Session 12: Guest lecture

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Contents

Digital Transformation at Novartis

Introduction

Novartis AG is one of the world’s largest pharmaceutical companies with his headquarters in the Swiss city of Basel. It is specialized in the research, development, manufacturing and marketing of health products with a focus on cancer, cardio-metabolic and respiratory diseases, immunology and dermatology, ophthalmology and neuroscience. This company is listed on the stock exchange (at 26th November the stock price was 81.24 CHF per share).

Currently there is a sense of urgencies, as the pharmaceutical industry is growing a lot and has many competitors, Novartis decided to digitalize as a whole company to overtake its competitors.

Our guest : Bertrand Bodson

Bertrand Bodson graduated from Solvay in 1998. He started his career at the Boston Consulting Group (BCG) in Brussels office. During his years at BCG, he had the chance to learn a lot and to work on diverse projects. After 3 years at BCG, he decided to start a MBA at Harvard Business School before joining Amazon. During both his studies at Solvay and Harvard, he got the highest grades. At that time, Amazon was still a small company (DVD rental) and he worked there as a Financial Analyst until Sept. 2004. He spend most of his time on projects including: leading the new country expansion plan (led to a $75MM acquisition of Joyo.com in China), a drastic review of Amazon's online marketing channels, and preparing the Weekly Business Review (as led by Jeff Bezos).

In 2006, he co-founded his own business, Bragster.com, a global social network where users could share their videos in response to a dare. He sold it 3 years later.

In 2010, he joined EMI Music where his job was to lead the digital & marketing teams globally across 27 markets, with activities ranging from artist launches (incl. The Beatles on iTunes) to the deployment of digital platforms, supporting streaming partnerships with the likes of Spotify and Google, or aggressively improving monetization of the core catalogue. His role was to report to Strategy EVP, and to the Global CEO. The company has been acquired by Universal Music.

In 2013, Bodson joined Argos where he became the Chief Digital and Marketing Officer. His objective was to transform the company in a more digital one. He had not only to transform the traditional catalogue retailer into a digital online retailer but also to make a shift in the company's way of selling and attracting consumers.

In 2018, another challenge appealed to him: becoming the first-ever CDO (Chief Digital Officer) of Novartis. Novartis has to reimagine medicine, powered by data science and digital tech.

The statut of Novartis at his first day:

  • The main challenge was that the pharmaceutical industry was changing and evolving rapidly with the entry of new technologies and new players, bringing new opportunities but also new threats.
  • Its objective was to transform Novartis into a leading medicine company powered by data and digital.

Source: LinkedIn and Novartis case

Case Study Questions

1) What are the main challenges that Bodson faces as he steps in as first CDO of Novartis?

The business:

  • It was lacking of customer centricity (>< with his previous job at Argos)
  • It was also lacking of integration and standardization, that was a big issue.
    • There was also a huge lack of communication into the company.

The role of CDO:

  • Pharmaceutical industry → It was totally new to Bertrand Botson to work in this type of industry.
  • Technical foundation had to be created
  • The job of CDO was new, he has therefore the job to invent it
  • Creation of a portfolio of Lighthouse projects to make Novartis a leader in digital and data.
    • Build these programs with businesses and to have businesses involved in this digital transformation. He has to make the 130.000 employees feel involved.
    • Get support from the Novartis executive committee (ECN)
    • Rapidly demonstrate the potential of data and digital
    • Hard to find the right balance on the different projects
  • Bertrand Bodson had to build a core digital team, called digital leadership team. Their role was to report directly to him. These person are enablers of the digital transformation at Novartis.
  • Fostering a digital culture in all dimensions of the company: Change in the culture and communicate effectively, relays to be avoided,organizational setup.
  • Lean central team, embedded in a different division

Bertrand Botson had a great challenge ahead of him.

Increasing competition:

  • Competitors and new/others players were getting more sophisticated
  • New entrances were exploring niches market
  • Healthcare sector was in turbulent times
  • New technologies were entering: AI, biosensors, big data, etc.
    • Wearable device enables to get more data from the patient
    • Virtual consultations
    • AI to diagnose with high rate of accuracy

The pharmaceutical industry:

  • Pharma industry was focusing on developing lucrative drugs targeting medical problems that concerns a large part of the population.
  • Market was becoming saturated
  • Success rate was decreasing
  • Margins were eroding
  • Corporate giant :
    • Google, Amazon, JP Morgan Chase, etc. announced that they will form a new venture.
    • WeChat (Chinese giant) was used by patient to book meeting with doctors.
    • Alibaba : AliHealth developed a drug-tracking system
  • Pharma industry : high barriers but was evolving via emergence of new technologies (kind of catalyzers).

