Balance Digital Offense and Defense

Figure 10.1 shows what we call a company’s “digital innovation posture.” As you can see, both small and large companies tend to have polarized their digital innovation efforts around either defending their current core business or growing into adjacent markets fast enough to offset declines in that business over time. Companies that have balanced their efforts between the two objectives are in the minority for both size groups.

We are greedy for you. As they say, the best defense is a good offense. Your disruptor’s playbook must seek that balance. If you just try and wrap digital innovation around your current core business and traditional business model, you risk treating digital innovation like most burger chains treat ketchup: that is, like a condiment meant to make otherwise inferior ingredients taste palatable.

On the other hand, if you focus your six-rule execution solely on growing into adjacent markets, then you are going to face the show-me-the-money question. You are going to be at a company all-hands meeting where your CEO is presenting how fast your new digital business is growing in percentage terms, with a lingering realization that your shareholders only care about growth and profitability in absolute dollars. Too many companies miss this important detail, and it tends to get their senior leaders fired. Avoiding a 5% per year decline in your core business might mean more in absolute dollars in the near term than achieving 100% growth off of a small base in an adjacent market.

On this one, seek the middle ground—a portfolio of digital innovation investments that achieves a fifty-fifty balance between defending the core and growing into adjacent markets. This is the only way to align the long-term goals of your customers, employees, and partners with the frequently myopic orientation of your shareholders.

Fund Big I Innovation

In Chapter 5 we made the case that you should put in place an innovation portfolio management approach that succeeds at both Big I game-changing innovation and Little I incremental innovation. As you can see in Figure 10.2, slightly less than half of large companies and slightly more than half of smaller companies in the survey were willing to fund Big I innovation.

That means that half of your competitors are playing an incremental-only innovation game. This is like playing football—what we call soccer in the United States—and never taking a shot at the opponent’s goal. That strategy only works when the buying criteria of your category are stable and competitive intensity is low. When winners take most, Big I innovation needs to be a foundational element of your investment approach.

As you might expect, those companies that are willing to pursue Big I innovation are also the ones most likely to have an aggressive grow-into-adjacent-markets focus. See Figure 10.3 for the breakdown.

The corollary is also true. Established companies focused only on incremental innovation are doing the corporate equivalent of Muhammad Ali’s rope-a-dope strategy. They are committing the vast majority of their digital innovation effort to defending themselves. Perhaps they feel that the Big I innovations in their core businesses were figured out a long time ago. Uber’s reinvention of the taxi industry and Airbnb’s competition with the hotel industry show that even long-stable segments of the economy are ripe for Big I innovation.

Leverage Your Data Assets

The underlying power of winner-takes-most dynamics is perpetual algorithmic advantage. In Chapter 6, you learned how to effectively use your data as currency to provide your company a path to this long-term source of market power and profitability. As you can see in Figure 10.4, very few of your competitors are making extensive use of their data assets today.

While smaller companies have a slight edge in terms of their willingness to invest in Big I innovation, they are well behind their larger competitors when it comes to leveraging their data for algorithmic advantage. In fact, nearly half of the small companies surveyed were making only minimal efforts to capitalize on their data today. Two-thirds of large companies were at least making moderate progress, following years of investments in data warehouses, business intelligence, analytics, and data science. The good news for companies large and small is that cloud deployment and business models are significantly reducing the cost of putting your data to work.

Open Up Your Innovation

The phrase “the wisdom of crowds” definitely applies to innovation, as you saw in the examples throughout Chapter 7. That is, no matter how large your company, the total innovation power of the external world dwarfs your internal team. However, as with your digital innovation posture, finding balance is the right approach. In Figure 10.5, you can see that only one-third of companies have found that balance so far.

On average, small companies are over-rotated toward external innovation and risk putting all their eggs in someone else’s basket, while larger companies are more likely to be overly dependent on their internal R&D efforts.

