Seven Habits of the CDO – How do they help you to deliver Sustained Competitive Advantage to your Business
Eddie Short
Chief Digital Officer. I work with People and harness Digital, Data & AI to enable a step change in results
There are number of tools and capabilities including Porters 5 Forces (External) and Value Chain Analysis (Internal) that are used by firms to assess whether they have the capability to deliver a sustained competitive advantage in their markets.??In my research on how companies can deliver sustained (and sustainable) competitive performance I have focused on one, now broadly accepted academic theory for understanding what really differentiates firm based on the internal capabilities and that is Resource Based Theory (RBT).
- A pioneer of RBT was Prof Jay Barney and according to him, for resources to deliver a sustained competitive advantage they must be valuable, rare, imperfectly imitable, and non-substitutable.?
- Barney developed VRIO analysis which stands for four questions that ask if a resource is: Valuable? Rare? costly to Imitate? And is a firm organized to capture the value of the resources? A resource or capability that meets all four requirements can bring sustained competitive advantage for the company.
The capabilities that fall into Resource Theory are:
- Tangible resources: physical assets such as financial resources including raw materials machinery, plant, inventory, brands, property, patents and trademarks and cash.?
- Intangible resources?may be embedded in organisational routines or practices such as an organization's reputation, culture, knowledge or know-how, accumulated experience, relationships with customers, suppliers, or other key stakeholders.
- Human Resources?-?encompass experience, intelligence, training, judgment, relationships, and insights from employees, such as managers and workers in a company
In the case of Data, Analytics and AI, we have a fixation on Tools and Technology! Using VRIO analysis?
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- Technology is increasingly one of the biggest tangible assets on many company balance sheets.??Technology can be uniquely valuable, and companies can organise themselves to capture the Value (albeit many do not make a success of this).??However, whilst Technology can be costly to imitate if you are buying Commercial Off the Shelf Software (CRM, Cloud, ERP, BI etc etc) it is by not costly to Imitate and clearly far from Rare!?
- Organisations thinking of spending money on the latest Data Mesh, Data Platforms, Analytics and AI platforms need to fundamentally recognise the fact that the tools themselves may be essential, but by no measure confer a source of Competitive Advantage.??
At first glance like Technology, Data and Analytics may struggle to pass the VRIO ‘sniff test’.
- Many proponents of Big Data discuss Volume, Variety and Velocity – clearly by those measures Data itself is not Valuable.??Many people have discussed Data Monetisation on the basis that they can sell their Data – the majority found they cannot.??However, to create Products, and vitally Services that drive improvements in Finance, Marketing, Operations etc Data could be become Valuable.
- Likewise, when thinking in terms of ‘Big Data’, how can Data be Rare???However, it can be the unique and specific nature of the sheer volume, variety and velocity of Big Data that can make it Rare, Costly to Imitate and Not readily substitutable.
- Are firms organised to capture the value from Data.??If they lack a senior Executive who fulfils the role of Chief Data (and Analytics) Officer, and given, that the CDO role is new and remains unclear in most organisations, I will argue that there is no way that the majority can be organised to capture the value.??
I developed the Seven Habits of the Highly Effective CDO to demonstrate that Data, Analytics and AI capabilities can confer Sustained and Sustainable Competitive Advantage, linked to the goal of becoming an Intelligent Business (one that uses predictive and adaptive insight to dynamically reconfigure itself in response to the expected needs of its customers, and simultaneously anticipate and respond to changes and events in the external environment.)
- Customers are King (or Queen):??the more customer-centric the business, the more likely it is to provide sustained competitive advantage over its competitors.??Data is central to understanding your customers – what motivates them, what their needs are, and what they are inclined to buy (and for how much).???The capability to collect, codify and disseminate as much volume, variety and timeliness of data is ultimately what allows you to Monetise your data.??A famous Steve Jobs quote is ‘My customers will know what they want, when I give it to them…’??That may have been suitably arrogant for Steve, but if we can use data and analytics to predict what our customers unmet needs are and then build/deliver products to service that meet that need, we can confer significant sustained competitive benefits on our business.
