Cloud for Ceos: Measure Innovation with One Metric
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Cloud for CEOs: Measure innovation with one metric Adrian Cockcroft, Vice President of Cloud Architecture Strategy, Amazon Web Services executive insights Executive Summary How do you know if your company is truly innovative? To digitally transform an enterprise, let alone become a disruptor such as Netflix or Amazon, businesses need to connect with their customers, understand their needs, and respond faster than ever. The most successful organizations of today are disrupting their competitors and entering new markets by innovating more quickly and efficiently. The ability of an enterprise to innovate isn’t about technology adoption, it’s about people. Being an innovator requires overcoming challenges in four areas: culture, skills, organization, and risk management. Get these right, and you will be able to leverage technologies such as cloud computing and machine- RATE YOUR SPEED OF INNOVATION learning to innovate. The path to innovation is no longer a mystery. We know how leaders are unlocking growth How long does it take your company to through competitive advantage, and we know how to turn an idea into customer value? measure it. The most critical metric is how long it takes for an innovative idea to reach a customer. If it takes your company months, how can you compete with an months !"#$ %! organization that delivers in days? This is why its critically important to know the time-to-value for each of your days product teams. If time-to-value is short, then many key minutes behaviors and metrics are trending in the right direction. As a leader, showing that you care about reducing time-to- Do some work Value to Customer value provides clear guidance to your organization. executive insights You can’t feel disruption until company’s time to value is the key metric it’s too late that predicts business success. Were you an originator, or a replicator? The word “disruption” conjures a jarring experience. We imagine a dropped telephone call or an internet connection that suddenly Digital transformation is about reaching fails. But when it comes to disruption in new customers business, the experts suggest the experience The phrase “digital transformation” of being disrupted is much harder to detect. has become enterprise shorthand for “We studied 3,600 companies. Famous cases technology updates like moving to cloud. of companies or industries completely going However there is a disruption in the away because of disruption are actually quite business model that is driving this change. In today’s era of rare,” said Omar Abbosh, CEO of Accenture’s Many businesses historically sell products Media and Technology business. “Much volatility, there is through intermediaries. Consumer products more common is what we call compressive through retail stores, airlines and hotels no other way but disruption; where the profit streams of through travel agents, TV studios through to re-invent. The companies become squeezed over time…. And networks of TV stations. Car manufacturers that’s a giant problem because it actually feels through dealers. Until recently, companies only sustainable normal.” didn’t have a direct connection to the advantage you can As much as CEOs fear disruptors cropping consumers of their products. Even where have over others up in their industry, concern might be better direct contact was possible most retailers placed on the readiness of their organization or taxi companies, for example, didn’t know is agility, that’s it. to innovate. We see three levels of innovation who was in their stores or cars. The digital Because nothing helping companies move forward and stay connection to each customer is the new else is sustainable, competitive; incrementally better services capability driving digital transformation. (the table stakes), new gap-filling value Netflix knows what it’s viewers are everything else you creators (addressing pain in the market), and watching, Amazon knows what it’s create, somebody entirely new customer experiences leveraging customers are buying. Tesla knows how you else will replicate. emerging technologies (unexpected offerings). drive your car. Think about a company that These are the kinds of innovations that grant makes door locks. They send boxes of metal enterprises sustainable advantages, market to a hardware store and hope they are sold. Jeff Bezos, Amazon share, and customer loyalty. In every case, your Warranty returns need to be minimized, founder executive insights but could be used to find problems in the their customers, and embrace fast changes. product, and their IT department primarily They’ve used cloud computing to support a supported employees doing design and huge increase in the scale and global reach manufacturing. But if the lock company of their operations. We see this first-hand makes a connected door lock, they can tell because AWS is a key supplier and partner If you run how long it sits on the shelf in the store for the biggest and most successful digital your software before being installed, they can see how transformations. often it’s used, how long the battery lasts, innovation in the and when the lock is replaced. To remain Four blockers of innovation: Culture, skill, same traditional competitive, the lock company needs to organization, and risk model as a create an electronic device with software If the vast majority of business leaders update capability, build a secure IoT web physical product agree that their business must digitally service, create a mobile application, and transform to survive, why aren’t they revving innovation cycle, setup a data lake so they can understand their innovation engines to arrive at the how to optimize the product. Their you will be left future sooner than their competitors? In developers and IT department need to reality, businesses and IT departments are behind. learn many new technologies, and run them in a balancing act; straddling old and new globally at scale. That’s transformation and worlds. In the old world, employees worked its driven by the need to connect directly on computers at their desks, sales channels with customers. were mostly indirect, factories and supply To go through a digital transformation, you chains used a lot of paper forms and offline need to support a lot of innovation, and tools, and marketing consisted of television, much of it is software-driven innovation. radio, and print advertising. In the new world, The pace of development for physical IT creates mobile productivity applications products is relatively slow, so existing for employees, and automation is pervasive development processes tend to be slow. and integrated. Factories and supply If you run your software innovation in chains are connected and instrumented the same traditional model as a physical in detail to optimize quality and minimize product innovation cycle, you will be left work in progress, sales and delivery are behind. The digital transformation winners connected directly to the end user, products have innovated quickly to personalize are communicating constantly with their customer experiences, harness customer supplier, and every customer’s voice can analytics, manage new direct channels to be heard instantly around the world on executive insights social media. IT is no longer just a cost Skills shortages are often cited as blocking center supporting employees. Technology new technology adoption. As the pace of has become the business. As we work on technology increases, it’s not practical to digital transformations for the world’s think of skills as a fixed thing that is hired largest enterprises, four common innovation as part of building a team to run a project blocking patterns emerge: culture, skills, based on a specific technology. Technology organization, and risk. skills are continuously developed by teams Culture is the set of common understandings of developers exploring new technologies and operating principles in an organization. as they emerge and mature. Leaders should It is hard to maintain a consistent culture foster a “learning organization” culture, across an organization. It takes time to build where new ideas are explored and shared or change a culture, and culture is too easy as a matter of course. To make the learning to destroy. Many organizations lack focused culture work leaders offer incentives that principles or have grown through acquisition, encourage staff to learn new skills and stick and have a “warring tribes” culture that around when they become experienced. renders parts of the business dysfunctional. There is always a market for the latest Culture starts with the CEO, and will be and most valuable skills, so staff tend to reflected in who they hire and promote, as move on to better paid opportunities. As well as how they manage incentives, goals an extreme example, Netflix has an annual and decision making across the organization. “mark-to-market” compensation process Slow and centralized decision making, low that pays staff what they would make if trust, and ineffective feedback loops sink they were being hired today, with what they many enterprise transformations. Jeff Bezos know today. Given that Netflix deliberately created a culture around leadership principles runs at the leading edge of technology, The speed at which and customer feedback practices at Amazon. this helps them build and retain one of the most experienced and skilled development data is available This culture has scaled into a large, fast growing and diverse global enterprise. Reed organizations - which is also one of the most dictates the speed Hastings optimized Netflix for extreme agility highly paid development organizations. at which decisions by focusing on a single product, centralizing For more insight on the Netflix approach to the team, and using a high-trust culture of talent management, read the book Powerful can be made. freedom and responsibility to create a hard- by Patty McCord. But beware: this book will to-copy sustained advantage. make conventional HR heads explode! A more executive insights realistic approach might be to have a skills service, and operates it.