The Need for a Services Blueprint
We began the book by asking: Is e-business dead? We took you on a journey into some of the converging trends that are shaping the next wave of technology investments. We hope that you are now convinced that the state of the art in business technology is clearly centered on services digitization.
To understand the magnitude of the task that lies ahead, ask yourself the following questions: How many processes do you have? What percentage have you digitized? Most managers are taken aback by these questions. Take a moment and count all the critical business processes associated with ordering, fulfillment, payment, billing, employee benefits, sales, marketing, and customer service. In your opinion, what percentage of these processes is completely and effectively digitized? Is it 10 percent, 30 percent, 50 percent, or more? Our research indicates that the average is between 20 and 30 percenthigher for Global 2000 companies, lower for small- and medium-sized businesses (SMBs).
Clearly, after five decades of technology investments, the journey toward digitization of business processes is still in its infancy. To write its obituary as some in the media did after the dot-com collapse is somewhat premature. Process digitization is a multi-year marathon that will require tremendous endurance. Some companies have this endurance; most don't. The most challenging questions confronting business leaders and managers are not "What processes do we digitize?" or "How do we digitize?" but "What is our focal point that ties together our ongoing process digitization efforts?"
What focal point is guiding your digitization investments? Focal points define what your business is all about. Market leaders have crisp focal points to direct their digitization efforts. Consider the following examples:
Easy To Do Business WithWhy did Staples, the office products superstore, succeed in executing its Easy To Do Business With strategy while others faltered? Did Staples' ability to create a technology-based service blueprint effectively allow the company to implement an integrated multi-channel strategy linking office supply stores, e-commerce, catalog operations, and contract stationery businesses?
Low CostWhy did Dell succeed in executing its build-to-order, customer self-service strategy while Compaq, AST, Packard Bell, Micron PC, and Gateway faltered? Did Dell's ability to improve continually an operational blueprint allow the company to digitize its low-cost supply chain and undercut prices?
Zero-Defect QualityWhy did Toyota succeed in extending its market share in a down economy? How is it able to align changing customer priorities with its production process? Did Toyota's ability to digitize the design process allow it to take a new car from design to production in less than a year (compared with as many as three years for its competitors)?
There is a common ingredient shared by each example that is critical for success. That is the ability to focus digitization initiative. Everything that Staples doescustomer-facing, employee-facing, supplier-facingneeds to support its Easy To Do Business With focal point. Unfortunately, very few companies have such clear direction in their digitization efforts.
Having a distinct focal point differentiates market leaders. These companies consistently execute a focused business strategy using technology as an enabler. These businesses stand out not only because of their superior talent for seeing the big picture and for sensing shifting customer priorities, but because they implement technology day in and day out to create customer value.
Why can't competitors copy market leaders? The answer is remarkably simple. Competitors take a piecemeal approach to technology innovation. They do well at finding and assessing new ideas, only to run into a shortage of people and skills during execution. Often the managers charged with execution are simply too busy addressing immediate urgent tasks to implement capably new ideas that will bear fruit tomorrow. Success is mostly a function of execution.3 Does your firm have a focal point that shapes the services blueprint, which in turn drives execution?
The Blueprint as an Execution Differentiator
What is Dell Computer's services blueprint? Thousands of pages have been written about Dell Computer's direct-to-consumer business model. Many consulting firms have analyzed it for their clients. Yet, no competitor has replicated it with the same efficiency. So, a focal point is necessary but not sufficient. Steady execution over a long period of time is critical to success. Few executives dispute that.
Execution is the science of turning multi-million dollar application and infrastructure investments into results. This is proving to be much harder than expected. Consider the following data: More than $300 billion is spent on software application initiatives in the United States every year.4 Unfortunately, only 17 percent of those initiatives finish on time, on budget, at acceptable performance levels, and at full scope. A whopping 50 percent of initiatives miss targetsthey are late, overspent, and have reduced features and functionality. Even more appalling is that the remaining 33 percent are canceled.5 This means that more than $100 billion per year is flushed down the drain because of poor execution. Poof! It's gone.
