes things a lot easier, actually. Anyways, that is it for today. I’ll put the four types of intangible assets in the show notes. I’ll write the three rules. And that is the content for today. I hope that was helpful. As for me, it’s a… Pretty nice, I was floating around Europe, I’m kinda happy to be back in Asia, which I always kind of enjoy. I’m heading down to Singapore, I guess, in a week or so. There’s a Lazada conference that I’m gonna, I’m gonna interview the CTO on stage of the Lazada conference. Kind of their big event for the year. It’s their big event for merchants and brands that sell on Lazada. So that’s gonna be a lot of fun, I’m looking forward to that. What else? Entertainment stuff, oh my God, it’s… my girlfriend’s staying with me and she loves these reality TV shows, which I think are horrific but kind of addictive. Like, so I talked about Too Hot to Handle before, which is this, you know, these love, not really love dating reality TV shows, which are really just terrible, but they’re also kind of awesome. Season five of Too Hot to Handle was the greatest season yet. Like it was absolutely fantastic. So we watched that and now we’re working on Perfect Match, which is another some sort of reality dating show. And it’s actually like totally Machiavellian. I’m kind of enjoying, you know, the funny thing is I’m watching these shows. And of course I’m griping the whole time, but yet I’m still watching. And I keep thinking that this is a fantastic business model because it’s entertainment. Right? And it’s addictive and they seem to know how to tweak everyone’s buttons and get you to keep watching. But there’s no actors, so they don’t have to pay them. There’s no writers, really. So there’s no scripts. They just rent some house on the beach somewhere. And usually it’s like in Panama or Mexico or somewhere like. So that doesn’t cost anything. And so, like, I’m thinking the only cost they have in making these shows is the host. because they have like a famous host like Nick Lachey or whoever these people are. I guess you gotta pay them. But then on Too Hot to Handle, they replaced the host with a cone, like this little electronic cone. So I’m like, they even got rid of the one cost they have as the host. There’s literally no costs on this show at all. Just a little production budget, and then probably, I guess, not even marketing really because it’s on Netflix. Beautiful business model. So that’s that part I kind of appreciate. Anyways yeah that’s what I’ve been doing with my evenings so be it. Anyways that’s it for me I hope and everyone’s doing well. I’ll be in Singapore next week if anyone’s around and you may want to catch up or if you’re in town give me a give me a ring. I’m only there for a couple days but I’ll be at that Lazada conference which is should be in Marina Bay. I think it’ll be somewhere nice. Anyways that’s it for me hope everyone is doing well. Talk to you next week. Bye bye.
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
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