Install a Formal Innovation Process

One aspect of achieving balance in your digital innovation program is having a structured innovation process. As shown in Figure 10.6, most large companies have a formal innovation approach in place today, while almost half of smaller companies are still pursuing innovation in an ad hoc manner.

A key aspect of your disruptor’s playbook will be your innovation portfolio management model and its associated phase-specific performance metrics. For some of you, this will improve on the innovation process you have today. For those starting from scratch, it will help you to start maximizing your return on innovation going forward.

Upgrade Your Talent

In Chapter 8 we showed you how the best established companies are valuing talent over technology in pursuit of Goliath’s Revenge. If you feel as if that new rule is one of the most difficult to make progress on, you are not alone. As illustrated in Figure 10.7, fewer than 3 in 10 established companies feel that they have the right talent to compete in the digital age.

41% of the small businesses in our survey had large gaps in their innovation talent pools, which is worrisome, given that small businesses represent approximately half of all employment within developed economies. That compares to just 24% of larger companies. As shown in Figure 10.8, this shortfall in the pool of innovation talent in small companies is partly made up through higher levels of employee engagement.

Small companies are more than twice as likely as large ones to report very high levels of employee engagement in their innovation initiatives. Over half of large companies report that their employee engagement is either low or moderate. Fixing this is critical, given the team effort required to deal with digital disruption and create a culture of innovation.

Align around Your New Purpose

In Chapter 9 you focused on reframing your professional and company purpose—raising your sights, if you will. In Figure 10.9, you can see that there remains much work to do in getting your peers flying in formation.

As you might expect, small companies have an easier time driving alignment than larger companies—they just have fewer moving parts. One-third of small companies feel that they have very strong alignment on their innovation strategy, which is almost double the percentage seen in larger companies. However, in half of large companies and nearly half of small ones, organizational alignment around their future innovation strategy is either weak or moderate. Given how fast the Davids in your industry are moving, a lack of organizational alignment is just not an option.

What Is Our End Goal?

Rule 1 (Deliver step-change customer outcomes) is going to become your answer to the “what” question that will be on the mind of every member of your team. Digital disruptors are redefining the buying criteria of the categories that your company competes in. Sometimes they are even redefining the boundaries between industries. Broad organizational alignment requires a shared sense of the destination that your team is trying to get to before agreeing on the path you will take to get there. Rule 1 provides the framework you need to describe this destination from a customer-in point of view, using your stairway to value and whole offers by step. It is your BHAG.

How Will We Achieve It?

Once your team is united around the destination, you need to agree on how you are going to get there. As Figure 10.10 shows, Rules 2–5 play a critical supporting role here—the heavy lifting, if you will. Rule 2 (Pursue Big I and Little I innovation) seeks to broaden your portfolio of innovation initiatives beyond the incremental, slightly-better-than-last-year ones that your team is likely most comfortable with today. You cannot afford many Big I innovation investments, so this is the time to do your homework and pick the one or two areas that both leverage your crown jewels and deliver a major aspect of the customer-in outcome from Rule 1.

Rule 3 (Use your data as currency) is like a force multiplier—think about how air power multiplies the impact of ground troops and ships in a military battle. Putting your data to work will amplify the returns of your entire innovation portfolio. It will be a key element in driving the internal productivity improvements that help protect your margins. Data will also serve as a key aspect of the differentiation in your new whole offers as you deliver customer outcomes for each of the four buyer personas, attract new innovation partners, and steal market share from other aspiring Goliaths and Davids alike.

Rule 4 (Accelerate through innovation networks) addresses the time aspect of that “how” question. That is, how long it will take to get to the destination you’ve picked in Rule 1. Adopting John Chamber’s “power of and” is the key here. It is not about whether external is “better” than internal innovation. It is simply about the pragmatic view that there are many paths to reaching your destination and that you and your team are going to take the most expeditious route. If that means leveraging an innovation from your internal research organization, data science team, or machine learning labs, then so be it. However, if an academic team within a leading university or a bunch of Red Bull-drinking coders in a startup or even the innovators within one of your smaller competitors can get you to your destination faster, then you need to be open to those strategic partnerships, cross-licensing agreements, minority investments, and potential acquisitions. Your answers on this rule will communicate more than you realize around how serious your company is in pursuing Goliath’s Revenge.

