David L. Rogers - The Digital Transformation Roadmap Part 1

Our guest argues that businesses must transform, not just products and business models, they must transform the organization itself. Based on two decades of research and advising companies around the globe, he identified the five biggest barriers to digital transformation, vision, priorities, , experimentation, governance, and capabilities. He then shows how any business can evolve by heeding the lessons of several exemplars.

It's a great pleasure to welcome the author of the digital transformation roadmap David L. Rogers welcome to the show

And he was so busy that back in twenty sixteen he wrote the first book on digital transformation the digital transformation playbook a book that i was telling them off-air i could have done with so badly i was working in the media industry maybe we'll share that a little bit because it really put the topic on the map,

I mean, when I wrote the playbook, I was writing, the first book on digital transformation. Digital transformation per se, really arguing that, look, this isn't just a matter of interest to sort of new startups. Of course you had a lot of those, it was digital native companies that had already arisen, but every legacy company needed to be thinking about how do we really rethink our business? And at that point you had certain sectors like yours, the media people understood absolutely right.

They were living it. They had been living through disruption for several years. A lot of other industries though, we're still thinking of digital. It's like, Oh, that might affect us. We're a bank, we're a university, we're a government. Maybe we could do something there. They didn't see the urgency yet. So that was the context in which I wrote that book and argued, look, this is something every organization is going to have to think about and what does it really take?

It's really, it's not about technology. It's much more about redefining what business you're in. Now, fast forward to a couple months ago when my sequel came out, and it's a very different context because everyone is at least giving lip service digital transformation. It's been in their annual reports for a few years now. I was just talking with global financial services for yesterday. And we're going to be traveling, do some work with and talking about timeframe.

They said, we should try to schedule this in the next few months, because honestly, we had our last report to analysts and digital transformation was just a bullet on a slide of, Hey, here's what we're doing. And it's clear, we can't get away with that anymore. Our next analyst report in a few months, we have to really explain like, how is this impacting the business? What's, what's our agenda? What are we trying to achieve in the next few years?

How are we going to drive and unlock new growth through digital transformation? So it's really become much more elevated on the agenda of companies. And yet the other differences today, we all realize how hard it is. Even if you're commit to it and are focused on it and dedicated and put resources into it How hard it is to really effectively drive change of this kind in organizations?

In the book today and particularly i wanted to share with you i didn't say this to off-air i wear a pin to try and reflect the show every week and i was gonna wear a. A butterfly or a caterpillar because i thought of transformation is like you know it's too cliche so i actually wore just one here that you can see the word why and this is because why is so important to this whole thing it's almost the top or the bottom of the pyramid not the top because that's where it starts.

And I thought before we even get there, because you mentioned media and I mentioned it as my own transformation story, I thought we'd open with a case study and the way I thought about this, I write an article each week to try and reflect the show and I wrote an article about this with the Dickens quote, it was the best of times. It was the worst of times.

It's so frustrating to see it happen. Despite books like yours written in 2016. Leaders read this book the digital transformation Roadmap it's so important

Really get past your blind spots that you've inherited of you think, you know what your business is and really take a fresh eye to all of those things. But what I learned since then is even if you are able to do that, right, if you commit to making real change, if you're able to bring fresh strategic thinking and come up and identify new opportunities for growth to make the change happen, you're In the organization itself is incredibly hard.

And so, I opened with that case where, as you said, it's written to highlight the stories of a particular company. In this case, the New York times, every one of the things that they the traps that they fell into, the mistakes they made. I see time and again in every industry and industrial firms and, consulting firms and big banks and, insurance companies and telcos. One of them being this sort of, well, we need to make some kind of change.

Let's give a squad, the skunk works used to be the old model from decades past. The organization is slow. So the solution to that is we'll get some small team, let them move fast. And then that allows the organization to never change. It gives , an excuse for everybody else to just go about their business and make. You don't have to change because that would be too hard for you. And guess what? That, that doesn't work out well in the, in the longterm or even in the medium or short term.

And clarify the definition of digital transformation or DX, as you call it from now on.

This is a very common misconception about digital transformation, that it's an I. T. project and it's about working with your I. T. vendors. No, this is about the business, right? Transforming an established business. Second this is You know, it's, it's really quite distinct than startups. It's not simply a matter of identifying market opportunity or iterating and discovering an effective digital business model, this is about existing organizations.

