Editorial
The Gist
- Endless transformation. Digital and AI disruption is a continual journey, not a one-off task.
- Talent essential. Building an in-house digital talent bench is critical to success.
- Customer-centricity. Superior customer experience drives innovation, adoption and value.
As an experienced business strategist specializing in digital and data companies, I've had the privilege of reviewing a wealth of influential books on digital business strategy. A standout in the genre is "Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI" penned by McKinsey consultants Eric Lamarre, Kate Smaje and Rodney Zemmel.
"Rewired" masterfully synthesizes key management theories from seminal works like "Designed for Digital," "Future Ready" and "Beyond Digital." It touches upon significant concepts such as digital products, the modern customer experience, the crucial role of digital platforms interconnected by APIs, team structures and accountability, digital leadership and the industrialization of data platforms.
However, what truly sets "Rewired" apart is its practical approach to implementing these theories. It provides a comprehensive playbook for digital leaders on leveraging digital technology and AI to gain a competitive edge in their respective markets. Thus, bridging the gap between theory and practice, it offers an invaluable resource for every CIO.
Yet, its reach should not be confined to the CIO's desk. It is an equally essential guide for CMOs and CEOs. The book's insights serve as an exceptional guide for these roles to ensure optimal business design and customer experience, a key to winning in today's digital age. Hence, "Rewired" deserves a spot on the bookshelves of CIOs, CMOs and CEOs alike, guiding the digital journey of their organizations.
Importance of Digital and AI Transformation
In "Rewired," authors Lamarre, Smaje and Zemmel set the stage with an impactful statement: Business leaders will be engaged in digitally transforming their companies for the duration of their careers. This revelation might be a seismic shift in perspective for some. The authors underscore that digital and AI transformations aren't one-off programs. Digital landscapes are in a constant state of flux, necessitating perpetual evolution.
Crucially, they highlight that in today's business climate, digital and AI aren't merely tools; they are the wellspring of competitive advantage. This contrasts with the traditional notion of "barriers to entry" as elucidated in Michael Porter’s seminal work, “Competitive Strategy.”
The authors assert that the catalysts driving digital transformation are the synergistic convergence of cloud and AI technologies. This perspective aligns with the authors of "Designed for Digital," although they further expand this scope to include a wider array of technologies such as social, mobile and the Internet of Things.
Lamarre, Smaje and Zemmel emphasize the need for business leaders to acknowledge the challenges associated with digital and AI transformations. They note that while 89% of companies have initiated such transformation projects, the majority haven't yet achieved their anticipated revenue increase or cost savings.
They unequivocally state that there are no quick fixes or magical success stories when it comes to digital transformation. Despite this, they emphasize the ultimate goal: the continual improvement of customer and employee experiences.
For many organizations, achieving this entails a comprehensive "rewiring" of their operational methodologies. This implies establishing new organizational capabilities and transforming work processes from top to bottom.
As many CIOs can attest, it includes developing code only where it brings a competitive edge.
Furthermore, it involves leveraging advanced analytics to generate proprietary business insights, a concept referred to as "privileged insights" by the authors of "Beyond Digital."
According to Lamarre, Smaje and Zemmel, those who excel in the digital domain — the digital leaders — consistently outshine their competitors within their respective marketplaces. Digital leaders are defined by their continual enhancement of enterprise capabilities across a plethora of areas. These include personalization analytics, digital marketing campaigns and providing a seamless omnichannel experience.
Successful digital leaders have mastered the art of collaboration. They assemble cross-functional teams comprising individuals from business, technology and operations into compact, agile units.
Related Article: Creating a Clearly Articulated Data Strategy
Creating a Roadmap: Target Level of Customer Satisfaction
Creating an effective roadmap necessitates the integration of three essential elements — vision, alignment and commitment. When harmonized, these factors become the foundation for cohesive and strategic action.
The authors emphasize that a digital vision needs to be specific and tangible. For instance, a vision might focus on achieving personalized, proactive customer engagement or ensuring a seamless experience for both customers and employees. They recommend setting measurable objectives, such as targeting a particular level of customer satisfaction or defining a percentage of earnings before interest and tax (EBIT) to be achieved in a three-year span.