Finally, Rule 5 (Value talent over technology) is a critical aspect of the answer to the “how” question for two reasons. First, the established companies that are already turning the tables on their industry’s digital disruptors have doubled or tripled down on attracting, developing, and retaining talented people with digital-ready skill sets. As you saw in Chapter 8, this goes far beyond the 3Ds of design, development, and data science skills. It includes entirely new roles, such as product incubation manager, behavioral scientist, journey mapper, business modeler, solution finder, and emerging-technology specialist.

Second, valuing talent over technology will hold the fabric of your company together through this period of intense change. Helping people that already work for you build skills and competencies in these new areas sends a powerful message about “how” in the context of your company culture. It cements the guiding principle that long-time employees are still going to be valued if they demonstrate the openness and commitment required to play these new roles instead of clinging to the jobs of yesterday. This softer side of “how” is critical to avoiding an environment of haves and have-nots on your team. The external competitors are tough enough—you cannot allow internal competition to slow you down.

Why Are We Even Doing This?

If the “what” and “how” answers from your disruptor’s playbook appeal to the heads of your teammates, then the “why” answers appeal to their hearts. The path to Goliath’s Revenge is a three-to-five-year journey for most established companies. Sustaining the organizational alignment and change energy required for that period of time means going far beyond strategy and logic. You and your peers need to be inspired by a higher calling than your company’s future market share, revenue growth, and profit margins.

Rule 6 (Reframe your purpose) is your answer to the “why” question. It raises your collective sights in terms of your company’s mission and vision. This reframing of your purpose also establishes the clear rationale for change and validates why it is okay to borrow from the present to pay for the future. That smart cannibalization aspect of Rule 6 is critical. No company that is on the path to Goliath’s Revenge has made progress without putting some sacred cows at risk.

Conversely, there are many examples of industry leaders whose fear of cannibalizing their current profit engines resulted in their demise. Blockbuster clung to its late fees for too long and Netflix put it out of business. Nokia and Motorola stayed wedded to the handset subsidies of national telecoms too long and missed the disruptive business model innovation of Apple and Google selling apps to end customers on smartphones.

This reframing of purpose gives upper-, middle-, and first-line managers the permission they need to be innovative. That means that if companies such as Schwab, Vanguard, Fidelity, Morgan Stanley, and TD Ameritrade need to put their high-margin wrap fees at risk to secure a position in the robo-advisor future of wealth management, their reframed purpose is the “why.” In pursuing Goliath’s Revenge, they have committed their entire organizations to playing the long game of helping their customers secure their financial futures, even if that causes some near-term pain on their quarterly earnings calls.

Your Foundation

Your highest priority in your disruptor’s playbook must be the set of initiatives and investments required to get your company to at least the third column—that is, 40–60% readiness, or moderate capability—within each of the six rules. If you were a poker player, this is the ante that gets you in the game. If you do not ante, you do not play.

Achieving moderate capability for all six rules provides the platform for defending your core business in the near term, as well as for growing into adjacent markets over time. For the sample company shown in Figure 10.11, improving the leverage of data needs to be the highest priority. That sample company needs to get to the moderate capability performance level for Rule 3 as quickly as possible.

As we discussed in Chapter 6, there are many potential paths to improving how your company uses its data as currency. If you worked for the sample company shown here, your homework would be to go back through Chapter 6, review the success stories it contains, and structure a set of initiatives that can close your performance gap to at least the moderate capability level. That will generally require separate initiatives for each of the rows on the Rule 3 self-assessment grid (Figure 6.4) to achieve the overall performance improvement that you need. Obviously, the lower your starting point, the more rows of that rule-specific capability grid you’ll need to act on.