And so all the things you have to do have to happen within the context that you already have employees and customers and a brand reputation and distribution partners and already products and sources of revenue that are out there. And, financial obligations and probably legal contractual obligations with partners channel conflict. All these things are already in place. And so the trick is to.

Turn all the things you have as an established business of some scale to your advantage, because unless you're very smart, they will actually work against you and make it much harder for you to compete, simply because it'll be much harder for you to change and adapt and to move quickly. And the third sort of truth of digital transformation I take from this definition is digital transformation. Is not a project, right? It is that it doesn't come with a start date and an end date.

This is a journey that you are going to be on continuously about becoming over time a more and more adaptive organization that is better and better able to continually change, reinvent itself and again, respond to this world of constant digital change.

Yeah. The data all seems to report at least 70%, some as high as 80 percent are failing, right, are not achieving their goals, are not really driving sustainable change and new value creation versus the 30 percent are the ones that are succeeding, that are really making meaningful change in the business.

And what I've discovered is there's a lack of an understanding of why. Most commonly, people think it's well, I will hear them point to age. Well, the company is so old. We've been around so long. That's why it's hard to change. Some companies will point to their industry. Oh, you just don't understand. Our industry is so old fashioned. So, averse to change. So stuck in its ways. I hear regularly nationality, national culture. Oh, well, you have to understand Japanese.

Companies or brazilian companies or italian companies, we're not, we're not good at X. All of those can be factors, but what I've learned through my work, my research is they are not the biggest factor. The real challenge, the most predictive metric is organizational complexity, and that seems to be pretty well measured by the three factors. You, you echoed back from the book, how many employees do you have? Right.

1, 2. Okay. 150 classic Dunbar number gets harder to stand up in a room and just talk with everyone about the strategy and what you're doing. So number of employees, lines of business. Do you have different offerings to different types of customers, different business models and geography? Geography adds. Has always added complexity in terms of, supply chains and distribution, honestly, less today than it did in the past.

Although clearly still some, but regulation adds a huge amount of complexity when you're operating in different geographies as well as marketing and customer messaging and so forth. So really those three things, if you are, this was part of my journey learning.

Towards writing this book of why the organization matters so much, if you're trying to transform the business and really take it in a new direction and unlock some new digital opportunities for growth, if you're a company of a hundred people and you've got one line of business and you're operating in one country you're If you have a clear understanding what you're trying to do, I'm not saying it's easy, but it's relatively straightforward. It is easier.

But then if you're a company with 10, 000 employees, let alone 100, 000 employees, your multiple geographies, you've got different lines of business serving really different markets with different needs to make Any kind of pervasive change across the organization is just much, much harder because of the complexity of the organization itself.

And that's why I really found that these kinds of complex organizations really needed some tools and learning from, as I call them, the 30 percent from those who have actually been able to make true, substantial, Meaningful change in the organization. What did they do? Right, right. What can we learn from them? And that was my goal is to pull those insights together. Look at the patterns and say, here are the things that make this possible.

Not easy, but even with these large, complex organizations, it really is possible to make change. So

This problem statement reflects what so many of listeners experience these are the top barriers to dx success no shared vision no growth parties no focus on experimentation no flexibility and governance and no changing capabilities. Now there's a lot in those. I'd love to take them one at a time, David, if that was okay. And I might pepper in quotes every so often, but otherwise I'll hand over to you.

Setting aside that some of that is just kind of consultant gobbledygook. It's also incredibly generic. Right. So to have a vision that is actually going to pull you forward as an organization, it has to be specific, right? It has to be unique to your organization. I see so many of these vision statements. If you took your thumb and you covered up the logo at the top of the memo, you would have no idea what company this pertains to.

You wouldn't even be able to guess the industry in many cases, right? So that is, that's a really common barrier. And I find, I'll talk to three different executives in the same company. I'll say, what does digital transformation mean for you? You get three different answers, right? There's no commonality. Second barrier as you mentioned, no growth priorities. It is essential as you embark on this to really define what are the problems that matter most to your business.

