The Innovation Show
David L. Rogers - The Digital Transformation Roadmap Part 1
Unlocking Successful Digital Transformation: Insights from David L. Rogers In this episode, David L. Rogers, author of 'The Digital Transformation Roadmap' and 'The Digital Transformation Playbook,' joins Aidan to discuss the critical steps and challenges businesses face in their journey towards digital transformation. Rogers emphasises the importance of transforming not just products and business models but the organisation itself. He outlines five major barriers to success: vision, priorities, experimentation, governance, and capabilities. Through insightful case studies such as the New York Times and CNN+, Rogers illustrates the pitfalls and successful strategies for driving meaningful innovation. Additionally, he highlights the need for iterative funding and continuous adaptation in the face of uncertainty. This episode is packed with practical advice and lessons drawn from two decades of research and real-world examples, aimed at helping leaders navigate and thrive in the digital age. 00:00 Introduction to Digital Transformation 00:57 Meet the Author: David L. Rogers 01:47 The Evolution of Digital Transformation 02:36 Challenges and Misconceptions 07:48 Defining Digital Transformation 09:56 Barriers to Success 22:26 Case Study: The New York Times 31:33 Setting Realistic Expectations for Change 32:21 Defining a Clear Vision for Change 34:03 Empathy and Resistance to Change 34:53 Challenges of Corporate Innovation 36:15 Addressing Uncertainty in Innovation 39:27 Paths to Innovation and Growth 41:41 Case Study: The Failure of CNN Plus 49:55 Iterative Funding and the Facebook Example 54:44 Conclusion and Final Thoughts Find David here: Substack: Website: The Missing Link Between Strategy and Innovation article David mentioned: The episode we mentioned with Steve Blank: The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company Aidan McCullen, David Rogers, digital transformation roadmap, digital transformation playbook, corporate governance, iterative experimentation, Facebook, CNN Plus, startup funding, media industry, New York Times, Steve Blank, Bob Dorf, Rita McGrath, Stefan Tompkin, Peter Thiel, Jason Keillar, Jeff Zucker
- Duration:
- 56m
- Broadcast on:
- 17 Jul 2024
- Audio Format:
- mp3
Today, every business is talking about digital transformation. With the acceleration of new technologies, every organization knows it must adapt to survive. But by their own admission, 70% of businesses are failing to transform. Across industries, established companies are held back by the bureaucracy, inertia, and old ways of working. How can businesses break through to drive real change? Today's book provides every leader with the answer. Our guest argues that businesses must transform not just products and business models, they must transform the organization itself. Based on two decades of research and advising companies around the globe, he identified the five biggest barriers to digital transformation, vision, priorities, experimentation, governance, and capabilities. He then shows how any business can evolve by heating the lessons of several exemplars. It's a great pleasure to welcome the author of the Digital Transformation Roadmap, David L. Rogers. Welcome to the show. Thank you, Aidan. It's such a pleasure. I love the show, and I'm delighted to be on to talk with you about digital transformation and corporate innovation. It's great to have you, and we were limited on time today. Unfortunately, David has a webinar highly in demand. It's been a long time waiting to align our diaries to get David on the show. And he was so busy that back in 2016, he wrote the first book on digital transformation, the digital transformation playbook, a book that I was telling them off where I could have done with so badly when I was working in the media industry. Maybe we'll share that a little bit because it really put the topic on the map. Thank you. Yeah, it was at that time was a very different era. I mean, when I wrote the playbook, I was writing the first book on digital transformation per se, really arguing that, look, this isn't just a matter of interest to sort of new startups. Of course, you had a lot of those digital native companies that had already risen, but every legacy company needed to be thinking about how do we really rethink our business? And at that point, you had certain sectors like yours. The media people understood absolutely, right? They were living it. They had been living through disruption for several years. A lot of other industries, though, were still thinking of digital. It's like, oh, that might affect us. We're a bank, we're a university, we're a government. Maybe we could do something there. They didn't see the urgency yet. So that was the context in which I wrote that book and argued, look, this is something every organization is going to have to think about. And what does it really take? It's really, it's not about technology. It's much more about redefining what business you're in. Now, fast forward to a couple months ago when my sequel came out. And it's a very different context because everyone is at least giving lip service to digital transformation. It's been in their annual reports for a few years now. I was just talking with a global financial services firm yesterday. And I'm going to be traveling, do some work with them, talking about timeframe. They said, we should try to schedule this in the next few months because, honestly, we had our last report to analysts and digital transformation was just a bullet on a slide of here's what we're doing. And it's clear we can't get away with that anymore. Our next analyst report in a few months, we have to really explain like, how was this impacting the business? What's our agenda? What are we trying to achieve in the next few years? How are we going to drive and a lot of new growth through digital transformation? So it's really become much more elevated on the agenda of companies and yet the other differences today, we all realize how hard it is. Even if you commit to it and are focused on it and dedicated resources into it, how hard it is to really effectively drive change of this kind in organizations. David, there's so much that has changed, but also so little has changed for so many organizations where many of our audience are struggling with change. And from reading your book, you really see how important other aspects is. Like, if you're somebody trying to strive and swim against the tide, you stand little chance of survival or success in many, many ways. And I hope we'll get through this in the book today. And particularly, I wanted to share with you. I didn't say this to your fair. I wear a pin to try and reflect the show every week. And I was going to wear a butterfly or a caterpillar because I thought of transformation. I was like, you know, it's too cliché. So I actually wore just one here that you can see the word why. And this is because why is so important to this whole thing. It's almost the top or the bottom of the pyramid, not the top, because that's where it starts. And I thought before we even get there, because you mentioned media and I mentioned it as my own transformation story, I thought we'd open with a case study. And the way I thought about this, I write an article each week to try and reflect the show and