Strategy in a Digital Age

Foreign.

Hey, everyone. Welcome to this episode of Chats with Jason. I'm your host, Jason S. Bradshaw, and it's so great to have you joining us today. Today's conversation is really intriguing. I got to catch up with Michael Lennox. He is a business consultant and professor at the University of Virginia's Darden School School of Business. Now, Michael has authored numerous books and articles on innovation and sustainability. His newest book is what Led to our Conversation. It's called Strategy in the Digital Age, Mastering Digital Transformation. Now, there's a link in the show notes, of course, to the book to make it easy for you to grab a copy.

It's a fantastic read.

Now, Michael offers a really comprehensive roadmap for managers and business leaders to navigate the complex landscapes of digital technologies. Now, of course, we talk about artificial intelligence, ChatGPT, machine learning, and of course, the reality that it's been around since 1990 and even earlier in various forms. And we're now at that point where companies have the ability to leverage it to achieve different things. But it's not as easy as it necessarily sounds. We'll dive into that and so much.

More in this episode.

So let's jump into it and welcome.

Michael to Chats With Jason. So, Michael, congrats on the new book Strategy in the Digital Age, Mastering Digital Transformation. It's an absolutely great book, and I certainly would recommend it to our audience. Congrats on the book again, Michael, can you tell us a little bit about what led you to writing this book and why someone should pick up a copy?

Yeah, absolutely. So I've been interested in digital technology going back decades now, but over the last five or six years, I've been teaching an elective of the same name, Strategy in the Digital Age. And in many ways, the book was inspired by my engagement with the students and the desire to write something that really pulls together a number of themes that I hadn't really seen in any other books or publications before. For, and as the name suggests, you know, at the heart of what I'm talking about is business strategy. So the question becomes, you know, how do you position yourself in this vastly evolving age of digital technologies? Everything from AI to blockchain to the Internet of things, it has profound implications in many different industries on what I would call kind of the fundamental nature of competition. So this book is really all about how you think about how this is going to change the nature of your business, the nature of competition, and then how can you can successfully position yourself to do well in this evolving world?

Well, certainly a lot there for us to unpack. And only five years ago, there was a conversation around how hard it was to compete. You had to not just do things well, you had to do them better than your competitors. And then as technology continued to develop, it seems that the conversation has moved to, well, yes, of course, you've got to be able to deliver on your promise. You've got to be able to deliver slightly better than your competitors or in a unique way. But now you need to do it faster as well. It's no good just being better. You've got to be faster. And this is where a lot of companies are turning to digital tools, digital technologies, to have them. And one of the buzzwords of this year, of course, is AI. So let's dive straight into AI. How do you see artificial intelligence or augmented intelligence, however you want to define it? How do you see AI playing a part strategically for businesses going forward?

You know, it's interesting, the excitement around AI and it's particularly generative AI since the release of ChatGPT back in November, has been fascinating. As someone who was actually learning AI techniques way back in the early 1990s, we were learning machine learning and neural networks. And as I always like to say, you know, what we were missing back then, we didn't have the processing power we have today. We didn't have the size of the data sets that we have today to train the algorithms using these types of techniques. So I think there really is this sense that it's reached a certain stage of maturation now where it's become very tangible and real. And I think that's what's attracting so much interest, and it's improving every day in ways that are both exciting and obviously giving some people pause. I think we're just beginning to understand how specifically generative AI is going to impact a wide variety of industries. I also worry that we're probably at that point in the hype cycle where the interest and the rhetoric is probably far outstripping what the reality is going to be. So I wouldn't be surprised. Over the next six months, year, there's going to be. What we typically see is this kind of retrenchment of like, well, maybe this isn't going to change everything. Tomorrow that we have a little bit more time. I think the thoughtful companies will be really thinking about how is this engaging us in a way and empowering us in a way to again, create competitive advantage and create maybe some differentiation from our. From our competitors? I think that's going to end up being the key question. Not Just how quickly can I adopt chatgpt and all my functions of my, my organization?

Well, I think that's, as you said, the key, but the understanding that you don't have to be first to win the race, right?

Yeah.

Every single day I'm getting an email from someone saying, solve your sales problems with ChatGPT or something similar, solve your customer service problem with it. But at the end of the day, if you don't actually know what you're going to be doing and why you're doing it, it doesn't matter what tool you have. And even if you do have the tool and know what you're doing, being first doesn't mean you're going, going to win it. It's interesting you say that the thoughtful companies are going to look at how this can deliver a competitive advantage. I've worked in some of the world's largest enterprises. Quite often the conversation would lend to, well, if we've got $5 million, we can do a two year or 12 month technology project and that will solve the problem, whatever the problem is. And then of course, it doesn't solve the problem and you've wasted the money and the time. So are you seeing in your work right now that there are companies that are taking a pause on the investment or are they investing in an experimentation way but thinking it's not going to solve, solve all their problems right away?

