Customers before tech

Melissa Clark-Reynolds talks disruptive business models, why board composition matters, and why it’s more important for the board to understand their organisation’s customers than new technology.

“There are no disruptive technologies, just disruptive business models,” says Melissa Clark-Reynolds.

Although most of us think about technology being a driver in itself for business development, Clark-Reynolds argues that good business decisions begin with considering the customer first. Technology is a tool, and disruption happens when a business sees an opportunity that others haven’t and do something different to address the needs of customers.

The founder of several technology businesses, Clark-Reynolds is one of the emerging group of directors who are equally as familiar with tech as they are with governance. She holds director roles with Radio New Zealand, software development training business Softed, architecture firm Jasmax, is on the electric vehicle panel at EECA and recently stepped onto the board of New Zealand Beef + Lamb. In 2015, this contribution was recognised, and she was awarded an ONZM for services to the technology industry.

Technology permeates our everyday lives, and as a director it is important to understand what you need to know about disruption so you can best serve your organisation.

Avoiding the hype

It’s important to avoid getting caught up in the excitement of technology and think about how it will serve your organisation. In a period of time when much is said of how new technology will change everything, Clark-Reynolds says we should remember that a lot of this ‘new’ technology has been around for a while and it’s actually the strategic approach that leads to disruption.

Clark-Reynolds asks us to consider the history of personable music devices. In the early 2000s, Apple revolutionised the portable music device with their release of the iPod. With its sleek design, the iPod became a must-have, with cars, music players and even aeroplane seats modified to allow for interconnectivity.

However, the portable music player is far from new – it’s an old technology that has been modified over time. Soldiers took their music players with them into battle with them in 1917. Format changes brought cassettes, mini-cassettes and later CDs. By the time Apple stepped into the market with the iPod, personal music devices had been available for decades. Sony first dominated the market in personal, portable music devices when they miniaturised cassette players in the later 1970s and released the Walkman.

So while the reaction to the iPod when it was released was to think ‘wow this is really disruptive’, Clark-Reynolds says it was evidence of a company finding a way to commercialise a technology that addressed a customer need.

“It’s actually been coming for a while. They didn’t create a brand new need, they just found a way to really scale that need and go mass market with it,” says Clark-Reynolds. "They also found a better customer need (ten thousand songs in your pocket), compared to the competition who defined the product by what it actually "did" (portable music)."

In fact, Apple’s approach to the portable music market was quite deliberate, with the company waiting for everything to line up in the world of broadband and digital music before releasing their product. Steve Jobs told Fortune in 2008 "things happen fairly slowly… These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you're going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely, it actually unfolds fairly slowly. It takes years."

Of course, without the iPod, there would be no iPhone.

Today, 3D-printing is one of the technologies that many think might be about to crack the big time, but Clark-Reynolds says part of the reason it’s still in the wilderness is that lack of obvious customer demand that 3D printing would address. It’s a technology looking for a home.

“You can invent things, but in terms of them being disruptive it’s rarely the tech that is disruptive. It’s not that, if you build the tech a market will miraculously appear that supports it.”

For directors, Clark-Reynolds says it’s important to know what is out there but you can’t get sucked into the drama and the excitement of technology.

“I think there is a lot of hype around new technologies. Right now, its blockchain, virtual reality, 3D printing, big data. I started doing big data in the late ‘80’s and the tools to do it weren’t that great, but everything we are building on now around machine learning and AI are just evolutions of what we have been doing for 40 years.”

Technology plays a role in disruption when someone figures out a business model that knits together customer need along with the tech Clark-Reynolds explains.

“The convergence of technologies does open up new possibilities. But while virtual reality needs big data, the two put together doesn’t automatically turn into a business. Our job as directors is to be responsible for strategy. What we can end up doing is playing strong defence or offence in a way where we are driven by the technology rather than the customer need.

“Don’t get sucked in to the hype. Boards need to ask themselves. How does this align with our business strategy, does this solve a problem for our customers and do we have a clear path to market?’ If you don’t have those things they’re not going to be disruptors, they’re just cool tech.”

What does disruption look like?
‘Disruptive’ businesses like Uber and Airbnb have left a mark in the transport and accommodation industries, not because they have a flash piece of tech but because they have addressed a problem. Taxi drivers may believe their business has been gazumped by an app, Clark-Reynolds says, but really Uber has used technology to solve several problems customers have with transport.

“Often those disruptive businesses solve a different customer problem, or a bigger customer problem.”

Uber customers don’t need to phone their taxi service asking where their taxi is, Clark-Reynolds says, they can see exactly where the driver is. There is no physical exchange of cash, a certainty of cost upfront and the rating of driver and passenger encourages a different interaction than in a traditional taxi. Reducing the disruptive nature of Uber to simply the use of an app is a misunderstanding of what it is about a business that makes it disruptive.

In New Zealand, businesses like Flick are disruptive to traditional power companies not because they offer cheaper power - all electricity providers compete on price - but for tapping into wider customer concerns. Flick, for example, uses ‘smart tech’ to provide data so users can decide when and how to consume energy, depending on the things like the price of units and whether the units available at that time come from renewable energy sources or fossil fuels.