The pharmaceutical industry is characterised by very high R&D costs paired with long time to market durations (it takes at least 10 years to complete the process from initial research to the sale of the drug). With clinical trials taking up 6 to 7 years on average, this is a very time consuming task. That is exactly where the implementation of data and machine learning can be used to reduce this time to market. One of Bodson's objectives was to reduce that time to market by 2 years. In addition, Mr. Bodson's colleague mentioned that all established pharmaceutical companies (small or large) are very afraid of new entrants which use data analytics in the optimal way to disrupt the whole industry. Even a small company is able to steal market share from large established ones by implementing their insights gained from their big data analyses such as better meeting customer demand, being able to better forecast future demand, etc. Novartis has to prevent this by all cost and needed to act fast (gaining first mover advantages). That is exactly why Novartis jumped on the IT innovation train and why it has become one of their five top priorities.

Scaling up the digital initiative:

  • Technical -> IT formation
  • Partnership to save time
  • Agile mindset -> still a big challenge today: align incentives

Context changes in health care:

  • Consumer behavior is changing become comfortable with technology, CIO include changes to a legacy model, pharma industry they don't refer to customer but patient.

2) What are the pro’s and con’s of Bodson’s decision to go for 12 Lighthouse projects?

Context

Projects.png

Bertrand Bodson has to select some projects that would lead the digital transformation of Novartis. He decided to go for 12 Lighthouse projects.

Each lighthouse projects has:

  • To make an impact within 3 to 5 years
  • Has to be financed by the unit itself

Why 12 and not more or less?

He believes that the company can not afford the luxury of only testing 3 or 4 projects during the digitisation phase. In fact, he would have liked to build momentum to drive all sections of the company to digitize at the same time to maximize the chances of success. They went for 12 because they wanted to be large enough to involve the whole company and its 130.000 employees.

  • If they go for more projects, there are lower chances to success
  • If they go for less projects: there are lower chances to have a digital transformation impact

There is a trade-off to find

Some guidelines:

  • They must cover all the department to create dependency and cross-departmental integration and standardisation
  • They got the licence to fail: try more and even if you fail you learn more. It's the culture of learning from mistakes. They are always learning through successes or failures.

Formation of a digital leadership team

He formed a digital leadership team. Their role was to report directly to him. These persons are enablers of the digital transformation at Novartis.

  • These persons were representatives from each of Novartis businesses and functions.
  • A team of 12 to 15 persons was the ideal size because it’s still manageable and in term of speed and impact, it would be ideal to be 12 to 15.
  • Finally, the team was composed of 25 people. Moreover 100 additional people were in a broader digital team.
  • They hired new joiners as well.
  • There was 1 meeting per month for the direct digital leadership team
  • People from support functions (as legal, data privacy) were included in the team.
  • Team re-evaluated after 1 year.
  • After a year, he reviewed his team and instaured a rotating country chair to enable everyone to be the "leader" and enable to have a focus on local realities.
    • The team was composed of 30 people (too much), he decreased it to below 20.
    • He increased the number of people in the broader digital team to more than 1500.

Partnership and aqcuisitions

Decision to work with partnerships instead of spending energy to do something that has already been developed.

Partnerships:

  • Start-ups
  • Large corporations
  • Academic institutions

Aqcuisitions:

  • Acquisition (M&A) 12 acquisitions that enables Novartis to increase its knowledges and to bring data.
  • Partnerships
  • Taking stake in other party

Pro's and con's table

Pros Cons
Impact (transform culture at scale) Synergies are hard to assess
Reinforce a “learning culture” where it is okay to fail as all 12 didn’t need to succeed (70%-80% would be considered as a victory). Harder to communicate between the different parties envolved
More visibility Sometimes difficult funding the projects
Increase responsibility, include more employees in the projects (a way to give momentum across the organization) A good alignment of all projects and try to link the projects with each other. Let's say we have 12 problems we have to deal with.

If we maybe focus on the most important ones now, we may need more time for the others if we do them later than if we do them all at the same time.

3) How does the digital transformation relate and align with the broader organizational transformation which the CEO aspires to?

The CEO of Novartis was Vasant Narasimham. He wanted "Going big on data and digital" as one of Novartis strategic priorities for the future. The CEO is thus aiming for more digitalized vision for the company.

Allowing errors, accepting failures, and learn from mistakes, encouraging innovation with bold moves and encouraging employees to become curious. All of these align with what the CEO wanted to do with transforming the cultural of the company. With the 12 lighthouse projects the goal is to create a learning culture, where it is acceptable to fail.

Vasant Narasimham announced his 5 strategic priorities. It included a cultural transformation: "creation of interdependencies and a curious, inspired and unbossed cultures and mindset". For Bodson: A successful digital transformation is in how you create the start-up mindset inside the company. The CEO was therefore aligned with his thoughts. All was about "Curious, inspired and unbossed culture". Communication and engaging the people of the organization is key in a business transformation.

Before the transformation: every unit worked on its own, which was really not standardized neither integrated. It was important to gather units and people to make this digital transformation successful. The transformation should be relevant for employees too. They did good communication where they explained the transformation and how employees could be involved in it.

Presentation of Bertrand Bodson - Novartis Digital Transformation

Three big what if and four priorities

The goal of Novartis is to become the leading medicines company powered by data science and digital technology.