What are you really going to try to solve? What are the sort of levers of business value creation that you are really going to try to prioritize above all others? Because as you start to look at, new digital Business models, interaction models, customer experiences, markets, you will, if you're seriously curious, you'll start seeing a hundred different ideas. And that's what happens. I see companies, they just start shooting off in a lot of different directions.

So it is so critical that we link this process of digital innovation, really what I call, it's this missing link between strategy and innovation. In so many firms, I'm actually writing an article about that for Harvard Business Review right now, companies that sort of set up some kind of team to drive innovation and pursue new ideas. And they're just given. It's like a blue sky, a thousand flowers bloom, just come up with. If it's a good idea, it's a good idea.

It's like, no, you have an existing company. Just because something is a good idea for someone to build or pursue or a good market doesn't mean it's one that you as a particular established business should go after. So you have to define these specific priorities and of course they have to be linked to a careful strategy process about the company. Often I would say mostly not there. Third barrier very often see is no focus on experimentation.

And this is companies that are still following the old planning playbook, what I would call a traditional planning process. And by which I mean, you're trying, you're thinking of doing something new. You're making a big plan or a possible investment. What do you do? You start with a lot of third party data. Right. You hire others, independent consultants and so forth to bring in lots of benchmarks, best practices, right?

No, not first party data, not actual testing and experimentation of your own, but third party data. Then you do a lot of analysis, business case writing and so forth. Then you go traditional classic, take it to the top of the ladder. Who makes the decision? It's the highest paid person's opinion, as they say in Silicon Valley, the hippo, right? Senior executive makes the call and then everything focuses on just executing that plan, right? We have the plan. We've detailed it out.

Inside our meeting rooms in great specificity of what we're going to do. It's gotten approval and now we just have to execute, execute. And like, we just, the train has left the station. We're going down the tracks and, and, who knows what's ahead. That is the exact opposite of the whole approach of. Continuous rapid experimentation, which I've written about for years.

I've drawn great, insight in and thinking from folks like Steve Blank and Bob Dorf and Rita McGrath and Stefan Tompkin and others. But really, All the companies that are really driving change, they take this approach, this mindset of defining the problem you're going to solve and then rapidly testing and validating different options in the business hypotheses around each the fourth barrier that's very common is what I call no flexibility in governance.

So that is, using what's commonly called BAU business as usual, your kind of existing. lines of decision making, your traditional budgeting processes, your traditional organizational structure, everything that was developed over time for the core business, the legacy business, the business, well, and maybe actually fit that suit that quite well, but just apply that same approach, that same management model and rules and processes and procedures when you're trying to do totally new things.

And then lastly, the last barrier I see is companies who are trying to digitally transform, but they are really not making any significant change in their core capabilities. And by that, I would include, really rethinking their technology stack, but also really, Rethinking and growing their talent base, the skills that people they have and also really their culture.

What is the culture we have as an organization that's brought us to where we are today being really thoughtful are the things about that that need to change if we're really going to effectively head where we're trying to go. So many companies I find just are not addressing those things.

This has happened. Me, for example, in digital transformation, David, where it's like on constantly asking what the, the strategy was, and I was told.

Basically you look after the digital strategy and i was like oh well that's gonna fail if there's no organizational strategy cuz it's just an enabler you know i so i didn't have the language or the road map and or the playbook so i just said i could have done with this to even gonna go here i got you a copy of this this would have been helpful but em.

They got it there are together they learned and they went from the seventy to thirty and maybe you'll tell that story is a little just a little vignette here and then we'll get into deeper dive until okay now we know what not to do here's what to do.

It's going to be much harder to make change happen without that support. But we've seen time and again, companies where there's a very strong clear digit mandate. From the CEO and the chief executive, and complete failure, right about general electric and, and their failure of digital transformation and why that was so predictable, why you could see why that it was never going to work, despite the fact that it had this very loud and vocal support and, and, and resources from the top.

So the New York times was a similar, it was, it was the chief executive, of course, there was a publisher and it was at the time, Arthur Soltzberger jr. And. He said, the digital is the future. We are going to be a part of this. They were to my knowledge, the first, at least major news existing legacy newspaper to go on the web. They were there right from the the beginning with launching a website.

