Brought to you by VANTIQ
Episode 11
Gone Are the Days of Sustainable Competitive Advantage
Digital transformation expert and consultant Raz Heiferman discusses his ‘4 Forces Framework’ for ensuring companies not only survive but thrive in a world of transient competitive advantage.
Blaine
Mathieu
Chief Marketing +

Product Officer, VANTIQ
Raz
Heiferman
Senior Digital Transformation Advisor at i8 Ventures

Blaine: Joining me today is Raz Heiferman, Senior Digital Transformation Advisor at i8 Venturesbased out of Israel, where Raz is joining us from today.

Raz has previously held senior IT and leadership positions in both the Israeli government and industry. I’m also excited to note that Raz is one of the keynote speakers at VANTIQ’s upcoming Global Partners’ Summit to be held this October, 2018 in San Francisco. Thanks for the time, Raz.

Raz: Thanks for the introduction!

Blaine: You’re welcome! As you know, I have seen your presentation or at least a preview of it that you’re going to give at our summit this fall and I’m really excited to hear you deliver it. Maybe, during the discussion today, you’ll humor me and our listeners by giving us a bit of a preview of your thought process. Does that sound good?

Raz: Yeah! Of course.

Blaine: Excellent. Well, before we get into that, tell us a little bit more about i8 Venturesand what you do there.

Raz: i8 Venturesis actually a new company established at the beginning of this year by Professor Yesha Sivanwho is an academic and a senior digital consultant. We worked together for many, many years teaching a lot of courses in the executive MBA programs.

Together, we wrote many articles. Just in the last weeks, even, we published our new book. It’s in Hebrew [laughter]. It’s in a digital format. We have written an article that is going to be published very soon by Cutter Consortium. And this is the article that we call it “Agilification of Your Digital Company”. This will be the topic that we will discuss a little bit later.

i8 Ventures is really a consulting company which has several targets. One is providing high level, senior level, executive, and boards consulting services, but we also develop materials. One of the materials is the book. We also are going to present or prepare materials for professors and for teachers so that they can shorten their way to produce such lessons on digital transformation.

Blaine: Excellent. Well, I very much look forward to the English edition of the book! [laughter].

Raz: It will take some time, but it will arrive.

Blaine: That’s great. Well, obviously your experience in consulting and academia was founded in many years in the industry; in the so-called “real world” learning these lessons. Maybe tell us a little bit about your journey to get to where you are today.

Raz: I held some very senior positions in the Israeli IT market. I was V.P. of Information Technology for Bezeq. Bezeqis the Israeli incumbent telcom, a very large company. I worked there for 10 years. After that, I worked six years for a quite digital company which is Direct Insurance which is a company that provides direct services to customers without using agents. We transformed the company from a call center type of operation into a very, very digital B2C business.

After that, I worked for a couple of years for government at the office of the government CIO where I was in charge of what we called the shared services of the Israeli government which means all the different ministries (and there are many ministries and territories) are using some of the systems that we have developed as a shared service. So, they don’t have to reinvent the wheel time after time.

In parallel to that, I held several positions in Academy where I was teaching a lot of different courses. I wrote some books and articles and so on.

Blaine: Excellent. Well I’m glad that we can benefit from your knowledge and experience here. Speaking of that, your presentation that you’re going to be giving at the upcoming VANTIQ summit, and I think it sounds like here your upcoming book as well, is related to the notion. I think your title was “Agility as the Imperative for the Digital Age”.

Raz: As the new imperative, yes.

Blaine: The New Imperative – That’s right. At a high level, what’s the core thesis behind your presentation?

Raz: The core the court thesis is that gone are the days that companies can talk about sustainable, long-term competitive advantage. They must now be much more adaptive to the new challenges and the environment.

I’m using the term that Professor Rita McGrath has written aboutand she calls it “The Transient Competitive Advantage” which means that companies should be very agile in order to be able to change quickly the course of the company and the competitive advantage in order to react quickly to what is happening in the technology, business models, competitive arena, and so on.

What I believe the biggest challenge that companies have is becoming agile companies. This is what we have written in our article and this is what I will present. We call it 4 forces. There are four different forces.

Blaine: Before we get into the forces, I want to talk about what’s causing companies to have to adopt these forces. I think you’ve touched on so many important topics already here.

I really loved the concept you have in your slides that I’ve seen around the digital vortex. I think the quote you have, “You can’t stop the waves, but you can learn to surf them.”.

Raz: Exactly.

Blaine: Is that fundamentally what agility is about or when you say “agility” what do you really mean?

