The Universal Challenges of Going Digital
Adapting to rapid technological growth requires nimbleness and innovation
Daniel Alter, MSc, MDT, CDT
No one can attest to the pains and challenges of bringing a business through digital transformation more than Mike Huseby, Chairman and CEO of Barnes & Noble Education, Inc. (BNED). In another industry facing so many rapid technological changes, it may come as no surprise that many of the challenges Huseby faced in the book industry were similar to those of dental professionals. What we can learn from this industry icon's experiences can be paramount to helping us succeed, grow, and evolve. IDT's Executive Editor, Daniel Alter, MSc, MDT, CDT, sat down with Huseby and discussed his journey, what he's learned, and what lessons our profession can learn to properly harness the powers of digitization and new business models.
Huseby grew up in very humble beginnings in Chicago, Illinois, the son of a single mother who was an English teacher. He was a CPA for Arthur Andersen early in his career but left in 1999 after 23 years to assume the position of CFO/COO of AT&T Broadband, a cable television company that AT&T owned. It was there that the digital transformation began for him. Following his tenure at AT&T, he held the position of CFO at Charter Communications for a year and then became CFO of Cablevision Systems from 2004 to 2011, where he helped to create two new separate public companies-Madison Square Garden and AMC networks-by spinning them off from Cablevision. In 2012, Barnes & Noble, Inc. founder Leonard Riggio called Huseby and said, "We have a need for someone like you."
Alter: Did you find it perplexing that a large book chain would find a need for your experience and expertise?
Huseby: I knew nothing about physical books beyond the ones my mother brought home. However, 6 months after Riggio's call, I flew to California and learned about Barnes & Noble's digital book operations, called NOOK®, and, especially the then-nascent digital education opportunity, which was the opportunity that really intrigued me the most. I knew that higher education needed to move to digital delivery and that challenge really excited me. At that point in time, higher education in the US was ranked fifteenth in the world. I believed that if we were able to deliver digital content that was better and less expensive, we could have a significant positive impact on our country's competitive position-and that being leaders in scaling digital education products would also be a good business opportunity. I am passionate about the value of higher education because it breaks the cycle of poverty and opens the door to opportunities for those who often find themselves shut out.
Alter: How has Barnes & Noble evolved over recent years?
Huseby: I came to Barnes & Noble as CFO in March of 2012 at the request of a large investor in the company, became President a year later, and was appointed CEO in January 2014. After recapitalizing the company and cleaning up our balance sheet, we were able to spin off BNED from Barnes & Noble in August of 2015. BNED now trades as a separate public company with no formal ties to Barnes & Noble, the retail bookstore chain, other than the iconic brand trademark that we share. At that time we had less than 700 physical college bookstores that we manage, together with the e-commerce websites for those institutional partners. Today, BNED operates more than 1,450 physical and virtual bookstores, including 770 physical college campus bookstores, as well as internet businesses and digital services that offer tutoring and studying platforms online direct to students. The direct-to-student concept is very recent. We just rolled it out in January 2019 and acquired 50,000 subscribers under BNED's Bartleby.com brand offering.
Alter: What has made this initiative so successful?
Huseby: The success of Bartleby has been driven by our vast store footprint and the ability of our booksellers to integrate our digital offerings in-store. By offering Bartleby subscriptions at the point of sale for physical course materials, we can provide additional value to students and ensure they have all of the tools they need for a successful semester.
Our vision is that every student, regardless of major, has all their course work on Day One for the same price. We are achieving this through our product called BNC FirstDay™. In launching FirstDay, we have the potential to increase our courseware penetration from approximately 35% to close to 100% of enrolled students. The concept simplifies the courseware supply chain for all involved: publishers, BNED as the aggregator and distributor, the faculty, the school administration, and the student. Prices at scale are also substantially less for a student than purchasing courseware à la carte, and they are much more convenient for logistics and payment, as courseware costs are included in tuition. This makes everyone happy: the publishers (which have been struggling recently), the faculty, the student, and, of course, us as a company. The profit margin for digital products is generally lower at scale, but the increase in volume and embedding the model for sustainability result in a better long-term business model.