They set up a separate subsidiary, separate division, as we talked about to figure out, do all this digital media stuff. And yet they, from the beginning fell into what I call the digitalization trap. And this is part of why. When I meet with companies, I stress why, digital transformation and, corporate innovation are not like two separate things, right? It can't be like two different teams, two different agendas going in different directions. This is, these have to be wedded together.

So when you don't do that, you fall into the digitalization trap, which means digital transformation is just about taking what you have already done and integrating it. Adding some technology to it, saying let's put some more technology. Let's use technology, new capabilities in service of doing the same thing we have always done. And so that was the. Unspoken and at times actually clearly spoken mindset of the New York times.

This was all about let's use all these new digital tools to deliver the same print newspaper, right? Everything was just another way to get the print newspaper to the customer. That was the language that the publisher used talking about, I'll use any technology, CD ROMs, the web, whatever, to get the newspaper. The New York times, he said, heck, I would beam it into your brain.

If I, if you'd show me the neural link technology for it, he thought that was very forward looking, but it was actually completely confined to the history and the past of the company. And so everything was always about the print first. I mean, literally. The cadence of digital publishing was based on the print. It was like, well, of course we'll write digital articles once a day, because that's when we write them for the print edition. Everything started from that viewpoint.

And despite a lot of, digital experiments and hiring people and building technology and bringing people in and, winning. Prizes for interesting multimedia, new experiments and, and, design of a story. It wasn't really touching the core business itself. The digital talent they hired was not sticking around cause they realized there really wasn't. A chance for them to do any meaningful change in the business.

New digital entrants started to grow much more quickly in terms of attracting a younger viewers. And more fundamentally, the company was suffering because it had not reckoned with the change in the economics around advertising. In print media and and so year after year, they saw it was a dramatic was a seven year period revenue. Total revenue for the New York Times declined 52%. So then we had this year where the bombshell dropped. And that was, as you mentioned, the innovation report.

It's almost like all the president's men. It's made for, television story of journalism. I'm not sure why it hasn't been made yet. Maybe I should make the movie. And what happened was, so this internal task force, this small scrappy team , of Not a bunch of senior executives. Actually, it was, it was very smartly done. I mean, clearly folks at the leadership realized this was not working.

So they put this small team together of people from different backgrounds, investigative journalists, not people with long standing in the times and said, we want you to spend several months. Figuring out what is actually going on, what's changing, what's not, why is our innovation not keeping pace with what it needs to happen?

So they wrote this report, they talked to everyone inside the times, they talked to competitors, they talked to partners and they wrote this incredible report that really detailed. An organization at war with itself right over its digital future, the people, the older employees were fiercely clinging to the status quo. The silos that were built over decades of tradition, a century of tradition were just completely rigid. This culture of sort of perfectionism, which.

It had its time and place, right? Protecting and growing the brand. But today it had become a barrier to really any experimentation and real learning inside the organization. So all of this was detailed in this report that was supposed to be read by, I think it was five people, right? It's just a secret report from the top leadership. But then, and like classic journalism and Hollywood fashion it was leaked, right?

Somebody who was presumably, one of the writers and authors of the report probably leaked it and it first showed up. It was on the pages. I think it was a buzzfeed and, soon it was uploaded just publicly on the web and it was it sent shockwaves actually throughout the industry because all their peers had been looking to the New York Times. They didn't know what to do about it. This dramatic decline in the whole economics around news.

And they said, well, the New York Times is going to figure it out and then we'll just follow whatever model they come up with. And suddenly it was like, the emperor has no clothes. Right. But most importantly, inside the organization, no one could, no one could say anymore. We should just stick to our our old ways of working. We'll just we don't need that much change and so forth. And so it was this real kind of. Essential necessary kind of shock to the system.

Hey, we have to really change much more deeply. And of course the, the, the great news, the good, part of the story is that it did, it helped to really unlock and accelerate a true transformation of the business that has happened over the last, really decade. I mean, by now they're really actually quite well established, but it took several years to really write the ship. And. Both financially and really transform through all kind of the five steps of the roadmap, which I lay out in the book.

In one case, David, you'll find this one funny. We had put teams together from diverse parts of the business and they had these open, Invested in new tables, so they'd be all sitting beside each other, open office type. And they started to build like these literally out of cardboard silos around themselves. Man, it was unbelievable. So yeah, not many, but yeah, they were definitely there, but

It takes, it's messy in the middle. And I think that's something that's so. seldom recognize and you've seen that with many of the organizations you've worked with

It is not a flip of the switch. It's not, we've got the plan. All of a sudden everything, everyone's on board. I mean, one of the things I, I try to let people set reasonable expectations. I often see.

