David Rogers - The Digital Transformation Roadmap Part 2 - The Innovation Show

Episode Transcript
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Aidan McCullen (00:00):
Welcome back to part two of , the digital transformation roadmap
and the author of that book, David Rogers.
Welcome back, sir.

David Rogers (00:07):
thanks so much, Aiden.
It's great to be here back with you.
Great to be talkingwith you about the book.
Very happy

Me and David were just talking off air about how I think.
Overwhelmed people feel when they realizehow much work there is to be done.
They don't realize that this isa total overhaul of the way we
have been taught to do business.
And that is the huge challenge, towards the end of the book, you

(00:34):
talk about technical debt, but a hugepart of this is psychological debt.

or, as I've heard it called sometimes organizational debt,
it's like you have these layers oforganizational processes that have
built up over time and can become veryencrusted, like layers of the earth's
core, just the same way that technology,when you talk about serious technical
debt, you've got these layers of systems.
Yeah.
Worked with, , banks, they've got over100 different applications that are

(01:00):
all like trying to talk to each other.
And some of them were built30 years ago on cobalt.
And, they're just layeredup and unearthing to really
solve the underlying problems.
You've got to do some archaeology It'sthe same thing with the organizations,
these like processes and budgeting and,and, and resourcing and, and metrics and
KPIs and how meetings are run and all ofthese different things at different levels

(01:25):
of the company that actually all impactyour ability to change and transform.
And so just coming in and saying, well,we're going to change a piece here or
we're going to have a team or a squadthat does something different that
may be your starting point that maybeyou're like chipping into the rock and
your entry into this giant edifice.
But it's got to keep goingdeeper and deeper and deeper.

(01:46):
If you're really goingto drive the change.

Even to your point about.
It's built on Cobalt or some old, someold language that is maybe not agile.
Maybe it's not even built for a cloudplatform, et cetera, because that
speaks to actually the skillset aswell, because this has happened to me
where I've had developers in the pastusing old languages and they were very
resistant to use new languages, mainlybecause they didn't understand them.

(02:10):
And this talks to the capabilities link.
That's so important as well, thatmaybe we'll just mention here, because
we probably won't get to it today.
. David Rogers: Yeah.
That's the fifth step.
And as I, what I call the roadmap inthe book, , the framework is about
what I broadly call tech capabilities.
And that's really three,very interconnected things.
It's about, do you have theright kind of digital technology?

(02:35):
This is everything.
Information architecture in the cloudmodular moving away from monolithic,
one gigantic application to decomposingit into lots of small microservices
using APIs to connect them and so forth.
And that's a technical shift.
But actually what I've seen andlearned, it's much more profoundly

(02:56):
an organizational shift because whenyou actually change The information
architecture into these small components.
, organization follows technology.
In this case, you have to set upindividual teams to take ownership
of each of these microservices.
And that naturally brings about this kindof squad based or small multifunctional

(03:16):
team, or this kind of problem definedorganizational structure, which you
see all the big Companies that aredigital native that operate at scale
that Google's the Amazons and so forth.
They all are built around this.
So there's the technology, the talent,which is not just what are the technical
skills we need, but also bringing inpeople with different backgrounds from

(03:37):
inside or outside of our industry withentrepreneurial experience and not just
experience working inside big companies.
So what's the kind of range and mix oftalent we need, the talent gaps we have
currently, and how do we manage that?
It's not just hiring people.
It's not even just training people.
It's also, I find one of the biggeststumbling blocks in that talent life cycle

(04:00):
is retaining the key talent that you aregoing to need for your digital future.
Cause you can hire the smartest people.
If you've got a paycheck the most talentedProduct managers from Roblox or Amazon
or meta or wherever, if they are stuckin a morass of bureaucracy inside your
big company, they are going to leave.

(04:22):
and then in addition to thetalent, it's the culture.
Really being clear.
I know this is one of the things you talkabout in your book , but really thinking
about defining what is the culture weneed as an organization or how does our
culture need to shift, and evolve ifit's really going to match our strategy
and where we're headed as a companydefining that clearly communicating it.

(04:45):
Not just clearly, but in ways that reallystick with people using stories and
symbols and symbolic action and so forth.
But then lastly.
Enabling that culture to actually happenby really looking carefully at all the
processes in your company and figuringout which ones are blocking the cultural
behaviors you want , how by changingthose processes, can you make it easier

(05:07):
for people to behave in the way thatyou want in the culture that you need?
We're gonna take a step back and we're gonna start with vision.
Then we were going to talk abouthow to select your priorities
and then how to validate as well.
All key steps in the digitaltransformation roadmap, but one that
often gets overlooked and one whereso much of this all comes tumbling

(05:29):
down is governance or step four.
Managing growth at scale and i'm gonnatell you what a beautiful opening
to this chapter as well you say, "asyou start to apply the process of
experimentation to digital ventures inyour own business you are now ready to
begin the next step of the dx road map.
Repeating this process at scale acrossyour organization, major challenges

(05:53):
must be addressed, which ventures shouldbe funded, who will decide when to
shut some down, what rules should bewaived for new ventures at the start,
how will the successes be handed offto the core business, what will you do
with digital ventures that don't fityour current organizational structure.

(06:13):
There are a plethora.
Of these questions that we don'tconsider because we just go straight into
building or falling in love with an idea.
After validation which is anabsolutely core step you have to
have a governance david's gonnatake us through that over to you

This is also a gap I see where folks will come in who have been
in a product role or in an innovationrole in a startup or , maybe you are
that person who is working at Meta orAmazon or Google, and now you've been
hired into a a, a bank or a agribusinessor a professional services firm, or

(06:51):
an industrial manufacturer and it'salmost like you take for granted.
You're like, well, I know whatI've got to do on my team.
We've got to get close to the customer.
We've got to validate.
We've got to test.
We're going to define the problem.
We got to keep building and speedshorten that cycle of sprints.
But you take for granted the sort of.
organizational infrastructure thatwas around you in that other business.