I wrote an article about this with the Dickens quote, it was the best of times. It was the worst of times. And this is something that we still see. I just quote a little piece here from the book. You said creating a separate division for digital initiatives establishes a pattern. Few people are tasked with driving all things digital and the rest of the organization sticks to their old ways of working. Meanwhile, the legacy organizational structure with its historic separation of the business side from the journalism side remains untouched. This still happens everywhere. It's so frustrating to see it happen. Despite books like yours written in 2016, leaders read this book, the digital transformation world book. It's so important. And that was really what made me to write this follow on this this sequel. I mean, that book still stands. It's a compliment each other. The prior book was really looking at strategy. How do we rethink and redefine our relationship to customers, our competitive landscape, our use of data as a source of value creation, our approach to innovation and our value proposition. Those are the five sort of dimensions of strategy that it's how do you step back. Really get past your blind spots that you've inherited if you think you know what your business is and really take a fresh eye to all of those things. But what I learned since then is even if you are able to do that. Right. If you commit to making real change if you're able to bring fresh strategic thinking and come up and identify new opportunities for growth to make the change happen in the organization itself is incredibly hard. And so I open with that case where, as you said, it's written to highlight the stories of a particular company, in this case the New York Times, but every one of the things that they the traps that they fell into the mistakes they made. I see time and again in every industry and industrial firms and consulting firms and big banks and insurance companies and telcos. One of them being this sort of, well, we need to make some kind of change let's give a squad skunk works used to be the old model from decades past. The organization is slow so the solution to that is we'll get some small team let them move fast and then that allows the organization to never change. It gives an excuse for everybody else to just go about their business and like, you don't have to change because that would be too hard for you. And guess what, that doesn't work out well in the long term or even in the medium or short term. Before we delve in deeper that case study of New York Times is a brilliant one because you see how firstly they fail, but then they succeed. So they go from the 70 to the 30 which is great because we rarely see the 30 and David talks a lot about in this book about the 30% who have succeeded. Before we go any further, it's probably important for us to define and clarify the definition of digital transformation or dx as you call it from now on. Yeah, so I define it this way it's simply transforming an established business to thrive in a world of constant digital change. That to me is what digital transformation is. And let me pull out the sort of a few things that that sets up three sort of essential truths. One, this is, this is not about technology, right, it is about the business, it's about your customers. This is a very common misconception about digital transformation that it's an IT project and it's about working with your IT vendors. No, this is about the business right transforming an established business. Second, this is, you know, it's, it's really quite distinct than startups. It's not simply a matter of identifying market opportunity or iterating and discovering an effective digital business model. This is about existing organizations. And so all the things you have to do have to happen within the context that you already have employees and customers in a brain reputation and distribution partners and already products and sources of revenue that are out there and financial obligations and probably legal contractual obligations with partners, channel conflict, all these things are already in place. And so the trick is to turn all the things you have as an established business of some scale to your advantage, because unless you're very smart, they will actually work against you and make it much harder for you to compete simply because it'll be much harder for you to change and adapt and develop quickly. And the third sort of truth of digital transformation I take from this definition is digital transformation is not a project, right? It is that it doesn't come with a start date and an end date. This is a journey that you are going to be on continuously about becoming over time, a more and more adaptive organization that is better and better able to continually change reinvent itself and again, respond to this world of constant digital change. And David, I wanted to double click on one of the barriers to change. So why the companies that are in the 70% are in there. Just underline, that's multiple studies we've had at this point that have looked at, again, by now we have hundreds and hundreds of companies who have taken formal digital transformation efforts and put money and people into them, not just a bullet point on a slide. And the data all seems to report at least 70% some as high as 80% are failing, right, are not achieving their goals are not really driving sustainable change and new value creation, versus the 30% are the ones that are succeed that are really making meaningful change in the business. And I think thanks to work like yours and others, the 30s getting bigger, thankfully, it's so it's getting there. It's ratio. That's my goal, exactly. Try to shift that balance a bit. Absolutely, man, I'm with you. And one of the things I was going to double click on here was to think about how difficult it is, depending on the size of your organization size does matter, because that increases organization complexity. Versus a startup. So we have that spectrum of people who listen to the show from startup founders, solo pruners, I am one, I know how easy it is. Well, apart from the boss being a bit of a jackass. Apart from that. Yeah, exactly. Looking in the mirror. Come on, we got this team. What's our vision. Repeat after me. But how difficult it is then as you scale up the business, even two people adds complexity. But when you're a multi sized organization across multiple geographies of operation with different business models, everything changes. And I think this was something that's often overlooked. I wrote an article on this recently under the famous quote, every organization is unique, just like all the others. I think the original quote was Margaret need would tell her students every one of you is unique, just like all my other students. And every company feels that they have these unique pressures and challenges and why it's so hard to change. And I see incredible commonality from one to another. But it is harder for some businesses than others. And when I discovered is there's a lack of an understanding of why most commonly people think it's well, I will hear them point to age. Well, the company so old around so long. That's why it's hard to change. Some companies will point to their industry. Oh, you just don't understand our industry is so old fashioned. So a verse