Another important part of our education business is general merchandise sales, which is a higher margin business than courseware. It's the kind of affinity and other merchandise you would expect to find at college bookstores-emblematic clothing, supplies, electronics, and so forth. This segment accounts for $650 million dollars in sales, so it is a substantial and growing business within our consolidated BNED revenue platform of just over $2 billion dollars. We are improving our e-commerce shopping and fulfillment experience, such as adding direct-to-home shipping this year, to begin to realize what we believe to be substantial upside in our general merchandise business.
Alter: What challenges did you face with the digital transformation of the business, and how did they affect the business model?
Huseby: Digital transformation is a painful experience for any business. The biggest challenge is people's resistance to change. A lot of great ideas and money are chasing digital solutions right now; some will never come to fruition. The hardest thing I do, besides setting a vision and then executing the implementation, is making sure people believe we will get there. In your industry, or any industry, there has to be turnover of leadership, of thinking, and acceptance of different technologies.
Once you get technology working, the next challenge is implementing it to scale the business. It's not hard to come up with a digital business, but it is hard to come up with a digital business that scales profitably. In the dental industry, I presume that transitioning to digital means creating convenience for patients and reducing costs and the number of patient visits for the dentist, which in turn results in more satisfied patients and potentially higher profits. The good thing about digital is that it should result in more competent execution, better products, fewer visits, and lower costs for the customer. I have seen this personally with my dentist who is very progressive and seems to use technology within his office very smartly.
Alter: What decisions did you have to make to strategically pivot the company and what steps did you take? Walk me through the process.
Huseby: We are still in the middle of it. Our strategy is sound, and we are focusing on execution now, rather than strategy. When I came in as CEO, the company was focusing on a lot of different things. The first thing we did was narrow the focus to make sure our competencies are aligned with our most important priorities.
You can go off and test a lot of different things and that's fine, but you have to quickly get to the point where you know what you will focus on, and understand where it's headed and where the demand will be. You want simple products that will be simple to use. They must have utility and demand when they are scaled.
You have to have a good, sound strategy and be willing to adapt your strategy as you get more information. You also have to be really smart about capital allocation. You can't make huge bets because a mistake can quickly put you under. You have to go down a path that you believe is sustainable and will be useful in terms of products for some distance of time.
Alter: What other factors needed consideration as you moved from strategy to implementation?
Huseby: Strategy is important, but equally important is ensuring that you have the right people. Unfortunately, as a CEO, you have to make the tough decisions to change the people who don't fit or fully support the overall vision and strategy. People who are resistant to change or people who have been at the same job with limited professional growth, perhaps through no fault of their own, simply don't know how to pivot or can't do it fast enough. You have to bring in people with digital experience to change the company quickly. We refer to this as "moving at digital speed."
You can't slowly move along year after year, making small incremental changes. You have to make changes that will allow you to pivot quickly and scale within a year or so. You have to get the right people and make right decisions for the technology platforms.
To make the right decisions, you want to make sure you are not spending a lot of money and testing on what is currently the best system on the market. Avail yourself of the best minds and consult with those and continue to adapt. Ask yourself: Will this technology be here in a few years, or will it be obsolete? Build for the future, not yesterday's "best" solution.
I also suggest that there can be significant benefits to strategic partnering. It's hard to do it all on your own and to achieve true scale in a short time frame. So partnering with those who have capabilities that you need spreads the risk of the investment, as well as gaining a higher level of expertise. Such partnerships can be difficult to execute, so mutual expectations and "measurements" need to be clear at the outset.
You don't want to be so on "leading-edge" that you are ahead of the market demand. There are technologies that have been introduced that were premature to the market and nobody wanted them. Going back to my previous statement-focus on easy, simple-to-use, better, and more efficient products that would benefit your customers.
The best way to really implement digital is using technology to replace what you do in analog to make it better, more affordable, and faster as a high-quality version of what you did before. Convenience is a big driver for digital technologies. Provide cost advantages and the capacity to do more in less time; that's what digital should do.