(07:14):
And all of a sudden, you're like, wait,why is everything so hard now that
I'm working in a a hundred year oldconsumer package goods company, right?
It's because of the governance, right?
The challenge for leadershere is it's not enough.
It might be your starting point, yourkind of organizational or sort of cultural
proof proof case to have a team build agreat digital innovation that customers

(07:39):
love and captures value for the businessand then people start to get excited.
But if you're going to repeat this,you're going to scale this across an
established business with differentpriorities, competing priorities.
You have to look at these rules of howdo we manage how do we manage different
projects and priorities and goals andteams and experimentation at scale.

(08:01):
So.
Part of this is understanding.
This is what we would call aportfolio as we'll talk about.
And I know all the listeners to your showalready know when you start an innovation
journey, you don't know what's gonna work.
You make, you place bets, right?
So you're thinking about a variety afunnel, if you will, you're starting with

(08:21):
pursuing a number of ventures, knowingthat most of them will not work out.
So how do we do this?
Some of the key elements, one ofthe key elements of I'll start on
governance is this relationshipbetween what I call teams and boards.
And it's obvious, say, in the startupworld, but it's just not there

(08:44):
in in most established companies.
So you've got two kinds of groups ofpeople that have to work together and they
have to have very clear decision rights.
So the first is the teams, thoseare the ones who are actually
doing the innovation, doing theexperimenting and the rapid validation.
And then you've got the boards, and theseare the folks who sponsor them, who give

(09:04):
them an initial green light, say, okay,we're giving you a little bit of runway.
We'll time a little money,go for it, come back.
And we're going to make a decision onwhether or not we continue to fund you.
Right.
They're the ones who, who, whosponsor, who green light, and then
who iteratively fund that team.
But they also should bedoing a bit more, right?

(09:25):
Like a great venture capital investor,they should also be advising.
Right.
They should be some of your wisecounsel, giving you perspectives
on the market, making introductionsbecause you're in a big company.
One of the most important parts ofthis is actually acting as a liaison
or an advocate within the organization.
So all of a sudden you want to dosomething next and ah, you need something

(09:47):
from legal or from supply chain, oryou need an introduction to an outside
partner who works with the marketing team.
This is again, a critical role of this.
Support this group called theboard, and different names.
It might be an innovation board,a technology innovation board, a,

(10:09):
a growth board is a term you'llhear what you want to avoid.
And it's quite common stilljust with a whole group of
different companies last week.
And I would say the majority,when I asked them who sponsors
innovation, they gave same, someversion of the single sponsor model.
Well, the CEO signs off like who, whoapproves when you do something different?

(10:32):
That's not just regular operationscontinue to improve the company,
but like a big, interestinginnovation that, oh, it's a CEO.
You've either got oneperson who has the power.
Oh, it's the CTO.
Or you have a few different seniorexecutives who each individually, if
they want to step up and put theirname on something, they can sponsor it.
This is a terrible model, right?

(10:55):
It's, it's sub optimalfor the team because.
It doesn't matter who that one person is.
They are not going to give you thesupport that a group you know, a diverse,
interesting, well chosen group thatthat's on this board would do because
they're always going to have moreperspectives, more insights and so forth.
It is much worse for the organizationbecause when you have a single

(11:16):
sponsor, they will go to bat foryou, they will marshal the resources
for you, and then they will nevergive They will never back down.
They will never admit this ideais not working because it's them.
They're the only one who approved it.
So whether it's because the classicpet project your sponsor has fallen

(11:37):
in love with a solution you'reworking at, you're iterating, you're
talking to the customer every day.
You probably at some pointrealize this is not going to work.
Like we should.
Pivot or shut this down, but the sponsorwill be like, no, no, you got to try this.
You got to try this.
They're so passionately they're,they're emotionally attached to it.
Or they're just it's reputational.
They don't want to admit thatthis thing that your idea and they

(12:01):
stupidly signed off on it, but nowthey can't let anyone know that it
was a foolish of them to sign off.
So the single sponsor model just,As a repeatable model, obviously
anything you can, it could work in agiven instance, but as a repeatable
scalable model, it does not work.
So you, you need to set up a reallyclear decision rights on like,

(12:24):
what does the team do and decide onand what does the board decide on?
And that, that I would sayis the first element of, of
governance in large organizations.

brilliant man brilliant have to say.
Not only just the idea of the sponsorfalling in love with the idea, but
sometimes, as you say deep down inyour gut, this isn't working and we
had the great pleasure on the show.
We had Joe Bower on the showtalking about resource allocation.
He introduced that whole conceptof resource allocation and what he,

(12:57):
what the core message was, was amanager is almost like this immiscible
layer in an organization thatallows some ideas bubble to the top.
They will decide on allocating resourcesnot based on the idea but based on
the person behind the idea and whetherthey have a track record of success
so you can see why so many ideas die.

Yeah.
Yeah.
And it's interesting.
So that brings me to thepoint of green lighting.
So resource allocation, Ireally think of two, two stages.
Cause there's a nuance, that you want toget right at both green lighting is just
the very first trench of, of resourcing.
So it's going from zero to one.
So it's a different beast than allthat comes next, which is iterative

(13:42):
funding, all these repeated meetings.
Do we keep going or not keep going ornot keep going or not green lighting.
I actually.
advise executives someone who's in thesponsor role, who's on a board ideally,
to not try to pick the best idea.
Because that puts you in theposition of trying to think about

(14:03):
what's going to succeed or not.
And that is not your job.
And it's not your jobbecause you have no idea.
You do not know.
That's like the whole point ofexperimentation is you do not know what's
going to work until you get out there.
So it's not a bad idea toactually consider team, right?
Particularly if you've got a processwhere it's, I don't know, something like a

(14:25):
hackathon or an open pitch shark tank foranyone in the company can bring in ideas.
It's a lot of benefits ofhaving that kind of open net.
You got to consider, does thisperson really Do they have the
right mindset more than anything?
It's like, do they go in?
Are they like passionate about theproblem, but they haven't fallen
in love with the solution yet?
Do they understand like whatit's going to take to experiment?