to change so stuck in its ways. I hear regularly nationality national culture. Oh, well, you have to understand Japanese companies or Brazilian companies or Italian companies. We're not, we're not good at acts. All of those can be factors. But what I've learned through my work my research is they are not the biggest factor the real challenge. The most predictive metric is organizational complexity. And that seems to be pretty well measured by the three factors, you know, you echoed back from the book. How many employees do you have, right? One, two, okay, 50 classic Dunbar number gets harder to stand up in a room and just talk with everyone about the strategy and what you're doing. So number of employees, lines of business, do you have different offerings to different types of customers, different business models, and geography, geography ads has always added complexity in terms of supply chains and distribution. Honestly, less today than it did in the past, although clearly still some, but regulation adds a huge amount of complexity when you're operating in different geographies, as well as marketing and customer messaging and so forth. So really those three things, if you are, this was part of my journey learning towards writing this book of why the organization matters so much. If you're trying to transform the business and really take it in a new direction and unlock some new digital opportunities for growth, if you're a company of 100 people, and you've got one line of business and you're operating in one country. If you have a clear understanding what you're trying to do, I'm not saying it's easy, but it's relatively straightforward. It is easier. But then if you're a company with 10,000 employees, a lot of 100,000 employees, you're multiple geographies. You've got different lines of business serving really different markets with different needs to make any kind of pervasive change across the organization. It's just much, much harder because of the complexity of the organization itself. And that's why I really found that these kinds of complex organizations really needed some tools and learning from, as I call them, the 30% from those who have actually been able to make true substantial meaningful change in the organization. What did they do right? What can we learn from them? And that was my goal is to pull those insights together, look at the patterns and say, here are the things that make this possible, not easy, but even with these large complex organizations, it really is possible to make change. And, you know, it reminds me of you're trying to make a journey. And what are you going to have? So you have Google Maps, most of us, you know, are Apple Maps, if you use Apple Maps, but you have a map. And this is what was missing for so many people, but then there's key ingredients of that map in a certain order that is really important. And I'm going to frame this show really a way you have one of your tools is the PO statement, so the problem opportunity statement. And I'm going to start with the problem because this problem statement reflects what so many of our listeners experienced. These are the top barriers to DX success, no shared vision, no growth priorities, no focus on experimentation, no flexibility in governance and no changing capabilities. Now, there's a lot in those. I'd love to take them more at a time, David, if that was OK, and I might pepper in quotes every so often, but otherwise I'll hand over to you. So the first one, no shared vision. This is a really fundamental problem. I see incredibly frequently in companies that are trying to transform. And I meet with them and they say, yes, we're embarking on digital transformation. And the language they use about what they're trying to achieve is things like we want to become a digital first company. We want to future proof our business. We want to be a digital leader among our peer set. Things like this. Setting aside that some of that is just kind of consult, gobbled a book. It's also incredibly generic. Right. So to have a vision that is actually going to pull you for it as an organization, it has to be specific. Right. It has to be unique to your organization. I see so many of these vision statements. If you took your thumb and you covered up the logo at the top of the memo, you would have no idea what company this pertains to. You wouldn't even be able to guess the industry in many cases, right? So that is, that's a really common barrier. And I find I'll talk to three different executives in the same company. I'll say, what does digital transformation mean for you? You get three different answers, right? There's no commonality. Second barrier, as you mentioned, no growth priorities. It is essential as you embark on this to really define what are the problems that matter most to your business. What are you really going to try to solve? What are the sort of levers of business value creation that you are really going to try to prioritize above all others? Because as you start to look at new digital business models, interaction models, customer experiences, more kids, you will, if you're seriously curious, you'll start seeing 100 different ideas. And that's what happens. I see companies, they just start shooting off in a lot of different directions. So it is so critical that we link this process of digital innovation, but really what I call, it's this missing link between strategy and innovation in so many firms. I'm actually writing an article about that for Harvard Business Review right now, companies that sort of set up some kind of team to drive innovation and pursue new ideas. And they're just given, it's like a blue sky, a thousand flowers bloom, just come up with, if it's a good idea, it's a good idea. It's a good idea. It's like, no, you have an existing company, just because something is a good idea for someone to build or pursue or a good market. It doesn't mean it's one that you as a particular activist business should go after. So you have to define these specific priorities and of course they have to be linked to a careful strategy process about the company. Often, I would say, mostly not there, right? Third barrier, very often see is no focus on experimentation. And this is companies that are still following the old planning playbook, what I would call a traditional planning process. And by which I mean you're trying, you're thinking of doing something new, you're making a big plan or a possible investment, what do you do? You start with a lot of third party data, right? You hire others, independent consultants and so forth to bring in lots of benchmarks, best practices, right? No, not first party data, not actual testing and experimentation of your own, but third party data. Then you do a lot of analysis, business case writing and so forth. Then you go traditional classic, take it to the top of the ladder, who makes the decision? It's the highest paid person's opinion, as they say in Silicon Valley, the hippo, right? Senior executive makes the call and then everything focuses on just executing that plan, right? We have the plan, we've detailed it out inside our meeting rooms in great specificity of what we're going to do. It's gotten approval and now we just have to execute, execute and like we just, the train has left the station where we're going down the tracks and who knows what's ahead. That