Raz: We mean that this is the interplay of the different forces that the company has to understand and to implement in order to survive and succeed in this new challenging, competitive environment. It relates to culture, architecture, the digital business, and different parts of the company which is the digital architecture. So, it’s a quite complexinterplay that companies must learn how to utilize.

Blaine: Why don’t we take those in turn and dive in a little bit? You mentioned culture as one of the forces that organizations need to consider. What are some of the impacts on culture? How does culture have to be adjusted to enable success in this transient world of competitive advantage?

Raz: As you know, culture is a very broad term, but eventually, it is a very important one. It impacts the companies in the way they behave. If there are companies that are very rigid and very slow in decision making and very slow in reacting and are more silo based, they don’t play together quickly, then they will have challenges in the new era. We believe that the culture is almost one of the most important. By the way, it is one of the most challenging parts of the agilification of the company.

What we really believe in is that it must begin from the top. It’s not an issue that the IT Department should pursue. It’s something that is much larger than a single department. We are talking about an organizational culture: the speed that you are making decisions, the way that you work together with your peers, how quickly you adapt to new challenges and new business models and so on. So, we believe that having said culture is a very, very important issue. Somehow, sometimes, companies miss this and they go directly to more technical parts of the challenge.

Blaine: I think part of the challenge that companies have in thinking about culture is not understanding how to create culture. How do you cause culture? I think a lot of companies and executive teams feel that culture is something that sort of happens and maybe they inherited it from the history of the company, but I know leadership is also one of your forces. And as you said, leadership from the top is very important. What does that leadership have to look like in order to create the culture that is necessary?

Raz: I believe that it starts with a lot of being an example for your employees; the way you look and react to the modern environment. Leaders are role models for many of their employees. The way that they behave and react is a very important part of creating the culture that encourages experimentation, understands that if you are going toward innovation, you will fail sometimes. It’s okay as long as you learn from your failures.

There are a lot of small issues that are making the big picture of culture. It’s not one thing that the leadership should do. It’s a set of different parts, most of them by example. They have to give the example how they behave, and the old employees and the organization at large will learn how to do it. To be much more agile, they have to encourage.

For example, breaking the silos between the different departments. You have to start working in small teams; teams that are diverse. There are a lot of issues regarding culture. I really don’t take it that it’s something given and the company just continues and the DNA of a company is something that you cannot change. I don’t believe in that.

Blaine: So leadership through example, failing fast, breaking silos, encouraging diversity, small, agile teams, using methodologies and leadership based on those principles can help, you believe, morph culture in a way that can make a company more agile?

Raz: Yeah, you are right. There are some methodologies out there like Scrum and edge island. Most of them come from the software development. But, when we talk agilification of a company, it is much larger than the IT department. At some time, the organization has to stop piloting agility and scale it to the scale of the whole company. That’s the tipping point that most companies are missing. They are continuing to pilot in different departments and so they have to, at some point, stop and scale up to the whole organization.

Blaine: That’s a very wise comment. I’m going to use that, if you don’t mind; this notion of, “Guys, stop piloting agility.” Everybody is doing a POC of agility instead of actually becoming agile organizations. That’s a great comment.

Blaine: Going down the stack, another of your four forces is business architecture. What does that fundamentally mean? And maybe, that’s something to do with not just piloting agility, but making it a part of your business architecture. Tell us more about that.

Raz: The business architecture is really a part of what we see, let’s call it business models that the companies are using and how it’s interacting with the customers and how the company is innovating new products and new experiences for their customers.

Actually, business architecture is a term that is an envelope term, for most of the parts of the organization, the way you do your business. The way you do your business has now a very, very deep relationship with digital technologies. The real question is, “Are you utilizing all the power of the digital technologies in order to be new or to innovate new business models and new ways to provide experiences to your customers and so on?” This is the digital business part of the company.

Blaine: That leads to the final force which is the actual digital architecture, right?

Raz: That’s right.

Blaine: – the technical underpinnings that enable your business architecture to be digital first, enabled by the culture and the leadership.

Tell us more about what you mean by digital architecture.

Raz: Digital architecture, and I’m using here an article that I read from MIT. They have defined two backbones. I believe that every company should look at their architecture with these two backbones. There is the digital services backbone and there is the operational backbone. Both have to integrate, work, and collaborate in order for a company to be a real digital company.

You cannot make your experiences great with your internal processes being far behind. The company has to make sure that the two major big backbones, the operational and the digital services, are in place. When I’m talking about the digital services backbone, I believe that we are really seeing how the world is advancing into a real-time, event-driven, distributed architecture.