(14:47):
So, and, and test and learn.
So, so considering the person isimportant considering strategic fit,
we'll talk about that in terms ofpriorities is really important because
this is an established business.
So it's not, this wouldbe a great idea for.
Anyone to do, right?
That's the question for VC.
It's actually, is this a great ideathat we in particular should do?

(15:08):
It's a very different questionfor an established company.
So you've got to think about that ingreenlighting, but the overall rule in
greenlighting is what I call minimaldeliberation and minimal funding, right?
So you want to spend as little time.
You want the process to be as lightweightas possible to decide who gets greenlit.

(15:28):
And then you want to give those whoget started as little as possible.
In terms of time andmoney in the first round.
So it's not this big high stakes.
Well, we've got to like, look at thedata and we've got to know, at least
does it have a chance, what's theodds of success of this versus that
you don't know, but don't sweat it.
You're giving them fiveor 10, 000 in 90 days.

(15:48):
It's like, it's fine.
Just like say interestingstrategic problem.
I wouldn't have thought of thatsolution, but you have a reason why
you think it might be worth exploring.
Go for it, right?
Let's go for it.
So green lighting.
And then we go into the other partof of, of resource allocation,
which is this iterative funding.

(16:09):
And so you've got the problem here is thatall of a sudden companies will set up a
green lighting process, and then they justfall back into traditional BAU business
as usual budgeting which is like theselong cycles, typically annual budgeting.
And, It's complete mismatchfor experimentation.
So you have to create a parallel fundingmodel where you've got dedicated pools

(16:33):
of resources that you're pulling from.
And they're being given out onthese short commonly, depending
on what you're building.
This is one of the things I know fromdifferent industries and companies if
you're building a lightweight app, youcould give them two months, not even
90 days of resourcing between rounds.
If you're building.
Something for an industrial sector,you may say, or where there's

(16:56):
a whole lot of stakeholders.
Even before you build the very firstillustrative MVP, there's like a lot
of people you're going to talk to.
You might give them a littlelonger, but short rounds come back.
Each meeting with the board, you define.
Okay, if we approve, we're giving youanother round of resourcing and time.
What do we need to know next?
Right?
So we agree with the team.

(17:17):
What do we need to validate next?
What do we need to learn next?
Come back with this dataat our next meeting.
And then based on that, what Theboard, and here's where those
decision rights come into play.
Until the next meeting, the team hascomplete autonomy and control of its work.
Guardrails, don't break the law, right?
But, give some very specificguardrails and then it is up to them.

(17:41):
Who's the customer?
What's the feature?
What do you build next?
Every iteration, it's entirely up to them.
They know the definition of success.
They know what they've got to bringback at your next meeting, right?
They know what they'reheld accountable for.
And then.
It is the board's decision onwhether to refund, whether to
fund it again in the next round.

David, can I just make sure our audience are clear
that that's the innovation board andnot the board of the organization,

Yes.
When you think about , whothe innovation board is.
So unless your company is maybe50 people, a hundred people, okay.
Then your innovation boardmight be the same as your
management board or something.
But if you're talking about largescale organization, the board
cannot be the board of directors.
It cannot be the, it should not be thesenior leadership of the whole company

(18:26):
because The one other thing the boardsmembers have to have what do they need?
They need some experience.
They need differentperspectives and insight.
They can advise the teams.
They need some understanding of iterativefunding and experimentation and, and, and
how to how does this kind of process likea venture capital funding model work.

(18:50):
But they also need to have the bandwidth.
Right.
And this is the problem when you get toosenior, you get people, it's like they
have, well, it's two things you need.
You want clout.
You do need to have at leastone person on the board.
Who's got some clout in theorganization who can go to bat for you.
Right.
But if you get a whole bunch of thepeople from the top tier one, you got
your overflowing with clout, that'sgreat, but they have no bandwidth to

(19:12):
actually pay attention to and like,listen to you and give you advice.
And that's it.
That's the problem with,with going to senior.
And I do see companies try that.

i was reading about shutdowns in your book smart shutdowns
what came to mind and this is the weirdmind that i have i think in metaphor
was that old movie "Old Yeller" i haveto put down the dog and it's like,
Come on, Yeller, because a family guydid a skit of this and Yeller's like,
no, no, no, no, I did nothing wrong.
I did nothing wrong, like, come on,Yeller, time, you've, you've snapped

(19:47):
at that kid, it's time to put you down.

Yeah,

this is a little bit what happens with the smart shirt tent,
particularly if you've made the error ofhaving that single sponsor earlier on,

yeah, yeah.
So shutdowns are one of the hardestparts of innovation governance in, in
companies, in established companies.
And there's a number of reasons.
Part of it is right.
If you do have a single sponsor,you've got them overly attached to it.
Part of it is this misconceptionthat if an idea, Fails if it doesn't

(20:23):
pan out when you test it thatthat's a terrible thing, right?
Just automatically as opposed to,well, how much did it actually cost us?
Like how much resources did we lose?
How much time, money, people, did weget any value or learning out of it?
It's just like, oh, it was shut down.
That must be a disaster.
It's a sort of psychological assumption.
Whereas if you are doing smart shutdowns,

(20:47):
You're going to have most of the shutdownshappen with very little cost and with
a significant amount of learning.
And then the last part is this sortof if you are the one being shut
down, right, you're on the team, it'sseen, it's, it's perceived and may
very well be in fact a strike againstyou in terms of your career, right?
And your next, what's availableto you next inside the company.

(21:09):
So those are the thingswe have to address.
You've got to make shutdowns, firstof all, be a norm an expected norm
that You have to understand that ifyou're shutting things down quickly
and cheaply, which is the first ruleof what I call a smart failure, right?
It's not just enough to fail fast.
If you're in a big company,you have to fail smart.