They have 3 bold ambition:

  1. Innovate (by reducing time to market by 2 or more years because in pharmaceutical companies, launching of drugs takes a long time)
  2. Engage (by increasing revenue by 10% or more)
  3. Operate ( Reducing cost by 1-2 billion dollars)

They also have 4 priorities to achieve these goals:

  1. Scale 12 digital lighthouses
  2. Make bolder moves
  3. Make Novartis digital
  4. Becoming number 1 partner in tech ecosystem

They have 12 lighthouses. For them, 2020 is a good year to focus on scale. Theses 12 lighthouses are embedded into their 3 ambitions : Innovate, engage and operate.

For the innovation part, they have 3 main things :

  1. Data42 : it is a clinical trial data platform
  2. A patient-centric clinical trial operations
  3. DDAS which is Data and Digital Asset Enhancement.

For the engagement part, they bring 6 lighthouses together as part of Next Generation Engagement:

  1. ACTalya: which is a sales rep virtual assistant
  2. DROID: which is a marketing mix optimizer
  3. ICON: a commercial infrastructure
  4. Genesys: digitally enabled launches and growth
  5. Patient and HCP solutions along the patient funnel
  6. MFuSE": Future of Medical engagement

Finally, for the operating part:

  1. Sandoz: which is next-generation engagement in Sandoz
  2. NTO 2.0: E2E manufacturing and supply chain viex
  3. Buying Engine: which is a digital engine in procurement.

They try to develop themselves thanks to datas. They innovate a lot by mining more than 2 million patient years of clinical trial data. They also engage patients: there are 100 thousands daily HCP interactions which are more meaningful and personal. For the operating part, they work with more than 5 000 users managing more than 500 clinical trials via central control tower.

As part of their 4 priorities, they wanted to make bolder moves. For example, they co-developed AI Nurse with Tencent in China. It was launched in April 2020, more than 10 000 patients are on the platform to date. This is an AI-enabled digital companion: personalized interaction and education, voice input and chatbot companion, health tracking and worsening detection. Their target is to onboard more than 100 000 patients by end of 2021. They aim to integrate AI Nurse into standardized Heart Failure patient management in China.

Finally, they want to become the number 1 partner in the tech ecosystem and accelerate innovation with the Biome. For this, they empower NVS to be number 1.

For example, they create knowledge center for NVS associates to collaborate and improve partner relationships. They build and leverage unique innovation ecosystems to accelerate their digital transformation. They collaborate with digital teams to implement priorities and they leverage global network to support BU digital health teams in scaling priority solutions.

According to Novartis, the time to reimagine medicine thanks to digital is arrived. The moment for digital in healthcare is Now.

Digital Transformation in Media (Jean-Paul Philippot, RTBF)

Our guest : Jean-Paul Philippot [1]

Jean-Paul Philippot is an alumnus of Solvay Brussels School. He graduated from our university in 1984. First, he worked as a consultant in various countries. His work field was namely the healthcare sector.

Later on, he worked as a special government commissioner in charge of the restructuring of the CPAS of Liège. Right after this period, he was adviser and then deputy chief of staff to the Minister-President of the Brussels-Capital Region Charles Picqué.

Finally, the part of his career that will be emphasized during this course is his role at RTBF (the Belgian Radio and Television of the French Community of Belgium). In 2002, he became the deputy head of the Belgian national media. One of his first move was to implement the Plan Magellan aiming at revamping the company's structure and improve its profitability. This plan plan includes transforming the radio offer and repositioning the TV offer. To achieve this goal, Jean-Paul Philippot wants to enhance the main coherence of the channels.

Which challenges digitalization is creating for linear (traditional) radio/TV companies?

There are several disruptive challenges for linear broadcasting media companies.

  1. RTBF is a state-owned company, that is increasingly competing with private platforms in a new competitive environment. Consumers habits are changing in the way that watching tv is becoming less and less the "standart" thing to do especially among young people. In addition, new competitors such as tech network, crowd platforms, social media and other content producers gain market shares.
  2. The business model in itself is disrupted as we move from "free" content to a subscription model (the word "free" is quoted because the audience has to pay for cable and they also bring money to the company by watching advertisements). The audience's needs are changing and RTBF therefore suffers from a size disadvantage in comparison to giants like netflix.

A good question to ask is: " Will the media company have to merge to gain size and partnerships?"

Impacts of digitalization on RTBF's value chain

RTBF is an ‘old’ company, they were among the first to propose television services in Belgium. The impact of digitisation on business processes, CRM and on management are very large. They therefore moved progressively from a linear broadcast model to a global (linear and non-linear) media company.

Challenges of digitalisation are present at each step of the value chain. RTBF’s core activities are the following:

  • Understand audience segments: Who is our audience, What is his or her behaviour,... The focus is on data. For RTBF this was quite new because in the past they were offering content but with a less precise idea of who was listening or watching their content.
  • Develop editorial offerings: they moved from editorial offering strategy driven by TV technologies to new editorial strategies driven by the audience behaviour.
  • Develop platforms: they did not have the skills internally to develop and manage these new platforms.
  • Produce content
  • Publish content on the platforms
  • Distribute
  • Interact with audiences: this interaction is totally new for the RTBF. They used to have contacts (by broadcasting their content and reaching consumers) but no real interaction. There is thus a very disturbing change in the customer relationship.

