Ocado - A Poster Child For Digital Business Transformation

From the Transformation Management Blog
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The digital economy has fueled executive appetite for transformation. This blog highlights the challenges and opportunities of orchestrating digital business transformation successfully. It covers a broad range of transformation topics—from digital business models and innovation, through to transformation mindsets and value creation.

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Transformation is about fundamental shifts in how companies do business. It changes everything about how products are designed, manufactured, marketed, sold, delivered, and serviced. It forces leaders to rethink how companies execute, with new business processes, management practices, and information systems, as well as everything about the nature of customer relationships.

The best CEOs are thinking clearly about the quality of transformation research, data and practices they work with. These are the leaders who cut through the clutter and embrace a realistic understanding of business transformation success and failure, and how digital is core to it.

Let's consider one of the most recent superstars in the world of transformation - Ocado - which has already been referred to as the Microsoft of Retail. It's a company that was established in the UK in the year 2000 and it's already the world’s largest pure online grocery supermarket.

Written-off for years by naive cynics, CEO Tim Steiner has pursued his vision and shown us how legitimate transformation can create a new future. Steiner has said, "Our biggest innovation was not to try and have a single innovation. Our biggest innovation was to become an innovation house. We’re working on innovation for every place where we interact with a customer."

Ocado has built a successful e-commerce business in the UK, are now in a powerful position to help retailers in other parts of the world do the same. And the company is offering consumers a different proposition because they're built to be online - unlike much of their competition. And they aim to allow consumers to shop online in the way that's most convenient for them.

What enables Ocado to do that is a technology estate that is both broad and deep, and which encompasses real-time control systems, the Internet of Things, robotics, machine learning, simulation, data science, forecasting systems, routing systems, inference engines, big data and more.

They use a three-dimensional grid system where 700 washing-machine-sized robots whizz back and forth an area the size of three football pitches, with just half a centimetre in between them. This is the kind of stuff that separates digital economy leaders from the rest.

Ocado is now the world’s leading pure-play online grocer and their business model offers a superior customer experience. Their business is based on a cycle of growth, investment and innovation and they pride themselves with a proven management team leading strategy and execution.

One of the main reasons that most transformations struggle and fail is lack of capability, and companies like Ocado are building their transformation capabilities with real intent. To meet the needs of companies like Ocado forward-thinking professionals are already re-training themselves to build their transformation capabilities so they can work with transformational companies like Ocado.

Just by looking at some of the key vacancies that Ocado sometimes needs to fill, you can see how they look at transformation. They've established a Transformation Office to drive change in their capabilities, teams and ways of working to be able to deliver and support multiple international clients concurrently.

And so they need transformation programme managers to help create and then own sets of projects within that Transformation Office. Those programme managers are expected to translate strategy and ideas into tangible project and programme plans, looking ahead three to five years, and deliver and control complex programmes and multiple projects concurrently.

Another role in Ocado is the Operations Model Lead, who runs a team that owns the ongoing development of the end-to-end business operating model, defining specific operating model capabilities and providing targeted design expertise.

This gives you a taste of the kind of hiring that's happening inside the world's most dynamic transformation-focused companies. Ocado is a company that's undergoing legitimate transformation, and not caught up in legacy thinking, systems and digital sugar coating.

CEOs like Tim Steiner at Ocado are now under increasing pressure to continually balance short- and long-term objectives. They not only need to ensure their business runs well but they also need to reinvent their business, enhance product and service offerings, and invest in other long-term initiatives. The best CEOs - like Steiner do both well.

While most companies have executive and senior management teams that have excellent operational expertise, transformation experience is often thin on the ground. This is another reason why people who are re-training themselves are becoming very sought-after. Because digital business transformation is about strategy and execution.

To be a transformational company like Ocado the six guiding principles of THRIVE need to be accommodated. And these principles provide a way that leaders can navigate both the strategic and execution components of transformation.

As a reminder, THRIVE is an acronym made from six words which are: Transformation, Holistic, Response, Innovation, Value, and Enterprise. 

Principle number one is Transformation. Because leaders first need to recognise the fundamental difference between change and transformation, before they can lead their companies on a journey of legitimate transformation. 

While ‘change’ is required to maintain and modernise an organisation, this isn’t enough to sufficiently elevate both its internal capabilities and external offerings. 

Too many companies are being lulled into a false sense of transformation security through siloed digital projects and change initiatives that are not transformational.

To take advantage of the opportunities and protect against threats that new digital business models present, leaders need to commit to being bold and transformational, ahead of those that remain safely within their comfort zones and traditional ways of working.

Leaders need to communicate this fundamental difference across their organisations to avoid their best resources being tied up making small changes instead of driving transformation. This is also needed to keep the company’s best people on board and attract new talent because the high-performers have an insatiable desire to be part of an ambitious transformation journey. If one company fails to take them on that journey, they’ll move to another that will.