(21:30):
And the first thing thereis, that means, did we fail?
It's okay.
If the idea didn't work as long, did wefail as cheaply and as early as possible?
And you keep pushing yourself on that.
So you don't want to get to thatpoint and say, gosh, we should have
been able to see this six months ago.
And a million ago the data was all there.
We just finally admitted it today.

(21:50):
If you're doing that thecosts are not high at all.
So smart shutdowns, you make ita process, you make it a norm.
You go in and you start withprojections of survival rates.
You say, here's our innovationprocess for this set of.
Projects or efforts orinitiatives in the company.
And, and here are the milestones.
And we expect 50 percentwill stop at milestone one.

(22:13):
And then another of those whomake it through another 50 percent
will stop at milestone two.
And after that, we've got somepretty good, strong ideas.
Remaining milestones will probablyshut down 10 or 20 percent more.
So you, you, you set up this expectations.
People are comfortable with it.
Then you go out of your way to AsI say, celebrate smart failure,
you spotlight and recognize.

(22:34):
And I have stories in the book ofcompanies who do this extremely well.
That a well managed product project thatyou shut down is actually a great thing
and something we should all learn from.
So you, you make it not just somethingpeople have to hide on their resume, but
something you actually literally in publicforums, get up and praise when you're

(22:56):
talking about innovation and growth.
Yeah.
And not even at some separatefailure party, you can do that.
But I prefer where it's at thesame place where you're talking
about innovation successes.
You're also talking about your successfulshutdowns and what was done right
and how we need to learn from that.
So, and then you have to follow through.
You have to really be that the peoplewho are on those projects don't get

(23:17):
then cast into the wilderness orthey're not allowed at least to do
an innovation project anytime soon.
You actually put them on the next one.
Right.
This is what good companiesdo that Google, Susan
Wojcicki went from a disaster.
It was as a product disaster.
It wasn't that expensive, butGoogle answers was her project.
It was going to be like Quora.

(23:39):
Exciting new product, completelyflopped in the market.
They, they pushed, they pushed,just couldn't get it to work.
Okay.
She did not get like sentback to do boring stuff.
She was put on the next interestingnew product they were working on.
Or one of the interestingones was Google AdSense.
AdSense went on to become one of thebiggest sources of profit for Google,

(23:59):
right in their core business model.
So.
They might not have found thatwithout they weren't willing to
take the talent that had just beenon a project that that did not work
in the market and reassign them.
So you gotta have that mechanism where thepeople who are working on if the project.
Doesn't pan out.

(24:19):
The venture proves out to bejust proves the hypotheses.
There's not a market for this.
As long as that was managedproperly, that's not a
failure at all for the person.
It's like as Vanessa Colella, whenshe was at Citi and was talking to
me about innovation, she said it'sdistinguishing people from projects.
The project is being shutdown, not the people.

(24:40):
So you reassign the people tothe next interesting project.
Doing this right, makeshutdowns much easier.
And it overcomes all these biasesthat we have inside of organizations.
And it's so critical.

For those people have been following us from
day one from the first session.
And for those people who have signedup for David's sub stack, you'll know
that he's very generous with his tools.
He's always.
Releasing blogs on a regularbasis and if you're a pro member,
you'll get these tools and thetools are available in the book.
One of the tools that is absolutelycore for governance is the.

(25:15):
Innovation stack and i'm gonna sharethat on the screen now for you and
david's gonna kindly take us throughit this is something this whole
governance element that is so overlooked.
That we abandoned all my other notesfor today's session, because this is so
important that I really want people, it'skind of like, I often think about David

(25:36):
as I call it the Disneyland queue effect.
You think you're at the top of thequeue and then you realize, Oh no,
there's a whole other side over there.
And then it bends over itself and you'renot, you're miles from the end or else
you get to the end and actually it alltumbles down and you go, what did I
just spend the last year or two doing?
So many of us, so getting thispart right for the organization.

(26:00):
And this is why the whole organizationneeds to be involved is absolutely core.
So over to you, David, to take usthrough the corporate innovation stack.

So the innovation stack, this is as you look at governance, this
is a model, a tool I offer to bringall these different pieces together.
And if you're going to set them up insideyour organization, and the first element
of the stack is to just understand there'sreally 3 layers you need to have here.
Right.
So first, the first layer, asI would call it, is the team.

(26:29):
So the teams are the people who areactually doing the work of innovation.
Each team at any given time is focused onone, what I would call a growth venture.
That could be a product innovation.
It could be a process innovation.
It could be something externalfacing to your customers.
It could be internal.
Right.
I was just working with the head of supplychain for a major healthcare company.

(26:49):
And her whole focus was aboutdigital innovation of their supply
chain for internal stakeholders.
But you've got a teamwho's working on a venture.
The second layer is the board.
So we talked about this.
This is the innovation board, the growthboard or whatever you want to call it.
But this is a small groupthat is Overseeing a group

(27:09):
of different teams, right?
So one board has a few members andthey are looking at multiple teams,
greenlighting them, advising, counselingthem, and then going through this
iterative funding where they decideeach time they meet with one of
these teams, do, does it make senseto give you more resources and more
time to keep going forward on this,or is it time for a smart shutdown?

(27:32):
And then this all sits within.
What I call at the third layer of thestack and innovation structure and
innovation structure is basically providestwo things to the board and the teams.
One is it provides a pool of resources.
So this is the first question I hear whenI tell, especially CFOs you've got to have

(27:54):
this iterative funding model and so forth.
And then they say, Hey, Okay.
But where are they as they're makingall these agile decisions on every,
every week or a month or so, as Ihave meetings with teams outside
the annual budgeting process, whereare they getting the money from?
Well, you have to have adedicated pool of resources.
That's going to be money.
And it may be people who arefull time working in this process

(28:16):
of innovation and exploration.
And then in addition to the resources,You need to have governance rules
because different kinds of innovationopportunities are going to have to be
managed differently within differentwithin an established business.
I talk broadly, I think we touched on thisin part one about three paths to growth.

