Digital Transformation: standing on the shoulder of giants like Thomas Edison to make your own.
When I started at OLX — 6 years ago — one of the questions I was frequently asked was: when will we innovate? The company had grown significantly in Brazil, it was a well-known brand, and it was already helping tens of millions of Brazilians.
However, it faced a terrible enemy: its inability to innovate in technology.
Throughout my journey in the company, my role was to help with the so-called digital transformation — although we never used that name. My main mission was to help the company transition from a project culture — also known as an IT mindset — to a product culture.
As Marty Cagan — one of the world’s greatest evangelists on this subject — aptly says, this is the major cultural difference between big technology companies that are dominating the world and the rest.
In my article on how to scale engineering teams in a healthy way, I show some of the metrics and tools we used to move the teams from a state where the burden was very heavy — the “falling behind” in the image below — to a stage of innovation.
In his article on why most companies fail to innovate in technology, my friend Marcelo Quintella gets straight to the point and lists some of the main pain points that prevent a company from innovating using technology and staying in the IT mindset.
I agree 100% with the content of the article, and I believe it is an excellent source to help prioritize where to start attacking digital transformation.
This article is a little different and at the same time complementary to Quintella’s. I won’t go into much detail about how to innovate; instead, I’ll tell a story showing how innovation happens and point out paths and sources for you to innovate in your company.
The story I’m going to tell is about one of the greatest tools for “digital transformation” — and the tips I’ll give are complementary to Quintella’s second article — on how to shift gears and move away from a culture with an IT mindset.
By showing how one of the greatest inventions in history happened, I believe you will form the image that will help you understand and accomplish the transformation your company needs.
One of the first things I think is important to understand about innovation is that — like any human process — it is a journey and not something that happens instantaneously like the click of a button.
Now let’s get to the facts.
Ricardo Amorim — one of the most influential economists in Brazil — explains in an interview the 3 pillars he believes are necessary for innovation to happen in a market:
- Exchange and generation of new ideas — that’s why diversity is becoming increasingly important.
- Technology — to serve as a transformative engine for processes.
- Money — the necessary fuel to drive the entire machinery.
I certainly agree with him. It’s worth listening to the interview; he explains these 3 factors very didactically, as always.
As he points out in the interview, we are currently in one of those moments in the world — especially in Brazil — where we have never had such abundance of these 3 factors. To illustrate, I’ll mention just one of them.
Investment.
According to Sling Hub, the investment in the Brazilian startup market in January 2021 alone was R$3.52 billion — 100 times higher than the investment in the entire year of 2010.
If that’s true, how do we see companies with plenty of resources, having access to the latest technologies — like OLX six years ago — and still struggling to innovate?
There is a fourth pillar — which Ricardo Amorim did not explicitly mention — and that is leadership. Leadership is crucial in creating the culture and environment to catalyze the execution and generation of ideas.
In my last year at OLX — at a point where several teams were already innovating — we made a presentation to the press that told the story of how an innovative culture was created.
I say culture because the first thing to remember is that digital transformation is, above all, a cultural transformation.
The idea of this article is to tell the same story. I will show some of the changes that were made in the company to allow innovation to flourish, so that it can help you in your transformation.
The first step that I always find important to address in cultural transformations is to deconstruct some mental models that we have and can cause psychological barriers.
When we talk about innovation, an image that always comes to mind is the story of Isaac Newton’s apple and his instantaneous discovery of the law of universal gravitation.
This powerful image — which has persisted for centuries — certainly doesn’t tell the whole story. One quote from Newton that I love is: “If I have seen further, it is by standing on the shoulders of giants.” Not only did he rely on the ideas of several other scholars, but he also directly exchanged ideas with some, such as Robert Hooke, to formulate the theory of universal gravitation.
As Ricardo Amorim said, without the first pillar — the exchange and generation of new ideas — innovation does not happen.
But what about the other pillars? How can we foster the use of these pillars in our companies?
To begin illustrating how to utilize them, I will bring up the story of another famous scientist: Thomas Edison.
Before telling this story, I would like to thank Lucas Vargas, who, when he was the EVP of Sales at Vivareal, gave a presentation to our engineering team about Edison’s story. Years later, that presentation served as inspiration for the one we did at OLX, where we shared our culture of innovation with the press. It’s a small world — some time later, Lucas briefly worked at OLX and helped with the integration of Grupo Zap into OLX, but that’s another story.
Now, back to Edison. If we ask what his main invention is, everyone would most certainly say: the light bulb!
But it’s not quite like that…
I would say that the greatest innovation Edison brought — his “greatest invention” — was the laboratory.