Next to these core activities, support activities of RTBF are drive strategy, manage finances and purchases, develop culture and talents, develop and maintain tools, manage and protect data, coordinate innovation, etc.

The impact of digitalization on the competitive environment: from a closed market to strong global competition

In the past, it was very easy to describe the media landscape. In terms of TV and even of radio, locally, it was an oligopolistic competition. At the global level, in the past, it was very fragmented. Some international groups were present (e.g. Skye) but they were not a global group in terms of media. Digitization came with a lot of new players (e.g. Groupe Rossel, IPM, 2ème main, KBC) that create content.

Today, at the global level, there is an oligopoly with GAFAs, and locally, it is more fragmented than ever. Digitalization transformed deeply the competitive environment. RTBF never had this competitive pressure in the past and they must address this need for distinctiveness.

The impact of digitization on how media address audiences: From an offer-oriented to a demand-driven strategy

Another big challenge is the changes in the relationship with customers. RTBF were in a traditional push strategy: one media to many viewers or listeners (easy to address). They decided indeed which content at which moment to broadcast to consumers. Today, the audience drives which type of content they will listen or look at, and it becomes a pull strategy: from several contents produced by the media to one chosen by a large audience (many one to one). It is completely disturbing for them and implies changes in the mindset.

The impact of digitisation on content: New formats to meet audiences’ expectations and consumption habits

The third disruptive element is the content. Before, the content was very similar from one year to another. Today, they start to produce content in a totally different format: web series, insta stories, etc. These formats change in terms of length, style, etc. Even if they propose several kinds of content, they keep always the same DNA. The diversity of content is a way to engage and address the audience. A huge challenge is the technology, but especially the capacity for their people to move from one environment to the other and follows this human resource transformation.

The impact of digitalisation on production tools: towards more efficient tools and processes

Digitalisation of live-broadcast production mean investment in production tools. The efficiency leverage is from 5 to 1: In the past, they needed 5 people to create content, today for the same content they need only one.

How is RTBF currently adapting? - Their Strategy

Ensuring an independent presence in the fragmented environment: RTBF’s own digital platforms as local references

If they want to continue to deliver their original content and guarantee the limit of the private broadcast, they must remain independent. They must guarantee a direct contact with their audience. That is why they wanted to develop their own platform.

There are 2 pillars: rtbf.be (news, sports, culture, lifestyle, etc.) and RTBF Auvio (audio and video content, including third party content). Some development projects enhance RTBF’s websites and Auvio player as cornerstones of RTBF’s corporate strategy.

Do they have to work with Netflix, Amazon, etc.? They must have both strategies. On the one hand, they want to become the local reference with their platforms (idea of ‘only one brand’ for marketing issues). On the other hand, they must collaborate with third parties.

Optimize our platforms in a new timescale: New digital tools to measure and monitor digital platforms

Today, there is a sense of urgency in terms of time-to-market. Therefore, it is important to be able to measure and monitor data on platforms. They moved from analysis and optimisation on the next day (cf. TV ratings), to real time analysis and optimisation. Indeed, digital tools allow for real-time optimisation of the editorial and ergonomic offer.

Data as a key asset to meet individual expectations: Personalisation and recommendation

Data was nothing for the RTBF 5 years ago. Today, it is a key element in their processes. The management of data on large scale implies several technical and organisational challenges. Technical challenges are: build reliable metadata, guide platform development and distribution strategies, improve the knowledge of the audiences, personalise individual experience. Organisational challenges are: new roles in their teams (and new departments): data engineer, data architect, data analyst, data scientist, etc.

Optimise contacts with our audiences: Create customer loyalty through CRM actions

From the data to the audience, there is one step which was unknown in RTBF. They created inside the Marketing Department a CRM team which optimizes and organizes the content with the audience.

Their strategy is constructed based on segments. They moved from global overview of audience to a more focussed overview. Their goals are to cover all the society, and share the content adapted to educate and entertain consumers (based on their consumption profile).

Enhance and promote RTBF’s content in the digital environment: Our offer rolled out on several third-party platforms

The first step of their strategy is simply to be present as much as possible. They launched a lot of collaborations on third parties’ platforms (Facebook, Instagram, WhatsApp, Snapchat, Twitter, Twitch, YouTube, iTunes, Spotify, LinkedIn). The goal is to be present where the audience is. In these third party’s environment, they must adapt their content.

Display content widely and attract consumers to our own platforms: Strike a balance between reach and conversion from third-party platforms

This collaboration with third parties’ platforms definitely works. They succeeded to increase the traffic on their own platforms thanks to the collaboration with third parties.

