© Marko Luhtala 2017
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Leadership in the digital economy6 CHALLENGES FOR CEOs
June 2017
MARKO LUHTALA
© Marko Luhtala 2017
My personal journey in digitalization
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Early adopter eBusiness director at Nokia, 1999–2002
Solution provider Sales director/Enterprise solutions at Nokia, 2002–2005
User of digital technology widely in commerce Director/ VP of Retail at Nokia, 2006–2010
Solution provider, SaaS-entrepreneur CEO at NearMe Services, 2010–2016
Advisor and implementer Digitalization consultant at Ajantasalla, 2016-
MARKO LUHTALA
© Marko Luhtala 2017
© Marko Luhtala 2017
Discussion topics
Digitalization is the fourth industrial disruption since the 1700s
Six leadership challenges in the digitaleconomy
Final note: How to predict whether you will fail or succeed?
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We have the fourth major industrial disruption since the 1700s
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ElectricityLate 1800s
Computers1980s Digitalization
Now
Steam engineMid 1700s
How was your industry before computers and electricity?
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Impacting both your products and business model
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Product
Digital services enhancingcurrent products
New digital products
New pricing models
Operating model
Sales & marketing
Operations
People & skills
Customer support
Customer experience
Market
Who are your competitors?
Who are your customers?
Who belongs to your value network?
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As a CEO you should focus on the end game
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Consider digitalization as a transition to THE ERA OF DIGITAL ECONOMY
not a project with a completion date
THE ERA OF DIGITAL ECONOMY
IMPORTANTUnderstanding how to
get there
MORE IMPORTANT!
Understanding how to lead your business when you are there
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Don’t get caught in the transition
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Don’t prepare a separate digital strategy – look for digitalization opportunities in all strategies
If you appoint a Chief Digital Officer, make sure his role is to make digitalization become business as usual – and then terminate the role
Resist the temptation to focus on shiny IT solutions before concluding what you and your customers need
STRATEGY?
CDO?
IT?
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Companies say they don’t invest in digitalization yet…
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…because they have more important priorities in their strategy, such as:
scalable sales and marketing models…
new business models…
exceptional customer service…
offering innovation…
internal productivity…
data as a source of strategic value creation…
€
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At the same time, winning companies…
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…invest in digitalization because they want to gain a competitive edge in those particular areas
Because digitalization
delivers:
• Higher impact
• Faster speed
• Better cost efficiency
in strategy implementation
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Your shareholders have a clear interest in digitalization…
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…because companies who apply digital technologies typically:
1€ one-time revenue equals 1€ in valuation1€ recurring revenue equals 3–4€ in valuation
Example: software business Innovative companies generate total shareholder return premiums of
7.5 percent over their industry peers
Source: BCG
GROW FASTER
BUILD A UNIQUE
ADVANTAGE
COMMAND HIGHER
VALUATION
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Would you know if there was an industry disruption
around the corner?
Challenge #2
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Before setting up the digital agenda for your company
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Is there a risk (or opportunity)
of a tectonic shift in your industry fueled by digitalization?
ASK YOURSELF
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CEOs in most industries are expecting disruption
Source: “Digital Pulse 2015”, Russell Reynolds Associates
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You can disrupt the product or the business model
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Change the pricing model and earnings
logic
Elevate customer service and
experience to a new level
Change the core offering features from physical to
digital
Build a de facto platform or
“operating system” for the industry
Bypass middlemen
Typical ways of creating a
digital disruption
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Disruptors redefine the rules and roles in the industry
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A new set of competitive requirementsFor example: 24/7 availability, personalized customer service, predictive maintenance, excellent user experience
Change in what customers are paying forFor example: usage instead of ownership, benefits instead of work done, data instead of experts, software instead of hardware
A new ecosystem and roles in itFor example: OEM roles, access to ecosystem only through disruptor’s platform, licencing programs, developer networks
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Will your industry attract external disruptors?
Value of industry.Data intensity.Amount of old habits.
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If high, the chance ofexternal disruptors isalso high
What would Google do in your business?
ASK YOURSELF
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Machines are rapidly entering white collar roles
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HUS – The Hospital District of Helsinki and Uusimaa – is
using artificial intelligence to support specialist medical
care diagnostics and treatment decisions.
DLA Piper in the first law firm in Finland to adopt artificial
intelligence. AI will first reduce routine tasks from lawyers.
