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Monday, September 20, 2021
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It Pays For Corporate Leaders Thanks To Covid

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Thanks to Covid and its acceleration of innovation and disruption, enterprise technology companies are no longer waiting for their customers’ requirements. Today, they are writing them on their behalf and persuading organizations to use their products to close a gap nobody knew they had. Their engineers believe that they have the answer to what a client organization needs to fix and how. Do they though?

I recently had a spirited exchange with a handful of technology consulting and product strategy colleagues as well as stealth mode founders on this topic. I also watched how AWS’ CEO, Andy Jassy, repeatedly point out in his re:Invent2021 keynote how they listen to their customers to innovate and how dangerous it is to let engineers run wild with new features.

Yet, one of the more fascinating developments that Covid seems to have brought about is this technology vendor product-lead versus customer requirement-driven approach to innovation. Sales, marketing and operations leaders across many sectors, including tech innovation talent-starved manufacturing, are now increasingly abdicating thought leadership in their industry to technology vendors. They have delegated process and even business model innovation to tech organizations and their thought leaders, which have often only rudimentary, incomplete or dated expertise in their sector or business function. By and large, these tech gurus are by no means steeped in decades of and recently hard-fought experiences of what works and what does not. On the other hand, these SMEs often had high-level “tastes” of a variety of transformational projects. Is depth or breadth better when it comes to transformational expertise? What about both?

There is a reason why this company has been around for five decades or more

Personally, it would not occur to me to lecture someone with two decades of financial management background in an industrial filter manufacturer just because I implemented a few weeks at a handful of financial planning software projects. If I would not presume to teach tricks to a VP at Amazon
AMZN
, I should feel the same way about a traditional manufacturer. After all, I may be an expert in creating a data model or process flow and I may have seen bits and pieces of how other companies modeled their transition to a new cost roll-up but is that enough? A financial controller in such a traditional business once “educated” a software account executive that while he is in a finance role, nothing he has demoed to him is truly something a manufacturer identifies with.

Very few experts can detect, gauge and suggest technical remedies to another firm’s operational needs within a couple of hours of conversation. Then again, how much time will a Fortune500 executive spend on the decision of approving $50,000 of additional software spend, which may even be free the first year? Granted, any new set of eyes and external experiences are helpful and may often present some novel insight into an old problem. To do this right, most consulting professionals would agree that weeks or even months of fact finding and structured analysis are needed even if the tech was pretty much given away for a dime or free.

Why is it then that executive department leaders now tell technology product and services firms to demo and sell them the coolest new features, for which there is no defined business need, user audience or even a problem statement for a technical or process gap? Is the approach to implement something new inherently beneficial? Are Fortune500 companies so short on expert resources, vision, or willingness to develop them internally? Are these buying organizations so convinced of themselves that they know how to properly and sustainably deploy a proposed new feature to improve shop floor productivity or employee churn, for example?

Here are some recent examples of well-meaning but questionable innovations I have run into. First, we have an eCommerce tool with very loose account creation standards to qualify industrial buyers for first-time discounts. It ended up being heavily abused by customers and driving an ongoing back office cleanup effort. Then we have the use of streaming analytics of construction tool performance without any meaningful operational implications such as safety or maintenance scheduling. Another would be the creation of a multi-million dollar data repository over two years to unambiguously catalog equipment without considering who, when and how analysts in finance, sales, production and engineering would use it. An automotive vehicle distributor aimed to throw significant funds at a solution to harmonize their fairly small dealer profile data but it could easily be achieved using their current Excel licenses. Yet another example would be the need for an automotive manufacturer to use a tech vendor’s no-code AI platform to predict mold wipe-down procedures to assure a consistent product quality. Another one is the use of the latest ERP features to ensure equitable pay and promotion opportunities for underrepresented segments of the employee population.I could go on and I am sure there are a ton of better examples out there but you get the point.

There has always been a tech skills and vision gap between enterprise tech and their customers but it is widening. With Covid’s digital business model acceleration, the acceptance of the cloud, executives and business unit leaders are incentivized to adopt pitched innovations with little-to-no due diligence of cultural fit and even need. It appears to be the extreme opposite of a few years ago when every technical innovation was immediately pushed down the ranks to central IT staffers to give it a full technical proctology exam. In both cases, the business sense has little to do with the buying decision.

Every executive wants to be a ‘Technoking’ brand

Historically, manufacturers’ IT rank-and-file are primarily concerned with keeping the lights on and reducing business support backlog, not innovation. New leadership often changes that as it has to make a splash. Every leader sees it as an opportunity to brand themselves their organization’s star innovator. Who wouldn’t want to be like Elon Musk and on the front page of the WSJ?

