December 18, 2016
Lead with Digital Transformation from the Top Down
Following my previous blog, I analyzed a couple of financial statements (Q3’16 reports from Target and Amazon) to highlight how critical it is to Lead with Digital Transformation starting with your earnings call.
Target vs. Amazon Q3’16
Not spelling out the details
On $16.4 billion quarterly sales, Target highlights that digital sales grew by 26% year on year. This amounts to $575 million of the total sales (1). Accelerating Digital Sales should imply aggressive technological changes. Target doesn’t explicitly mention how much they are spending on software either. The year on year decrease in Computer Hardware & Software category (-4.3%) might come across as better resource utilization. It can also be interpreted as not conveying a stronger Digital Transformation message. It does leave room for questions on whether the Capex related Software and the OpEx related software spend decreased as well.
Highlighting Technology and Software Spend
In contrast, Amazon reported $32.7 billion in Q3 sales. They made sure to call out technology and software spend in their financials. Spend on Technology increased by 29% while internal-use software and website development (along with the purchase of plant and equipment) grew by 37 %. Also, they had something new to announce against 13 of the 29 highlights.
Investing in best talent
Target decreased their SG&A by $397 million (-10.6%) while Amazon increased their General and Administration spend by $176 million (38%). If you are investing in data scientists and leading with stronger data management foundation, you would be investing in high-value individuals who don’t come cheap. The decrease in Target’s SGA with no explicit call out on digital transformation strategy makes me wonder that they might not be getting the best talent from the market.
More visibility on top-down commitment
Highlighting new offerings, leading with technological innovations, calling out “Technology” as a separate line item in financial statements and increasing spend on software send strong signals to the market about the importance and internalization of digital transformation.
It sends a message on how committed an organization is from the top down in winning in this Digital warfare.