Edison was not just a tremendous inventor — he was also a great entrepreneur.
In line with the formula presented by Ricardo Amorim, Edison invested significant financial resources in a factory-laboratory called Menlo Park in New Jersey. This laboratory had advanced technology for its time and served as a space where physicists, engineers, mechanics, and even lawyers — many of them students from the best universities in the United States — worked together in generating and executing new ideas. Some of these ideas changed the world and are still with us today, such as the electrical power system that reaches our homes.
But Edison didn’t just use the three pillars mentioned by Ricardo Amorim. One of his great insights was that innovation, especially at scale, is a process formed by teams, “direction” and experimentation.
This insight was key.
Edison was not “just” a provider of financial and technological resources and a recruiter of the “brightest minds.” He was a leader who provided direction and fostered a culturally diverse environment — for the 19th century, of course — in his laboratory.
In the beginning, Edison’s laboratory consisted of 200 people with diverse talents: machinists, scientists, craftsmen, among others. They formed 10 to 20 teams that worked in parallel. Each team worked to transform the prototype of an idea into a functional model through experimentation.
Edison set a clear goal for the teams. He wanted to create a small invention every 10 days and a major invention every 6 months. The rest is history, literally!
Puns aside, one of Edison’s most significant achievements, nearly 150 years ago, was the creation of his company/laboratory, which advocated methods that are now used at their core by the most disruptive technology companies of the moment, such as Netflix, Amazon, Facebook, and Google.
And over the years, what I did was help implement some of these methods at OLX.
Much of what we did aligns with what Quintella explains in his second article of the series on how to innovate. As you can see, I agree with Quintella so much that I mentioned him twice in the same article 😎
Following in Newton’s footsteps and standing on the shoulders of giants, I will use Quintella’s article to illustrate most of what we did and add some other points that I believe were crucial in transforming OLX and can help you transform your company into a true innovative laboratory. To tell the story, I will use some of the slides we created at the time.
Recruitment
The first point I would like to add is about recruitment.
As we can see from the example of Edison’s laboratory, recruitment was already a crucial activity in the late 19th century. As such — certainly a topic to write about in the future — there is no doubt that it is a muscle that should be developed internally in companies that are serious about transformation through technology.
Keeping my promise not to go into too much detail and point out sources — Part III of “Empowered” — regarding staffing — has a very clear view on this.
But, if I may give my two cents now:
- Recruitment: The product and engineering departments — along with the people department — have to work together to develop this internal muscle — you can’t fully outsource recruitment, and this is also one of the main responsibilities of technology leaders. Some of the aspects to consider are explained in my article on seniority.
- Outsourcing software development — except for rare exceptions, I don’t believe it should be done. It is very difficult to engage people in the empowered squads culture through outsourcing. I see many companies trying to outsource to accelerate transformation. This strategy, in general, ends up creating the opposite result, as Marty Cagan says — you end up creating a culture of mercenaries instead of missionaries.
It is also important to remember that cultural transformation rarely happens without bringing in new people. This is a human dynamic.
But be careful! I don’t mean that you have to fire all the people who are already in the company, on the contrary: you should train them — and for that, you need new people and can seek external help — there are several companies that can assist you on this journey.
Therefore, in the context of cultural transformation, it is extremely important to bring in people who can help with training and the creation of the recruitment muscle I mentioned above — both of which are necessary for this transformation.
autonomy and alignment
Another crucial aspect to highlight is the role of leadership.
In the image above, borrowed from Spotify, you can see the role leaders should play. And that's is exactly what Edison did.
In Edison’s laboratory, he set clear goals and created an environment where people could move in the direction he pointed out, but he didn’t dictate how to get there. He provided guidance, context, and space for his teams to work.
In Quintella’s article, specifically in the section titled “how to do it”, he explains in detail the role of leaders and teams in this equation, aiming to keep us in the upper right quadrant as shown in the image above.
One particular aspect that I find important is:
“To achieve this, leadership needs to be explicit about the future direction (vision) and the strategy they intend to pursue in order to reach it, thereby giving teams ‘problems to be solved’ rather than ‘features to be implemented.’ This is what we call ‘autonomous teams’ (or ‘Empowered Product Teams’).”
Senior leadership should provide context and training, enabling the development of both individual contributors and new people leaders.
As the company grows, it becomes essential to build a middle management layer, often referred to as line managers, who act as conduits for the vision. This layer also ensures that autonomous teams have the right people, context, and any necessary resources to achieve the defined objectives. Until recently, this layer of people leaders was often overlooked in Brazil, and there are still not enough professionals effectively operating in this role.
