Disrupt or Be Disrupted: Today’s New Normal

Across industries, advances in everything from analytics and artificial intelligence to mobility and social media are changing virtually every aspect of doing business. Welcome to the era of “Transform or be transformed.”

This new reality—like most large-scale changes—represents both an opportunity and a threat for business leaders, agreed CEOs gathered for Chief Executive’s recent CEO2CEO Summit.

Recognizing this imperative, business leaders participating in the summit shared their experiences deploying digital strategies to engage more effectively with consumers, streamline internal processes, improve productivity and explore new value propositions. Here are 5 key themes that emerged.

1. Staying current requires constant vigilance. The rapid growth of relative newcomers like Amazon, Uber and Netflix epitomizes the threat of disruption faced by legacy businesses that fail to foresee and adapt to game-changing technology. The consequences of neglecting to adapt to even incremental advances can be just as dire over time, marching a healthy business steadily toward obsolescence.

Recognizing the need for constant vigilance is key. Even companies that once innovated their way to success become vulnerable to the next big thing once they reach a certain size. 1-800-Flowers—which revolutionized the floral business by embracing telephone sales and, later, e-commerce—guards against being overtaken by aggressively pursuing new technologies as soon as they emerge, reported Jim McCann, founder and executive chairman.

The company was an early partner with IBM Watson, which led to the creation of a digital concierge. “Gwyn” is a virtual assistant that helps web customers with their gifting needs and will, thanks to machine learning, learn its craft much the way a floral shop employee learns about floral service over time. 1-800-Flowers also is partnering with Uber to speed delivery service, has a chatbot on Amazon Messenger and a partnership with Amazon’s virtual assistant, Alexa, that allows customers to place an order with a voice command.

“The diversified conglomerate model is dying in the public market. You have to choose areas of [focus] so that you can scale appropriately within them.”

2. Digital advances have raised customer expectations across all industries. Customers in both the B2C and B2B segments increasingly expect instant gratification—and stockholders are no different, noted Dow Chemical CEO Andrew Liveris, who is leading a reorganization aimed in large part at making the company more agile. When the dust settles, Dow will be divided into three entities: one devoted to materials sciences in the packaging, infrastructure solutions and transportation areas; a second concentrating on agricultural science; and a third focused on specialty petrochemicals.

“The diversified conglomerate model is dying in the public market,” Liveris said, explaining the thinking behind the reorganization. “You have to choose areas of [focus] so that you can scale appropriately within them.”

The restructuring will allow Dow to continue its journey toward speeding innovation through technology. Already, noted Liveris, investments in bioinformatics and robotics have increased the number of experiments Dow conducts on behalf of its business customers from 20,000 a year a decade ago to 2 million a year.

Recently, for example, Under Armour approached Dow looking to make its line of athletic shoes bouncier, water-resistant, temperature-resistant and less likely to degrade over time. “Normally, developing a polymer that would support that would take two to three years,” said Liveris. “We did it using chemical engineers, biomatics, robotics and materials science in three weeks.”

Speed is just as critical in the B2C market, where customers expect to be able not only to find whatever their hearts desire at their fingertips, but to receive it within days—or, in the case of pizza, within minutes. Domino’s, which built a national chain around the promise of speedy delivery, upped the ante on that model in 2015 with a pizza ordering app that not only guarantees easy and fast access to a pie, but lets you track it on your smartphone every step of the way. Today, digital orders account for 35% of the company’s sales and deliver a higher repeat customer rate, higher spending and higher satisfaction.

3. Artificial intelligence (AI) will increasingly inform decision making. The unbiased decision making that comes from data being plugged into algorithms can inform rather than replace strategic decision making, asserted David Kenny, general manager of IBM’s Watson Group. “It enables you to see patterns and identify solutions.” For example, Kenny described Watson’s effort to use genomics to help doctors treat a leukemia patient who was failing despite six years of aggressive treatment. “After analyzing her DNA and treatment data, Watson proposed she could actually have two strains at the same time,” he said. “The medical team addressed the second strain and now that patient is perfectly healthy.”

AI can help management weigh strategic decisions. Kenny predicted a day when almost every large company will have a robot director on its board. “If you are considering making an acquisition, selling the business or making a big capital expenditure, there are implicit models that go into that decision-making process that an AI system can use,” he explained. “Then your other directors will add judgment on top of that. The decisions are better when it is the man and the machine working together. From the boardroom right up to every major decision, AI will become a tool in our lives.”