(28:39):
So the key here is first path, right?
This is The easy part.
This is innovation within the coresort of low uncertainty, well defined
problems in your core business.
You manage that accordingto your usual processes.
That's like, go for it.
Don't need to change anything.
Don't, don't, if it ain't broke,don't fix it as the saying goes.
Right.

(28:59):
But a lot of innovation cannot work withthat normal business as usual management.
So then you've got.
Two different kinds that need to bemanaged differently and will require
this kind of innovation stack pathto is any opportunity that is.
Part of your core business, right?
But the uncertainty is high.
And then path three is things that areactually outside of your core business.

(29:23):
So each of those needs actuallysomewhat different management
support, as I would call it.
In terms of path to the challenge here is.
You've got to actually, well,the broken model is to say, let's
give it to an innovation team.
They'll go build this thing forus for we're the core business
and then bring it back to us.

(29:44):
That's what in the it deliverybusiness is called build it and
throw it over the wall, right?
It's like, give us thespecs, tell us what you want.
We'll go off for six, 12, 18 months,build some digital thingy, and then say,
here it is what you asked for, right?
This always fails.
So.
Instead, you need a governance modelwhere both the funding and the people

(30:06):
actually doing the innovation have tobe a mix of some representation and
some funding from the core business.
So they both have skin in the game, right?
That's the money and their perspectiveof what is and is really not going to
work in the core business is there.
They're sitting on the team that isPart of the team, the team doesn't have
to go outside to get that perspective.
And you plan from the very beginningthat there's going to be a certain point,

(30:29):
certain milestone where you've gone farenough in iterating the solution that
you're going to hand it back to the core.
Now it's ready for them to actuallyrun with it and scale it up.
You've taken out most ofthe uncertainty, right?
Then path three innovations.
They have different challenges.
Remember, this is an opportunity, agrowth opportunity that is outside

(30:51):
of your core business, right?
You are a journalism, a business, anewspaper business, and you see an
opportunity to spin out your games,which used to be crossword puzzles.
In the print edition, now you realizethis could actually be a separate
app with a separate subscription andcreate a new revenue stream, right?
That would be the New York Times, oryou're a retailer doing pure e commerce

(31:12):
and you're rebuilding your tech,their own technology infrastructure.
And somebody proposes, Hey, this newsystem we're building works so well.
It's very scalable.
It's resilient.
Couldn't we sell this as aservice to other people, right?
Go into a B2B kind of cloudcomputing services offering.
Whoa, this is Amazon Web Services.

(31:32):
First day it was proposed byBenjamin Black and Amazon way
outside the current business.
Current business is retail, right?
So those kinds of ideas have tobe managed differently as well.
Don't need the core involved.
The whole problem is thereis nobody in the core to whom
this idea would fit or own.
They would be a natural home for it.

(31:54):
So you need to manage those differentlyand they need to have a different kind
of oversight and thought from the verybeginning about if this actually succeeds,
if this really goes to scale, wheredoes that go inside the organization?
How do we, how do we think about creatingmaybe even a new business unit for it
or maybe merging it back in eventuallyinto part of the core business?

(32:14):
So.
This is why we need that top levelof the, of the innovation stack.
Innovation structures areset up to either manage.
I suggest either themandate should be path two.
So this is tackling innovationopportunities in the core
business, maybe one particularbusiness unit of the core, right?
Cause you can have differentinnovation structures.

(32:35):
And really working hand in glove.
With the core business on every oneof these ventures, none of them get
started, no team gets greenlit withoutthe approval of someone from that part of
the business, that business unit, right?
And people from that business unitare part of maybe probably not all of,

(32:55):
but are part of the team that goes outand iteratively builds the solution.
And then you would have different,innovation structures that are set up one
or maybe more to go after ideas outsideof your your current core business.
And these can take different shapes.
Sometimes that's just through venturecapital investing or it's MNA, right?

(33:18):
You've got a strategic MNA teamthat's looking for how do we, you.
Opportunities to buy a firm that'sgoing to give you an entry point into
a new market or something like that.
It can be startup accelerators, it canbe innovation labs it can be hackathons
lots of different kind of processes.
But all of these have what theyshould have in common to be an
effective innovation structure isthey've got resourcing attached to

(33:41):
them and they have governance rules.
that are specific that are suitedto the kind of innovation that
they're trying to do in that mandate.
And then within that structure,they've got one or more innovation
boards and they've got theability to form innovation teams.
And that's how these sort of threelayers, you have to have all three
layers of the stack coming together.

(34:03):
If you're going to have thisreally work on a repeatable
basis in an established business.

After much deliberation.
I had to almost run David's processto decide what not to do today to do
priorities, which we're going to skip.
So we're going to skip vision.
Which is absolutely core.
We touched on a little bit in partone, we're going to skip priorities.
We touched on that a tiny bit, which isso, so important trying to whittle down
where you actually do decide where toplace your energy, and we're going to go

(34:33):
into validation of new ventures, becausethis is the stuff that comes before.
Scaling and it's such an important aspectthere's a case study david opens up with
here much like we talked about in partone about cnn plus and about your times.
This is the great story of walmart acompany that is doing a great job of
validating you event new ventures andtrying things iterating etc etc frugally

(34:58):
as well i might add so we're gonna.
Open with that story we've only gotten minutes left and then we're gonna
go into the four stages of validation

Great.
So, so yeah, so Walmart is a greatexample of an established business
and seeing a strategic opportunity.
So that would be in the priority section.
So one of the things they identifiedis really important to them was to
innovate and really try to capture thespace of online ordering of groceries.
Whole separate discussion why that isparticularly strategically important

(35:29):
for Walmart, but they did thethinking clear reasons to go after it.
Now they were smart in that they knewthey would not know what would work.
They did not try to go out and do a wholelot of benchmarking and business case
writing and third party data and come upwith a big detailed plan of how is Walmart

(35:49):
going to do online grocery ordering.
They said, no, we're We don'tknow we're going to have to test.
We're going to have to learn.
We're going to iterate.
We're going to try different approaches.
Right.
They tried different things.
They looked at differentdelivery models, right?
Do we find that out?
Do we have a third party an app, adelivery service, like an Instacart
or a door dash or somebody they dodelivery part, we create the ordering

(36:11):
experience and blah, blah, blah.
They looked at, do we hireour own drivers, right?
They looked at who will be aWalmart force of people driving
around, delivering your groceries.
They even.
Tested a model where they had employees.
You're checking out people whowork in a store, you're leaving
the store at the end of the day.
And you, you check out your,your timestamp with your, with

(36:33):
your phone and you enter, wheream I going to next, right?
You're in the location and you geta message says, Oh, if you're going
there, maybe your home, maybe someonefriend's house, if that's where
you're Would you take this delivery?
On your way and drop it offat this customer's home.
And, and you'll be paid.
You'll get a bonus overtimepay for, for doing that.