Legitimate transformation - like the kind found in companies such as Ocado - also requires a fundamental shift in other aspects of an organisation. Appropriate governance, mindsets, business and operating models, capabilities and culture are just some of the transformation fundamentals that THRIVE addresses.

Companies need to put all options on the table, including rethinking the core business model and answering the fundamental question: What do we do? This is where companies need to zero in on their value proposition and how they deliver on it. Just like Ocado has done.

Principle number two is Holistic. Unlike business process re-engineering, which focuses on business processes, or app development which focuses on technology, or projects, which focus on producing outputs, digital business transformation requires a more integrated and holistic approach.

THRIVE helps leaders take a holistic and integrated perspective of their enterprise and its complexity. It does not reinvent individual management disciplines, but it provides a framework that integrates individual disciplines, which should be sufficiently mature to undertake successful transformation.

From digital business models, capabilities and roadmap design, through to culture, portfolio governance and transformation execution, leaders need to consider the big picture and not limit their focus to only some of the key enablers of transformation.

Most transformation strategies are not successfully executed upon, and only a holistic approach to transformation will produce the outcomes a company aspires to achieve. Through holistic transformation, leaders will dramatically increase the odds of success, and be among the minority that actually achieve their transformation objectives successfully and live up to stakeholder expectations.

Principle number three is Response, and we can see organisations like Ocado respond strategically to the opportunities and threats they are presented with - both inside their organisation, and externally in the market.

Internally this could involve responding to the evolutionary needs of the company’s culture, maturing the capabilities required to achieve transformation excellence and the establishment of new governance that facilitates innovative transformation while minimising bureaucracy.

Externally it could involve defensive and offensive responses to the changing dynamics of the market caused by disruption or seizing the opportunities that digital technologies and new business models can be used to take advantage of.

These and other responses form part of the transformation strategy that needs to be shaped, then planned as part of a short, medium and long-term roadmap, which is then governed and executed upon.

It’s vital that the transformation response not only strategically addresses all of the key threats and opportunities the organisation faces, but it must also be supported by the appropriate leadership mindset, workforce culture and capabilities required to transform strategy into reality.

Principle number four is Innovation, which is at the heart and soul of Ocado. The likes of Machine Learning, the Internet of Things and Robotics, can enable powerful business transformation when used strategically. Only through the innovative convergence of digital technologies can companies expect to transform in the way Ocado has.

Plugging in individual digital solutions in non-innovative ways lulls companies into thinking they are transforming, when in fact they are merely updating their technology and changing nothing fundamental about their business. This only achieves change, while business transformation should be the goal.

Innovation empowers companies to consider many new possibilities that can be part of its strategic response, and this requires effective approaches to innovation, which transcend technology upgrades and simply doing the same things faster, better or cheaper.

Companies need the ability to envisage how new technologies can be converged into a scalable architecture that is prepared for near, mid and long-term digital adoption. While the Internet of Everything will take years for most companies to derive value from, the foundations can be laid now, with capacity for the future in mind.

Principle number five Value. External value represents the benefits transformation creates for its customers, while internal value represents the benefits delivered into the business as a result of transformation investment.

External value is generated through digital business models shaped by strategic responses to what is happening in the market. This enables companies to tap into the known and unknown needs of its current and potential customers, in ways that create competitive advantages, then seize market share. These models can also be used to reclaim market share after disruption and protect a company’s position in the market. 

As markets are disrupted, the opportunities to satisfy the need for value have changed. In 1999, millions of customers were not expecting 24-hour delivery of products purchased via a smartphone, but today they do. The world has changed, but too many companies still rely on antiquated business models.

Internal value is generated through initiatives that provide stakeholders with tangible or intangible return on investment. This could involve higher revenues in a particular line of business, increased workforce capabilities, better operational excellence or more effective marketing. All of this, in turn, enables the company to serve customers better and increase market share.

And principle number six is Enterprise. Transformation needs encourage, embrace and educate people from across the enterprise and build a collaborative culture of new capabilities and mindsets.

CEOs like Tim Steiner at Ocado foster a transformation mindset among their executive teams, which is aligned with the strategic aims of the company. This transformation mindset then needs to shape the company’s culture at every level, to create an environment within which innovation and digital business transformation can thrive.

Opportunities to upgrade workforce capabilities - in the way Ocado does - need to be identified and people made to feel safe and comfortable about innovation, success and failure. The right support and training are vital to achieving this, without unrealistically expecting an operational workforce to become overnight transformation masters.

This can be a major undertaking, particularly for organisations that have been shaped over many years by operational goals, roles, processes, values, and attitudes. While this will have created operational excellence, it is also prone to preventing attempts to change “how we do things around here”. Such an environment will inhibit even the finest transformation strategy, because as the great Peter Drucker told us, "culture eats strategy for breakfast”. So creating the right internal transformation environment is vital to transformation success.

Posted on: October 09, 2019 07:48 AM | Permalink

Comments (3)

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Dear Rob
Interesting approach to the topic
thanks for sharing

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