Vision 2022 – A successful strategy: Stronger digital performance since RTBF’s transformation

In the public world, internal transformation is not part of the DNA. Vision 2022 was the signal for a deep internal transformation to become a global media company (not only radio and tv). The first ambition is to enhance public service values in the digital world. The second ambition is to become a leader in the French-speaking Belgian production. They invest a lot to keep this place. They indeed must be the owner of the IP of their content to be able to share it on third parties’ platforms (idea of local content to remain distinctive => creative, innovative and financial challenges). The third ambition was to be a learning organization. 80% of the managers have changed because their positions were suppressed. The results today are higher than what they expected, and they moved faster towards a more ‘digital’ company.

Their objectives are:

  • Become more creative and produce more content of their own and in partnership
  • Produce and distribute on all platforms
  • Become more agile and efficient
  • Promote their content and create new incomes
  • Re-design the organisation, change the leadership style and build digital skills

The adequation of their transformation was demonstrated: They increased their market share and they covered and engaged a large audience. The COVID-19 crisis accelerated the move of digital consumption.

What are their future challenges?

Their future challenges are : adopt new production methods, develop new skills, recruit digital profiles, data governance to understand habits and expectations, and improve content relevance, balanced distribution strategies favouring direct contact with audiences, enhance local content findability (vs. gate-keepers), brand recognition (trust in digital media), strengthen their presence on mobile devices, a sustainable funding model (digital income issues), alliances to exist on the digital market. The most important thing is to build local ecosystems, i.e. create new alliances to improve relevance and prominence of local content.

Another potential solution ?

Facing the same difficulties as the RTBF, French tv companies decided to group and launch their own platform. "France télévision", "TF1" and "M6" decided on the 26th of October 2020 to launch "Salto". As previously said, platform like Netflix, Disney+ or Amazon prime are used by an huge part of potential watchers and those French channels figured they had to react and offer a competitive solution. Salto offers mainly programs that can be seen on the Tv but also offers some exclusive content. In one hand, tv channels are trying to copy platforms to regain some parts of the market.

In the other hand, Netflix wants to offer the possibility to follow a strict programme to avoid the wasting time of not knowing what to watch. It can be seen that Netflix tries, in a certain way, to copy the television while the television is trying his best to compete with platforms.

It is obvious that platforms and tv channels are dividing the market but they might bring the best of the two worlds to offer an optimal and complete choice for "users".

The RTBF is already implemented on the digital live streaming platform Twich with their channel TARMAC which is more focused on gaming. However, The use of these platforms, mostly managed by the GAFAs, can be a good opportunity to have more visibility amoung the younger. As the major part of the audience of live streaming plateforms (Twitch, Facebook live, YouTube live, etc.) is millenials, a generation which is no more used to watch television, those platforms look like a good way to reach this age group. However, RTBF must be careful with the use of those platforms in order to remain independant from these, it would be a pity to see a public TV channel becoming dependant from GAFAs. Nonetheless, as the talk shows are starting to be popular on those platform combined with the fact that almost no french-speaking TV channel is proposing content on it, the RTBF might have a card to play in this sector in order to raise awareness and to start reaching again the 18-25 years old segment. It is also the opportunity to try new kind of content and to diversify the offer of RTBF to have the widest possible audience. This can make RTBF hybrid ( linear and digital) TV channel with a good visibilty and offer online.

Digital operations at King Digital (Stephane Kurgan)

Stéphane Kurgan founded King Digital and he is currently Chief Operating Officer & Executive Director at this company.

Case Study King Digital Entertainment

Class Discussion

Should Riccardo and his team accept the deal with Activision?

In order to understand why the company should accept such a deal, it is important to set the context. Venture capital and private equity investors had been investing in King for a long time (since 2005). However, funds usually have a 10 years investment life cycle. The majority of shares were held by historical shareholders (EPAX and funders and other investors). For the major shareholder, EPAX, it was hard to sell a large block of shares because the stock was not so liquid. Only 7% of the total stock of the company was free flow. Moreover, the stock trading was below the IPO price, so it was difficult to have a secondary offering (could lead to class action suits). In such a context, there was a lot of pressure from shareholders to sell.

In such a context, the deal could benefit both parties. Activation Blizzard was and still is a well established company, looking for a complementary company to expand its business. At the same time Candy Crush was undervalued in by the market, so the sell made for everyone.

What was the first trigger of the meteoric Scale Up of Candy Crush ?

  • The rise of Facebook introduced vitality in the system. So, the company took advantage of Facebook, by enabling people sharing their level, send messages and invitations. This enabled King to gain players in an exponential way.

  • Moreover, with platforms such as the App Store, it was possible to go global from day one. This offered a single and easily accessible global market which allowed a very fast growth in the global scale.

  • These platforms emerged as global marketing channels and supercharged the launch of Candy Crush.

  • The mobile penetration was also a big.

  • There were not so many casual games at the time. Those are primarily targeting women, and once King introduced Candy Crush, it reached that huge segment of the population.

So, the company entered in the market in a right timing, driven by mobile penetration and the growing importance of platforms such as Facebook or App Store which offered a much growth potential. Over time, Candy Crush became a franchise IP (Intellectual Property), much like Pokemon, Mario or even Sonic At one point, King became the largest Facebook customer, representing 20% of Facebook's profit.

