What is domain transformation and why can it be so difficult for companies to achieve it?
[00:00:00] Peter Maddison: Hello, and welcome to another exciting episode of definitely Maybe Agile with your hosts, Peter Madison and David Sharrock how are you today?
[00:00:07] Dave Sharrock: Very good. Very good. It's been an interesting few conversations we've had over the last couple of weeks.
[00:00:12] Peter Maddison: It has.
[00:00:13] Dave Sharrock: I'm just going by memory, but if I remember rightly, we talked about business model transformations. And one of the things that comes to my mind is, one company's business model transformation is another company's domain transformation.
[00:00:24] As an introduction, if you like to, transformation number three, domain transformations and what exactly is a domain transformation? What could you add to that?
[00:00:33] Peter Maddison: I think you're right. When we are looking at these four types of digital transformation, the process, business model, domain, and the cultural organizational. And we've spoken about process and business model, and now we're going to have a chat about domain transformation. The differentiation between this business model and domain transformation as, when a company comes into a new domain. Or comes into a domain, which isn't normally the domain that they'd be operating in. Because of their expertise in the domain they're coming from, they take an entirely different approach. And the way that they think about that domain, differs so much from the current incumbents, that they can be highly disruptive. They're not even using the same logic that the people who've been doing this for so long, are using. They come in and they just change the game.
[00:01:19] Dave Sharrock: This is often referred to as that innovators dilemma. Within Innovator's Dilemma, Clayton Christiansen is talking about within a single organization, typically. But the Innovator's Dilemma is also how do you innovate past where you're at. When I look at the domain transformation, what strikes me is, this is the cool place to be. Everybody wants to be here, but it's also really rare and very difficult to be there. Most organizations probably aren't there. They're not really playing in this area. You have to understand what skills, what capabilities you have, because you're trying to apply those capabilities in a different marketplace. So you really have to understand your own capabilities very clearly, and then be able to step into a marketplace and do something different to the incumbent.
[00:02:06] Peter Maddison: Exactly. Let's talk about some examples in this space. One of the common ones, especially in this technology space, would be Amazon going from a retailer of books online, to completely disrupting the way that infrastructure and data centers are managed and deployed. By bringing cloud computing to everybody and completely disrupted the enterprise server market. Instead of going out and buying computer equipment and finding a rack somewhere and wiring it all up, you just pull out your credit card and buy the service from Amazon and they deliver it over the internet. And so now don't have that entire model. The entire domain has completely been disrupted by AWS, and Azure, and Google. Of course, I'll mention them.
[00:02:49] Dave Sharrock: I think that one is the of definitive definition of a domain transformation and it has a couple of characteristics that we probably want to identify. One of the ones I like about that from a domain transformation piece is, if you look at income statement, the balance sheet, there is a different line of revenue associated with what Amazon is doing in its store, and what it is doing in terms of Amazon web services. So that's one of the key things that you're looking for in a domain transformation is it is a totally different market and it's almost certainly going to be recognized as a totally different line of business. The second things is it's almost accidental. I don't know that Amazon started out trying to build AWS. I think they built the capability to solve their own problems, and then as a result of that, recognizing the capabilities they had and looking at the market and understanding that there was a need for those capabilities. They're then able to make that switch. So that speaks back to what we were just talking about, which is you need to understand your capabilities and then how they can apply to the market where you can go. I'm not sure that it's often accidental, but I think it's somewhat opportunistic. You build the capabilities to solve your own problems first, and then you find out that those capabilities are in demand somewhere else.
[00:04:06] Peter Maddison: I think that's a good example of where it's happened in that manner. How about an example like, Uber. Uber started by going into a domain and taking a different approach, right? They started from the entire concept of "Hey, we see an opportunity to disrupt this domain", and they built their entire business around it.
[00:04:25] Dave Sharrock: I think of Silicon Valley. Silicon Valley right now is in the throes of disrupting everything. And I think part of that is they've spent 20 plus years. Many decades building a capability, which is how to build digital solutions. How to build services and products that people really, really like. You can think back the big names that have come out of Silicon Valley over the many decades that Silicon Valley has been there. And so there is a capability within Silicon Valley, which is to build brilliant digital solutions. Digital products and services. This is where I think that capability then applied to a field, a marketplace, which is traditionally not very technical, such as taxis. That becomes quite interesting just because you are removing that capability, which is digital "stuff", into places which aren't traditionally digital. Doesn't mean they're definitely going to work, but certainly that's something that we're beginning to see quite a lot of. The key that I'd look at is the capability there is building digital products and services that customers really like and appreciate.
[00:05:26] Peter Maddison: Yes. Ways of identifying this. One of the tools that I've used, Wardley mapping. Quite a powerful tool when it comes to this identification of where there's opportunities. Or as a thought model around how are things progressing. Where might there be opportunities for us to look for. Places where we should be focusing. If we look at our own business models, which parts of our business models should we be focusing on less.
[00:05:52] Dave Sharrock: We are talking about capabilities, we're talking about understanding your own capabilities. A tool like Wardley mapping is all about mapping out your capabilities. How well developed they are, and what role they play in the success of the product or service that you are delivering. There are two things coming out of that. One is just that appreciation and understanding of capabilities that you are leaning on. You may have strategic weaknesses where you're leaning on a capability that you don't really control and there may be a problem there. Versus there may be strategic strengths because you've developed a capability that's maybe not necessarily recognized, but is very highly valued in the marketplace.