(36:55):
If you do, that wasanother delivery model.
So they tried different delivery models.
Didn't know which wouldscale, which would work.
They also tried a different pricing.
And this is critical.
This is the difference betweenthe Instacart between the
venture backed business.
That's it.
Expect to take seven, maybe 10years to reach profitability, right?
That's the name of thegame with VC capital.

(37:17):
You're a Walmart, you'reany established business.
You don't have that long for the ideato prove out that it's actually not
losing money, but making a profit,adding value to the company, right?
So they say it's gotta make money.
It's gotta make money.
Not immediately, not first quarterreasonably soon before we know it's

(37:40):
a scalable profitable business model.
And we don't know what'sgoing to be the right path.
So they sent out and they said,we're going to try different things.
We're going to be willing totry is it different price points
to order to pay for delivery?
If you don't want to pay, theysaid, well, we're What if we offer
a different minimum basket sizes?

(38:01):
They tested each of these thingslots of different price points.
They also tested amembership model, right?
Well, maybe people would ratherpay one upfront some for a year
long membership, then every grocerydelivery order is free, right?
The one thing they knew theycouldn't afford to do is just say,
oh, it's free, any size order.
So they tested all these things.

(38:22):
And well, one of the things theylearned was there was a segment who
liked the idea of the membership model.
It's like Amazon prime, right?
You pay the annual fee, unlimiteddelivery, and then there's some
extra benefits that they addedin as well to sweeten the deal.
So they got some customers on thatand they found that was actually
a scalable, profitable model.
But then there were other customerswho didn't want to do that at all.

(38:44):
They said, I don't want to pay.
I don't want to pay per delivery.
I don't want to pay annual fee.
I just don't want to pay at all.
So.
They said, okay, what if you meetus halfway, so to speak to the
customer we will give you a greatonline ordering experience, right?
An app that you can pull up and it'sgot your data and remembers your past
orders, makes recommendations, makesit very easy to put together your list

(39:06):
of all the things you need right now.
saves all your your information.
You just tap go.
And then our people in Walmart willgo up and down the aisles of the
grocery section and we'll pull off allthe products, put them in the bags.
We'll get everything ready for you.
There's just one thing you have to do.
You have to drive to Walmart.
Now, part of why Walmart, this wasa good strategy or why they were

(39:29):
uniquely well positioned to deliverthis particular strategy is because
one of the unique strategic advantagesof Walmart is their close proximity.
To the customer inNorth America and the U.
S.
90 percent of the population liveswithin 10 miles of a Walmart.
So this is not such an unfeasible,ridiculous ask of the customer.

(39:50):
Okay, just drive by a Walmart right now.
You don't even have toget out of the car, right?
You park in a special parking spot.
We bring the groceries out.
We put them in the back ofyour trunk and off you go.
That really hit with a differentsegment of customers who
really like that experience.
Mhm.
This was actually already in testingand deployment before COVID hit.

(40:10):
Now, of course, when COVID hit demandwith quarantine demand for online
grocery ordering skyrocketed the firstmodel, they could not scale fast enough.
You could not hire enough deliverypeople to suddenly meet all the demand.
But the second model, the what's calledclick and collect buy online, pick up
at store was something they could scale.

(40:31):
So that became reallyimportant to the business.
Customer behaviors,expectations keep changing.
They keep iterating andexperimenting new things.
One of the more recent models theytested, they found that there's a certain
customer segment who will pay a premiumnot just to have you deliver the groceries
to them and leave it on their doorstepwhere the ice cream might start to melt.

(40:55):
Or if you're me, yoursorbet starts to melt.
You'll pay extra to actually have auniformed Walmart employee bring the The
groceries into your home, put them awayin your cupboards, your freezer, your
grocer your refrigerator for you, right?
They call this Walmart in home.
So they continue to experiment, try,see what works, see what doesn't change,

(41:16):
shut things down, start new things up,continually learning from the market.

, Aidan McCullen (41:21):
so there's two final pieces.
We're going to have time to share.
The first is the four stages ofvalidation that we mentioned.
And then I mentioned all those toolsthat David has, he's worked on these
for years through the scar tissueof experience with executives and
also their scar tissue of failingwith so many transformation efforts.
So first up, we have the fourstages of validation, and then

(41:42):
we're going to share The rogersgross navigator over to you david

Great.
So the four stages really arose from acommon problem I found, which is once
teams and business leaders and corporateinnovators really embrace the idea of
experimentation and that you don't knowgoing in what's going to work and you've
got to test and try things and builditeratively and short cycles and really.

(42:09):
They embrace society of Not writinga business plan, but writing down all
your unknowns, your hypotheses, right?
Your business model hypotheses.
What happens is you've got a lotof unknowns at the start, right?
They're like, wait, well, whichfeature should I build first?
Price should I charge?
Who's my customer?
Who's my competition?
Does anyone actually care about thisproblem I think I'm solving, right?

(42:32):
Is the technology going to work?
Will regulators approve iscompliance and legal and so forth.
So many questions you don't know.
And so then the problem becomesat the start of the journey,
it's where do we start, right?
What do we do?
How do we sequence all this iteration?
You can't run a hundred differentMVP tests in your first 90 days.