- Masters of the?External Environment: In addition to collecting great Customer Data, the real advent of ‘big data’ was the need to start to collect and leverage data from outside the organisation including Video, Audio, social media etc.??That data can be used to augment an understanding of Customers and in addition central to understanding our external environment, competitors, and suppliers.?Understanding what is happening outside the confines of your organisation and its domain, will allow you to identify what I call ‘weak signals’.??Taking the analogy that ‘a butterfly flapping it’s wings in Asia can lead to a hurricane in Florida…’ being able to analyse and understand these weak signals in your external environment can help you identify changes in customer buying behaviours, changes in economic conditions and the like faster and more effectively than others in your environment, thereby conferring a competitive edge.??Solutions such as GPT4 (albeit only trained to data that is a year out of data) show what is possible when you can train AI to leverage ‘all of the available’ data.??Harnessing, this data to again predict what can and should happen to your marketplace and customers allows the business to deliver real-time scenario planning.??
- Building a Data Driven Business Model:??The Data model should be built by looking at the Value Drivers of the organisation, which allows the creation of a KPI /Metric Model which gives uninterrupted line of sight between your Level 1 Key Performance/Results Indicators (like Revenue, EBITDA, Free Cash Flow) you report to Shareholders, and the underlying operational metrics of the business (Customer Lifetime Value, Cost of Goods sold, Employee Costs etc etc); as well as those critical Sustainability and ESG metrics.??Uniquely, Data & Analytics allows you to square the potentially conflicting goals of Financial and Sustainable or Circular Economy performance.??The Data Driven Business Model ensures that you are always tracking towards your desired goals (which one presumes will be superior to those of the competition).
- Governance and Regulation – your friend not your enemy.??Data Governance has been seen as a problem and the enemy of successful Data Leaders.??Many organisations have wasted many millions of dollars, Euros and Pounds on initiatives that duplicate efforts elsewhere.??In my experience?#Risk and #Performance are two sides of the same #Data .??If you have a single Data Model, built in partnership with the rest of the business you have the nirvana to manage #risk , #performance and #sustainability .??This integration of Risk and Performance, as two sides of the same data is key.??As a business you can manage so-called ‘Offensive’ and ‘Defensive’ strategies in parallel, driving your business forward at pace, whilst ensuring that you are not caught out by compliance or regulatory failure.??Regulators typically want to be able to know what you know about your customers and whether they have given you permission to sell you products and services to them.??If we join that to the goals of Marketing and Sales, from a data perspective we can square the circle and do things once to meet both objectives.??Likewise meeting ESG Regulations is imposing significant additional reporting needs on businesses – if they are handled as an integrated capability by the enterprise reporting delivered by the Data team, rather than as an ESG ‘bolt on’ to the business you can save your business significant coats and drive substantial integrated benefits.
- Migrating to a Data Driven (Micro Services) Architecture in the Cloud:??The Intelligent Business operating model is one where Data Serves People and masters Process and Technology.??Businesses need to redefine their operating model so they are not limited by the strait jacket of legacy ‘process models’, so that they can embrace a much more Agile approach.?Processes will need to be dynamically reconfigured to meet the rapidly changing needs of customers and reconfigure what the business is delivering as Services.???Ultimately, the truly agile business cannot be dependent on standardised technology such as ERP, CRM, SCM systems from SAP, Salesforce, Oracle et al.??You need Data and AI algorithms to drive the business, whose logic is unique to the needs of your business and customers.??That logic and decisioning is removed from these monolithic platforms into your Data Driven Enterprise Architecture and over time you can retire those expensive platforms.??When you are free of these legacy, monolithic systems, you can dynamically add, and/or remove new functions and capabilities to your business and technical architecture in close to real time, giving your business unique levels of adaptability.??Your business can truly change ahead of the market!