[00:06:28] The other beauty of Wardley mapping is it begins guiding us onto where to think. What markets to look at, what capabilities we can build on top of and transform into some opportunities. Something like wardley mapping as being really critical as a tool to map out something that we could start using to explore possible domains within which to transform, or where to transform to.
[00:06:56] Peter Maddison: I've had some success working with organizations using it that way as well. It's a way of looking at how do we work and where should we focus. It's very powerful.
[00:07:05] Dave Sharrock: Well, I think another tool for us to be aware of is the Cynefin framework, around complexity. If you're familiar with the Cynefin framework, there's this shift from complex or chaotic problems through to much more straightforward, what they call clear or complicated problems. But there's also a cliff between the clear to chaotic and then complex. If we were any of the big players in the server business before AWS came. As an incumbent, they dropped off that cliff from a clear, complicated. They knew what they were doing, They knew their market, they knew everything about what they needed in terms of data centers and data center management, and how you sell it, and what people are looking for. And they suddenly drop off a cliff, into a space where now they're competing and they don't have the right tools for the job. Again, in the same way that Wardley maps allow us to understand our own capabilities and where the opportunities might arise. We can use tools like the Cynefin framework to understand, maybe there is a lever that can be pushed or a nudge that can move an incumbent. How do we move them into a place where they struggle to compete?
[00:08:12] And again, a great example of this one is Netflix, as they shift from DVDs to streaming. Netflix is always famous for what they did to Blockbuster, but that shift from DVDs to streaming changed the game in many, many different ways. In fact, even right through to how content is made. That shift is something that is all encompassing. None of us have DVDs anymore. This is the sort of opportunity that you get in the domain transformation. You can define a new category. You can go in and own that category. So there's huge benefits and therefore a huge magnetic pull for organizations to get into a domain transformation, but successfully making that happen is challenging. It's a lot harder.
[00:08:54] Peter Maddison: One other example it was Tesla and the disruption of the domain of cars. The introduction of electric vehicles. Electric vehicles, in general are incredibly disruptive to the cars that run on gasoline. They've come in and they've very much disrupted that domain. And the current incumbents in that domain are playing catch up. They're also trying to build electric vehicles. And I think on the last episode, we were talking about, how the business model around cars significantly changes due to the fact that there's many computers inside. That might be 50 to a hundred computers inside of a car. And all of them need software updates regularly and need to be maintained, which makes it much harder over time for people fix these themselves. Now it makes much less sense to have a car for 20 years. So the whole model changes as a consequence of that. And when we look at these two competitors, all of the traditional car manufacturers and Tesla, Tesla's started to hit these distribution problems. These problems where they've had to have recalls, or they've had difficulty being able to make enough vehicles to satisfy demand. Meanwhile, the traditional, even though they don't know how to build these complex electric vehicles, they do know how to distribute cars. And they do know how to manufacture at scale. So there's a race going on here. Will the traditional manufacturers work out how to build electric vehicles that people want before Tesla works out how to distribute the ones they already know how to build.
[00:10:21] Dave Sharrock: There's a great book. I think it's The Machine That Changed The World, that talks about cars. Automobile manufacturer is one of the, if not the most complex, physical product made. The Machine That Changed The World is talking about how Toyota really became very, very adept at that. Today with electric vehicles, the cars themselves, the mechanics are pretty simple, but the complexity is now in the computer hardware and software. And that's that capability difference, right? If you go and look at Wardley mapping and you understand what does Silicon Valley, what do computer software geeks bring to the table? They bring the understanding of how to build complex hardware and software. What do the automobile manufacturers bring to the table? They bring the capability of building complex physical products. And as you say, there's a race and it'll be won by partnerships, I'm sure because there's a big experience curve in both directions that needs open.
[00:11:16] Let's wrap things up. What's the two or three things that you would take away from our conversation?
[00:11:21] Peter Maddison: Entering an adjacent domain. Where you take what you've learned and you say, " I can identify something that's in an adjacent domain that I can move into and I can start to see if I can take over". This is your AWS going from, "Hey, I already needed all of this to support my retail business and what happens if I sell this tool to the people have data centers". See what happens. There's the people who come in intentionally to disrupt a domain. They have an idea and they're going to come in and take an entirely different approach to domain. That ability to innovate and go fast is really critical. This is your Lyfts and Ubers of this world coming in and taking a totally different approach.
[00:11:59] The third point was some of the tools that we can use around this, like Wardley mapping and Cynefin as a decision framework to understand. What types of problems are we dealing with and help us understand where we might want to focus. Anything else you would add?
[00:12:13] Dave Sharrock: Right at the beginning we said one company's domain transformation, is another company's business model transformation. And I think they are two sides of the same coin, depending on basically what capabilities you bring to the table and whether you are shifting your market or you're shifting somebody else's market. That piece is really critical for us to understand. In closing, be aware that domain transformations are super, super hard. Nearly all of the examples we've given are obvious in hindsight. There is a lag in a way that we've not really talked about the detail. But a lot of it is you find your way somewhere and then you look around, you go, "Oh, you know what? We can make this work". Rather than a planned approach. Maybe there are examples of planned approaches, but they're rare. Yeah.
[00:12:55] Peter Maddison: Awesome. Well, thank you Dave, as always. If anyone would like to provide us feedback, they can at email@example.com. And I look forward to next time when we're going to be talking about cultural and organizational transformation. The last of our four.
[00:13:08] Dave Sharrock: The glue that fits everything together.