The company behind QuickBooks and TurboTax shows the benefits of entrenching continuous innovation within a business model.
Intuit, the financial software and services firm that brought the world QuickBooks and TurboTax, has just exceeded its earnings estimate for the fourth straight quarter in a row. This consistent delivery of strong growth can be attributed to Intuit’s highly successful business model that embraces ongoing digital transformation not as a one-time process but as a permanent feature of how the company operates. So, how did Intuit design and implement this perpetually transformative strategy – and what specifics can be emulated by other companies?
Digital Transformation As a Perpetual Leadership Task
Through comprehensive “strategy refresh” exercises, Intuit has successfully anticipated major disruptions in its market over the past few decades. Every three to four years, a team led by chief transformation officer Albert “Al” Ko conducts reviews of market shifts and changing customer demands. It also examines the alignment of Intuit’s activities and structure and responds to the strategic implications of major trends that might affect its competitiveness. Using this approach, the company establishes clear strategic directions for pursuing growth and driving organizational change—and revisits them regularly. The strategy refresh is not done entirely in response to specific disruptions but is viewed as a normal part of business. Intuit transforms on an ongoing basis, even during high-growth periods—what Intuit’s CEO calls “fixing the roof while the sun is shining.”
Sometimes You Have to Disrupt Yourself
Strategy refreshes enable an in-depth understanding of value chains, business models and the competitive landscape. In recent years, Intuit saw encroachment from disruptors like Zoho Books and big tech companies such as Microsoft. In response, it decided to confront disruption head on.
In 2012, the company decided to expand through a cloud-based software delivery model and by penetrating international markets. Its analysis had highlighted social, mobile, cloud and data as crucial. (Today, these trends may seem obvious, but they were hardly obvious when smartphone apps and cloud platforms like Amazon Web Services and Microsoft Azure were in their infancy.) Intuit decided to deliver everything its customers did via a mobile device—at a time when most of its revenue came from desktop software like TurboTax, which was purchased in shrink-wrapped packages at retailers such as Fry’s Electronics, Staples and Costco. The company invested in cloud-driven services, data security and privacy, providing a consistent worldwide user experience, all ahead of the industry’s software-as-a-service (SaaS) shift.
Intuit was now positioned to deliver a true value to customers via its digital transformation. Affordably priced SaaS offers for QuickBooks Online (QBO) and TurboTax create cost value for customers interested in a subscription payment. Experience value comes from the ability to use the applications on mobile devices to integrate accounting and tax processes seamlessly, to handle collaboration between a small business and third parties such as accountants, to personalize the application for international users and to receive frictionless upgrades. With this combinatorial disruption, Intuit gave small companies the ability to benefit from the same type of finance and accounting integration once reserved for large companies that could spend millions on enterprise resource planning systems.
This is a valuable lesson on the merits of self-disruption. Intuit was willing to cannibalize its own product to build a large market share with a cloud-based product that ensured much more loyalty from customers, preventing a competitor, Microsoft, from capturing a significant portion of the market with its Microsoft Money software. In fact, Microsoft interrupted that offer and stopped supporting it completely after 2011.
In late 2017, the company began its next strategy refresh cycle. Seeing data analytics, AI, and machine learning as the new disruptive capabilities likely to impact customer experiences, Intuit mobilized over 100 teams to review research on trends and customer feedback. Based on this, the management team identified eight major macro trends driving massive societal and economic shifts. In response, the company is reallocating $1 billion—roughly one-fourth of its operating expenses—to address these opportunities.
A Permanent Revolution in Value Creation
Intuit is making its recurring strategy refresh a repeatable process. Using knowledge and best practices from the past two iterations in 2012 and 2017, Ko’s team is codifying them in the company’s operating rhythm. The process of revisiting the strategy and assessing its progress is now fully represented in the company’s one- and three-year planning cycles, and in operating reviews.
Intuit provides a compelling example of how transformation is an essential and perpetual task of leadership. Investors seem to like the results of Ko’s “maniacal focus” on strategy refresh, and the execution that has followed. Intuit’s market capitalization has increased by roughly 600% since 2010, compared with some 250 percent for the Nasdaq overall.
Intuit’s business model emphasizes (1) continuous strategy refreshes that keep the business ahead of consumer and market trends, (2) a willingness to undergo painful transformations and disrupt their own products to remain competitive and (3) a repeatable process for preempting competitors. For companies looking to embrace and institutionalize digital transformation, this is an example to learn from and emulate.