is the exact opposite of the whole approach of continuous rapid experimentation, which I've written about for years. I've drawn great insight and thinking from folks like Steve Blake and Bob Dorf and Rita McGrath and Stefan Thonke and others, but really all the companies that are really driving change, they take this approach, this mindset of defining the problem you're going to solve and then rapidly testing and validating different options and the business hypotheses around each. The fourth barrier that's very common is what I call no flexibility and governance. So that is using what's commonly called BAU, business as usual, your kind of existing lines of decision making, your traditional budgeting processes, your traditional organizational structure, everything that was developed over time for the core business, the legacy business and business well and maybe actually fit that suit that quite well, but to just apply that same approach that same management model and rules and processes and procedures when you're trying to do totally new things. And then lastly, the last barrier I see is companies who are trying to digitally transform, but they are really not making any significant change in their core capabilities. And by that I would include really rethinking their technology stack, but also really rethinking and growing their talent base, the skills that people they have, and also really their culture. What is the culture we have as an organization that's brought us to where we are today, but being really thoughtful, are there things about that that need to change if we're really going to effectively head where we're trying to go. So many companies I find just are not addressing those things. Beautiful, my beautiful thank you for going through those and just on the last one I just want to remind our audience. Recently we had Mike Beer on the show three part series of Mike and he talked about that strategic fit, which was also the talent or capability fit to the new strategic ambition of the organization. Such an essential part that's overlooked because and then you hire in, but you might be missing some of the stuff David talked about earlier and like no vision. This happened me for example in digital transformation David where it's like on constantly asking what this strategy was. And I was told basically you look after the digital strategy I was like well that's going to fail if there's no organizational strategy because it's just an enabler you know so I didn't have the language or the roadmap or the playbook. So, as I said I could have done with this to even going to go here I got you a copy of this, this would have been helpful, but I'm under under late the never absolutely. Now we understand the blockers I thought yeah we might revisit that. It's an NYT story after the innovation report so this it's available publicly by the way if you want to look at Google, or you might be using Bing these days Bing the innovation report. It's back baby, because you'll see the NYT report which was a damning report that was released it was leaked from the NYT, but then they got it there act together they learned and they went from the 70 to 30. Let's tell that story is a little just a little vignette here and then we'll get into deeper dive until okay now we know what now to do here's what to do. Yeah so so the story was the New York Times had started I mean to their credit they started very early on embracing digital and thinking about how is this going to be a part of our, our, our future of the business. The common wisdom I've heard many times is all the most important thing digital transformation is a CEO mandate have to have the chief executive has to be behind this and pushing for it. Obviously I would always argue you want to have that right it's going to be much harder to make change happen without that support. But we've seen timing again and companies where there is a very strong clear digit mandate from the CEO and the chief executive and complete failure right about general electric and and their failure digital transformation and why that was so predictable why you can see why that it was never going to work despite the fact that it had this very loud and vocal support and resources from the top. So the New York Times was similar. It was it was the chief executive of course there was a publisher and it was at the time after Oxford Junior. And he said the digital is a future we are going to be a part of this thing for to my knowledge the first, at least major news existing legacy newspaper to go on the web. They were there right from the beginning with launching a website. They set up a separate subsidiary separate division as we talked about to figure out do all this digital media stuff. And yet they from the beginning fell into what I call the digitalization trap. And this is part of why when I meet with companies I stress why digital transformation and corporate innovation are not like two separate things right. It can't be like two different teams, two different agendas going in different directions. This is these have to be wedded together. So when you don't do that, you fall into the digitalization trap which means digital transformation is just about taking what you have already done. And adding some technology to saying let's put some more technology will use technology new capabilities in service of doing the same thing we have always done. And so that was the unspoken and at times actually clearly spoke in mindset of the New York Times this was all about let's use all these new digital tools to deliver the same print newspaper. Right. Everything was just another way to get the print newspaper to the customer. That was the language that the publisher is talking about all use any technology CD rhymes the web whatever to get the New York Times. He said heck I would beam it into your brain if I if you show me that the neural technology for it. He thought that was very forward looking but it was actually completely confined to the history in the past of the company. And so everything was always about the print first. And literally the cadence of the digital publishing was based on the print was like well of course we'll write digital articles once a day because that's when we write them for the print edition. Everything started from that viewpoint. And despite a lot of digital experiments, iron people and building technology and bringing people in and winning prizes for interesting multimedia new experiments and design of a story. It wasn't really touching the core business itself. The digital talent they hired was not sticking around because they realized there really wasn't a chance for them to do any meaningful change in the business. New digital entrants started to grow much more quickly in terms of attracting a younger viewers. And more fundamentally the company was suffering because it had not reckoned with the change in the economics around advertising in print media. And, and so year after year they saw it was a dramatic was a seven year period revenue total revenue for the New York Times declined 52%. So then we had this year where the bombshell dropped and that was as you mentioned the innovation report. It's almost like all the president's men it's made for television story of journalism I'm not sure why it hasn't been made yet to maybe I should make the movie. And