Which sequence of constraint has to solve King to allow Candy Crush to scale up to world domination and maintain it for so long?

  • The market is changing very fast and continuously, they therefore needed to be able to adapt fairly quickly in order to stay relevant with the always changing demand.

  • On the technology side, they had to build the app in such a way that they could grow and innovate. They built its foundations, its framework, and from there they were able to develop it for each device while still allowing synchronization between them.

  • They continuously grew their server capacity in order to maintain service

  • They also knew that the quality of internet connection was not good everywhere in the world, and that device penetration was growing fast but not everywhere. Therefore, they made it possible to play Candy Crush offline and on multiple platforms, which was a huge advantage compared to other games.

  • Social media were a great boost but some people are not really present on theses platforms or do not even click on Facebook adds for example. So, one challenge was to reach those people. Therefore they used TV channels, which proved to be very effective.

  • They also at the beginning under estimated the content appetite which was almost infinite. At the beginning they had a limited number of levels but it seems like it wasn't enough. As soon as they increased the amount of content, the engagement and the revenues increased. So it was a matter of integrating people and keeping them in the same culture.

Why the market is so tough with King vis-à-vis other Technology stock?

  • The company wanted to position itself as a platform because platforms are better valued in the IPO. However, the company failed convincing the investors that it should be considered as a platform, because their revenues were very concentrated on one game.

  • There is also the common thought that such companies have only one time success and can not replicate it. Many video games do not last long, but rather go viral and disappear as quickly as they came.

  • Moreover, the company came in the shadow of Zinga that launched FarmVille. They had a big IPO that went in the span of a few months from $10/share to $60/share. Therefore, the shareholders made a "look up" which means they made an agreement not to sell any share until a certain date. However, Zinga missed its target number a few times after the agreement. As soon as the company missed its target, a lot of people sold their shares and the share price collapsed to $2-$3/share. At the same time Facebook also made a disaster in the IPO. So, it was a time of nervousness where investors were pretty sceptic and wanted to be more careful.

What made King so resilient from its inception through world domination, going through a least 3 industry transformations?

  • They had a good founding team, but having several CEO's at the same time proved to be a problem (as it usually does). Therefore, they relocated all founding members at high posts within the company, with one remaining CEO.

  • Adaptability allowed them to stay relevant. They shifted to Facebook at a time when no one was doing that. They scraped their tech base to create a reusable framework. They also started to follow trends in the way people play games.

  • The more the company is growing, the more they need to hire employees. And they want the best employees. They look for talents and skills, but not only that. They want to make sure that everyone entering the company is on the same page, with the same cultural mindset. The culture is therefore very demanding, but very supportive.

  • A key element was also the experimentation. 5 teams were using 50% of King's resources in order to work on 5 different experiments. Only 2 ended up successful (Candy Crush and Bubble Witch). So the ability to do experimentation and the ability to pivot is very important.

  • Moreover, they had very supportive investors (EPAX) from the beginning which helped to rightly evolve and adapt.

What is King Digital

King Digital Entertainment is a UK video game company founded in 2003, with headquarters in London and tax headquarters in Dublin. It is one of the leading developers of applications for Facebook and smartphones. King is known in particular for its game Candy Crush Saga.

Activision Blizzard is one of the world's largest video game developers, but the company focuses almost exclusively on PC and console games. In 2016, they acquire King Digital, the owner of Candy Crush, the most profitable phone game of all time. Activision thus entered the smartphone gaming market.

Activision paid $5.9 billion to acquire King Digital and it turned out to be a very good deal. In 2015, King generated $682 million in EBITDA for 2015, (nearly 9 times the company's purchase value).

Candy Crush Saga

Candy Crush Saga is a video game developed by King, originally available as a Facebook application and adapted for Android, iOS and Windows Phone operating systems.

The goal of the game is to make people crush colorful candies by combining combinations of at least three candies, in order to complete the level objective and score a maximum of points.


Film:

Universal Studios has bought the rights to adapt the film and would like James Franco to play the role of the Magician and Chloë Grace Moretz to play the role of the child.


Little Story:

On February 9, 2016, a collision between two trains between the stations of Bad Aibling and Kolbermoor in Germany left 12 people dead. According to the DNA, the signalman admitted playing Candy Crush Saga before the collision occurred.

King's Saga

King was founded in 2003 by Zacconi and 5 colleagues of his when they wanted to develop a gaming company called Midasplayer whose games could be integrated into web portals.

In 2004 revenues rose from 2.4 million to 10 million in 2005, and decided to do a second round of fund raising for 34 million and changed their name to King.

In 2008, King faced a new challenge with the arrival of Facebook, as it was becoming increasingly popular despite the other platforms franchised by King, so they had to adapt and develop new games for social networking platforms, so they had to develop new platforms with new adapted technologies.

Then they developed 5 facebook games, one of which was a great success Bubble Witch saga which was launched in 2011, this game was free of charge but worked on a pay to win basis, where if you spent real money you could advance faster in the game.