Alter: Some organizations didn't recognize the digital shift occurring in time and, like Blockbuster, unfortunately, perished. What factors were at play that led to the viability and success of your organization?
Huseby: Blockbuster made the decision to not go digital because they did not want to give up their candy store business, which had the highest profit of anything they were selling. If people were not coming in to rent movies, then they could not buy candy. According to documented studies, that decision ultimately killed their business.
The point made with the demise of companies like Blockbuster is that you can't hold on to a business model and ignore what the market demands. If you do, you won't have a business anymore. Convenience, need, and choice are cardinal rules. If you don't pay attention to those, some other business that does will come in and take over.
Businesses fail most dramatically because of an unwillingness to give up something that once worked really well, even when faced with becoming obsolete or with their competition taking over.
Alter: Which comes first: need or innovation?
Huseby: Both. Sometimes a need arises from innovation, and other times innovation is the solution for a need. Innovation is the right word because a business needs to constantly examine itself, its processes, its business model, and, ultimately, the markets.
Listening to your customers is so important. You listen to your customer to help you design the products that provide them with solutions to their needs and keep improving that product. Continue to innovate, develop, and improve your product to meet customer needs, which then creates more need and demand, which then creates more innovation, and the cycle continues. Innovation is the most important in the process and feeds itself.
Alter: How important is it to have a vision of what your organization's future will look like with these new realities?
Huseby: Having a vision is critical, but you have to define what your vision is. Are we relevant in the marketplace in a digital environment? What's your position? Who are your customers, and how do you meet their needs? If you can answer that clearly, then you have a vision. Then simply work on your competencies-what you need to do to make it convenient and desired, and ultimately enhance your customers' experience.
Alter: How important is it to be ready to meet your customers' needs?
Huseby: You have to be nimble; recognize when things are changing and adjust to remain viable. If you are not the number one or two in that competitive space, you are not in the right space. You are constantly competing. Know who your competition is, what they are doing, and how you can realistically respond.
Lean on your expertise and make investments that focus on what you do better than your competition. Know what you are good at and what your customers want from you, and try not to get too far from that. Stick to your core competencies and work hard on being the very best on those key things. You can't be all things to all people. Find your sweet spot and work hard at it. The companies that are the most successful are those that find markets that no one else can or will serve. It becomes their niche, and they own the space.
Alter: How has partnering with Starbucks affected your output and strategy?
Huseby: That's an interesting story, because Barnes & Noble was the first retailer outside of Washington to sell Starbucks. It was a very simple arrangement between the two companies. Barnes & Noble doesn't do anything but buy the beans from Starbucks. Everything else, they source locally, which makes it very economical and kind to the communities. It's a unique partnership that is truly great.
The partnership decision really stemmed from improving the customer experience. Customers would come to a book store, enjoy some coffee, stay at the store for a while, and purchase more. But overall, it is about the customer experience and reinventing it.
Alter: There are so many parallels between the challenges BNED has faced in recent years and those that dental laboratory businesses face. What would you suggest for a laboratory owner?
Huseby: Focus on making sure you have the people who are willing to change and have the expertise to implement change. Become a critical thinker and really listen to customers and do not act on some preconceived notion of what you think customers need and want. Make sure you have the discipline to understand the market you participate in, understand both the customer and the competition, and then consider how to create products or services that you could bring to market and scale quickly.
Try to leverage relationships and partnerships, so that you don't have to do everything yourself. Make sure that those partnerships can scale with you and that you each have common interests but you are not competing with them. In any relationship, professional or personal, treat people right.
Know where you fit in the future of the marketplace, and stay true to that. Be persistent. It is not easy and can take a long time. You have to have patience and know where you are going to have a fighting chance of getting there.
Alter: What do businesses need to do to remain viable in the current and future environments?
Huseby: Be relevant. To be relevant, you have to be the best and provide your customers with the product and service they want-conveniently. To really win, you have to stay in touch with your customers and make sure you have the right people in your organization. Get as close as you can to your customers, but be equally as close to your suppliers because they can teach you a lot about the marketplace and your competition.