what happened was so this internal task force this small scrappy team of not a bunch of senior executives actually was was very smartly done. We clearly folks at the leadership realized this was not working. So they put this small team together of people from different backgrounds, investigative journalists, not people with long standing in the times and said we want you to spend several months figuring out what is actually going on. We're changing what's not why is our innovation not keeping pace with what it needs to happen so they wrote this report they talked to everyone inside the times they talked to competitors they talked to partners. And they wrote this incredible report that really detailed an organization at war with itself right over its digital future that people the older employees were fiercely clinging to the status quo the silos that were built over decades of tradition in a century of tradition or just completely rigid this culture of sort of perfectionism which it at its time and place right protecting and growing the brand. But today it had become a barrier to really any experimentation and real learning inside the organization so all of this was detailed in this report that was supposed to be read by I think it was five people. Perfect it's just like seeker report from the top leadership, but then, and like classic journalism and Hollywood fashion, it was leaked right somebody who was really one of the writers and authors of the report probably leaked it. And it should first showed up but was it on the pages I think of as a book of BuzzFeed and soon it was uploaded just publicly on the web. And it was it said shockwaves actually throughout the industry because all their peers had been looking to the New York Times they didn't know what to do about this dramatic decline in the whole economics around news and they said well the New York Times is going to figure it out and then we'll just follow whatever model they come up with. And suddenly it was like the emperor has no clothes right, but most importantly inside the organization. No one could it no one could say anymore, we should just stick to our old ways of working work well just we don't need that much change and so forth. And so it was this real kind of essential necessary kind of shock to the system. Hey, we have to really change much more deeply. The great news the good part of the story is that it did it helped to really unlock and accelerate a true transformation of the business that has opened over the last really decade. I mean, by now they're really actually quite well established but it took several years to really write the ship and both financially and really transform through all kind of the five steps of the roadmap which I lay out in the book. It's so great because I was one of those looking at them as this hero, the article snowfall came out for examples like look at what these guys are doing. But we experienced everything I think everybody who had worked has worked in transformation has experienced this where older executives long tenured executives cling on to the past business model because they don't want the change to come maybe hoping to retirement homes quicker, etc, etc. In one case, David, you'll find this one for me. We had put teams together from diverse parts of the business and they had these open invested in new tables so they'd be all sitting inside of their open office type. And they started to build like these literally out of cardboard silos. So yeah, not many, but yeah, they were definitely there. But I thought it just and this is just a little side track from the book for the moment but you talked about that period of, I consider it like the messy middle of a transformation of the caterpillar has to go into the cocoon and become this messy goo in order to become the butterfly. And I say that because there is a period of change that's needed. You can't just, there's no seamless. Oh, it's a DJ fade across on the record to a new record. It takes it's messy in the middle. And I think that's something that's so seldom recognized. And you've seen that with many of the organizations you've worked with. Yeah, the companies that have made real substantial change. It is not a flip of a switch. It's not. We've got the plan. All of a sudden, everything everyone's on board. I mean, one of the things I try to let people set reasonable expectations. I often see people coming and saying, look, there's just so many people in the organization who are not supporting this or they're old fashioned or I don't think even if I give them exposed them to the right reading and classes or whatever. I think they're resistant. And I say, look, your job is not to persuade everybody at once. Right. That is not going to happen. Nobody like waves the magic wand. I swear, CEOs come in. I think they're asking me for hypnosis lessons are like, how do I magically like brainwash or change the minds of everyone in my company. I said, that's not how this happens. Right. You are going to define a much clearer vision of what you're doing, what you're aiming for, what you're trying to achieve. And if you do this right, there are some people. There's going to be, I guarantee you may think no one is with you. But if you actually say, I'm serious about change and you have a clear and compelling message of where you're going and why you are going and why you are the organization to position to position to hold that position to take that path of the future, there are going to be some people in your company who are going to say, thank God, we're finally going to like do something. And they're going to be excited. They're going to be a minority probably. Right. But they're going to be the ones who take up the ball first. Right. And that's the whole point. And then you give them the resources. And you make the organizational changes to start to give them the leeway and that the operating models, the governance and so forth, the tools to do the right work. And they'll start to do it. And then it's snowballs. If you do it right. If you do your job as a leader, they'll start to show impact success. Others who are on the fence who are like, that sounds interesting. I'm not sure I want to risk my career being the first team working on this. They'll say, okay, this is for real and like people are getting spotlighted and rewarded and recognized for doing this. I step up and try to do some of that in my supply chain team or regional marketing team or whatever else. And it starts to gradually expand as it deepens through the organization. So, yeah, it's not going to be smooth. It's not going to be overnight, but it's, it's the work that has to be done. And if you have that clarity of why you're doing it, that makes all the difference. People ask me, I've been in the show eight years, 500 episodes plus and whatever I learned most, it's empathy. It's empathy for those people who are resisting change. It's often driven by fear of some sort. And it's hard. Just before we move on to solution mode to opportunity mode in the PO model, that we share how the failure to innovate is what's holding legacy firms back and what two key challenges you recognize to corporate innovation really are. The challenges of uncertainty and proximity. Yeah. So, so I've done a lot of looking at corporate innovation, because as I said, this is a book about