Now. Next. Beyond. If you don’t plan in three dimensions, will you be left behind?

By

EYQ

EYQ is EY’s think tank.

By exploring “What’s after what’s next?”, EYQ helps leaders anticipate the forces shaping our future — empowering them to seize the upside of disruption and build a better working world.

10 minute read 15 May 2019

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For digital transformation to succeed, organizations need to adopt a portfolio approach and drive more ‘scale fast’ and less ‘fail fast’.

This article was informed by insights shared at Innovation Realized, the EY immersive and boundary-breaking summit for C-suite executives, and market influencers to propel innovative thinking into meaningful action.

Despite billions of dollars invested in digital transformation efforts, many large companies continue to be outpaced by the market. Why?

It’s not for want of innovation and experimentation. According to recent EY research (Digital deal economy), 90% of companies are prioritizing an increase in capital allocation towards digital transformation. Most large corporates have now embraced concepts like design thinking and open innovation. They operate innovation labs in tech hubs, run hackathons and venture with start-ups.

But when the innovations are brought out of digital labs to the business, progress often stalls. Too many business transformation efforts are composed of unconnected pockets of experimentation — the impact on the business is too little, too late. As Laurence Buchanan, EY EMEIA Advisory Digital Leader, puts it: “It’s easy to fail fast. Today, you can build a low-cost minimum viable product very rapidly, test it in the hands of users and gain valuable insights. But, the real aim of digital transformation is not to fail fast, it’s to scale fast — that’s the tough part, where the rubber hits the road.”

Keeping pace with digitally-driven markets requires a new approach: a transformation in three dimensions (3D), drawing on practical, cross-functional strategies to rapidly industrialize digital innovation throughout the organization. Ultimately, the transformation should aim to make the company’s structures and operations as fast-moving as the markets — a superfluid enterprise.

The imperative to transform in 3D

The reality of unrelenting disruptive change demands a new business competence — the ability to think, operate and plan in three dimensions, not separately, but simultaneously: 

  1. Solve the now:  The present day is your company’s tactical zone. Organizations solve the imperatives of now by focusing on how to grow their existing businesses, drive new efficiencies, and maximize profitability and shareholder value. In the service of achieving these objectives, companies have invested billions in new digital technologies.
  2. Explore the next: Identify new business models and opportunities while exploring the potential of new digital technologies, such as AI, robotics and blockchain. Anticipate the new talent models you’ll need to improve agility, increase diversity and create a culture of innovation. 
  3. Imagine the beyond:  Don’t stop at thinking about what’s next — imagine what’s after what’s next. What new megatrends will be sparked by the next wave of technology change? Ask how your enterprise will thrive in hyperconnected, network-based and superfluid markets.

This three-horizon framework — now, next and beyond — can serve as a comprehensive guide for enterprise-wide, digitally enabled business transformation. Success, however, depends on organizational leadership that can manage across the three horizons at the same time. In any transformation, the human factor is the most important.

Watch this video from the EY Innovation Realized summit that talks about how organizations need to adapt to the pace of change to remain competitive.

Each company should have a unique now-next-beyond portfolio strategy for transformation, based on the company’s overall vision and ambition, its threat from disruption and the varying demands of stakeholders. The portfolio of innovation projects will change over time as market conditions change; and different initiatives will require different risk tolerance levels and expectations for timing and market impact. If the best venture investors in Silicon Valley expect only one unicorn to emerge from every 100 start-up investments, then companies shouldn't expect every horizon three (beyond) innovation initiative to result in the creation of a new market.

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Chapter 1

Now and next: a digital factory to industrialize innovation

Managing the portfolio of now, next and beyond is a not only a challenge of “why” and “what”, it is also a challenge of “how”.

Digital transformation is fundamentally a people challenge as technology will continue to move much faster than skills, culture and mindset can keep up with.

Bringing the now and next together productively is one of the fundamental innovation challenges. As Jim Collins, Chief Operating Officer, Agriculture Division of DowDuPont and CEO-elect of Corteva Agribusiness, observes: “Innovation and change is a requirement. It’s not a choice. You need a group out selling for today and a group designing for the future. You need to force those two worlds together to be a bridge. Building that bridge is the third element.”