(42:52):
So it's like, well, what do we do first?
And this is where I found it helpful.
To develop this model based onstudying the innovation process
of many, many different companiesin different categories of what I
call the four stages of validation.
And the point here is all of these thingshave to be learned before if you're

(43:13):
going to have a repeatable, scalable,profitable business model, but you
don't learn them all at the same time.
So the first question you have to,this is very high level, and there's
a lot of details under each of these,but the first broad question you have
to answer is, are we focused on agenuine problem for an actual customer?

(43:33):
You have to go out andget data to confirm that.
And that is the stage Icall problem validation.
That is actually the one thatis most commonly skipped over.
People start just jumping todoing wireframes or building
a working prototype or.
Gaming out the pricingand blah, blah, blah.
You got to confirm what isthe problem you're solving?
Who's the customer?
Do they see it the same way asyou next, as you start to get some

(43:56):
confirmation, some data, a lot ofconversations with customers, and
you're starting to confirm that.
And okay, what do we need to learnnext once we were getting some.
Confirmation on the problemand who the customer is.
Next is, does the customer seevalue in our proposed solution?
And I'll underline the word proposed.

(44:16):
You are not yet building aworking solution for them.
You're just sketching out.
Hey, we're thinking of building, an applike this, a dashboard like this creating
a service like this, a training programlike X and you Define what is expected and
you see what is the level of demand thatgenerates is the customer knocking on your

(44:38):
door and saying, how soon can I have this?
What's the price?
Send me the bill.
Or are they saying, Oh, that's nice.
Keep you posted translation.
I don't care.
I'm too busy to worry about this thing.
You're planning right?
This stage is what Icall solution validation.
Once you start to confirm that youstart to really show there's there's
demand from the market classic sortof indicators of product market fit.

(44:59):
They want it.
They're willing to putin even down a deposit.
Perhaps they're puttingsome skin in the game.
Now you're ready to start whatI call product validation.
That's the third stage.
And here what you need to discover is canwe deliver a solution that customers use?
So now this is an important shift inkind of MVPs or that you're building.

(45:21):
So before it was things likewireframes, just illustrative mock
ups explainer videos, things thatsort of show what the thing would be.
Now you actually have to deliver yourvery first just barely working product.
I think it's Mark Randolph Co founderof Netflix who calls it the minimum
unattractive or ugly or I forget MUP.

(45:44):
It's like the, really not a veryattractive, compelling product, what
I say is it gives that baseline valueproposition actually has to give the most.
Slimmest version of thebenefit to the customer.
And then you actually see howdo they really use it is very
different often between what peoplesay they want or think they want.

(46:04):
And then you give it to them.
How, how do they adopt it?
How do they use it?
Where do they use it?
When do they use it?
And can you deliver it?
All sorts of operationalissues start to emerge here.
And you learn all kinds of things.
You will not know until you'reactually in the market with a limited
number of customers in a very firstpilot where they're actually using
it in the real context, right?

(46:24):
Once that.
Starts to happen, and then youkeep iterating and building it out
from this really crummy early, uglywhat I still call a functional MVP.
It does actually do the job thatgets better and more full featured
and more polished and more scalable.
Then you're ready for the laststage of validation, which is to
ask, can we capture sufficientvalue from this innovation?

(46:48):
Right.
It's not just can we make money, right?
Can we generate revenue?
This is corporate innovation.
It might be a cost savings.
It might be mitigatinga risk to the company.
There's some way you're capturingvalue and it's not just enough.
You capture some, you got to say,look, given the scale of our business,
what matters to us strategically, whatother opportunities we have to invest
where our core businesses and so forth.

(47:10):
Is this worth taking it further?
the question of businessvalidation, the fourth stage.
So These are all iterative.
Each one keeps going.
So they layer on and buildon top of each other.
It's not a stage gate.
You don't finish one stage andthen start the next, but you, you
begin with problem validation asyou get some confirmation there.

(47:31):
Then you start up solutionvalidation as you get good data
there and know the path you're on.
Then you start product validation andthen you start business validation.
And what I've seen in experience is thisbrings a lot of clarity to the process
for teams and established companies.

show on the screen for those people who are watching us just the
depth of these tools as well and i'll showthe rogers growth navigator there just to
show how this builds on that and again.
the book these tools are in their sign upfor david substack and he gives you these
tools part of that but i just wanted tomention a couple examples that you share

(48:07):
you mentioned randolph there from netflix.
. David Rogers: Cheaply you can actually start the journey so maybe
we'll share just his example somailing the dvd and then diapers
dot com which is a great example.
Sure.
And I'll just say, since you've goton the screen is you can see if you

(48:28):
zoom in that the growth navigatortool, it's just a visual tool to
guide you through these four stages.
And what I find is so helpful is everybodyon the team and also those sponsors that
the board, the innovation board, you wanteveryone to have a shared set of facts.
So this tool allows you at any givenmoment, every iterating and pushing along

(48:50):
further to have one place where you say.
Here are our businessmodel hypotheses, right?
This is what we're assuming.
We don't know.
Here's what we data we have.
Here's what we have actuallyvalidated now up to this point.
And here's what we need to learn next.
Having that, that visual tool givesyou that shared viewpoint of, okay,
where exactly are we on this learningjourney and where are we going

(49:12):
to go next to iterate great pointabout These are, it is so iterative.
You can learn so much veryearly on in some cases.
So Mark Randolph and Reed Hastings,this is very early days of, Netflix.
One of the things, remembertheir first business model.
This is what they're trying to validateat this point is the DVDs by mail, right?

(49:32):
That was the original business model.
And It's about that operation.
Remember I said in product validation,it's not just the customer will
use, but we can deliver it.
Well, they had to figure outwhat's it going to take to
be sending all these DVDs.
One of the key questions was, can we justuse regular us postal service, right?
The cheapest rates availablefor sending and will it go

(49:53):
through without breaking, right?
Are we going to have to have lotsof expensive padding, which then
adds weight, and then there's ahigher charge for everyone we send.
So, All they did was they took, theydidn't even actually take a DVD.
They took a physical disc.
It was a music CD ROM.
It was Patsy Hot, PatsyKlein's greatest hits, right?