- Servant Leadership?–?Data Serves People.??It’s all about people!!??Whilst AI will fundamentally transform companies and industries, people will still be central to the companies that can differentiate themselves.??Data rarely delivers value in isolation, it’s when it’s combined with other activities that it becomes an enabler, and a multiplier of value creation.??If, for example, everyone uses ChatGPT, we may significantly improve the capability and efficiency of our businesses, but we will have just moved the level of the ‘table stakes’ as the only people at a disadvantage are those not using GPT.??The organisation that has Data Analysis and Analytics skills embedded within its Corporate DNA and the capabilities of all its employees is the one that differentiates itself.??The Data Leader cannot confer and deliver all those capabilities centrally, instead they need to work with the CEO and Leadership Team to ensure that what is developed and created centrally is learned and leveraged across the different elements of the business, and in turn those parts of the business build incremental skills and capabilities.
- Data Strategy Spins the Business Strategy:??The Data, Analytics and AI Strategy and implementation plans are no longer an orphan of the Business Strategy, rather they are increasingly one of the fundamental pillars to successfully achieve your business vision.???The Data (& AI) enabled Transformation will be the fundamental business change your business needs over the next 3-5 years.??How your business (or organisation) chooses to differentiate and deliver sustainable competitive performance, data and analytics capabilities will be a Valuable, Rare, Difficult to Imitate and the Organisation therein will be both key to delivering that Competitive Performance as well as Measuring and Managing it.??As I’ve noted before Jeff Bezos built the strategy for Amazon based on the Flywheel from ‘Good to Great; and used Data, Analytics and AI to spin that Flywheel faster than any other company, allowing them to transform from an Online Bookseller, to the ‘Everything Store’ to a multi-industry market leader.??To compete and to be a disrupter of your industry (and not a body on roadside) you need a Data Strategy that spins your Business Strategy and the transformational plan and capabilities to execute on it.
The reality is its time to Disrupt or Disrupted.??The business that has Data, Analytics and AI at the heart of its corporate DNA, will be one that differentiates itself from its competition and critically can square the circle between the competing goals of Financial Leadership and Circular Economy Leadership.??
Composable Enterprises :Data Product Pyramid, AI, Agents & Data Object Graphs | Data Product Workshop podcast co-host
1 年Great post, as always Eddie. Lots of nuggets but this is what everybody is looking at now “??The Data (& AI) enabled Transformation will be the fundamental business change your business needs over the next 3-5 years.” But orgs are still looking at this thru classic transformation eyes. It needs to be done in small incremental steps with experimention and testing with users/customers with a scientific methods being adopted by the business teams. We are totally aligned on your intelligent busiesss concept Data and analytics is a change business and neees to be seen as such. Not just tech or even data change, but business need to be trained and sponsorship needs to come form the c-suite and seen, agreed and driven by them that they are changing the business
Business Leader | Digital Strategy | Transformation | Business Value | Digital Innovation
1 年Brilliant Eddie Short. Happy coding!
Dean of Big Data, CDO Chief AI Officer Whisperer, recognized global innovator, educator, and practitioner in Big Data, Data Science, & Design Thinking
1 年Eager to see the results of your research Eddie!! Go man GO!!
Independent Supply Chain Tech Expert: Driving Transformation Within the Logistics Industry, Focused on Emerging LogTech, Data-Centric Solutions, Interoperability | Senior Analyst | Advisor
1 年Eddie Short, there are numerous excellent points in your post, particularly Habit 5 - Data-Driven Architecture. Considering many businesses regard their data as strategic, it's peculiar that they entrust their data to monolithic third-party software applications or services like ERP, CRM, and SCM systems . If you genuinely view your data as strategic, it's crucial to maintain control over it. You owning the data is the only way to gain the insights and knowledge required to transform your business. How can a company be transformative, agile, and have a competitive advantage if its data is tied to a third-party legacy monolithic system?
Thanks Eddie. Are you collaborating with Helen Blaikie on this? Happy to contribute where I can also.