Your Spike

Your second goal is to pick one of the six rules that will become your spike—the rule that will differentiate your company from your industry’s digital-disruptor Davids and fellow aspiring Goliaths alike. The rule you choose here will be the one you prioritize investments around to get to the world-class capability level. It will be the part of your Parthenon that is different than the ones being built by your competitors.

In the example in Figure 10.11, both Rule 2 and Rule 5 represent opportunities for the sample company to achieve this competitive separation. For both Pursue Big I and Little I innovation and Value talent over technology, this sample company is already at the advanced- capability level that represents a 60–80% achievement standard against the readiness grids from Chapters 5 and 8, respectively.

As with building your foundation, the homework here is to go back to the chapters that discuss the rule candidates for your spike. Review the case examples of companies that are having success against that rule and examine your company’s current readiness row by row on your copy of the rule-specific capability grid.

Your Plan

So, you have picked the one or two rules for which you are trying to get to moderate capability and the one new rule for which you are seeking to achieve a world-class capability level. It is time to build an action plan for each of the rules that you’ve prioritized.

Before you put pen to paper, think through the following four questions:

1. Can we apply the lessons from the case examples to our company by launching new initiatives that augment our rule-specific capabilities?
2. Do we have initiatives underway within a given row of the rule-specific capability grid that we could accelerate by adding talent or investment?
3. Which of our current initiatives are at odds with the rule-specific capabilities and should be stopped or refocused?
4. What portion of the human and financial capital needed for our new initiatives can we self-fund by shifting people and money between initiatives?

The answers to these questions will result in a draft list of the start, stop, and refocus decisions for each of the rules you have prioritized above. Figure 10.12 shows an example built around Rule 5 (Value talent over technology), in which our sample company aspires to go from moderate/advanced capability to world-class capability over time.

You should complete a copy of Figure 10.12 for each of the six rules. You will fill in the three right-hand columns for the rules that you have prioritized above and just the “stop” column (second from the right) for the other rule-specific action plans. That set of six action plans will represent your team’s best thinking for how to shift from aspiring for Goliath’s Revenge to actually building your Parthenon. Those plans establish which of the six rules you are acting on now and which dimensions of a given rule you are prioritizing to get in the game (moderate capability), get ahead of the game (advanced capability), and achieve competitive separation (world-class capability).

As you can see from the example, these action plans require you to identify specific initiatives to start, stop, and refocus for each of the capability rows that you plan to improve on. For the other rows in the grid, for which you are seeking just to maintain your current capability level, you will only be identifying initiatives in the “stop” column, in order to free up human and financial resources that can self-fund the new initiatives.

Now, it is far easier for established companies to start new initiatives than stop or refocus existing ones. Every established company has inertia and momentum. The strategic priorities of the past, and the initiatives that are their manifestation, take on lives of their own. Therefore, you and your team will say as much about your commitment to Goliath’s Revenge through the initiatives you cancel, merge, or change as through the new initiatives that you announce and launch. So, don’t be shy about those two right-hand columns of Figure 10.12.

The Feedback Loops

Depending on which of the rules you have prioritized, you may find that there are strong self-reinforcing dynamics at play. The sample company in Figure 10.12 is a good example, given its choice of pursuing world-class capability levels for Rules 2 and 5. Balancing continuous improvement Little I innovation programs with game-changing, disruptive Big I innovation efforts (Rule 2) almost always requires a significant shift in talent sourcing, development, compensation, and organization (Rule 5). The corollary is also true. Established companies willing to make bold, multiyear investments in Big I innovation put themselves into consideration for a class of talent that might not otherwise consider working for them.

For this sample company, these self-reinforcing dynamics might justify the significant investments needed to stretch all the way to world-class capability for Rules 2 and 5 in parallel. Such a goal would obviously require multiple new initiatives combined with deeper cuts in less strategic areas. Only once you’ve completed the rule-specific action plan templates can you step back and make sure that you have not bitten off more than you can chew.