Undoubtedly, successful transformations hinge on alignment and commitment. The authors advocate for alignment to originate from the highest levels of leadership, which will effectively trickle down through the organization. Integral to this process are well-structured investment plans and robust governance for managing transformation.
Lamarre, Smaje and Zemmel emphasize that successful transformations cannot be achieved through incremental changes alone. They must entail substantial modifications that result in noticeable value. Hence, potential transformation initiatives should be evaluated not just on feasibility but also on the value they can bring to the organization.
Areas of impact to consider include customer experience, financial benefits, speed to value and synergies among different elements of the business. Furthermore, the authors suggest that factors such as sponsorship, readiness of data and technology infrastructure, ease of adoption and scalability should be factored into the decision-making process.
The ultimate goal should be to build capabilities that not only serve the organization today but also equip it for the challenges and opportunities of the next decade. Drawing parallels to enterprise architecture, the authors stress the importance of defining the current state of the organization and envisioning the potential future state.
To bridge the gap between the present and the envisioned future, Lamarre, Smaje and Zemmel assert the necessity of four fundamental capabilities for successful digital transformations. These include: talent, operating model, technology and data.
Related Article: How to Be a Digital Transformation Champion
Getting Ready to Transform: Nurture Digital Talent Pool
According to Lamarre, Smaje and Zemmel, the initial step in a digital journey is assembling a strong talent bench. They make it clear — digital transformation cannot be outsourced. Real success stems from nurturing an internal digital talent pool. Thus, the first critical move involves talent acquisition and development. This sentiment was recently echoed by Ali Ghodsi, CEO of Databricks. Ghodsi emphasized, “Organizations need to build their own AI models because it builds IP they can differentiate, enables them to maintain full control and privacy over their data, and costs less to train and use your own models.”
Assembling the right team begins with crafting a talent roadmap that's intrinsically tied to the digital roadmap. Organizations must translate their digital strategies into prioritized solutions and define the team structures needed for successful implementation.
The process commences by identifying the existing talent within the organization that can contribute to the digital transformation journey. Subsequently, organizations must pinpoint talent gaps and establish both short-term and long-term solutions to address these gaps.
In the short term, these gaps could potentially be filled by consultants or other external resources. However, for long-term success, the authors recommend setting up a dedicated HR team that can adapt current processes and focus on acquiring digital talent.
Notably, organizations must acknowledge the value of digital skills and be prepared to invest in them. This involves both compensating digital talent competitively and investing in initiatives to foster digital skill development within the organization.
Transformation Implementation: Designing Customer Experience Pods
Once the team has been established, Lamarre, Smaje and Zemmel recommend that organizations transition to working in agile pods. The term "pod" is particularly effective as it encompasses a sense of unity and collective action, which is a different perspective than just referring to them as teams.
Establishing pods is an integral part of constructing an agile business, involving a shift in language, work rhythms and activities. Coordination, however, should not be overlooked; it is essential to the efficient functioning of pods.
Pods should be formulated with distinct missions and evaluated based on the outcomes they generate. At their core, pods should be autonomous yet accountable, fast-paced yet user-focused. This requires the establishment of a mission as well as objectives and key results (OKRs) for each pod.
Drawing from my experience as a software project manager, pods should be managed through agile sprints and governing their progress through regular quarterly business reviews.
The authors propose various types of pods, including product or experience pods, which focus on enhancing the customer experience, and platform pods that concentrate on strengthening backend or data capabilities.
In addition to pods, they also recommend establishing chapters, which are groups of individuals sharing the same role. These chapters facilitate the exchange of best practices, methods, and standards, promoting continual learning and improvement.
Having set up the pods and chapters, Lamarre, Smaje and Zemmel suggest three digital operating models:
- The Digital Factory Model: This model functions as an independent digital unit within the organization.
- The Product or Platform Model: This model fosters cross-functional collaboration by bringing together business, technology and operations teams into cohesive pods.
- The Enterprise-wide Model: This model extends the benefits of agile methodologies beyond digital and technology to encompass the entire organization.
