The New Corporation: Reimagining Organizations In The Age Of Amazon

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Ram Charan shares his insights on the need for boards and companies to embrace digital transformation. He has practical advice on how boards can help their companies take advantage of this new opportunity.

A second place to find these directors? Startups. Most startups today are founded by people who have worked in large companies. They have seen the bigger picture. If they have been in the startup for at least a year, seek them out.

So those are the kinds of people you try to recruit. They would love to come to work on a board because it’s exciting for them.

Board Education.

If you’re already a board member, your mindset and attitude has to be focused on learning, and you have to make time for it. Many board members don’t have it. They’re too busy. The board meeting is supposed to finish at 3:00. By 2:00, they’ve started looking at their watch. And some of them leave at 2:30. That must change. Those who do not have the time—they should go.

We have to get directors real tutorials on the basics of digitization. It can be done in the boardroom or outside the boardroom. They can come and spend a day with people who really understand digital or have a continuous stream of people presenting to the board.

And then board members should do self-evaluations at the end of the year. What is their digital quotient? How well do they understand the company’s needs? How well do they understand how the known incumbent competition is moving? Create time to do that.

Directors have to understand algorithms, almost all of which were invented 100 years ago. They need to understand about a dozen algorithms, what they can do. They don’t have to create equations, but they need to master how algorithms can be applied.

That will open their imagination to the idea that what people once considered impossible is now possible. Things that once took 10 years, you can now do in 10 months. All that opening of the mind is absolutely essential.

The CEO.

You have to know whether you have the right CEO to lead a digital transformation. Think about how obsessed he or she is with the consumer. What’s the evidence? What does the CEO present to the board? Does he or she show how each customer is treated individually? All of these are indications. Consumer need, consumer touchpoints, consumer pain points. If those discussions aren’t happening and management is just showing numbers and products, you have the wrong CEO. It doesn’t take a genius to figure that out.

Also, has the CEO recruited the team, especially the key digital officers? Do the technologists have a feel for the consumer, and do the business leaders know the basics of digitization? Without this connectivity, technology won’t do a thing.

A good example to look at is Doug McMillon, CEO of Walmart. The world’s largest retailer by revenue has been left behind in the age of Amazon. But McMillon is a modern thinker who knows how difficult it is to steer a large company onto a different course. His people tried once or twice to catch up on e-commerce, but didn’t succeed. So McMillon made a bold move to buy That got the whole thing really going. That changed the whole attitude at Walmart.

Walmart’s ultimate competition is Amazon and Alibaba, so McMillon picked a battleground where he thought he could beat them: India, because eventually India will be larger than China. He invested roughly $16 billion in Flipkart, a proven leader in India’s fast-growing e-commerce market. This way, he has a proven digital company in the country with the second largest population in the world and will be able to compete directly with Amazon.

McMillon’s focus is to get technology, get that customer base, get the skills and logistics, warehouses and accumulation of customer data. I think it’s a brilliant move.

What do you do if you don’t have a Doug McMillon? Those companies will succumb to others. Best Buy before Hubert Joly came in was going to hit the pavement. You have Sears on the way out. You have JCPenney. Nokia. Kodak. Companies will be destroyed. Industries will be destroyed. Remember what happened to Borders in bookselling? That will happen. It is happening.


The key point is that unlike the way we did strategy in the past, we have to start with the consumer. We have to see the consumer and say: What is the consumer going to need, at what price points? What money-making model will work, and what kind of behavior changes will support that?

Digitization permits lower overhead, and therefore higher margins. Amazon’s general and administrative cost is 1.5 percent, which is among the lowest in the world.

Serving consumers requires a digital platform, or set of algorithms, focused on the consumer need. The platform is the strategy here. And then with that platform design, you have to say, who are our partners? Who will be on this platform with us, to share the data both ways, share innovation both ways? And that’s where you increase the sources of revenue. That’s the strategy. After that, you say, “Do we need more warehouses, more trucks, more airplanes, more people, more expansion?” It should be done totally differently than before.

Tracking Digitization.

The board must intervene in the cash allocation, on how much to build the future and how much to maintain the present. Boards that are not doing this must do it. Because if you don’t invest today for the future, your short-term becomes shorter. And that’s what the board is supposed to do. Directors have got to work with the CEO to get external benchmarks—not the old industry benchmarks but of the digital players in the new game.

The board could have a dashboard that it looks at weekly, monthly, quarterly, and one that the CEO and the top team must use. Keep in mind that a dashboard is most useful when you have real consumer data and real data on the competition.

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