A digital factory approach helps companies to bridge the now and next, achieving the end-to-end rapid and robust scaling that a holistic business transformation requires. Large companies must have the ability to “not only experiment continuously, but also plan, invest and scale up successful minimum viable products like a venture-backed unicorn,” says EY's Buchanan. This involves taking a page from the blitzscaling approach — prioritizing speed over efficiency in the face of uncertainty — which has propelled the growth of so many start-ups. Companies must tackle the many impediments to scale-up, such as funding, tax, legal and cyber considerations, people and cultural change impacts, and technology barriers.

The digital factory is the physical environment (or network of environments) that connects, aligns and activates corporate innovation and commercialization functions in the service of transformation. Like a bricks and mortar factory, it’s purpose is to scale innovation, quickly and repeatedly, by putting cross-functional teams into the right environment, and leveraging proven methods and tools to explore challenges from every angle, make decisions and execute.

The constituents of a digital factory can be physically distributed, but they must work together. The digital factory approach is typically some combination of the following six core components: 

Digital Factory
The Digital Factory brings together a combination of cutting-edge capabilities from across the organization to accelerate digital transformation

Research lab Design studio Innovation hub Showcase Center of excellence Solution delivery centers

Market trends and research

Co-creation and participatory design

Start-up accelerators

Future tech showcase

Specialist skills e.g. architecture, agile coaches, cyber

Nearshore delivery center

Voice of customer research

Physical and digital prototyping

Disruptive business modeling

Stakeholder immersion

Emerging technology CoE e.g. AI, IoT

Offshore delivery center

Competitor research

UX and interactive design

Ideation and incubation

Product and service demos

Analytics and AI shared service centers

3rd Party e.g. Agency delivery hubs 

<– Listener     Designer     Innovator     Exhibitor     Specializer     Industrializer –>

 

Operating model, governance, people and culture

The digital factory approach enables faster scaling of business transformation in an integrated manner. But don’t forget the importance of people and culture. The governance model for a digital factory must be cross-functional. It should institute a continuous rotation of people through the various components of the structure. In the end, everyone in the organization must have a stake in the transformation for it to scale.

“Getting the organization behind the change and meshing the day-to-day with the transformational is essential,” says Serge Taborin, Chief Digital Officer of Capita.

Everyone in the organization must also have the skills, and more importantly the mindset, to scale transformation. Preparing for the next requires careful consideration of how skill sets will change — the digital factory provides important indicators. “Transformative change is used to focus on enabling leaders to lead the broader workforce, but today it also means big digital changes to the ways of working at the deeper levels of the organization,” notes Liz Fealy, EY Global and Americas Solutions leader for People Advisory Services.

Corteva’s Collins says that workforce and skill set transformation has been essential in the formation of the company, a “300-year-old start-up” recently spun out of DowDupont. He relates that while the company’s core skill sets remain agronomy, mechanical engineering and material science, they are rapidly bringing in more data and digital skills. “We’re hiring more drone pilots than agronomists,” says Collins.

Fielding the best team for transformation

EY’s Fealy recommends thinking of building an agile workforce in terms of a competitive sport. First, companies must get the right people on the playing field. This means aligning workforce recruitment and retention efforts to the company’s three- to -five-year strategy.

Then organizations must enable their people to excel: what training, metrics and rewards will be needed to elicit maximum performance and how do you enable the team to adopt the new ways of working?

Companies must also consider the workforce experience. The key to making the game enjoyable and creating a winning team resides in motivation. The best workforce experiences arise when individual purpose meets the purpose of the organization. In sum, the workforce strategy and the business strategy for what’s next are inseparable.

Key questions:

  • Do your digital innovations move from the lab to industrial scale quickly enough? What factors prevent scale?
  • How well are your innovation projects connected to the business and each other?
  • What is your people and culture strategy to support your digital transformation?

Watch this video from the EY Innovation Realized summit  to hear from business leaders why they believe digital transformation is an opportunity to unlock greater human potential.