King's Business model

King's business model is mainly based on small logical, puzzle and conceptual games that don't take a lot of time but are available on a wide variety of mobile, web and synchronized devices.

The target audience of King's games are mainly women between 25 and 45 years old, all games offered are free to download and play and they can play the game without putting money in.

However to generate income, King's mainly uses players who play regularly to sell them virtual items that enhance their gaming experience.

Organizational structure and Culture

After the success of the Candy Crush game, the King Group was forced to expand their team and therefore to establish a recruitment and training plan.

This plan was based on rigor, homogeneity of culture and communication, as it considered it essential for the team to be able to communicate and get to know each other and share their ideas.

King also encourages top leaders to travel and open debates.

King's game Development process

King's Saga, part 2

Prior to the launch of the facebook game the company had been approached by the activision group for a possible merger, however the King group declined. Activision's approach was logical as activision's revenues were largely derived from the sale of the games and their customers' subscriptions to their games.

Given the development of the telephone and free-to-play games market, there was clearly an emerging market in which Activision had a weak presence.

Thanks to King and Activision's expertise, it would be possible for Activision to extend their games to mobile consoles and reach a new type of customer and for King to be able to reach the male audience thanks to the Activision studio's notoriety.

Things Stephan Kurgan has learned :

During the presentation, Stephan Kurgan shared 10 lessons he learned throughout his career and gives some advices coming from his experience at King and other companies:

1. "Most careers are not linear - find a platform where you can learn about paths." It takes a while to know what you like to do. Therefore, finding a place where you can move between functions and work in different sectors is a great opportunity to learn about yourself and gain experience (i.e., working as a consultant). Indeed, experiencing is one of the best ways to find out what we like. By tring different applications of different jobs, it is possible to truly understand and feel the pros and cons of each job, but it is also possible to understand what is made and what is unacceptable to do in the long run.

2. "Formal training gives you the entrepreneur toolbox for free." Get a entrepreneur toolbox by learning how to solve problem, how to communicate, how to hire people, how to manage people by following some courses at university or working in a management consulting company for instance. Everything takes time and adapting to a new evironment is often time consuming. By having a "toolbox" we can consistantly reduce that adapting time and ease our implementation in a new system.

3. "Work can be stressful. Cultural fit matters hugely in high pressure environments." Cultural fit is important for the employee and the employer in the recruitment process. In high pressure environments, you will most likely spend a good amount of time with people in your company even outside the common workplace. It is therefore important to share the same value as your company and enjoy working with your colleagues. Every sucessful company started with people believing in the project. It is essential to understand and agree the point of view of the company to feel great about our work and to provide an efficient contribution to the project.

4. "You can only be disappointed if you have misplaced expectations." Stephan Kurgan highlighted the fact that people working in companies who have wrong expectation can easily be frustrated and therefore they can make bad decisions or even leave the company. Thinking about getting a promotion or changing department in the company can lead to disappointment if expectations are not clearly set.

5. "Managers make lots of decisions. Great managers make 55% of good decisions." Making the right decision every time is impossible. The worst case is actually not taking any decisions because you are paralyzed. Learn from each bad decision but also avoid making the same mistakes. By stating this, Stephan Kurgan emphasises on the fact that great managing is not about being right all the time but about moving forward.

6. "Great communication and repetition discipline early." Communication is an important skill for manager and more generally soft skill. Hard skill will be more important in the beginning of a career. Furthermore, it is important to repeat the message and goals because those may sound clear to you but not always for your team.

7. "If something is too good to be true, it is often too good."

8. "In life, you always meet twice - be elegant & professional. Always." Always stay professional even in bad times or when you are leaving the company. Reputation is something important that may follow you throughout your professional career. It is never easy to stay calm in bad times but the consequences of an action could be felt many years later. As it is commonly said: "The world is small", people could easily meet again in the future and remaining an elegant and professionnal can only be beneficial.

9. "Life at the top is lonely. Get a partner." As a manager, you will make hard decisions especially when it is related to something that you have created or when it comes to people. Having at least a partner you can trust will help you make those difficult decisions because it is hard to survive in the long run. It is really difficult to have different view about something but by not being alone, it can be beneficial in many different fields. Talking and thinking together is always easier and allows relativization. Furthermore, while launching a new project/company, work is taking a huge place in the life of the entrepeneur. It is then necessary to have at aleast one person to lean on.

10. "The roaring twenties in Europe is the best place to ever be." According to Stephan Kurgan, the best venture capital funds in the world are coming in Europe where many companies are source of innovation. He points out that people can built big companies not only in the US but also in Europe by giving the example of Spotify. Interesting to see whether this will eventually be the case as Europe for the moment doesn't have really large tech companies compared to the US, so there is indeed plenty of room for progress in this domain.

Digital opportunities in Europe

Nowadays, the emphasis is put on cloud and data in enterprises. They are the core of digital firms.

Actually, the cloud eliminates silos in organizations. The stream of data is therefore unified and a lot more seamless. For instance, King could benefit from this sharing of data because its different teams could learn from each other and avoid making the same mistakes.