digital transformation, but it's also a book about innovation in established businesses, right. And what makes it particularly hard, and that's been something I've been looking at because, and what I found is really there's two fundamental reasons why innovation is hard for for established businesses. Now, the first is the challenge of uncertainty. And that is just foundational to innovation, the whole point of why innovation is hard is because you're doing something you haven't done before. And more particularly, it's not just that you haven't done it, but that there is uncertainty to it. Right. If you're going into a new line of business where there's already a lot of established competitors in the markets well formed and so forth, and you just say, oh, we're going to make an acquisition or something. There's not necessarily a lot of uncertainty, but most of what we talk about when we're really talking about corporate innovation. It's like a startup. The first challenge you face is you do not know what is going to work. And actually as a corporate innovator, I would say the first challenge is you don't admit that, but you believe that you can figure out in advance what will work. You think there's a crystal ball, it's called the business case right. There is no such thing, right, as my friend Bob Dorff used to say, business plan writing should be taken from the business schools of universities and moved into the creative writing departments that the English departments. There is no crystal ball, and that is that that fundamental challenge. And fortunately, we've got some really great thinking and some models by now about how do you address uncertainty in innovation and broadly speaking. There's two essential levers that I talk about in the book, you have to bring an approach of iterative experimentation. I also wrote that about that in the previous book, a whole chapter on rapid experimentation. And we can look to the lessons of lean startup, thinkers like Steve blank, we can look to agile software development, look to the practices that have evolved under what's called product management, and design thinking. I talk about these as for the four religions of rapid iterative experimentation. And there's lessons to be done from all these and I write about book and give some structures and tools to actually apply this within a company on sort of a repeatable basis, you can teach the teams. So that's the first challenge. Now point out that is a challenge that is held in common with startups, which is why our best thinking has come out of the startup world because they live or die by this you don't even have a business if you don't solve for product market fit and find that the elusive, the search for a repeatable scalable profitable business model is as Steve blank talked about it is that's that's the job of a startup is so we have that they have the same problem. But there's a different challenge. There's a second challenge that is not faced by startups. Right. And that is faced by established companies and the second challenge of corporate innovation is what I call the challenge of proximity. And what this means is it is much harder to pursue innovation that is farther from your core, farther from your current business that you know so well it is inherently easier to innovate within the core business. Right. I'm not saying it's easy but relatively so it is much harder for companies to manage the process and effectively take a good idea all the way to market at scale when it is not doesn't have a natural fit inside the current organization. And there's all sorts of reasons I talk about why this is companies apply the metrics and the KPIs from their legacy business to the new thing and it doesn't fit whatsoever. Simple budgeting right budgeting is often dictated by, you know what parts of the business are creating revenue now and that's how they get resources to invest in next year. And so if there's nobody currently doing this who's going to put the resources behind it, lines of control and oversight, there's all sorts of reasons why when you're venturing beyond the core. It's very challenging right even starts with just mindset again this sort of this trap of Ted Levitt wrote about it decades ago, defining your future in terms of the products of the past rather than in terms of customer needs. So this sort of habitual mindset is going to just keep steering you away from these innovations that are further from your core right because you haven't done those before. So those are the two challenges and we have to address both of them, if we're going to really unlock growth because it's not enough. Yes, every business has to look at how do we continue to incrementally improve our existing business. But that is not going to be enough with the level of dynamism and change we see and in wave after wave of the digital era, we have to also be able to pursue innovation. I talk about three paths to growth three paths to innovation. One is is low uncertainty innovation within the core business right and that is the easiest path right that can be managed basically by your normal business as usual processes. The second path is often neglected and a lot of theories of innovation is highly uncertain innovation in your core business. And here you naturally do it in your core business except they don't have the right processes in place they're not used to iterative experimentation and so you completely overestimate your certainty your knowledge of the future and you have lots of costly mistakes. And then the third path is beyond the core, so you need for each of these a different management model you actually need different processes and funding models and so forth to to manage each of these paths to growth. And that's really at the heart of driving any kind of change and transformation in an established company. We're going to come to the end with a couple of things one of the things David mentioned there was funding so the VC funding approach Facebook's a great example of that hopefully we'll come to that. And then what we're going to do is we're going to park the steps of the roadmap for part two and go through those at a high level and part two because we simply won't have time to even touch on that and only be frustrating you will be like when's the next episode of the Netflix documentary coming out. We won't go there but I wanted to mention another example because you brilliantly articulated the NYT example and I'll preamp this one with a little quote from the book again just to share with people the depth of writing and research in there. And also to to see us up for this great case study of CNN plus you said here under uncertainty many practitioners describe business innovation as an effort to address three types of uncertainty, desirability, feasibility and profitability. But others are critical as well, defensibility, scalability and legality with laws and regulations for example. For any specific venture the sources of uncertainty become even more specific such as cost structure competitive differentiation channel partners user experience and so on. The failure of CNN plus launched in 2022 as a new digital business for the news is a perfect example I love you to share this David. Sure so so to the first point all the different sources of uncertainty. There's a whole chapter in the book on