People coming and saying, look, there's just so many people in the organization who are, not supporting this or their old fashion, or I don't think even if I give them, expose them to the right reading and classes or whatever, I, I think they're, resistant and I say, look, your job is not to persuade everybody at once. Right. That is not going to happen. Nobody like waves, the magic wand. I swear CEOs come in.

I think they're asking me for a hypnosis lessons or like, how do I magically like brainwash or change the minds of everyone in my company? I said, that's not how this happens. Right.

You are going to define. A much clearer vision of what you're doing, what you're aiming for, what you're trying to achieve. And if you do this right, there are some people there's going to be a guarantee. You may think no one is with you, but if you actually say I'm serious about change and you have a clear and compelling message of where you're going and why. You are going in why you are the organization to position to hold that position to take that path in the future.

There are going to be some people in your company who are going to say, thank God, we're finally going to like do something and they're going to be excited. They're going to be a minority probably, right? But they're going to be the ones who take up the ball first, right? And that's the whole point. And then you give them the resources and you make the organizational changes to start to give them the leeway and the.

The, the operating models, the governance and so forth, the tools to do the right work, and they'll start to do it. And then it's snowballs. If you do it right, if you do your job as a leader, they'll start to show impact success. Others who are on the fence, who are like, Oh, it sounds interesting. I'm not sure I want to risk my career being the first team working on this. They'll say, Oh, okay, this is for real.

And like, People are getting, spotlighted and rewarded and recognized for doing this. I, I, I'd step up and try to do some of that in my, supply chain team or regional marketing team or whatever else. And it starts to gradually, expand as it deepens through the organization. So yeah, it's not going to be smooth. It's not going to be overnight. But it's, it's the work that has to be done. And if you have that clarity of why you're doing it, that makes all the difference.

Of some sort, and I thought just before we move on to solution mode to opportunity mode in the PO model that we'd share how the failure to innovate is what's holding legacy firms back and what two key challenges you recognize to corporate innovation really are the challenges of uncertainty and proximity.

Cause and what I found is really, there's two fundamental reasons why innovation is, is hard for, for established businesses. Now, the first is. The challenge of uncertainty, and that is just foundational to innovation. The whole point of why innovation is hard is because you're doing something you haven't done before. And more particularly, it's not just that you haven't done it, but that there is uncertainty to it, right?

If you're going into a new line of business where there's already a lot of established competitors and the market's well formed and so forth, and you just say, Oh, we're gonna make an acquisition or something. There's not necessarily a lot of uncertainty, but most of what we talk about when we're really talking about corporate innovation. It's like a startup. First challenge you face is you do not know what is going to work.

And actually as a corporate innovator, I would say the first challenge is you don't admit that, right? You believe that you can figure out in advance what will work. You think there's a crystal ball. It's called the business case, right? There is no such thing. Right. As, as my friend, Bob Dorff used to say business plan writing should be taken from the business schools of universities and moved into the creative writing departments of the English departments.

So, there is no crystal ball and that is that that fundamental challenge, and fortunately we've got. Some really great thinking and some models by now about how do you address uncertainty in innovation?

And broadly speaking, there's two essential levers that I talk about in the book. You have to bring an approach of iterative experimentation. I also wrote that about that in the previous book, a whole chapter on rapid experimentation and And we can look to the lessons of lean startup thinkers like Steve blank. We can look to agile software development, look to the practices that have evolved under what's called product management and, and, and design thinking.

I talk about these as for the four religions of rapid iterative experimentation. And there's lessons to be drawn from all these and I write about the book and and give some structures and tools to actually apply this within a company and sort of a repeatable basis. You can teach the teams. So that's the first challenge. Now, I'll point out that as a challenge that is held in common with startups, which is why. Our best thinking has come out of the startup world because they live or die by this.

You don't even have a business if you don't solve for product market fit and find that, the elusive, the search for a repeatable, scalable, profitable business model is Steve like talked about it is that's, that's what the job of a startup is. So. We have, they have the same problem, right? But there's a different challenge. There's a second challenge that is not faced by startups, right? And that is faced by established companies.

