These pathways all leverage new disruptive technologies as well as the firm’s extended business ecosystem to get more done with less. Similarly, all three pathways help firms circumvent the political or organizational resistance that can hamper other change initiatives.
Focus on edges of the business that have the potential to rapidly scale through adoption of fundamentally different business practices and that ultimately could become a new core for the business.
About Pragmatic Pathways: New approaches to organizational change
When Amazon Web Services (AWS) was launched in 2002, many thought it was simply a way for Amazon to sell off excess storage and computing capacity. However, within 2 months of its inception, Amazon had burned through all of its extra capacity. In fact, by 2007 AWS had grown to offer 9 different services. Today, that number has grown to 82, and the number of objects stored in Amazon’s cloud continues to grow exponentially. Morgan Stanley analysts estimated revenues for 2011 to be $1.2B , and projections are that the business could grow to $2B by the end of 2012. Although AWS still only constitutes a small percent of Amazon’s $48B business, Amazon’s leadership sees it as having lots of room to grow. Jeff Bezos, CEO of Amazon recently said that, [AWS] has the potential to be as big as our retail business. It’s a very large area and right now, [cloud computing services are] done in our opinion in a very inefficient way.
One of the most interesting aspects of AWS is that while the cloud services seem fundamentally different from the online marketplace that Amazon is known for, cloud services actually are part of the same broad vision. Jeff Bezos, CEO of Amazon recently said that, We’re really focused on what we call infrastructure Web services… Amazon Web Services is focused on very deep infrastructure.
AWS serves as a non-obvious adjacency that has allowed Amazon to leverage many of its existing capabilities from its retail arm. Amazon had developed an expertise in distributed computing within its company which has lent itself to providing AWS as a service. Amazon’s world-class expertise in this area led it to build out the adjacency into an industry leader. Werner Vogels, the CTO of Amazon, observed that, The excess capacity story is a myth. It was never a matter of selling excess capacity… Amazon Web Services was always considered a business by itself.
The move into cloud computing may be pivotal for Amazon, because not only does it give them access to new markets, but there are also considerably higher margins (often 3-5 times) for services than Amazon’s online sales, which Amazon keeps low for strategic reasons.
Napster broke the music industry by stripping content from its traditional wrapper, the album, and the industry has not been the same since. International revenues for the music industry peaked in 1999 at $56.7B and have declined to an estimated $28.7B in 2012. After Napster was litigated out of the picture, Apple’s iTunes legally continued the digital trend of separating the single from the CD. Although the revolutionary distribution method appealed to consumers, it undeniably eroded profit margins for music labels, artists and other participants in the industry. It impacted regional music industries around the world, including Sweden’s, which has been in steady decline since its peak in 1999. Enter Spotify in 2008, a new player in the fray. Swedish company Spotify has single-handedly reversed this trend in its home country, and its digital streaming and social sharing platform may just be able to save the international market.
Before the 2012 Grammys, Spotify co-founder and CEO Daniel Ek spoke before a gathering of industry execs and spent most of his night describing his vision to them, The value of music is not $15B [2011 international digital music sales], it’s worth much, much more than that.
After Spotify’s launch, Sweden’s music industry experienced growth for the first time in 2011, with Spotify accounting for approximately half of music revenue. To the Spotify team, they are not just a streaming service, or an application to access your playlists; from the founder on down, the company views itself as the “OS of Music.” The executive team is aligned on its central vision to deliver music to people wherever, and whenever, they want to consume it. More importantly, Spotify is pursuing a shaping strategy, mobilizing and orchestrating global ecosystems around its vision in order to transform the music industry.
Many companies will deploy a new tool or practice with a hammer; that is to say they roll it out and hammer it in with no strategic plan. But when people are told to adopt something and they have no incentive to do so, the outcome is typically a lack of adoption. Imagine if the same company first understood why people needed the tool, and then deployed it systematically to the people who would eagerly adopt it.
When Pfizer was considering using cloud more in its organization, the natural place to deploy it was in R&D, the core engine that drives success for pharmaceutical companies. Pfizer R&D needed to quickly analyze, organize, and compute large amounts of very complex data and provide results back to scientists so they could make decisions about a drug and act. But Pfizer’s memory computing problem hindered its speed to market and ability to keep costs low – two key metrics that determined the company’s profitability and success. To solve this problem, Pfizer partnered with Amazon Web Services (AWS) to design a tailored solution, specifically a private cloud solution, so that they could offload mundane tasks and free up their internal high-performance computing platform to process critical yet sporadic projects.
The world as we know it is changing. Increased globalization and rapid advancements in digital infrastructures are profoundly altering the economics of many industries and creating new market opportunities for those who understand and anticipate their impact. We collectively refer to these forces as The Big Shift, and while some firms have benefitted handsomely, this Shift has heaped performance pressures on others. To address and capitalize on these fundamental shifts, all companies, regardless of how they have fared to date, must transform themselves into very different types of organizations going forward.
While these challenges may seem insurmountable, this paper seeks to show how organizations can make the necessary transformations in smaller, more pragmatic steps. The solution to this ‘change paradox’ is to pursue change initiatives that minimize initial investment and lead times, while maximizing potential opportunity. We call these new change approaches Pragmatic Pathways, and depending on the individual circumstances of your firm, there are three separate Pragmatic Pathways that can fit your needs. These three approaches are Metrics that Matter, Scaling Edges and Shaping Strategies.