Your Integrated Disruptor’s Playbook

To summarize, the sample company has decided to advance one level (from limited to moderate capability) for Rule 3 while also improving by one level (from advanced to world-class capability) for both Rules 2 and 5. For each of these prioritized rules, the rule-specific action plans (such as the one shown in Figure 10.12) will summarize the initiative prioritization and resource allocation decisions that have been made in the three right-hand columns.

The sample company has decided to delay incremental capability investments for Rules 1, 4, and 6 until it achieves the desired progress for the other rules. It would complete rule-specific action plans for those deprioritized rules in order to identify initiatives to stop (second column from the right in Figure 10.12). As discussed above, explicitly deciding what to stop investing in going forward is just as important as chartering new initiatives.

This summary of your disruptor’s playbook needs to be openly discussed, validated, and refined with your peers. People execute what they help shape, so be inclusive in how you build your company’s plan. Taken together, the six rules can seem overwhelming. The old joke, “How do you eat an elephant? One bite at a time,” is certainly applicable here. Far better to pick two to three rules and make meaningful progress within a quarter or two than to try and work across all six of them and have your organization be unable to sustain the energy required for the long term.

Monthly Initiative Checkpoints

Working from the bottom up, you and your team should be reviewing progress on each of the initiatives in each of your rule-specific action plans on a monthly basis. To simplify these reviews, put in place and enforce a standardized set of two to three slides that every initiative will use. This will allow the cross-functional team to rapidly absorb the summary of each initiative’s progress without getting bogged down in unnecessary detail.

The first two slides should be the main focus. Slide one should list the decisions taken at the last monthly meeting on that particular initiative, the follow-up actions that have been completed on each decision, and any open issues that still require cross-functional discussion. In this cycle, it is critical for initiative leaders to have clear accountability to act on decisions from previous monthly checkpoints. It means that none of your peers will want to miss these meetings for fear that a decision will be made and executed without them.

Slide two should list the critical workstreams within the initiative, provide a green/yellow/red assessment of whether a given workstream is on track, at risk, or off track, and identify the recommended actions needed for those classified as off track or at risk. Additional backup slides can provide more detail on the impediments that are constraining those off-track and at-risk workstreams, the actions already taken on each “get well” plan, and any proposed management decisions needed to execute more quickly.

Ideally, you would spend no more than 15 minutes per initiative. In a large company, this monthly disruptor’s playbook initiative review may require an entire day. In a smaller organization, it may take just an hour. Either way, the meeting should commit extra time on workstreams that are off track or at risk and clearly define the actions that can be taken to accelerate your progress.

Be especially cautious of initiative leaders coming to the monthly checkpoint to ask for incremental resourcing just to de-risk their execution against the plan. No program manager wants to come to a future meeting with the bad news of red and yellow assessments on critical workstreams. However, you want to put in place a culture of scrappiness that is capable of working efficiently and effectively against aggressive time frames in the face of limited resourcing.

Quarterly Capability Self-Assessments

The goal of all those initiatives is to advance your company’s capabilities for your prioritized rules. On a quarterly schedule, you should step back from the initiative checkpoints to reassess your company’s capabilities for each row of each rule-specific capability grid.

In total, those rule-specific grids represent 36 capabilities—six rows on each of six grids. We mentioned that the journey to Goliath’s Revenge can be expected to take from three to five years for a typical established company—perhaps slightly less if your company is small and slightly more if your company is very large. For now, let’s assume that your disruptor’s playbook uses a four-year plan.

Because most established companies are starting from a point at which more than half of their capabilities are at the minimal or limited level of the grid, you can expect that you’ll need to move at least 15 specific rows or capabilities up to the moderate level (see the “Your Foundation” section above). Additionally, you have chosen at least one of the rules to become your spike. For that rule, you are going to need at least four to five of the rows or capabilities to improve by multiple levels. So, assume that your spike represents 10 additional single-level capability improvements.

