Carsten Linz is the CEO and founder of bluegain, a company that helps leaders in their digital, business model, and sustainability shifts. In nearly 20 years in leadership positions Linz has built several €100 million businesses and led enterprise-wide transformation programs for more than 60,000 employees. His most recent positions include Group Digital Officer at BASF, Business Development Officer at SAP, and Global Head of the Center for Digital Leadership.
Linz is a member of the World Economic Forum’s Expert Network on Digital Economy and New Leadership and of the investment committee of European’s largest seed capital fund.
His most recent book ‘Radical Business Model Transformation’ was published by KoganPage London in 2021 and is considered a standard reference in business model and digital transformation literature.
Linz teaches in executive programs at the European School of Management & Technology Berlin, Mannheim Business School, University of St. Gallen and Stanford Graduate School. He holds a PhD in Innovation Management from University of Bern/Switzerland (summa cum laude) and a degree in economic engineering from Karlsruhe Institute of Technology (with distinction). He has studied system dynamics and entrepreneurship at MIT Sloan School of Management, leading change and organizational renewal at Harvard Business School, and corporate strategy at INSEAD Fontainebleau. Linz recently spoke to The Innovator about what leaders can do to successfully drive transformation at scale.
Q: What are some of the key takeaways from your book Radical Business Model Transformation?
CL: One of the key learnings is that transformation is not about technology. Digital technologies can enable business and social impact at scale. Think of them as an engine to bring strategy to life. But digital transformation is really about culture and leadership. I see companies all the time that have top notch state-of-the-art IT, but they can’t transform. Many overestimate the power of digital technology and underestimate what is needed for the translation and transmission into the business, the most difficult and most pivotal part of the equation.
Many executives view innovation as either something incremental to protect existing cash flows or as disruptive, radical change based on new operating or business models. From my perspective, the truth is in between.It depends on their ambition level and their digital maturity level but in general I recommend 60% to 70% of efforts focused on process automation and process reimagination and 30 % to 40% on new operating models or new business models. The important thing is to see it as a portfolio and strike the right balance for the company. Recently I had worked with the senior leadership of a large German group that had made a lot of effort to change the business model of their organization and now they need to catch up on the more traditional stuff like working on efficiency and driving automation. It is important to do both. It is not an either-or, but an and.
Q: Senior managers tend to believe the traditional business is the “real business” and innovation is nice-to-have but hard to achieve and long-term. What’s more many CEOs don’t stay in their jobs for more than five years so don’t focus on the long term. How do companies get around this problem?
CL: It is true that leaders naturally like to concentrate on near-term benefits but it is important to set long-term goals that focus on innovation because this allows the organization to set aside a certain percentage of money and time and effort to explore multiple strategic options for the future. As we know, business is not finite. It is an infinite game, and it requires a tricky balance to stay in the game. You need to secure your existing cash flows but at the same time manage a portfolio of strategic options bets to future-proof your business. In this regard, organizational slack can be a good thing to accelerate learning and increase an organization’s strategic flexibility to stand the test of time. However, it is advisable to limit investments as not all options will be exercised. Hence, first develop a strategic option with limited resources, then exercise and mobilize resources on a large scale only when competencies have been acquired, uncertainty has been reduced, and the strategic relevance is still high. To become great leaders, we must first be able to lead ourselves. If leaders can’t change, the organization can’t either.
Q: You co-authored an article that was published March in The MITSloan Management review which argued that, in certain circumstances, gradual change can beat radical transformation. Please explain
CL: For the longest time the narrative has been that you need a separate central team close to the CEO if you want to do something completely new or manage a radical transformation, but our research found that many of these centralized efforts, which were isolated from the rest of the business, did not work out because they were not linked to domain specific knowledge in the company’s business units. Our research into digital transformation in industrial companies shows that the best approach in many cases is not ‘separate-then-integrate’ but ‘embed-then-scale-out’. Executives in the firms we studied mostly took a long-term view, exploring use cases for new technologies in small pilot studies and scaling them up cautiously. They also took a largely decentralized approach, with a view to building digital capability in the heart of the business, rather than in a specialized or separate unit. We suggest that, depending on circumstances, that may be the better approach for organizations in other sectors as well.
Q. Can you give an example?
CL: Siemens Mobility, for example, takes an embedded approach in their Railigent software system for monitoring trains, tracks and signals. It allows their business units to identify clear business cases with existing customers, gives the teams the freedom to test new products and services that meets those needs, grants them more autonomy over time and then, if it is successful, scales the new business, especially via partnerships Railigent Application Suite already has more than 100 applications by more than 10 partners in their cloud-based platform developed with AWS. The embed-then-scale-out approach has been quite powerful.
Q: It is often said that successful digital transformation comes down to leadership. What, in your mind, does that look like?
CL: I don’t believe in ambidexterity when it comes to organization, but I firmly believe in it when it comes to leadership: leadership needs two strong heads; one focused on radical innovation with longer time horizon and the other that on incremental innovation close to the existing business, so you need to have the right mix in your leadership team. Most leadership teams are relatively homogeneous; leaders tend to pick people just like them. It is important to change that. Most organization’s leadership teams are 99% focused on the traditional business. It is really an exception to find a company where there are two people focused on transformational and digital stuff. Make sure there is at least one!
Q: Some of the companies The Innovator talks to are now appointing innovation champions inside their business units. Is this a good approach?
CL Such concepts gain relevance, when in a corporate setting people that think and act entrepreneurially and transformative, are better backed-up; this goes back to the ‘embed-then-scale-out’ approach, which requires an openness to letting go and allowing the digital activity to operate on a semi-independent basis to scale up the business. However, I am skeptical about grassroots innovation succeeding on its own because as soon as you develop a complex operations model or business model that cuts across business units, you need a strong backing from the top. most cases the business unit champions don’t have the authority or the budget to drive things forward. In conclusion, you need both a commitment from the top and bottom to not digitize the past but innovate and transform for the future.
Q: What recommendations do you have for company leaders?
CL: Take a long-term view and develop a model of where you want to go; create a desired end-state- despite the knowledge that transformation is here to stay – with a realistic timetable. Create the right balance in your leadership team between incremental and radical innovation advocates. Focus on use cases, exploring them, pilot them, and scale them up cautiously. Get your employees on board with the digital transformation by creating a movement, in which followers follow followers (and not the leader!). Always try to secure a multi-year budget commitment before you start the program so your plans do not become the victim of annual cost cutting. Remember: technology is only a means to an end, it’s about winning people’s minds and hearts.
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