experimentation and that's really what I set out to give some tools around is I've been coaching and advising innovation teams in large companies and some small for many years now. And there's a certain light bulb moment where they they've been I don't know reading startup owners manual or whatever we've been talking about case studies and they get this idea. We've got to experiment, got to test and learn. We have to recognize and write down all of our hypotheses this is not a business plan it's all of our unknowns that need to be tested. But then what happens time and again as they start writing down all the we don't know if it's going to pass legal compliance we don't know what the customer demand is we don't know what the price point is we don't know if there's competitive moats that we can build we don't know all these different things you don't know all these sources of uncertainty. It's a huge list and then they're like how do I get started like what the heck do we where do we begin. So that's something that I really tried to focus on in particular in that chapter was give a structure to that. In the case of CNN. They didn't right they didn't have that humility that oh my gosh there are so many things we don't know right they didn't detail the business hypotheses around this idea and then say okay how could we pit these off one at a time in a very low cost low risk, low time investment data not holding data not perfect information but some direct first party learning around one of these hypotheses and another like who's the right customer segment is this. And this we're talking about streaming right would our streaming opportunity be for our current television viewers or would it be for people who've never watched this on TV is it is it us is international so they're a price point are people willing to pay doesn't have to be at support lots of different questions you could ask they didn't ask and test right they followed again what I call. They're they're they're one great example of what I call this traditional planning process. So you got this established business CNN of course you've got the environment there's this whole shift digital to digital and media wave after wave and it's finally come for the television networks right and they can't hold out anymore and it's not just Netflix in the game anymore you now have Disney and HBO and so forth legacy players launching major efforts to move into streaming because this is so clearly with the market is looking for the customer. So CNN to their credit identified an important strategic question, which is what could we do here could we offer some kind of a streaming offering right with our brand, our kind of content and so forth. It was important but how they went about it right they did not start with the humility of all the things they didn't know they said they hired a third party consulting firm you would know them very big global one. And they did a lot of data gathering what's the state of the streaming market for all these other companies right now all the millions of viewers of Disney plus versus Amazon prime video versus of course Netflix etc etc. They wrote it these detailed business plans, and they have this business case while here's what we can do if we they couldn't interesting little wrinkle here, not unusual. They're constrained by prior legal contracts. So they can't just take their content that's going out on the cable shows and repurpose it stick in the app right they are prohibited from doing that. Okay, but we've got a plan we're just gonna shoot all new video right all new shows some with the same stars so we'll take advantage of word known CNN and like it's our sub brand things like Anderson Cooper and Wolf Flitzer alright so we'll have some of our marquee name people do new shows and hiring and hiring some other big name talent from NPR and Fox and others and people with with a no reputation and we'll create all these new shows we're gonna have this streaming bundle and a launch assistant alone app that you pay $6 a month for and we'll start with our current television viewers and they'll love they finally have this option and we'll start in the U.S. and then we'll go global starting international expansion year two and so forth and they had all the plans of the millions of viewers are going to get your one year to your three and it all looked rosy and they sent the plan for top approval right and it was Jeff Zucker was the head of the time of CNN is boss chasing keel are smart people experienced people right but relying on the experience and so they said this looks like the future of news we think this is the whole thing this is where CNN is going to be all of our opportunity is let's go for it all in and so again the plan is green lit and you're building the plan the train has left the station the plan is green lit and you're building the plan the train has left the station they spent $300 million a day before before launch before day one that was all just filming and hiring and putting it out of the teams and contracting the talent producing the getting shows in the can and so forth and building the technology whole thing everything was built and they launch big right out of the gate and I often ask if I'm teaching this case what percent for folks who are not in the media industry what percent of their current customers their television viewers do you think would sign up for for even a trial of the streaming app because bear in mind whenever you launch a free streaming service there's always a free trial of some number of days people would even try it out create an account and people will say 30% 20% 25% it was about 1% right so dismal pickup rate and huge costs invested and then what happened there was a leadership change coming in and they had to make a decision they just said this is crazy we're shutting it down right why do we spend all this money let's stop hemorrhaging the bleeding because the plan was to spend another $300 million every year into the foreseeable future so worst of all this is that kind of costly mistake it was a good question to ask it was an important strategic opportunity to pursue right but the point is you could have found out I could have told you or gotten to the data any good team smart startup team could have brought you the data with like $30,000 and 30 days to say you know what there may be an opportunity here but it's not what you think it is it's not going to go at the rate and maybe not with this customer segment you believe it is but like all your projections for year one are completely wrong and what do we want to do about that right and let's make an informed next step of decision so it was a great question to ask but incredibly costly and then when you do it things that way it becomes very hard to take the next step to try something new next month next quarter people feel like we've been burned we don't want to do this whole digital thing we don't want to do this innovation thing that like never led to anything or it was a huge waste of resources and that just makes it much harder for organizations to drive the change that they really need to drive exactly that thing about it's almost like you've squandered the opportunity and again I was mentioning one of the biggest lessons is empathy and it's because you might come in as the second head of innovation or CDO or CXO