Digital disruption and transformation

Where does the threat come from?

The guy in the garage

Digital hurts incumbents through a 2-loop effect

  • Disruption by digital entrants
  • Incumbents reactions (Red Queen competition)

Kind of a "Tit for tat" strategy, whereby actions are constantly being imitated resulting to an evaporation of profits at both sides.

  1. Digital entrants can be scary, 18 months after introduction of navigation apps for smartphones in 2007, 85% of the market capitalization of the top makers of standalone GPS devices had evaporated (Downes & Nunes, 2014)
  2. Alibaba for example built a loan portfolio of 16 billion dollars in less than three years and became China's biggest seller of money-market funds in juste seven months (Busch and Moreno 2014)
  3. In the UK, the share of mortgage lending commanded by digital players outside the top six U.K mortgage lenders jumped from 17% in 2011 to 29% only two years later (Barty & Ricketts 2014)
  4. Since October 2016, Facebook has a license from the Central Bank of Ireland to issue e-money and provide payments services such as credit transfers to customers in all 28 EU member states.
  5. Google's Gmail service now lets users request and send money to anyone as an email attachment.

Revenue.png

Only 17 % of total revenues is made by digital entrants. For digital revenues, this number increases to 47% Digital hurts incumbents through a 2-loop effect: First, a disruption by digital entrants and then we have incumbents reactions (Red Queen competition). Some example of Red Queen : Uber, zipcar, Lyft, DriveNow, ...

The adoption of IT and its diffusion helps firms to increase the productivity. Nevertheless, digital success requires a blend. It can't succeed without a blend of strategy changes and technology investment.

Key measures

A key measure for performance could be the self-reported growth ranges (revenue/EBIT margin)

  1. From -50% or more to +50% or more
  2. Both distributions have a unique mode at the [5%;9%] range
  3. Ranges are numbered in ascending order from 1 to 12
    1. A one unit change reflect a jump of one range
    2. At the mean, such a jump reflects a lift from the [1%;4%] to the [5%;9%] range, which corresponds to an increase of about 4.5 percentage points in the latent measure of performance.

A key measure for postures is the investments in digital technology, relative to competitors or the strategic transformation as response to the question "Organization's posture in addressing digital disruptions?" Different answers are possible; for example we have not yet responded or we initiated the disruption?

For strategic integration, a question is asked : "Which of the following statements best describes how your organization's digital strategy relates to the overall corporate strategy? Different answers are possible. One of those is the digital strategy and the overall corporate strategy are one and the same or "we have some digital initiatives that are fully planned and executed within the specific function or business unit that owns them, with minimal coordination across the company."

Digital success requires a blend: strategy change (key complement) + technology investment

Two strategic postures

  • Shy/ defensive
    • Digital optimization: Defend the core business by using technology to improve efficiency in all dimensions of your business. Digitally achieve operational excellence through automation or cost reduction.
    • Digital channels: Explore new distribution channels
    • Rebundling/ customization: more freedom to your customer.

Defensive posture is typical playing the Red Queen game, it's never going to yield a competitive advantage because all firms try to do it. Defensive postures will at best keep you afloat.

  • Bold/offensive
    • New digital products/ services
    • New sources of supply
    • Platform/ Ecosystem

The offensive strategies really pays-off

  • Platform game
Platform.jpg

To adopt a platform strategy, there is a need to manage a real ecosystem. It means that contrary to regluar linear value chain the entreprise will work in a more decentralized way. The knowledge of customer is of outmost importance. In the end, it is not anymore a product which is sold but definitely a solution as a whole.

e.g. Amazon in order to become a platform, they had to make every single component of their business able to interact with the outside world. In that way, the platform strategy is used as a leverage for diversification and expansion.

What does it take at an organizational level ?

  • Leadership commitment
  • Redefine mission / vision
  • Setting clear goals
  • Regular feed-back
  • CEO involvement
  • Incentives to push people to follow the new culture
  • Hire the skilled people to manage this transformation
  • All employees must be aligned
  • Customer understanding
  • Not just focus on cost
  • New Business models
  • Modify culture

What do digital leaders to differently?

  1. Digital leaders integrate digital into the heart of their strategy and organization therefore they transform the entire organization. However, this is going to create cannibalization.
  2. They acquire new capabilities and diffuse them throughout while building a business focused IT unit.
  3. They develop their ambidexterity running a strong operational backbone and a powerful innovation platform.
  4. They look for broader but looser control, giving up tight control over the entire ecosystem or user experience, flattening the organization along the way against an obsessive quest for contextual data. For example, Hotel controls the entire user experience unlike airbnb. For the airbnb it is the user who controls his own experience.
  5. They develop a digital culture involving risk and experimentation. It’s a shift from gut feeling to data driven, from products to solutions, from products to user centricity and from products that wear out to updatable solutions.

Where to go?

Main page Theory - Previous Session Session 11: Social, economics and environmental impacts of digitization - Move to Session 13: conclusions

  1. Jean-Paul Philippot's Wikipedia page and Linkedin account