Overall, that means that you are going to require 25 single-level capability improvements in the execution of your disruptor’s playbook over the 16 quarters of a four-year plan. Therefore, plan to advance two row-based capabilities by a single level every quarter. If that does not seem like much to ask, keep in mind that a single-level improvement in some of those capabilities may very well take three to four quarters to achieve.

These quarterly capability self-assessments will be full-day events. The prework, including an updated assessment of your company’s current capabilities by row, should be distributed in advance. Use color coding to show where your capabilities were last quarter versus where they are this quarter. During the meeting itself, have the assigned leader for each rule talk through the rationale for the updated capability assessment and the contribution that each initiative made in achieving that progress.

Finally, discuss where progress on improving your capabilities for that rule is lagging behind schedule and what the root causes are for the misses involved. Update the rule-specific action plan to reflect the cross-functional team’s shared view on start, stop, and refocus decisions at the initiative level and associated resourcing decisions for each initiative. Again, be sure to clearly capture what has been decided, so that the status of executing those decisions can kick off the next quarter’s capability self-assessment meeting.

Annual Strategy Review

You need to strike the right balance between keeping your Goliath’s Revenge strategy stable long enough to make real progress in executing it and not missing major market shifts that require the strategy itself to change. For most established companies, holding a strategy offsite annually is the optimal timing to reexamine at the fundamental basis of your strategy and the disruptor’s playbook that is helping you execute it.

This annual strategy review is generally a multiday offsite with at least the top two levels of your company’s leadership team. Cisco calls this process LRP—long-range planning. GE calls it GPB—growth playbook. Nearly every company already has some process in place for annual strategy reviews and next-fiscal-year budgeting. The goal here is to add a Goliath’s Revenge focus to whatever your company calls that annual planning process.

The Goliath’s Revenge agenda items should focus on three areas. First, remember that your strategy to turn the tables on digital disruptors is rooted in the step-change customer outcomes you prioritized back in Chapter 4. Once a year is the right interval to reach out to your customers and take stock of the impact you are having on their businesses (if you are B2B) or their lives (if you are B2C). The more you can quantify the value your customers are capturing from your step-change outcomes, the better the insight will be from this value-audit process. Are you delivering the 10X value that you laid out in your BHAG? If you’re not 10X value, then how many X are you? Is your BHAG still right or did you aim either too high or too low? Now is the time to be honest with what you’ve learned over the past year and make the adjustments needed for the coming one.

Second, remember that you specified 10 to 12 whole offers across the four steps of your stairway to value (Figure 4.5). Take your market feedback down a level. Which of the whole offers, by step, are being rapidly adopted by customers for each of the four buyer personas? Which whole offers appear to be stalled, or worse, rejected by the customers you are targeting? How is the balance of customer adoption between steps 1 and 2, where you are primarily defending your current core business, versus steps 3 and 4, where you are growing beyond it? Use the annual strategy review to adjust your whole offer portfolio by step to reflect what the market is telling you.

Finally, revenue growth is not enough if you cannot also improve your margins and profitability over time. When we talked about the difference between an “offer” and a “whole offer,” we gave you some examples of how you must orchestrate third-party capabilities to fill in the gaps in your own capabilities. (Think drivers and their cars from Uber’s inexpensive, spontaneous trips whole offer.) Annually you want to be explicitly looking for opportunities to design out those third-party capabilities that helped you get to market quickly, but that are also a drain on your gross margins as your innovative new solutions scale up. Uber’s heavy investment in self-driving cars is a great example of this, as the company seeks to rid itself of the expense and liability associated with human independent contractors and keep more of the money customers pay for rides within Uber itself. Every year, for every whole offer, you should be thinking the same way. What investments can you make that will help you capture a greater share of the profit pool in your industry?

That’s it. You don’t need a fourth set of meetings in your disruptor’s playbook. A management cadence of 17 meetings a year spread across those three types—annual strategy review, quarterly capability self-assessments, and monthly initiative checkpoints—will put you well on your way to achieving Goliath’s Revenge.