This week on the Friday 15:
This week, Andy & Brian talk about Honeywell’s digital transformation, and whether their CEO’s decision to be incredibly hands-on is what made that transformation successful.
You can read more about that story in this HBR article.
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Brian Beck: Welcome to Friday 15 everyone with Master B2B. My name is Brian Beck. I’m here with Andy Hoar and it is March Madness. I know Andy, you’ve been watching March Madness and you have your favorites in your bracket in the top 1% or something, right?
Andy Hoar: That’s right. No, I mean the top 10% for the one where I just basically showed what was my heart and my gut and then when I did all the analysis I’m in the bottom 20%.
Brian Beck: Oh man, sorry to hear that, sorry to hear that. It’s a fun time of year. So, we’ve got a great topic today folks for you on our Friday 15 episode. Thanks all for joining us. So let’s go ahead and get right into it Andy. Let’s get into our breaking news. (upbeat music) If you saw this week Andy, Mark Cuban says, there will be two types of companies in the future: Those who are great at AI and everybody else. He said, this quote in this article. This is from Yahoo Finance. If you don’t know AI, you are going to fail period. End of story. And if you’re a CEO, you can just, you can’t just leave it to the tech guys. Mark Cuban is a multi-multi billionaire. He’s on Shark Tank, you know, that’s what most people know. Right? Anyway, Andy, what are your thoughts on this?
Andy Hoar: You can’t just leave it to the tech guys. Well, it’s that last line. You can’t just leave it to the tech guys. I think that’s part of it. People are starting to realize that AI is transformational. But I think initially many C-level executives think it is a technology transformation. When in reality, as Cuban pointed out here and you and I have been talking about for a long time, digital is the same way. It’s a business transformation.
Brian Beck: And you know, we ran a roundtable this week, Andy in Atlanta, we had 30 executives from across industries gathering to talk about the latest things they’re doing and digital transformation. And these are companies like Kimberly Clark and Cooper Lighting and you know, the leaders in their industry. And they know, they’re all looking at AI and these are all the business folks talking about it. And then we had some CIOs in the room too. But the theme is: exactly how do we integrate it? How do we practically use it? But everybody is thinking about it and I would agree with you on the business side. Who needs to lead the charge here? What is the business use case? Starting with the pain it can solve. So folks, if you want to go back and check out our past podcasts you can hear that we talk about AI all the time. And you can listen to them at any time. You’re doing laundry or driving to work. Anyway, our topic today, does a successful digital transformation require the CEOs direct involvement? Andy, we opened the freaking floodgates on this one, right? I posted this question on LinkedIn and we’ll reveal the answer to the poll question a little bit later in our Friday 15 episode. But man, we got a lot of comments. We got close to 3,000 views of this thing when we posted it on LinkedIn. It’s a hot question. I didn’t realize how hot a question this is. But , it touched people. It touched people and we’ll read some of the LinkedIn comments. You got a little bit later, but it all started when Andy, you found this article talking about Honeywell, right? And this is the former CEO who’s now the executive chairman. I will see if I get his name right. Darius, Adamczyk. Is that how you pronounce it? Adam, that would be my guess. Okay. This is what he said about their digital transformation in Honeywell. “There is zero chance we would have made it through COVID, inflation, the ups and downs, geopolitical risk, all the challenges we faced over the past several years had we not developed a transparent and coherent digital strategy.” And they started this back in 2016. And he cited it as a five year effort. This is something that took them a while and significant level of both resource and capital investment to get through this. Were you surprised by this, Andy?
Andy Hoar: No. I was surprised by one thing that they actually set out in 2016 to do this and stuck to it. And he appointed himself the lead on it. That all surprised me, but, glad they did it that way, because you know, I’ve been talking about this for a while. That is, we believe the best way to do it. Perhaps not the only way to do it. You know, it depends on the agility of the organization, depends on how open people are to digital, how well understood the digital imperative is, there are several things that can make your company dynamic different. But without fail, I think you and I would agree that when the CEO leads the digital transformation effort and now the AI effort, it’s a lot more successful than when it’s delegated to somebody, south of that in the organization. And the fact that he actually appointed himself and led the meetings, which we’ll talk about in a moment, I think made all the difference here.