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Chapter 2

Prepare for the “beyond”: make your enterprise superfluid

Companies must also think about the beyond. What could things look like in 10 years or more?

It’s essential to have a small group relentlessly thinking about future technologies, such as quantum computing, and how these might change the business. But the reality is that the future is impossible to predict at longer time horizons.

What companies can do in the present is to transform themselves to be able to respond to many different futures. That implies a level of flexibility that most organizations don’t have.  Even as the world outside the four walls of the company moves faster and faster, organizations themselves — their structures and operating models — haven’t changed all that much. Too often, digital initiatives are conducted within outdated enterprise frameworks.

Superimposing 21st century technologies over 20th century structures and ways of working is a recipe for suboptimal results and even failure. To become as fast-moving as markets, companies must become superfluid.

“As the pace of change increases, we have to be more nimble, more flexible and more adaptable to everything that removes friction around our movement of talent, capital and assets,” says Samuel Tait, Executive Vice President, Managing Director — Media Transformation, Dentsu Aegis Americas.

Borrowing the term from physics, superfluidity suggests a future state where organizations organize and operate with as little friction as possible, which, in turn, puts them in a better position to create value. Focusing on your company’s four key asset classes is a good place to start.

  • Time: Time should be respected as an asset. Ideas to introduce more fluidity include establishing strict cadences for decision-making and ensuring that meetings have a specific purpose (linked to decisions) and have only the right stakeholders in attendance.
  • Talent: Consider the place of and purpose for humans and machines in your workforce. Make your workforce flex to changing demand by using a combination of full-time and contingent talent. Overcome the viscosity of hierarchies by enabling cross-functional, autonomous teams.
  • Capital: Develop a more continuous budgeting process, enabling your company to fail fast and pivot if needed. Segregate the “business as usual” budget from investments for the future and subject your innovation experiments to a different set of metrics.
  • Hard assets: Explore everything-as-a-service models. Today, nearly everything can be obtained as a service via the cloud, giving the superfluid enterprise the ability to exit non-performing business lines and enter new markets more quickly.

Janet Balis, EY Global Media & Entertainment Advisory Services Leader, points out: “At the end of the day, we have a set of finite assets that sit at the heart of a company — our people, our time, our dollars and our technology. If we deploy these scarce resources effectively, we can create the right products, services and customer experiences to drive new business models and maximize value creation.”

Key questions:

  1. How have you changed your organizational structure to facilitate greater collaboration and faster decision-making?
  2. How are your critical assets positioned to solve business problems and create value?
  3. How can your operating model prepare you to better face multiple disruptions?
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Chapter 3

Scale fast for exponential opportunities

To seize the upsides in an era of exponential change and opportunity, companies must be able to industrialize their innovations as quickly as they generate them – more scale fast and less fail fast.

Set in the context of a transformation in 3D, a digital factory approach can help companies meet the challenges of now and next by connecting disparate innovation efforts and quickly integrating them into the business.

As companies imagine the beyond, it is important to create the ability to respond to an uncertain future by becoming a superfluid enterprise that can adapt effortlessly to shifts in their market environment.

Watch this Forbes video from the EY Innovation Realized summit about how business models need to become more dynamic.

Key questions for C-suites and boards:

  • How are you integrating now-next-beyond thinking into your strategy? Is your leadership prepared to manage across three horizons simultaneously?
  • What has been the return on investment (ROI) on your digital innovation initiatives? How could it have been greater?
  • How well suited is your talent model for the opportunities of the next decade?
  • To what extent are you layering new technologies over old organizational structures?
  • Have you considered how and when your markets will become superfluid?

Summary

Despite billions of dollars invested in digital transformation efforts, many large companies continue to be outpaced by the market. To keep up with digitally-driven markets, organizations need to drive more ‘scale fast’ and less ‘fail fast’ through a now-next-beyond transformation with the aim of becoming a superfluid enterprise. 

About this article

By

EYQ

EYQ is EY’s think tank.

By exploring “What’s after what’s next?”, EYQ helps leaders anticipate the forces shaping our future — empowering them to seize the upside of disruption and build a better working world.