Another way to interpret the data is to say that 83 percent of all technology initiatives get into trouble. What is keeping businesses from executing better? This is becoming a core question as post-dot-com firms transition from the glitz of strategy to the nitty-gritty of execution. Poor execution cannot be hidden anymore. It is estimated that companies implement at most 20 percent of their stated technology strategy. The dire straits of technology execution have been visible for some time, but companies were able to gloss over their problems in the frenzy of the dot-com era. That tactic has been exhausted.
So what differentiates the doers from the talkers? The big differentiator we found is the market leaders' ability to digitize systematically and continually complex business processes such as supply chains or employee self-service. The business processes that get digitized are selected based on a focal point.
Market leaders don't deviate too much from their core focal point. A focal point such as Low Cost or Zero-Defect Quality is usually the steadfast guiding principle that anchors their execution efforts. These focal points are not generic branding messages or vision statements, instead they help focus ordinary products, processes, and services into solutions or value-added experiences that people want.
The essence of a crisp focal point is knowing what customers want. Bad things happen to good companies when companies don't execute according to customers' immediate priorities. The visible result is a steady erosion of companies' revenues, profits, and market value. Just look at the plight of the telecommunications industry. Former heavyweights, such as Lucent Technologies, Nortel Networks, and Alcatel, tumbled as troubled telecomm customers, such as WorldCom, KPN, Frontier, and Qwest, slashed capital spending in an attempt to remain solvent. After a job-shedding spree and other draconian cutbacks in every cost category imaginable, these firms don't have much room to maneuver. Can you think of the focal point of these companies? Do you think these companies had a clear blueprint?
Effectively digitizing processes to cut costs and stay competitive is a priority as firms restructure for the future. A growing vanguard consisting of Siemens, Nike, Kraft Foods, Nestlé, and 3M appears to understand the rules of the new battle being fought. These companies know they must relentlessly refine processes to withstand the multiple shock waves that followed the incredible prosperity of the 1990s. The best method for refining is to digitize ever-expanding processes and embed them into a service infrastructure to ensure survival and gain sizeable leads over competition.
Three Categories of Blueprints
Services digitization hinges on clear focal points and superb execution. There are three different categories of blueprints in play todayprocess improvement, strategic improvement, and business transformation (see Figure 1.3). The categories are based on the scale and scope of impact you want to make on the organization.
Figure 1.3: Three Categories of Execution
A blueprint falls into the process improvement category if companies are in mature markets and face relatively low uncertainty. These companies are mostly attempting to move the ball forward. In executing process improvement, a company must focus doggedly on conventional measures like capacity utilization or throughput and on such basics as creating operational efficiencies through improving administrative tasks. This is a conservative approachcall it hitting singles instead of swinging for the fences. Companies that have executed systematically on process improvement, such as Siemens, Kodak, and Alcoa, have steadily cut costs and raised productivity.
Strategic improvement occurs when firms attempt to grow into new areas by introducing additional products and services or streamline end-to-end processes by enhancing the linkages with customers and suppliers. When executing strategic improvement, a company generally focuses on measures such as increasing customer service and leveraging new business opportunities. Companies like Carrefour, Tesco, and Intel have embarked on strategic improvement and ultimately have dominated their competition.
Digitization related to business transformation is high risk. In executing this, a company (such as Amazon.com or Yahoo!) uses so-called "disruptive innovation" to change the rules of the game in a particular industry by creating new customer niches, channels, or cost economics. Due to uncertainty in the economy, transformational strategies that pave the way for the future are often based on inadequate information.
Transformation strategies may work for some start-ups. In a large corporation, however, it is very risky and has a high failure rate. Few corporations attempting business transformation have succeeded. Most dot-com companies that were talking revolution were intent on executing transformation strategies. Few surviveda testament to the fact that revolutions tend to be bloody. Companies like Vivendi Universal under Jean Messier, Ford under Jacques Nasser, and AT&T under Michael Armstrong were all attempting transformation strategies. These companies are in the midst of retrenching from their visionary strategies. In contrast, IBM appears to be a successful example of business transformation.
It's tempting, of course, to say, "I want to accomplish all of them!"process improvement, strategic improvement, and business transformation. Don't. It takes vastly different skills to execute each. Identifying which one is your primary driver for digitization efforts is a very important first step. Your technology foundation depends on it.