Well, I think there's a whole number of really interesting things you just touched upon. So one of the things I talk about in the book is what I call the digital transformation stack. So if you think about the pieces that you need to kind of innovate or adopt to have success, at the base of it is what I call digital infrastructure. This is everything from cloud computing to building data lakes, getting your data organized. Above that, we have what I would call data and analytics, the kind of sophisticated tools we can apply to the data that we collect. And AI falls into that category in all those forms. Then you begin to start thinking about actual applications, digital applications you can create with this technology. And that might be something internal, maybe for your HR group, maybe it's external for your customers or the like. And then the top of the stack is digital strategy. And not surprisingly, I think this is a critically important. I like to make the joke that, you know, a lot of digital transformation efforts, AI efforts are like, you know, making the engines on the Titanic go faster or more efficiently. At the end of the day you still hit the iceberg. So the key is to know where to steer the ship. And so where I've seen a lot of companies fail is they start a digital transformation project. Again, I put generative AI in that category and they start at the bottom of the stack. They immediately go to their IT organization and they want to spend dollars on technology. Not thinking through, well, where are they trying to go? My running joke is I run into a lot of companies who say they want to be the Google of X or maybe now the OpenAI of X. And my response is, you're not going to be the open AI of X. OpenAI is going to be the OpenAI of X. You really need to think through what do you bring to the table and how does the technology, technology allow you to leverage it in a way that creates value. So it's starting at that top of the stack and then working down to understand, all right, this is the technology we actually, we actually need.

I think that's that analogy of steering the ship, you know, going fast and you're still going to hit the, hit the iceberg if you don't know where you need to steer the ship is a great one. I'm, we've both seen too many times, I think organizations that just buy tech for the sake of buying tech. I know myself even in my own businesses, sometimes I've been attracted to the shiny ball of the promise of that new piece of technology. Now in the book, you talk about those four layers of digital transformation and strategy that we just went through right now.

What, who do you think's doing the.

Doing the important work, leading the important work when it comes to transforming their businesses digitally? Is there a handout there or a industry out there that you see taking a really strategic approach to how they're transforming their businesses using digital technologies?

Well, this may be a too obvious answer, but the big tech companies, companies where technology is kind of native to their existence and culture, often are ahead of especially incumbent companies who maybe come from a more traditional background in terms of how they approach problems. And this is something I end up working with a lot of more of those latter companies who are interested in how they survive and thrive in the face of disruption. And it's challenging. There are so many organizations we could say I once successful companies, when faced with these types of disruptions, just failed to be able to kind of move themselves forward and transform as needed there. So one of the things that I talk quite a bit about in the book, and this is, you know, not surprising, is this importance of agility that given the pace of technology, given the changes that are occurring, you need to build an organization that is agile, that can deal with, you know, the inability for us to forecast exactly where these technologies will go. Right. In the beginning of the book, I talk about the exponential evolution and improvement of three core technologies, processing power, which most people know of as Moore's Law. This doubling of processing power basically every 18 months or so. We also see exponential improvement in bandwidth, and we also see it in terms of storage, especially now with cloud computing and the like. If those trends continue, and these trends have gone on for a number of decades, if these trends Continue for another 10 years, the world is going to be radically different than it is today. So I, I, I encourage everyone to have some doubt if anyone tells you they know exactly what technology is going to look like 10 years from now. So for an organization that makes planning very hard, it means that you have to build in the muscle memory, if you will, for innovating, for being agile, for repositioning. I think there's a misconception, especially even the tech sector, especially in the Bay Area, that strategy is the antithesis of what you want to do in a new tech venture, where you want to just move quick and break things. As Mark Zuckerberg famously once said, and I totally disagree with that perspective, it's really important to have a line of sight of where you're trying to go. Strategy is not, though, saying this is the direction and then never revisiting it again. Strategy is actually a very dynamic process where you need to be constantly reflecting on what are you learning, do we need to pivot? Do we need to consider a new direction? And so I think, you know, going all the way back to where we started with generative AI, that learning mentality is going to be absolutely critical right now because the technology is moving so quickly, it's not clear exactly where it will be even in six months from now. So what can you learn about it right now that's going to help position you better as that technology evolves?