Software robots, digital automation and AI will reduce at
least half of our routine tasks, estimates Palkeet – Finnish government shared services center for finance and HR.
Several studies show:
Machines are better than humans at choosing the best employees
AI
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You will need some totally new people and skills
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Examples of new roles in digital economy Digital
marketer
SW architect
Data scientist
UX specialist
SOME expert
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Where is the knowledge in your company?
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Remembering information
Experienced people have the
knowledge
Finding information
Knowledge is in people AND
data
PAST TODAY
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The amount of data is exploding
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of all data EVER has been produced during
the last two years
90%
Data sources for knowledge building
In-housebusiness andproduct data
Industry bodies and publications
Public government databases
3rd parties consolidating and selling data
Open source data e.g. maps, traffic, weather
Online industry and competitor data
Public research documents and thesis
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The harder it gets for people the easier it is for a machine
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Learning is a core capability for all humans.
MACHINE LEARNING is by far the hottest trend in artificial intelligence.
Hint: Start with use cases and “big business questions”, not technology
Lots of data
Complex dependencies
Figures, images, text
Answers
Predictions
Correlations
Recommendations
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A strategic question for your management team
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What should…
PEOPLE KNOW AND DO? MACHINES KNOW AND DO?
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Do you know how to attract the right digital talent?
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How would you set the targets
and KPIs for these roles?
Can you spot the difference
between a super candidate and a smooth talker?
Where would you look for
these talents?
Do you know what makes them tick and why they
would want to work for you?
Can you list the key tasks for a
data scientist or SOME expert?
?
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Are you on the same page?
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SaaS
API
UX/UI
Backend
IoT
Cloud
Machine learning
Software robots
You need to speak the same language as the people who are shaping your future
It means a lot of new terms and concepts in a CEO’s vocabulary
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Understanding your digital specialists…
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…is mandatory for you and your
management team,
to understand the future core
assets of your company
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But don’t forget your existing people
You need to communicate a vision for your company in the digital economy…
…in a way that EVERY team member finds clear and personally compelling.
Otherwise you will soon have an “us and them” mentality.
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Startups are the main source of digital innovations
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Corporates are turning to startups to:
• complement their R&D• leverage digital talents they are not able to recruit
• accelerate learning speed
HOWEVER There are hundreds of potential startups
80% of them fail at the early stages
Startups have very different culture, clock speed and way of working compared to corporates
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Winning companies have clear partner programs for startups
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Ingredients of a partner
program
Communicate clearly which business problems you want the
potential startups to focus on.Provide a clear channel and process for startups to approach you with their proposals and solutions.
Clarify the rules for co-operation including
commercial terms. Be fair: startups don’t have in-house
lawyers to read the small print.
Partnering must be win-win. Measure and nurture the commercial value of your ecosystem systematically.
An effective partner program lets startups be startups while you can operate like a corporate.
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4 common reasons why boards fail to drive digitalization
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Without digital skills the board has difficulties in crystallizing the impact and direction of the change. Compelling vision, roadmap, and implementation are left vague.
Running existing business and building a new one in parallel is challenging especially if it involves major changes in the business model.
Discussion in digitalization jumps too quickly to technology and IT. This is not helped by dozens of solution providers bombarding you every week.
The board and top management have their schedules filled to the minute running the existing business. There is not enough time to focus properly on the digital transformation.
DIGITAL SKILLS
EXISTING BUSINESS
FOCUS ON IT
AVAILABILITY OF TIME
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A good acid test for the board
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are you ready to cannibalizeyour existing business to
build a new one?
When the time comes
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My opinion: Your chances depend on your company culture
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Is your culture fit for the digital transformation?
HIGH FIT
YouinvestinR&Dandnewcompetencesatleastasmuchasindustrypeers
Trialanderroris acceptedfornew initiatives inyourcompany
Teamsareempoweredtoinnovate,newideasarewelcomedbytopmanagement
Decisionsaremadebasedoninformation
Newrecruitsaresystematicallysearchedfromotherindustries
LOW FIT
Youmaximizeshorttermprofitsandcashflowbylimitinginvestments
Youavoidrisktakingandrathercopytestedindustrypractices
Strategycreationanddecisionmakingistopdown
Decisionsaremadebasedonintuition
Industry experienceishighly-weightedforemployeeselection
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MARKO LUHTALA
I HELP COMPANIES WIN IN THE DIGITAL ECONOMY