4. Collaboration is essential to innovation and effective teamwork. Tapping the potential of digital technology often requires assembling multidisciplinary teams—from external as well as internal businesses—who share data and insights. For example, advances in medicine are far more likely to come from collaboration between colleagues or companies than from a lone scientist toiling in a lab, asserted Judith Dunn, global head of clinical development at Roche Innovation.

“It’s changed how we hire and how we do business,” she said. “I have a theoretical physicist—a math whiz—whose job is to model disease. I pair him with a biologist. Their work helps us understand safety and efficacy more thoroughly.… We’re also finding that more and more therapies are combination drugs where we need to find out how our drug and another company’s drug work together.”

The need for access to both top talent, academia and potential business partners factored heavily in Roche Innovation’s decision to open a research facility in Manhattan, where the company would be able to engage with medical professionals from the city’s teaching hospitals and medical schools, as well as attract and retain top talent. The new research center is located near the city’s East Side medical corridor in the state-of-the-art Alexandria Center for Life Science building, joining tenants like Eli Lilly and Pfizer.

“decisions are better when man and machine work together.”

5. Companies must look for ways to bridge the digital talent gap. One of the biggest challenges to digital transformation is finding the employees with the skills to work with the tools and technologies being adopted by companies, agreed many CEOs attending the summit. “It is no longer blue collar or white collar, it’s ‘new collar,’” quipped Dow’s Liveris, discussing the need to reskill or replace today’s workers. “We have a 19th-century education system turning out a workforce attuned to two ends of the spectrum: higher education and people who don’t make it through high school [educated] for assembly lines. There’s a big piece in the middle—at places like our infrastructure and materials companies—that our education system doesn’t support.”

Addressing the dearth of technically skilled workers will require changes in the nation’s educational system. However, companies can’t afford to wait for that shift to happen organically, argued Liveris, who leads President Trump’s manufacturing council. “The big opportunity is how to collaborate [and] rebuild the public education system around that new workforce,” he said. In the meantime, Dow is working with community colleges to design curriculums tailored to its needs. “Our ecosystem—we have 50,000 Dow employees but my ecosystem also includes all the high-tech firms in our supply chain—will require more jobs, but of a different skill set,” he said.

AT&T is also taking a proactive approach to bringing its workforce up to speed. Recognizing that its digital talent gap will only continue to widen, the company worked with educational institutions to design relevant coursework and then focused on incenting its employees to voluntarily re-educate themselves for the jobs of the future.

“We tried not to inhibit ourselves by looking at what we already had; we said, ‘Five years from now, what will we need?’” explained John Donovan, chief strategy officer and group president. “Then we gave every employee a view not only of where they are today but where we expected them to be on the internal path five years from now. We also took a very important step: We allowed them to look at any future [career] they wanted and build a curriculum that would get them there, whether that be 80 hours to meet expectations or 800 hours to go out and become a new person.”

6. In the digital age, face time is just as critical as ever. Even as technology enables us to connect with geographically dispersed colleagues on team endeavors, there’s no substitute for the energy and enthusiasm that a face-to-face, real-time gathering can offer.

At 1-800-Flowers, McCann fosters an atmosphere of innovation by dining with team members regularly. “I run monthly dinners with 10 to 15 people,” he explained. “I ask core talent folks to invite younger newer people and we ask them to bring ideas, anything they do that is new and creative. We have wonderful dialogues. In fact, being early to Facebook was because of a lady sitting next to me who told me how she used Facebook. The next morning I was there with two cups of tea, saying, “Show me what you do on Facebook.”

In fact, face time with a CEO time is becoming currency, noted Liveris, who has adopted an “inclusive model” of leadership that involves traveling the globe to engage personally with constituents, customers, owners, employees and partners. “It’s very demanding,” he said, adding that how CEOs allocate their time can be a competitive differentiator. “Your time is the only thing left that is discretionary. Everyone else has everything else you have. I’m away from headquarters 250 days a year; I slept on an airplane 90 nights last year. That’s what modern technology has done.”

This article is excerpted from CEOs: Disrupt or Be Disrupted (March/April 2017 issue of Chief Executive magazine).