The book provides real-world examples of companies implementing each of these models, giving readers a practical perspective.
Separately, the authors underscore the need to professionalize product management. They argue that product management, which entails orchestrating various functions to deliver a successful product, is a fundamental skill for driving digital and AI transformation.
Customer Experience Design
According to Lamarre, Smaje and Zemmel, the significance of customer experience cannot be overstated as it fuels innovation, adoption and value creation. Every organization aspires to center its operations around the customer.
My personal revelation on this subject occurred while reading "Beyond Digital." The example of CEMEX customers desiring an app-based interface for product ordering was a powerful demonstration of the pervasive impact of digital transformation and how customer expectations are evolving in today's digital age.
Undeniably, all customers are seeking quality products, memorable experiences and effective services. Therefore, organizations that excel are those capable of creating exceptional value for their customers. To achieve this, organizations should commence by investing in customer experience design, which encompasses designing the right solutions and understanding what customers truly want.
Lamarre, Smaje and Zemmel advocate starting this journey in the same manner that Linda Yates recommends in "Unicorn Within" — through extensive testing, creating mockups and developing sophisticated test versions. This approach enables organizations to iterate and refine their offerings based on real customer feedback and insights.
In order to facilitate this, CX and design elements should be incorporated into every pod.
Related Article: Improving Customer Experience With Human-Centric Design
Architecting for Speed: Leverage Cloud Computing on Data Platforms
Organizations should aim to facilitate seamless adoption of their products or services. This begins with the development of a distributed and decoupled architecture, which offers flexibility and scalability while enabling rapid deployment.
Lamarre, Smaje and Zemmel propose that the most effective architectures allow for applications to operate independently of each other. A key component of achieving this is the adoption of API-based interfaces, which allow for efficient and flexible communication between different software components.
However, the authors issue a clear caveat: While APIs can enhance system interactions, organizations should be cautious not to overuse them.
Simultaneously, Lamarre, Smaje and Zemmel recommend that organizations utilize the power of cloud computing for their data platforms. Depending on the organization's specific needs and capabilities, this could entail establishing a data lake or implementing a distributed data mesh.
Additionally, it implies automating infrastructure provisioning, which can significantly increase efficiency and reduce manual errors. The authors posit that intelligent organizations seize the cloud's potential to foster business agility, stimulate innovation and enhance resilience.
When it comes to cloud migration, Lamarre, Smaje and Zemmel advise businesses to begin by prioritizing their domains and focusing on those that provide the most value. They encourage organizations to reimagine their digital strategy and establish concrete goals for the migration process. This could involve deciding whether to re-host (lift and shift), re-platform, or re-factor and re-architect their systems.
The authors argue that simply re-hosting (lift and shift) often fails to create significant value — a sentiment echoed by many CIOs who recommend against this approach. Instead, they propose viewing cloud migration as an opportunity to address a multitude of issues simultaneously. This could include remediation of security and compliance concerns, tackling technical debt, adopting a modern software framework and implementing automation strategies like continuous integration/continuous deployment (CI/CD).
Lamarre, Smaje and Zemmel further suggest that moving to the cloud provides an ideal opportunity to embed security measures and automation from the get-go.
Data Management: Governance Remains Key
Lamarre, Smaje and Zemmel acknowledge that data management can often be a source of frustration for many organizations. They assert that around 70% of the development effort for AI-based solutions is expended on wrangling and harmonizing data, a challenge that stems from legacy solutions that promote data silos.
Their recommendation for contemporary organizations is to focus on creating data products and federating data governance.
The initial step in creating a successful digital strategy, according to Lamarre, Smaje and Zemmel, is to identify the data required to deliver the digital solutions and underlying use cases outlined by the digital roadmap. Organizations should ascertain the specific data elements needed for each use case. Typically, this comprises only 10-15% of all data elements, which further supports the argument against the "lift and shift" approach.
Subsequent to this, the next stage is to evaluate data readiness. This process involves thoroughly "interrogating" the data, detecting data quality issues and taking steps to rectify these issues. The authors propose aiming for a target accuracy level of over 95% in most situations.