So what have you seen stops companies.

Having this agility, this experimentation approach to business?

Yeah, there's so many pathologies that companies have. One that I've seen a number of times even in my own organization, is the idea that data can be powerful within an organization. So when you start to move forward to like build a data lake and bring data together from different sources, people could actively resist this. They might, they might not want to lose that power, being the person who knows X from having that data. So data is power. It can be disruptive and disruptive to existing business lines. And sources of revenue. And so depending on where you sit in the organization, that can be very disconcerting. Obviously, right now, so many concerns about AI replacing jobs. So how do people think about this new technology? If they see it as a threat to their job, you can imagine they're going to be resistant. There's this great line that core capabilities can be core rigidity. So what made you successful in the past makes you blind to what you need to do in the future. So all of these pathologies are out there. And unfortunately for a lot of incumbent firms, that's what they need to overcome to be able to have that type of agility.

So do you think, do you buy.

Into that there's going to be this bloodbath of job losses across the world because of things like generative AI, or do you think that there's going to be a transformation or a need for transformation and there will be new jobs to replace those that are lost?

Yeah, I, I definitely fall into the latter camp. In general, um, I always talk about, you know, the original Luddites were English mill workers who decided to destroy the mill machines as they came about in the beginning of the Industrial Revolution. And one thing economists will observe is that over the last 150 years, this fear of technology replacing jobs has been there all along. And luckily, we do tend to create new types of jobs in the wake of technology. Now, some people think that this time it might actually be different, and the pace of change is so quick that we might not create those jobs. We'll see. I do worry, though, about income inequality, because I think what we're moving towards is even more. We're already there, but even more of what we might call kind of the rock star economy. And so think about something like a lawyer. Right now, most lawyer law firms are structured like pyramids. They might have junior associates who do a lot of the kind of grunt work, and then eventually the senior partners, well, ChatGPT and these types of generative AI might be able to do a lot of that kind of basic case review and the like. And as a result, you're not going to need that pyramid structure anymore. It's going to be a much thinner pyramid at the very least. And so those people at the top will be able to do 10x the work they're able to do now once they leverage the technology. I think you'll see that for doctors. You'll probably see it in my profession as a college professor, writers, any number of industries, I think, are going to see this phenomenon. I've Done some recent podcasts myself on, on the music industry and what's happening there. I think the Taylor Swifts of the world, they're going to be fines. But there's a vast part of the market that does more routine work, maybe scoring a television series. There's where we're starting to see generative AI really, you know, get some traction. And, and I think that's going to, going to transform these industries in ways again, where the winners are going to be even bigger winners and there's going to be fewer people who are able to get to that, that kind of elite level.

Well, we've seen, of course, in the US the actors strike and the writers strike as a result of some of their concerns, which are obvious that they need to be addressed to protect the individuals. It's an interesting society challenge. We want that, we want the growth and the transformation that these innovations deliver, but at the same time we need to solve the problems that they create in their way. So it'll be interesting to see how companies deal with that and obviously countries as well. Now, we've talked a lot about big companies, big digital transformations. You mentioned that there's, not surprisingly, a lot of Silicon Valley is leading the way in their transformations. But does digital transformations apply to every industry? Like if I'm Chick Fil A, do I need to worry about digital transformation? I sell chicken burgers.

Great, great. You know, I like to say that I have not yet found an industry that isn't violating some of the pressures of digital transformation. It's funny you mentioned, you know, Chick Fil a the ways in which they've improved their operations by leveraging, you know, digital ordering, moving more towards, you know, lines of cars coming through rather than people coming into the store. The ways that then creates data that can be used for customer engagement more broadly. I think even in those types of businesses, you know, retail businesses like that, they are feeling some of the pressures of digital transformation. If you think about old nine manufacturing businesses, one of the things that's happening is not only automation, which is a more obvious one, but what we call the Internet of things and things like digital twins. So using simulation and VR to create alternative realities of the real world to try to improve operational efficiency and the like. So even in the quote unquote physical world, we're seeing digitization have an impact here. But the important thing to recognize is those impacts aren't going to be the same in every industry. And in some industries they might reaffirm the existing strengths and capabilities you have as an organization. And in others, they could be quite disruptive in terms of what you have historically done.

Yeah, I think it comes back to a point you made earlier. Businesses need to be prepared to be agile. They need to be prepared to experiment, to test out all the different technologies that are coming down the path to see which one will deliver the best competitive advantage for them. Now, you have a number of resources, a number of books that you've written over the years on this topic. Really, you're not so much just digital, but on business transformation. How can people follow your work and learn more about you?