Clark-Reynolds says one of the appealing things about a model like the one Flick runs is the ability for customers to not just use the service as part of their daily lives, but to help them live well. The availability of an app that tells you when the most cost-effective time is to run the dryer, rather than not using it at all and hanging wet clothing around the house, solves a problem for the customer in an unexpected way.

Technology is part of the solution to addressing customer’s problems, but Clark-Reynolds says the board isn’t responsible for knowing about every piece of technology that is out there. What is more important is to know your customer.

“The board needs to understand who the customer is and what problem the customer is trying to solve. Competitive advantage usually comes from knowing your customer better than anyone else and anticipating their needs.”

Who is sitting around the board table?
So how does a board know when the tech is a good investment that will address a customer problem?

“It’s really hard for the board,” says Clark-Reynolds.

“Your team comes to you and says we need $20 million to roll out this new IT. As a board you have no way of knowing whether that is the right thing and you don’t want to be the board that says no to technology.”

Having the right mix of competencies around the table is hugely important to making decisions around technology and understanding how it impacts business. Diversity at the board table extends to looking at how to bring in directors with a background as a CIO or CTO and more entrepreneurs, Clark-Reynolds says. This would change the risk profile around the table. But you can’t rely on one person to hold all of the knowledge in this space.

“It is important that the board isn’t committed to a particular technology and that no one on the board feels like they are ‘the expert’ in tech. It’s a bit like you don’t want one board member who is seen as the financial guru so the rest of us don’t need to know. It shouldn’t be like that.”

There are three areas in which Clark-Reynolds says it’s beneficial for board members to have experience however. The first is large-scale IT roll-outs and the commercialisation for technology. While the board wouldn’t get involved with project governance, you do want somebody on the board who can ask the questions about whether they have that governance in place.

The second area is having enough knowledge about new technologies and what they are used for, to the extent that the board is able to ask the right questions.

“It’s saying, ‘Should we be using blockchain, how are we using AI or data analytics?’ It’s about having someone who can ask the questions and have an intelligent response.”

Experience dealing with disruptive competitors is the third space. Having good competitor analysis and understanding what your competition will look like in the future is incredibly important here, but it’s a bit of a blind spot for New Zealand companies, Clark-Reynolds says.

“We tend to do competitor analysis not on the people who solve the same kind of problem as us, but on the people who do what we do. So if we are in the book business we will monitor other book publishers, not seeing the Kindle coming. I’ve done it myself. We were in the online virtual worlds business and we just didn’t see the Kindle Fire and the iPad mini and kids just moved off the web and onto apps really quickly.

“That’s why the whole team is important. That you are thinking about strategy and competitor analysis from lots of different points of view.”

Know your customer

Speaking of competition, what does a business like Amazon reaching our shores mean for New Zealand?

There are issues appearing before that point, Clark-Reynolds says. Fonterra for an example is really skilled at taking product from multiple sources and bringing it all through one point of distribution (such as supermarkets). The likes of Amazon and Alibaba take from multiple sources but also distribute to multiple places. That’s the business model difference Clark-Reynolds says and could prove beneficial to individuals in New Zealand, such as farmers.

“What it opens up for customers is the ability for someone in Europe to order something direct from a New Zealand farmer. And that changes the game. If you think about something like My Food Bag, the ability to do that direct from farmer to consumer in the food space is growing massively.”

The bigger question for New Zealand is not what does Amazon coming here mean for business? The question is what does Amazon moving into the food industry mean for an agricultural country? Amazon purchased Whole Foods in the United States earlier this year, and on the first day of that new ownership, the average Whole Foods shopping bill dropped 43% (Business Insider).

“What can we learn from it? Can we partner with Amazon? How do we improve our own supply chain management? Alibaba, for example, opens up big supply chains that weren’t available. Who thought supply chain would be disruptive. But it is.”

A partnership between Alibaba and Milk New Zealand has seen fresh milk delivered to Chinese customers for the first time and taps into a customer desire to understand where their food is coming from. Plant-based meat is also gaining popularity as some consumers choose to move away from animal-based products altogether. Clark-Reynolds says boards should be asking questions about why these shifts happen. Do consumers want a synthetic version of the real thing or do they want something completely different?

“Those are the questions the board needs to be asking. We have to really think about deeply about our business models and what it is the customer is after. That’s where the value proposition question, which is the board’s question, comes in. I’m on the board of Beef + Lamb, and we’re really thinking hard about that.”

Knowing what your customer wants opens up opportunities to use technology to address customer need and that’s what really makes an impact for a business. In the food industry, as consumers seek to understand the origin and supply chain for their food, track and trace ability could be significantly amplified with a technology like blockchain.

“The value is there because the customer wants to know, and that’s where the technology makes sense.”

Ultimately, the technology doesn’t win the day. It can certainly harness power if used properly, but if your customers don’t get there needs met better, then it’s still just a piece of tech.

Published in Boardroom Feb Mar 2018 issue