(50:15):
So they, I don't know, that'swhat they had on the, in the car.
They put it.
In a pink greeting card envelope that theybought at a store and then they just took
that and they dropped it in the mailboxon the street corner in their town and
Santa Cruz had mailed it to themselvesand they just wanted to see like, does
it get there and is it broken or not?
Super, super cheap test,super simple, 24 hours.

(50:37):
And they learned something that wasreally critical to thinking about,
okay, can we take this idea forward?
The other example you gave diapers.
com.
So this is in the earlierdays of, e commerce.
Amazon was already up and running, butAmazon started as a bookstore and they
were gradually starting to move outinto other categories of things you
could order and have delivered, butthey were not yet the everything store.

(51:01):
Right.
So e commerce is still growing.
These two dads MarkLaurie and Vinit Barara.
So they're new dads.
They've got babies at home, right?
They're both married and they'rethinking about all of a sudden they're
buying all these diapers and otherbaby stuff, all this stuff they didn't
buy until all of a sudden right now.
And they're entrepreneurs and they'rethinking, Hey, there ought to be
an e commerce solution for this.

(51:22):
Cause there wasn't one at that point.
And so they said, yeah,it'll be like diapers.
com and you can order the diapers.
All the diapers you need andthen we'll add on extra all the
other baby products you need.
But we start with the diapers becausethat's the thing everyone knows they need.
And you keep needing it.
Frequency of purchase is alwaysa key element in e commerce.
They knew that.

(51:43):
So they said this could work,but I don't know, would it?
So the very first MVP, the first testthat they built was just this, the two
guys, they posted on Facebook, that wasthe top social media at this time four
accounts, their two personal accountsand their wives, two personal accounts.
So just their friends and theyjust posted, said, Hey, Mark and

(52:04):
Vinit are starting a new business.
We are providing online delivery of.
Diapers.
If you'd like to save yourself your nexttrip to the to the store just message
us and tell us what brand you want whatmodel you want what size you want and
the quantity and tell us the best pricethat you've seen at another store.
We'll match it and give us your addressand we'll follow up to charge you over

(52:27):
the phone and we'll get it to you.
And they went to bed and theywoke up in the morning and they
had I think it was 240 ordersfrom just their personal network.
So when you have babies, verytypically you have a lot of peers
arriving babies around the same time.
So they're like, Oh mygosh, we got to get to work.
So the two of them and their wivesspent the next day driving around to

(52:51):
every big box store in their area.
And buying up on this list of allthe different models and types that
they needed and then taking it homeand then getting boxes and packaging
and packaging them all up and thendriving in their minivans to the UPS
or the FedEx, whichever it was gettingthe, all these orders delivered now.
Obviously, you don't yethave a scalable model, right?

(53:12):
That's the thing about early MVPs.
They, they work, but they're not scalable.
You don't really know the economics yet,but they, they learned a lot in 48 hours.
A most important, they learnedthere is a market, right?
They weren't just smoking somethingthis isn't something they imagined or
just, they're the only ones who want it.
Customers want it, but theyeven learn other things like

(53:32):
which brands do people order?
Which which models do they like rightclassic merchandising questions are
critical to any to any retail businessbut also like frequency if you give
people this option, do they order?
Diapers for a week, or do theyorder diapers for a month, right?
How large are the order size?
So a lot of data they gotvery quickly, very cheaply.

(53:54):
And that's the mindset when you'rebuilding these iterative as I call
them, it's not, you got to shift,particularly in the early days, shift your
thinking, you're not building a product.
You are building a test.
You're trying to learn the next mostimportant thing you need to learn
about this business opportunity.
And that's really what this process ofiterative of validation is all about.

(54:18):
I was just thinking about if that was me and we just had a baby and
I decided to start this business and thenmy wife has to help me fulfill the orders.
I can imagine her juststaring at me going.
I am going to kill you.
I'm barely keeping
up.

doing this?
Yes.
Yeah.

it was.
It was such a pleasureto spend time with you.
I also spent a lot of time with youbecause I listened to the audio book
as well as read the book, which isa way just for me to get a second
bite of the cherry and understand

Yeah.

even more.
And David voices this audio book anddoes a great job of that as well.
So

Thank you.

David, where can people find you to find out more?
You do executive.
Coach executive training you do akeynotes you are prolific writer and
content creator and a share of thatcontent as well where's the best place
people can reach out and find you

So the best place to find me is just start on my website.
It's davidrogers.
digital.
So not the com, net, the usualnow we can pick our own domain.
So it's davidrogers, R O G E R S.
Dot digital.
You can find information there about myservices for companies advising, keynote

(55:34):
speaking work with boards, et cetera.
And then also you can find right onthe homepage, any page you scroll down
to, you'll see a link to sign up orsubscribe and that will give you the
option to sign up for my newsletter.
And that's a sub stackthat goes out every week.
And as you said, you sign up, there's a.

(55:57):
You get a first chapter of the book.
And if you sign up for thepro account, which is actually
first, first 30 days is free.
You get the bunch of strategic tools,you get additional chapter from my
previous book and more information,but mostly I'm writing there and
publishing every week and sharing contentstories, case studies, interviews with

(56:19):
executives and business leaders about.
Really what it takes to do digitaltransformation that really makes
a difference in your business.

and it absolutely does it right when i first read it i was
like on i wish i had this book twodecades ago to join me on my journey
but it's been an absolute pleasure andthank you for spending this amount of
time i really appreciate your time.
Author of the digital transformationroadmap, David Rogers.
Thank you for joining us.

Thanks so much, Aiden.
It's been a true pleasure.

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David Rogers - The Digital Transformation Roadmap Part 2

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}David Rogers - The Digital Transformation Roadmap Part 2