And the second challenge of corporate innovation is what I call the challenge of proximity. And what this means is it is much harder to pursue innovation that is farther from your core, right? Farther from your current business that you know so well, it is inherently easier to innovate. Within the core business, right?

I'm not saying it's easy, but relatively so it is much harder for companies to manage the process and effectively take a good idea all the way to market at scale when it is not, doesn't have a natural fit inside the current organization. And there's all sorts of reasons I talk about why this is, companies apply the metrics and the KPIs from their legacy business to the new thing. And it doesn't work. Doesn't fit whatsoever. Simple budgeting, right? Budgeting is often dictated by.

You know what parts of the business are creating revenue now, and that's how they get resources to invest in next year on DSO. If there's nobody currently doing this, who's going to put the resources behind it? Lines of of control and oversight. There's all sorts of reasons why when you're venturing beyond the core It's very challenging, right? It even starts with just mindset.

Again, this sort of this trap of Ted Levitt, wrote about it decades ago, defining your future in terms of the products of the past, rather than in terms of customer needs. So this sort of habitual mindset is going to just keep steering you away from these Innovations that are further from your court, right? Because you haven't done those products before. So those are the two challenges and we have to address both of them if we're going to really unlock growth because it's not enough.

Yes, every business has to look at how do we continue to incrementally improve our existing business. But that is not going to be enough with the level of dynamism and change. We see in, in wave after wave of the digital era, we have to also be able to pursue innovation.

I talk about three paths to grow three paths to innovation. One is, is low uncertainty innovation within the core business, right? And that is the easiest path, right? That can be managed basically by your normal business as usual processes. The second path is. Often neglected in a lot of theories of innovation is highly uncertain innovation in your core business. And here you naturally do it in your core business, except they don't have the right processes in place.

They're not used to iterative experimentation. And so you completely overestimate your certainty and your knowledge of the future. And you have Lots of costly mistakes. And then the third path is, beyond the court. So you need for each of these, a different management model. You actually need different processes and funding models and so forth to to manage each of these paths to growth. And that's. Really at the heart of driving any kind of change and transformation in an established company.

Facebook is a great example that hopefully will come to that and then what we're gonna do is we're gonna park the steps of the road map for part two and go through those at a high level in part two cuz we simply won't have time to even touch on that and only be, frustrating you will be like when's the next episode of the netflix documentary coming out you'll be waiting for so we won't go there.

What i wanted to mention another example cause you brilliantly articulate the example and i'll preempt this one with a little quote from the book again just to share with people the depth of writing and research in there, but also to two tl sub for this great case study of cnn plus you said here under uncertainty many practitioners describe, business innovation as an effort to address three types of uncertainty desirability. Feasibility and profitability, but others are critical as well.

Defensibility, scalability, and legality with laws and regulations. For example, for any specific venture, the sources of uncertainty become even more specific, such as cost structure, competitive differentiation, channel partners, user experience, and so on.

The failure of CNN plus launched in 2022. As a new digital business for the news is a perfect example. I love you to share this, David.

And that's really what I set out to give some tools around is I've been coaching and advising innovation teams in large companies and some small for many years now, and there's a certain light bulb moment where they, They've been, I don't know, reading startup owner's manual or, whatever we've been talking about with case studies and they get this idea, ah, we've got to experiment, got to test and learn with. We have to recognize and write down all of our hypotheses. This is not a business plan.

It's all of unknowns that need to be tested. But then what happens time and again is they start writing down all the, we don't know if it's going to work. Matt pass legal compliance. We don't know what the customer demand is. We don't know what the price point is. We don't know if there's competitive moats that we can build. We don't know all these different things. You don't know all these sources of uncertainty and it's a huge list. And then they're like, how do I get started?

Like, what the heck do we, where do we begin? So that's, that's a, something that I really tried to focus on in particular in that chapter was give a structure to that now in the case of CNN, They didn't, right? They didn't have that humility that, oh my gosh, there are so many things we don't know, right?