Brian Beck: Well, that’s what really opened up. We had some chief digital officers and some other folks and they’re doing digital transformation, quote unquote, at their businesses, chime in on our LinkedIn post. And there’s not consensus on this. And at the end of the day, what does it mean for the CEO to be directly involved? And that was the question we asked. But I mean, you can’t deny looking at the results of Honeywell. No, so for those of you on our podcast, I’m showing a graph here that you can’t see, but just to give you some context around it. Essentially, Honeywell’s results from a top and bottom line perspective, were starting to fall. And as they noticed this, this CEO made this digital transformation a component of his, really, key component of his leadership. He quoted a six year, simplifying digitized journey of transformation, which started in 2016. And they concluded this first phase in 2022. They cite, since the digital transformation started to take effect, their growth has returned. It would improve from 3.5% to 5%. Their segment margin, which is their measure of net margin, improved from 18% to 21, almost 22%. And they say it laid the foundation for their, what they call “innovate and grow stage,” which now that they have, they consolidated their ERP systems, they had, I think the article said, 2700 ERPs, down to less than 1,000. They reduced their websites, down significantly, they consolidated the data. Anyway, the results, I think kind of speak for themselves. This is a $35 billion company. This is not a small company, right, Andy?
Andy Hoar: Yeah, and you know what, I wrote this down, actually. They had 150 ERPs. And then here’s the kicker. And we hear this a lot. You, I know you’ve heard it, I’ve heard it too. 1700 websites within the company, that they reduced to 100, because just to be able to move forward on this digital journey, required them eliminating noise. There was just too much noise. They had too many things to sustain, maintain. Imagine I mean, how many licenses they had internally. How many people who had very specific knowledge about one particular application, and everybody was beholden to that person, for that information, it was just structurally terrible. But the most amazing thing to me was, and this is a quote, “We had no plan for collecting and using data.” Let me repeat that, “no plan for collecting and using data.” That was the most important thing, I think they stumbled across in the process of doing this kind of evaluation, triage and preparation for the actual journey. So there were multiple steps here. One was they had to figure out what they had. That took a while, and that took some courage to do that, because they had to kind of tell some people their babies were ugly in the organization. So they had to figure out what they had, then they had to make a path forward, obviously to change it, but then they had to execute. And that’s why he had to put himself in charge of the whole thing, because there’s some terms that he mentioned here that it got painful. Have we heard this one before? There was lots of pushback internally, and people who literally said, “It’s not going to work.” Now, if you’re not the CEO, and people are saying that kind of thing, in every culture, usually the people who yell the loudest, and the ones who have the entrenched kind of political power in the organization, can veto anything. And I’ll bet there were people who had those characteristics, who were saying the painful pushback, it’s not going to work. They were the ones who had those entrenched entrenched political power, and the only person who can break that up is the CEO, the only person who can say, “I don’t care, we’re doing it anyway,” is the CEO.
Brian Beck: Yeah, it’s interesting. It’s an interesting dynamic, and by the way, 2700 ERPs, that would be a few too many, I suppose.
Andy Hoar: But I’ve heard of companies with thousands of ERPs though.