You have to have your architecture in place in order to be able to utilize the cloud, the edge, the distributed in order to manage many applications that a couple of years ago were not imaginable. Now, you have to manage them and it’s becoming complex. So, you have to make sure you have the tools on how to manage it.

Blaine: I want to get back to real time, event driven, distributed in a minute because that’s an important topic. But, I also want to make sure my listeners and I clearly understand the distinction you’re making between the digital services backbone and the operational backbone. Can you clarify the meaning of those terms?

Raz: Of course. The digital architecture – I hear also the term that’s coming from Gartnerwhich they call the bimodal architecture, bimodal organization, or bimodal IT which means that you have to have one part that is spinning very quickly – and this is the front-end part, the part that integrates with the customers with the different channels that the customer is using and with other machines, what we call the IoT. This part has to be a very adaptive and an efficient way to develop quickly new experiences and new integrations for your products and for your customers.

The operational backbone revolves, I would say, at a different speed. It is a slower speed. If you are an insurance company, you cannot make changes from one day to the other one because you have to be very careful with all your legacy and policies that you have and customers and so on. But, still, this backbone should also be advanced and capable to be integrated with the other backbone. These two backbones are the foundation, I would say, of the architecture of any company that wants to compete in this new era.

Blaine: Very interesting. Thank you for that distinction. I think that’s a very powerful one. So, we started with leadership: driving by example culture in the right direction toward agility that enables a business architecture based on a digital architecture that has two backbones: the digital services backbone and the operational backbone. I get it. I think the framework makes a lot of sense.

Now, I want to return to something you brought up a minute ago about real-time, event-driven, distributed architectures. Tell us a little more about why you feel that kind of architecture is actually what you need or what a company needs to be successful digitally.

Raz: If we are looking at what is happening in different parts of our economy, then you see that more and more parts are becoming autonomous. We are talking about autonomous cars. We have autonomous warehouses. We have a ton of autonomous parking lots. These type of businesses or parts of the business must react very quickly to a lot of different events coming from different sensors and there are a lot of sensors.

If you look at a car, a car is full of sensors. If you look at a smart city, a part of an application like water management, electricity management, or light management, these are applications that require you to be very, very responsive into a pace that I believe that previous applications didn’t have to. Now, we are developing more and more applications that need this event-driven framework because they have to listen and to be very reactive, in sub seconds sometimes, to these different events. This is not a regular human interface between a computer and a human. This is a different paradigm.

Blaine: One example to support that from this conference I am at: a major global elevator manufacturer was giving a presentation yesterday. They said each elevator car has over 200 sensors on it putting out data in real time to enable them to make both instant decisions about how the elevator is working in that moment as well as longer term decisions about when to service it, predicting what kind of maintenance is necessary, etc. So, that’s one elevator car with 200 sensors. Can you imagine?

Raz: Just imagine the data that such an elevator creates in one day or one hour. The real challenge is to process all this data. First of all, sometimes you have to react directly and sometimes you can make slower decisions because it’s longer service times. But anyhow, this is a different economy. In my words, it’s a new paradigm.

Companies must understand trying to cope with old technology and the old database-oriented applications where everything happens on the server – By the way, this is the issue that edge computing is becoming now a very, very modern and very, very discussed topic because a car or elevator cannot wait for running to the cloud, making a decision, and getting feedback. You have to do it in real time. You have to use new types of technologies.

Blaine: Interestingly enough, still on the elevatornotion, my building in San Francisco unfortunately has cloud-connected elevators. They’re obviously not run on the edge. And because they are cloud connected, there is a tremendous amount of lag in running the elevator. These elevators are down continuously. They are definitely not using edge computing principles to run an elevator in real time. That’s not how to do it.

I think you’re very correct in saying if you’re going to become a real-time, event-driven business and using those technologies increasingly, I’m convinced you’ll have to adopt edge computing to make that happen.

Raz: Exactly. You have to use your backbone. I’m talking here also about VANTIQthat enables you to partition and run the application wherever you want. It could run on the edge. It could run in the cloud. It could run on premise. These capabilities are becoming more and more important as we go into this autonomous and real-timeeconomy.

Blaine: Very, very interesting. Obviously, the listeners know why you are speaking at our event in October because your understanding of real-time architectures as well as real-time business I think and bringing those together is what is so critical.

So, we spent the last ten minutes talking about some hard-core technology. But back to the notion of who needs to drive digital transformation in a business, there’s the discussion ongoing about IT versus OT: in the operations side of the business vs. the technology side of the business. Who do you think is fundamentally more responsible for ensuring the success of digital transformation initiatives?