They didn't detail the business hypotheses around this idea, and then say, okay, how could we pick these off one at a time and in a very low cost, low risk low time investment, get some data, not total data, not perfect information, but some direct first party learning around one of these hypotheses and another. Like who's the right customer segment? Is this and we're talking about streaming, right? Would our streaming opportunity be for our current television viewers?

Or would it be for people who have never watched us on TV? Is it, is it, us is international and so forth. Is there a price point? Are people willing to pay? Does it have to be ad supported? There are lots of different questions you could ask. They didn't ask and test, right? They followed again, what I call their, their, their one great example of what I call this traditional planning process. So. You've got this established business, CNN, of course, you've got the environment.

There's this whole shift digital to digital and media wave after wave, and it's finally come for the television networks, right? And they can't hold out anymore. And it's not just Netflix in the game anymore. You now have Disney and HBO and so forth, legacy players launching major efforts to move into streaming because this is so clearly what the market is looking for the customer. So CNN. To their credit, identified an important strategic question, which is what could we do here?

Could we offer some kind of a streaming offering, right? With our brand, our kind of content and so forth. So that was important, but how they went about it, right? They did not start with the humility of all the things they didn't know. They said they hired a third party consulting firm. You would know them very big global one, and they did a lot of things. Data gathering of what's the state of the streaming market for all these other companies, right?

And all the millions of viewers of, Disney plus versus, Amazon prime video versus, of course, Netflix, et cetera, et cetera. And then they wrote up these detailed business plans and they have this business case. Well, here's what we can do if we they couldn't interesting little wrinkle here. Not unusual. They're constrained by prior legal contracts, so they can't just take their content that's going out on the cable shows and repurpose it. Stick it in the app, right?

They are prohibited from doing that. So they said, okay but we've got a plan. We're just gonna shoot all new video. Right. All new shows some with the same stars. So we'll take advantage of, we're known CNN and like, what's our sub brand things like Anderson Cooper and Wolf Blitzer. All right.

So we'll have some of our marquee name people do new shows and then we'll bring in higher end, some other big name talent from, NPR and Fox and others, I. People with, with a known reputation and we'll create all these new shows. We're going to have this streaming bundle and a launch as a standalone app that you pay 6 a month for.

And we'll start with our current television viewers and they'll love, they finally have this option and we'll start in the U S and then we'll go global started international expansion year two and so forth. And they have all the plans of the millions of viewers that are going to get your one, your two, your three. And it all looks rosy. And they sent the plan for top approval, right?

And if was Jeff Zucker was the head at the time of CNN, his boss, Jason Keillor, smart people, experienced people, right? But relying on the experience, the, the intuition or opinions of experienced people, what I call expert opinion is a tremendous trap when you're dealing with uncertainty. And so they said, ah, this looks like the future of news. We think this is the whole thing. This is where CNN is going to be. All of our opportunity is let's go for it all in.

And so again, the plan is green lit and you're building the plan. The train has left the station. They spent 300 million, Aiden, before, before launch, before day one. That was all just filming and hiring and putting it on the teams and contracting the talent and producing the, getting shows in the can and so forth and building the technology, whole thing, everything was built and they launched bang right out of the gate.

And I often ask if I'm teaching this case, what percent for folks who are not in the media industry, what percent of of their current customers, their television viewers do you think would sign up for, for even a trial of the streaming app? Cause. Bear in mind, whenever you launch a free, a streaming service, there's always a free trial of some number of days, how many people would even, try it out, create an account. And people will say 30%, 20%, 25%. It was about 1%. So dismal pickup rate and.

Huge costs invested. And then what happened? There was a leadership change coming in and they had to make a decision. And they just said, this is crazy. We're shutting it down, right? Why did we spend all this money? Let's stop hemorrhaging the bleeding. Cause the plan was to spend another 300 million, 300 million every year into the foreseeable future. So worst of all, this is that kind of costly mistake. It was a good question to ask. It was an important strategic opportunity to pursue, right?

But the point is, you could have found out I could have told you or got you the data. Any good team, smart startup team could have brought you the data with like 30, 000 and 30 days to say, you know what? There may be an opportunity here, but it's not. What you think it is, it's not going to go at the rate and maybe not with this customer segment, you believe it is, but like all your projections for year one are completely wrong. And what do we want to do about that? Right.