During my time at OLX, we had to develop dozens of these professionals, and if you want an idea of how many you need in your team, you can refer to the proportions outlined in my article on team seniority.
Being a facilitator or servant leader is much more challenging than being a traditional leader following the “command and control” philosophy. However, the term “facilitator” or “servant” can be misleading. I have seen people confuse servant leadership with leadership by consensus or anarchy. That is not the case. Leading in a servant manner means having the courage to guide people so that they can achieve their best for the benefit of the mission and the company’s objectives.
One resource I always recommend on this topic is Google’s reWork website. Along with many other exceptional articles, it features the story of the Oxygen project, which revealed the behaviors exhibited by the best managers. Alongside the story, you will find various templates that can be used to guide your leaders. The key takeaway in this topic is that training a middle management layer is essential for any digital or cultural transformation.
The other aspects of our journey in creating an innovation laboratory were very similar to what Quintella described in his second article on innovating in technology products. It’s definitely worth a read.
Before I conclude for today, I would like to provide a small demonstration of how it is possible, although not easy, to tackle the challenges of digital transformation by following the culture of empowered teams.
Autonomy: A Real Example”
In 2017, after a lot of work and some hiccups along the way, we had successfully migrated our entire infrastructure from 2 physical data centers to the AWS cloud. It was a “project” that we initially thought would take us just one quarter, but it ended up taking us two and a half. Nonetheless, we executed a highly successful transition that provided us with the space to address various structural issues.
The migration itself was one of the first major exercises we undertook with the “empowered teams” culture. The original scenario was an architecture from 20 years ago, which was able to handle the load of our 35 million monthly users at the time but was showing signs of exhaustion and lacked flexibility.
There were numerous reasons to move away from the outdated technology, and no other company within the Schibsted group worldwide (the creators of the original platform and shareholders of OLX in Brazil) had done it yet. The exercise we went through was not as straightforward as I have described, but it had almost all the components: a vision of where we wanted to go, a strategy for evolving our platform, and our squads (around 20 at the time) working in a coordinated manner towards the strategy with OKRs. And one of the most important things: the teams were the ones providing solutions to the problems we encountered. And they were brilliant.
After 8 months of hard work, sweat, tension, and a few scares, we shut down the data centers and moved 100% to AWS, reaching a culture where each team managed its production environments in an almost autonomous way.
With this autonomy, we believed we could grow in a scalable manner, allowing for flexibility in how teams approached their work.
But there was still a major battle to be won. One of our biggest concerns when moving to the cloud was the potential for skyrocketing costs. Indeed, shortly after the migration, our AWS bill was becoming quite high, especially because we had to migrate some parts of the system using outdated technologies that didn’t fully leverage the potential of the cloud now at our disposal.
To make matters worse, profitability was one of our company’s goals for the year, as agreed upon with the board, and the cloud was now one of our major technology costs.
Well, it seemed like Sophie's Choice:
- Restricting the team’s flexibility regarding the production environment, which would compromise our culture and potentially hinder our capacity for innovation.
- Losing control over AWS costs and jeopardizing our EBITDA goal.
As you can imagine, I couldn’t accept both options.
I don’t want to set a bad leadership example here.
Prioritization is crucial.
However, in this particular case, the second option was not something I could choose. I was facing one of the four major risks identified by Marty Cagan: the business viability risk. It had to work for the company.
Before considering restricting team access and fully centralizing the cloud infrastructure, I sought help from the “university students” (as I fondly called them).
I spoke with senior engineering leaders, the cloud engineering team (responsible for our “internal cloud”), and some senior developers. I provided them with the context and shared my dilemma.
After some discussions and investigations, we reached an initial conclusion: After the cloud migration, we had built some tools that allowed us to identify costs at a macro level, and we could extend these tools to provide insights into how much each team was spending in the cloud and the “waste” they had. Waste referred to idle capacity, poor AWS instance choices, among other factors.
In a short period, a tool was developed that delivered various charts, including the one below, where each team and all leaders could visualize the cost of waste for each team.
The chart above was reviewed weekly by each squad and the whole technology leadership team. With this context and after a lot of hard work, the teams were able to optimize the platform significantly. Some of the derived products were incorporated by the platform team and served as a foundation for improving our developer experience.
Most importantly, OLX achieved a positive EBITDA by the end of the year, and our developers continued to have access to the production environment.
I hope that by sharing a part of our journey, as well as the journeys of Edison and Newton, I can inspire and encourage you to embark on your own transformation and create another innovation laboratory in the world.