Well, I can suggest you go to my website, which is very simply Michael Lennox.com, which is Lenox for the last name there. And as you mentioned, I've been very interested in transformation, not only for digital, but also around things like decarbonization and climate change. And really trying to understand those industry dynamics are so important for so many different domains.

So you, you wrote a book. I can't remember the title, sorry, but Can Business about greed Save the Earth?

Trying to be a little provocative with the title there.

So it definitely caught my attention when I was checking out your website. What's the answer? Can't Business save the Earth?

You know, I'm going to give the good academic response, which is depends. But what I really was getting at in that book is that if you think about some of the challenges we face in terms of sustainability, environment, in particular climate change, it is hard for me to see a path forward that doesn't have coming with it significant innovation, both in the underlying technology and also in many cases, the underlying business model within these industries. And so what the book talks about is how do we think about innovation and transformation, both from the private sector, but also the role the public sector plays in helping inspire that along. Again, I think if we're going to make progress on decarbonization, we're going to need to bend the cost curve on these clean, quote unquote, clean technologies so that they are hopefully actually the lower cost alternative compared to existing technologies. And there's actually a number of really interesting domains where that's occurring. It's happening in electric vehicles, it's happening in renewable energy, and those are all very positive trends towards decarbonization. There's other parts of the equation that are going to be incredibly hard to decarbonize. Things like steel and cement production, which are really the backbones of our kind of modern industrial economy. And it's going to take some effort to kind of push those along. But markets, I would argue have to be part of the solution. It isn't just going to happen in the public sector.

Makes perfect sense. Well, as I promised, Michael has definitely delivered a lot of thought provoking topics for us today. And as you can tell just by us having that brief conversation about just one of his other books, he has studied these deep business transformation and business impacts on society and can help you grow your business and to evolve your business from a really learned perspective. So Michael, I really appreciate you sharing your insights and your wisdom with us today. Before we do wrap up though, I have one last question and that's what's the one thing anyone listening or watching the show today should do as soon as they they finish watching?

I, you know, I, I think, well, other than go read the book, of course, you know, I, I, I, I'll go back to this notion of strategy because I do feel like it's missing sometimes. That strategy is almost always about where is your unique differentiated competitive position. It is not how do we follow just the best practices that are out there. And so as, again, as we started with Generative AI, it's not just about how do we quickly go and adopt this technology. It's being very thoughtful about why should we, given our capabilities, given our mission and values as an organization, adopt this technology and how is it going to help us differentiate and create value in unique ways that other potential players are not going to do? That's the key question and one that I find sometimes it's just not fully embraced. When, when these new technologies come up.

Yeah, yeah. And just a follow up to that. You've mentioned the word strategy a couple of times during the show. You've also mentioned the need to be agile. A lot of organizations, I've been part of them, the executive team goes off site, we have two or three days at usually a fancy resort. We come up with our five year, sometimes a three year old strategic imperatives, our strategic goals for the next three to five years. And then we go back to the organization and say to everyone, this is what we're going to do over the next three to five years. And that becomes the lens through which many organizations make every decision, regardless of what's happening around them. Do you think that's the right approach or am I hearing correctly that you think that organizations should revisit their strategies and, and test them perhaps more frequently?

Yeah, I've been very influenced by some of my colleagues who are kind of leaders in design thinking and this idea of thinking of any action, any strategic choice you're making as A hypothesis that needs to be tested. What are the underlying assumptions associated with that? And then how do you test those underlying assumptions as quickly and efficiently as you can? And the emphasis placed on learning. Right, so what are we learning here? So a strategic action that you're pursuing that fails isn't necessarily a bad outcome because there's learning that occurs here and now, you know, all right, maybe we need to pivot in a new direction, or maybe you get a greater insight that allows for a new action to come up that you want to try within the organization. You know, it's cliche, but you hear these things like, you know, fail fast and the like. I think those are actually really important to build in this mentality that we need to learn, experiment, and move on again. It doesn't mean you don't have a strategy. You always are thinking through, where is this going to position us? How is this going to help us? How does it create value and competitive advantage? But you don't necessarily set it in stone and assume that's going to be sufficient moving forward.

Yeah, that makes sense. I think the key there, though, is learning. It's one thing to fail fast, but if you don't do the learning component of that, then it is just a failure and you just. Failure growing your business. Yeah.

Yeah.

Well, Michael, it has been an absolute pleasure having you on the show. Thank you so much for agreeing to be part of it and sharing your thoughts with us today.

Thank you so much for having me. I really enjoyed the conversation.