Once data readiness has been achieved, Lamarre, Smaje and Zemmel highlight an essential aspect: Data products should be reusable to enable organizations to scale effectively. Typical data products aim to integrate data to provide a comprehensive 360-degree view of customers, employees, product lines and suppliers.
The authors underline the importance of data definitions for governance and presentation at this stage. They also point out that creating data products necessitates dedicated pods and funding, signifying the level of commitment required for this undertaking.
Lamarre, Smaje and Zemmel's review of different types of data architecture is particularly insightful. They delve into the intricacies of data lakes, data warehouses, lakehouses, data meshes and data fabrics, providing a clear understanding of the benefits and differences of each type
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Considering this comprehensive view of data architecture, Lamarre, Smaje and Zemmel delve into the specific roles that a data pod needs to operate efficiently. At the same time, they emphasize that organizations should establish data governance structures that are congruent with their overall operating model.
The authors regard governance as a critical aspect of data-intensive operations. Proper data governance ensures that data is reusable, which is essential for scalability and efficiency. Moreover, it ensures that data practices meet relevant risk and regulatory requirements.
Unlocking Scale: Anticipate Digital Challenges
Lamarre, Smaje and Zemmel are clear that developing digital solutions can be complex and difficult. Great organizations, however, nail user adoption. As the CIOs that I know can attest, change is difficult especially when it means changing how someone does their job. The authors are open that there can be a lot of inertia and resistance to change. Clearly, organizations do not want a Kodak moment where the middle rebels.
Last mile issues are where "culture eats strategy for breakfast." To have a chance at success, the authors say build a receptive audience. This means being transparent and clear about the impact of digital solutions. It means deploying change management that anticipates issues up front. This requires anticipating upstream and downstream difficulties.
To speed the rate of change, organizations should aim for solutions that are readily replicable, reusable and adoptable. This can be achieved by incorporating modular technology components wherever feasible. On a technical level, this involves using blocks of code that can be accessed through APIs and replaced without disrupting the rest of the solution. A prime example is the multinational bank DBS, which successfully componentized their payment gateway, enabling a partner to develop an app for convenience store purchases. In order to effectively carry out these processes, it's critical to monitor key indicators such as value creation, pod performance, and change management. Lamarre, Smaje and Zemmel provide excellent guidance on this topic in their book.
Risk and Building Digital Trust
Indeed, navigating the digital landscape also involves effectively managing digital risk. This encompasses the protection of consumer data, the implementation of robust cybersecurity measures, the establishment of trust in AI products and services, and the transparency of AI and data usage.
Lamarre, Smaje and Zemmel advise organizations to identify, classify and assess risks based on their potential impact. This process begins with a thorough review of policies, data handling, analytics utilization and technology use.
The authors emphasize that organizations should strive to ensure their policies cover the handling of personal data comprehensively. Implementing appropriate guardrails and automating risk controls are crucial steps toward ensuring a safer digital environment.
Driving Digital Culture
Lamarre, Smaje and Zemmel focus on the crucial role of digital culture in accelerating digital and AI transformation. To foster a digital culture, leaders must fully appreciate the opportunities that digital and AI technologies present. This involves cultivating a culture that is customer-centric, collaborative, responsive and externally oriented. They understand that culture manifests beliefs and values, shaping the overall outlook and direction of an organization.
Digital companies should emphasize skill building, leadership upskilling and change management programs. In a business context, the authors propose that culture is the outcome of a specific set of actions, incentives, newly acquired skills and leadership attributes.
Parting Words: Recognizing Value of Superior Customer Experience
While the entirety of "Rewired" may not be a necessity for CEOs and CMOs to delve into, substantial parts of the book offer insightful and valuable knowledge. It not only elucidates the requisites for business transformation but also underscores the importance of a superior customer experience. Moreover, the book equips these roles with valuable insights, enhancing their collaboration and interaction with their CIOs.
For CIOs, "Rewired" proves to be an indispensable guide, providing them with robust strategies to lead transformation and promote a remarkable customer experience.
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