Let's make an informed next step of decision. So it was a great question to ask, but incredibly costly. And then when you do it, things that way, it becomes very hard to take the next step, to try something new. Next month, next quarter, people will feel like we've been burned. We don't want to do this whole digital thing. We don't want to do this innovation thing that like never led to anything, or it was a huge waste of resources.

And that just makes it much harder for organizations to drive the change that they really need to drive.

So we talked about this challenge of uncertainty, which is really the, the, the big challenge CNN. It was not, not so much that it was that far from their core. I mean, the delivery model is radically different, but the content was the same. The bigger challenge was, is, was just so much uncertainty around this particular this particular business model they were going to pursue. And what that requires tackling uncertainty really cause two things. Just very high level.

One I already mentioned is rapid experimentation. So iterative experimentation of actually trying and testing and building and learning. The other thing you have to pair that with is iterative funding. And that's baked in. If you're in the startup world, it's like, well, right. Nobody says, oh, that's a neat idea. You've sketched out on a slide deck for your new business. Here's a billion dollars.

No, there's a reason why it's called, a seed funding and then series a and then series B. They are built around this idea of iterative. Facebook is a great example because we have the historical record and it's really interesting to see what happened at each of those stages. Their very first seed round Facebook, I think was called the facebook. com was just four months old, had zero revenue. It had just been on, I think, campuses, right?

And it was Peter Thiel who invested I think it was 500, 001. I'm not sure what that one was for. I'm sure there's a story behind that. So half a million dollars, he got a little 10. 2%. So a little over 10 percent stake. So that to be clear means the company is valued at just under 5 million. Now, a year later, what had happened? They still had zero revenue, but they had a million users. No, I'm sorry. They, they had zero profit, right?

So by year, year, one year later, they actually had revenue. So they had eight, many more users, right? It wasn't just a few early campuses. They had a million users and they had revenue, right? It was actually, and not just some revenue, it was from major advertisers. That's what they were trying to advertise. And they had big companies like MasterCard advertising on them. So they got 12. 7 million. The valuation went from 5 million. Almost 5 million to almost 100 million, right, in one year.

Next, what happens? Facebook spreads to not just colleges, but to high schools and even corporate campuses, right? It raises a Series B round, valuing the company at 500 million, another five times increase in value. Year after that, What has happened? Facebook has now launched on mobile, right? It has started its news feed, what we now think of as the core experience of Facebook. It has opened up to app developers, right? Now Microsoft leads the Series C round. It values Facebook at 15 billion.

The core idea of what Facebook is trying to do hasn't really changed. In these, from its seed launch to its series C round, but the market value has gone from 5 million to 15 billion, right? Even though the company will not turn a profit for two more years, right? So what changed? In those three years, what changed was the uncertainty went down, right? When you started that, like any startup uncertainty is massive. It's, you have so many business unknowns. Who's the customer?

What's the total addressable market? What's the possible revenue model? What's the cost to operate? Who are the partners you need? What's the, is the technology there? Every year they're taking that uncertainty out. You're starting to see, okay, here are the customer segments. Here is how fast we can drive growth. Here's what. The tools are, they're going to bring us in, a new subscribers here, all the kinds of companies that are going to advertise here are the kinds of advertising formats.

All these things are becoming clearer and clearer, even though again, you're not profitable, but the uncertainty of the business model is getting less and less. And so that's why that's the thinking of venture capital. And I write in the book about how do we take that model, not literally VC funders outside the company, but take that model of iterative funding that is tied. Not to milestones of time not to annual budgeting, but to milestones of learning and reducing of uncertainty.

How do we bring that model inside a corporation and reinvent the way we fund and invest in new ventures? And it's absolutely doable and a repeatable process. And we see it now in a number of different, more progressive or forward thinking companies.

Keep an umbilical cord to the core beautiful beautiful day so it will wrap up then where can people find you i'm gonna link to all those places anyway link to the book and to some of the episodes you mentioned we've had steve blank on the show before a link to those episodes for people that find that helpful. Where's the best place to find you david.

And if you subscribe to that, you actually get a free chapter of my latest book, The Digital Transformation Roadmap. Plus some of the articles that I've mentioned that I've been writing on, the missing link between strategy and innovation the digital transformation digitalization trap, et cetera I write published regularly on those. So, I encourage that's really the best way to, to keep in touch.