Brian Beck: The complexity he was dealing with, so this fellow was dealing with a 30, this is a $35 billion company. This is the size of small countries. So, the complexity and the number of people, and everything else and the entrenched interest, so to your point, Andy, but at the end of the day, what made it work, and how involved did he actually have to be? Well, there’s a quote from the end of the article, this again, it was in Harvard Business Review, just this past week, it was released. He says, “When you are the CEO, the organization doesn’t listen to what you say as much as it follows what you do. So you can’t delegate mission-critical strategic projects. By running monthly meetings and operation reviews, I send a message to everyone that I care about this digital transformation personally and we’re committed to this path.” He ran the freaking meetings. This is a CEO of a $35 billion company, running the meetings and looking at the KPIs, and again, driving through some of those silos, Andy. And by the way, looking, this is controversial because – think about it from a size of company perspective. Not everybody agrees. I was going back and forth Jacobi from Luminos Labs. And Jacobi was a CIO for a long time for a sizable distributor. He said, having been through a fair bit of this, valued, influential, and trusted lieutenants are worth their weight in gold, but more importantly is the CEO’s faith in them. Team sport, I said, yeah, Jacobi, sure, team sport, indeed. And I know you’ve been through this, but does a CEO actually need to sit in and contribute to the meetings? And he kind of said, nah, not really. And so Jacobi, I don’t fully agree with you, I think the CEO might have to do this. And that was kind of Jacobi’s tenor. And again, he came from a different size company and they digitally transformed. Maybe at a company like this, multinational, highly complex, lots of intrench insurers, maybe the CEO at a big giant company, they have to run the meetings versus other places where maybe it’s more about direction. What do you think, Andy? I mean, can the CEO delegate some of this? He can’t do everything, right?
Andy Hoar: The question I have is how big is the problem?. And if the problem is as big as it was at Honeywell, and I think it’s as big as it is at Honeywell, just about everywhere, then the CEO has to run it. Other exceptions, sure. Are there companies where the founders and the CEO are on board with this? And by a simple nod and a wink, things can get done because everybody believes in the cause and they get that it’s a business transformation not a digital transformation? Yeah, I’ve seen very few companies like that, but yeah, sure. I guess theoretically it’s possible, and in reality, there are examples of it. But to me, the vast majority of the companies are more like Honeywell, where they think they can do it, but then what ends up happening is at some point, there are these painful choices. Are we going to go with a self-serve, e-commerce model principally, or are we going to go with an assisted one that requires salespeople, and commissions? That’s a strategic decision that must be made at the CEO board level. I don’t care how well you understand digital transformation. It’s these change management issues that are the big ones. And I don’t know who can solve that other than the CEO and the board. And the fact that part of it helped that this CEO at Honeywell is an engineer, and he started an engineering thing where we’re going to test and learn and like putting the space program on the moon. I think that’s what he thought as, and he had to go in charge of that. Now does he run everything? No, but as he said in this quote, “I sent a message to everyone. By running these meetings in the operational reviews, I cared about this project.” And he said, you can’t delegate mission-critical, strategic projects. So the question is, how big is it, and is this mission critical, and does it require ultimately decisions made by the C-suite? I think that’s pretty much check, check, check for every major B2B company, but I guess not every company.
Brian Beck: Yeah, I think it does vary a bit by size of company perhaps. We had another comment here from someone at credit key now, but he was also at Gartner. He said, when I was at Gartner, I found that the clients who CEOs were handing down digital first strategies were the only ones that were succeeding in making a real impact. So I think he actually agrees with us from his experience at Gartner. So I think what’s interesting is when we polled our network on LinkedIn, our community, they kind of agreed that the CEO does have to be, it wasn’t overwhelming, but we asked the question, does the CEO of a B2B firm need to be directly involved in order for digital transformation efforts to succeed, or can he or she delegate? And 57% said direct oversight is needed, 43% said no, it can be delegated. So I think there’s a consensus that the CEO has to drive this to some degree. It’s really the nuts and bolts of how much do they have to drive it where I think people disagree, do they have to run the weekly meetings, that kind of thing?
Andy Hoar: Well, you know what I was wondering when I see things like this, and I wonder if it’s already embedded in people’s psyche that the CEO is not going to be involved in it. They’re answering the question based on the reality of things. Like, well, in a perfect world, we’d love for him or her to be directly involved, but it’s just not going to happen.