Raz: This is really a challenging question and I’m not sure there is one answer that fits for every organization. There will be different flavors of this type of responsibility between IT and OT. For example, when I worked with Bezeq which is a large incumbent telecom operator. At my times, there was a real distinction between IT and OT. I was the VP of IT and there was another VP who was called VP of engineering, but he was in charge of the OT part of the systems.

At that time, it was very understandable. OT was quite different from IT. We had different technologies, servers, and equipment. Over time, we have noticed that we are converging. Both types of organizations are using more and more of the same technologies. We were using databases, unique servers, DCP, and so on. So this is what it was once.

If you look now, the same company that I worked for, they have converged the IT and the OT under one manager and it’s called the V.P. of Technology and Network. So, there is not any more a clear distinction between IT and OT. They are under the same responsibility. This new VP has to drive technology in the different parts because everything is related to everything.

I believe that, at the end of the day, in some times, in some types of organizations, this will be the landscape. So, there will be one leader. Different organizations will somehow converge because the technologies are converging. The applications are crossing borders between the different types of organizations. There will be also organization that you will see a CIO working beside the CTO. This is fine.

Blaine: Very interesting and I ask this question of many of my guests. That’s actually the first time somebody has talked about the convergence of IT and OT and I think that’s very, very interesting.

Raz: This will be the trend.

Blaine: Well, we’re getting close to the end. I usually give my guests a chance to call BS on some aspect of conventional wisdom, maybe where the gurus are saying one thing and you believe it’s actually going to go in another direction. Is there an area where you think most people are just off base?

Raz: I’ll be humble for that, but I believe that there is such an area. I’m reading a lot of articles and even books that are predicting that humanity will lose a lot of jobs and maybe the unemployment will be very significant in the coming years. I’m not sure about that because I would say we have witnessed a lot of technologies. At the beginning, everybody was afraid that we were going to lose jobs.

Just take one example. If you take the refrigerator, when the electric refrigerator appeared, a lot of people lost their jobs. Their job was cutting ice and distributing the ice. Suddenly, you don’t need that. So, there was a sense of losing. We are talking about large numbers, millions of people. If you look a couple of years later, now the refrigerator is a commodity. Still, there are people selling refrigerators, distributing them, and repairing them.

There was a shift in the employment, but I’m not sure that we lost many jobs. We lost some types of jobs, but we gained some other types of jobs. Coming back to robotics, AI, and all the digital stuff, I believe that this will be the same. We are seeing and witnessing now that there are new jobs that we didn’t have a couple of years ago: data scientist.

As McKinsey says, they are going to be one of the most wanted type of jobs in the future. So, I’m less pessimistic than some of the people. They look at the technology in the long term how the technology will affect humanity regarding employment.

Blaine: I fundamentally agree with you, Raz. As we’ve discussed in previous episodes, it’s about humans, machines, and systems collaborating. That will raise standards, raise the economy, and create jobs everywhere.

Raz: There will be a need to reskill people, to teach people. But, I believe that the overall picture is not so pessimistic as some people are trying to tell us.

Blaine: Well, I’m with I’m with you Raz.

Let’s wrap it up. Any final takeaways or tips for a business leader that is trying to drive a real-time transformation in her business?

Raz: Yes. First of all, all of us have to admit that this is a challenging process. What we call sometimes the “digital journey” is really a challenging process. It’s easy to say, hard to perform.

Secondly, I believe that this journey is almost a never-ending journey. It will not end after you implement this or other type of technology. As soon as you implement something, there will be a new technology, there will be a new business model. There will be new competitors in the market.

So, we are talking about an ongoing journey. I don’t know how long it will take. I believe that leaders have to understand it as they go and embark on this journey. Some leaders have the notion, “OK it’s a project.” I don’t call digital transformation a project. It’s a long-term program. It’s a long-term journey. If leaders understand and have the right expectations, I believe they will be able to lead their organizations through these quite challenging, and I would say exciting, times, really exciting.

Blaine: I think that’s great advice, Raz. That wraps it for us. Thank you for joining us today. It was a very insightful conversation, and I’m very much looking forward to seeing you in person this October!

Raz: Thank you very much, Blaine, and it was my pleasure. Thank you very much.

Blaine: You’re very welcome.

For those interested in hearing more of Raz Heiferman’s thoughts, you can email him at raz.heiferman@i8.ventures and follow his post on LinkedIn, although it might help if you can read Hebrew.

We definitely look forward to your new book both in Hebrew and English. I’m sure, many of our listeners in Chinese as well. So, thank you, again, Raz.

Raz: Thank you very much. See you in San Francisco.