While I am certain that most organizations will eventually figure out if and how to use a software update’s ground-breaking feature correctly, the real question is how long it will take and what more productive and easier projects they could have undertaken in the interim? One should also consider the cultural disruption such progress may stir up and which may linger for a long time.

Academics and practitioners will readily concede that cultural adaptation, not an innovative idea, is likely the toughest challenge to any innovation. I would also posit that a vision developed by a technology vendor is much harder to adapt than an internally-spawned. The proof is in the expensive catalog of shelfware and excess licenses maintained by the who-is-who of corporate America. Gartner’s
IT
Senior Director Analyst, Stephen White, recently wrote that research shows that IT is always running with 25% of software unused.

Why buy this gadget and why now?

Aside from contractual hiccups, the answer often lies in human nature. The need to innovate and get paid doing it is an unholy alliance in some respects. This is coming from me who is just as guilty to be enthralled with progress as the next guy. Case studies like the demise of Kodak, Blackberry and Nokia are constantly used to remind decision makers not to be caught flat-footed. Another go-to meme for product-lead innovation proponents is Henry Ford’s supposed quote, “If I had asked people what they wanted, they would have said faster horses”. Instead of platitudes, we should be asking why, and so what, before jumping into investments.

Last year, Covid has presented the tech sector with accelerated disruption and some organizations and, for better or for worse, investors have identified this period as an opportunity to innovate. What brought down Kodak and Nokia over years is now potentially taking 18 months of a pandemic.

Boards are now explicitly or implicitly asking leadership to get on with it and take market share with any tools necessary. On balance, enterprise technology had a good 2020 and 2021 is shaping up in similar fashion. It is a match made in heaven. Tech sellers want to sell and executive leaders want to buy. A pre-pandemic PwC study showed that 91% of industrial companies were investing in digital factories but only 6% achieved any level of success. Deloitte and MAPI’s 2020 study of smart manufacturing showed that nearly two-thirds of executives continued the effort, their investment allocation climbed 20% due to Covid.

Leaders who push back or are at least more conservative, some may say thoughtful, may find themselves organizationally isolated, excessively scrutinized, financially penalized or possibly on the street. They definitely will not be on the cover of Forbes. Thus, innovation-driven incentives are making leaders today so hungry to institute change and report its outcome to the board. The press release will certainly only bear the polished version making the responsible executive eligible for the next innovation award, stock grant, news article and commensurate career move. Thomas Haller, Senior Partner at Simon & Kucher, points to his organization’s founder, Dr. Hermann Simon. In his book, Hidden Champions, are needed for innovation. Haller says, “The decision to procure enterprise software or comprehensive consulting engagements only closes competitive gaps at best instead of generating new growth. This is what Clayton M. Christensen’s labels as reduction of resource inefficiencies.”

This shines a different light on the level of false expectations associated with not knowing how to operate the latest innovation. Poor results of “unnatural business decisions” and driven by wrong incentives will often only emerge quarters or years later? Moreover, since almost every technology today runs on freemium or subscription, what is the financial harm? If it doesn’t work out you can always renegotiate vendor terms, cancel the renewal, revert back or be on your merry way to find the next innovation-hungry board. What is the harm in trying it out, becoming an innovation star in an industry publication, making your employer content, and getting paid doing it? If it sounds like moral hazard, it is.

I am not against innovation by a long shot but just against its ugly cousin: blind innovation activism.

On the brighter side, we do find that tools acquired during such an innovation investment binge end up being utilized in truly novel ways much later. Typically, such revelations materialize when budget reviews highlight such tech as potential cost takeouts. Then we may find out that it was actually successfully implemented in a different or smaller scope without wider awareness, initially authorized, and sometimes by completely different teams. Funny enough; this positive spin may end up presenting a licensing violation for the organization. By such time, most productivity loss, CSAT decrease, employee or customer churn; of the initial project, just like the initial approvers and sponsors, are long forgotten. Then, there is just a great deal of positive surprise and boundless optimism of what this technology or feature can be used for. Because as it turns out, the folks in the trenches in finance, the shop floor, shipping or marketing have figured out not only how to properly use it but adjust it to make it fit to their way of operating. This often comes as a surprise to the software vendor as account executives, project managers and support staff rolled off the account. If there is such an upside potential despite all the risk of a bad investment; maybe getting it through the door now, deploy it in a smaller, “good enough” scope to claim success, and figure out its larger future later is the way to go.

As I am sure you, the reader, has been on the receiving end of at least one such “innovation-by-all-means-and-now” order or has wondered why and who would use a technology feature marketed and readily adopted by management as “game changer”. I would love to hear your stories.

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