and somebody has done that damage beforehand I don't know that that's gone on beforehand and it's spoiled, it's spoiled the apple carts, it's poisoned the well for you in so many ways like why does nobody want to support it in my ideas why is nobody signing up to join the team? You think it's you I mean that's the thing you think it's you and it's just it's the process is the problem but maybe we'll mention quickly the Facebook version so how Facebook the VC approach to funding an idea like CNN+ Yeah so so the the opposite approach so we talked about this challenge of uncertainty which is really the big challenge see you then it was not so much that it was that far from their core I mean the delivery model was radically different but the content was the same the bigger challenge was there was just so much uncertainty around this particular this particular business model they were going to pursue and what that requires tackling uncertainty really requires two things just very high level one I already mentioned is rapid experimentation so iterative experimentation of actually trying and testing and building and learning. Another thing you have to pair that with is iterative funding and that's baked in if you're in the startup world it's like well right nobody says, oh that's a neat idea you've sketched out on a slide deck for your new business but here's a billion dollars no there's a reason why it's called seed funding and then series A and then series B they are built around this idea of iterative funding Facebook is a great example because we have a historical record and it's really interesting to see what happened at each of those stages their very first seed round Facebook I think was called the Facebook.com was just four months old had zero revenue it had just been on a handful of college campuses right and it was Peter Thiel who invested I think it was five hundred thousand and one dollars I'm not sure whether one was for him sure there's a story behind that so half a million dollars he got a little 10.2% so a little over 10% state so that to be clear means the company is valued at just under five million dollars a year later what had happened they still had zero revenue right but they had a million users no I'm sorry they had zero profit right so by year year when you're later they actually had revenue so they had eight many more users right it wasn't just a few early campuses they had a million users and they had revenue right it was actually and not just some revenue it was from major advertisers that's what they were trying advertising they had big companies like MasterCard advertising on them at twelve point seven million dollars the valuation went from five million almost five million to almost a hundred million right in one year next what happens Facebook spreads to not just colleges but the high schools and even corporate campuses right it raises a series be round valuing the company at five hundred million another five times increase in value here after that what has happened Facebook has now launched on mobile right it has started its news feed what we now think of is the core experience of Facebook it has opened up to app developers right now Microsoft leads the series C round and values they spoke at fifteen billion now the core idea of what Facebook is trying to do hasn't really changed in these from its seed launch to its series C round but the market value has gone from five million to fifteen billion right even though the company will not turn a profit for two more years so what changed in those three years what changed was the uncertainty went down right when you started that like any startup uncertainty is massive it's you have so many business unknowns who's the customer what's the total addressable market what's the possible revenue model what's the cost to operate who are the partners you need what's it is the technology there every year they're taking on that uncertainty out you're starting to see okay here are the customer segment here is how fast we can drive growth here's what the tools are they're going to bring us in new subscribers here are the kinds of companies that are going to advertise here are the kinds of advertising formats all these things are becoming clearer and clearer even though again half of the ball but the uncertainty of the business model is getting less and less and so that's why that's the thinking of venture capital and I write in the book about how do we take that model not literally VC funders outside the company but take that model of iterative that is tied not to milestones of time not to annual budgeting but to milestones of learning and reducing of uncertainty how do we bring that model inside a corporation and reinvent the way we fund and invest in new ventures and it's absolutely doable in a repeatable process and we see it now in a number of different or progressive or forward thinking companies and so many ideas get shut down by a CFO goes this needs to be profitable in 12 or 18 months otherwise we're shutting it down you've got the totally wrong you have the wrong sequence of innovation metrics right it's like your profit of course right ultimately if the innovation isn't going to be profitable yeah you're not going to continue scaling it up but it's done so many companies do those they put the metrics in the wrong order and the wrong sequence in the wrong time he's on in 15 last and 15 minutes for a key webinar that is delivering and he needs a mental and moose bush before then so I'm going to give you that but I just want to mention one thing because I want to neatly close this part managing proximity three key elements of this focus on problems that play to your strengths make it independent and I love this term keep an umbilical cord to the core beautiful beautiful day so we'll wrap up then where can people find you I'm gonna link to all those places anyway link to the book and to some of the episodes you mentioned we've had Steve Plank on the show before I'll link to those episodes for people that find that helpful where's the best place to find you David best place to find me is David Rogers dot digital so Rogers is R O G E R S just spelled like about Rogers and will Rogers and the domain is not calm it is not digital so David Rogers and in particular I mean there's a website there a little information about my work my speaking my advising of companies but also you'll see right on the front page you can sign up for my free newsletter my sub stack and if you subscribe to that you'll actually get a free chapter of my latest book the digital transformation roadmap plus some of the articles that I've mentioned I've been writing on the missing link between strategy and innovation the digital transformation digital trap etc I write published regularly on those I encourage that's really the best way to to keep in touch and I've linked to that on the innovation show sub stack as well and David also very generously gives away some of the toolkit that he has produced as well and there's also a pro account that you can sign up for as well Now it's been an absolute pleasure David really enjoyed it you got to go and get your a mental a moose boosh author of the digital transformation roadmap and the digital transformation playbook David Rogers thank you for joining us Thanks so much Aidan I look forward to our next conversation