Many companies on the brink of drowning have been resuscitated by turning to digital products.
Most of you remember LEGO from your childhood, playing with the building blocks the company is famous for. But around 2004, when Jorgen Vig Knudstorp took the reins of the company, it was bleeding more than $300 million annually, recounts Faisal Hoque in The Power of Convergence: Linking business strategies and technology decisions to create sustainable success. “An attempt to reverse the slide by introducing a complementary children's clothing line failed. Facing the unthinkable prospect of selling the family-owned business to a larger conglomerate, Knudstorp and LEGO decided to embrace the new world order and change their business model…”
Wood to plastic to digital
What came in as a lifeline was the licensee relationship that LEGO enjoyed with Lucas Films, for adapting the wildly popular ‘Star Wars' characters and models. Expanding the relationship to children's brands, Knudstorp could bring in SpongeBob SquarePants, Indiana Jones, Speed Racer, and Batman, informs the book. It cites Knudstorp's quote about the ‘new business model,' thus: “The LEGO Group grew out of a carpenter's store. Plastic revolutionised toys in the twentieth century. Digital breakthroughs will do the same for the twenty-first century.”
Affirming that the company would not stop manufacturing plastic bricks, Knudstorp foresees that, by 2015, about 20 per cent of the company's total business would come from digital products, with two of the LEGO-branded Star Wars games in the ten best-selling video games already. “Connectivity has had a major effect on how today's children live. Some six-year-olds have cell phones… Eventually wireless broadband will be everywhere. A computer will replace the television. For all of these reasons, the LEGO Group needs to be in the digital space.”
The author notes that the company has adopted new management and manufacturing practices, and trimmed its workforce from 10,000 to 3,000. It is outsourcing more of its manufacturing to third-party partners and has optimised its supply chain to ensure that raw materials are reaching factories at the right time and in the right quantities, he adds. Importantly, “LEGO's ongoing transformation has resulted in returning the company to profitability, securing its future, and ensuring its family ownership for years to come.”
Another story in the book is from the DARPA, or the Defense Advanced Research Projects Agency, about how the small R&D lab with only 240 employees enlists project team members on the outside. “The technical staff is made up of world-class scientists and engineers from industry, universities, and government labs – and they stay only three to five years, so that the agency is regularly recycled with fresh thinking. As such, everything at the agency is project-based. Projects typically last three to five years and are focused on end-goals.”
One of the people who received DARPA funding was Dr Eric Brewer, a professor of computer science at the University of California-Berkeley, narrates Hoque. The professor created a search engine called Inktomi based on his government-funded work, and in 1996 created Inktomi Corp, which was to become one of the biggest in the market before succumbing to the dot-com bust of 2000-01, one learns.
The tale, however, is about ‘FirstGov,' an initiative of the federal government begun in 1999 to build a Web portal to more than 40 million government Web pages on more than 20,000 federal, state, and local websites. “Brewer donated his search engine to the effort, free for three years. President Bill Clinton decreed that FirstGov would be up and running in just three months – an almost impossible deadline in the government – but it was accomplished largely because of Brewer's donation. FirstGov has received numerous awards for innovation.”
Towards the conclusion of the book is the educative discussion on governing the converged organisation, in which technology and business leaders identify where technology decisions are made, who makes these decisions, the process for collaboration between business and technology managers, the process for weeding out redundancies, and the process for ensuring that technology decisions and investments reflect the overall enterprise strategy.
An illustrative example in this regard is of Michael Paravicini who joined Zurich Financial Services as chief information technology officer in 2003. He had to figure out how a highly decentralised, locally based staff of 7,700 professionals, including thirty CIOs, could better respond to the company's global needs, begins Hoque.
A strategy that Paravicini deployed to create new connections between business and technology management was to make the key account executives serve a dual function. “They act in similar ways to that of local CIOs, who are responsible for end-to-end delivery of all technology services for a particular business. Their other duties include business analysis and business change management,” explains Paravicini.
He also used a three-layer governance scheme to ensure that all functions are involved in decisions regarding technology, and to eliminate waste and redundancy, as follows: “All projects must first go through the respective local governance council, which includes business technology, business, and finance. These local councils agree on the priorities, timing, and schedules for these projects.”
Thereafter, the projects go to the Chief Information Technology Office approval panel, which looks at them from an architectural and finance perspective; and, specifically, this panel looks to see if anyone has done a similar project, and if so, is it possible to share some of these capabilities, elaborates Paravicini. “We'd like to bring more strategic views to the table rather than just looking at the business plan and figuring out how we can support it through the business technology strategy plan…”
An imperative read for those interested in extracting the optimal business value from their technology investments.
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