Source: The Conference Board
Tien: Welcome Ataman! This has obviously been an unusual year, but in your latest survey I was struck by the three most important internal issues that executives were focused on: accelerating the pace of digital transformation, improving innovation, and modifying their business models. Clearly, the c-suite is already looking past the Covid crisis towards more pressing systemic concerns.
Ataman: Yes. Obviously, the Covid crisis was a huge disruptor, but I think in many ways it simply accelerated the issues that have been with us for quite some time. As we note in the report, the current crisis means the luxury of having years-long lead time to digitally transform and experiment with new business models is gone. Recovery will require finding the right balance between conserving cash, and investing in the innovation needed to succeed in this new commercial landscape.
Tien: Let’s start with the first priority: digital transformation. This is a phrase that tends to get thrown around a lot. There’s a lot of hype involved. What does digital transformation mean to the Conference Board?
Ataman: Well, first off I think it’s important to distinguish digital transformation from digitization. The two get mixed up. And the latter is simply the process of converting analog operations to digital ones. Scanning documents and so forth. And that’s still, unfortunately, a huge issue in large sectors of the economy.
Tien: Yes, I’m reminded of that every time I walk into a doctor’s office and see a wall full of manila envelopes.
Ataman: Digital transformation is something much broader and more holistic. Given that we’re in a digital-first world, it requires re-imagining everything: how you make products, how you deliver them to your customers, how you interact with your supply chain, how your company invests in innovation and operates within a larger ecosystem. It requires different ways of organizing and incentivizing your workforce. Shifting to remote work, for example, was obviously much more of an undertaking than just giving everyone laptops and sending them home.
Tien: Agreed. I tend to frame digital transformation as a shift from a product-centric mindset to a customer-oriented one. From shipping units to selling outcomes. And as you just described, that shift towards the customer re-orients the way you do everything. Take customization, for example. There are as many different Netflix home screens as there are Netflix customers. And lots of companies are still re-orienting to that fact.
Ataman: And as a result of that shift in power dynamic from products to customers, from organizations to individuals, the boundaries of companies are becoming more blurry, more permeable. There’s less rigid structure, and more collaboration. So that could be seen as a source of creativity and innovation. But it also means that competition can come from unexpected places, from adjacent or even non-adjacent industries. Twenty years ago, if you were in the health technology space, you probably thought of 3M as a tape company. Today they’re your competitor!
Tien: The second major concern of your survey is innovation. Now when a lot of people think about innovation, they think in terms of making processes more agile, rewarding creativity and being responsive to the market. But in one of your studies you frame investment in “intangible assets” as a proxy for investment in innovation. Could you explain what you mean by that?
Ataman: Sure. Intangible assets are a proxy for innovation spending because databases, software, and knowledge platforms are the backbone of the current service economy. What’s more, you can tie these assets directly to future streams of earnings. In the US private sector, intangible investment overtook tangible investment in the 1990s. And overall, that’s been a good thing. That’s kept this economy competitive.