Leeds Business Insights Season 2 Episode #1
S2E1: Michael Huseby - Challenges of Digital Transformation
[00:00:00] Amanda: Welcome to the Leeds Business Insights Podcast, featuring expert analysis to help you stand out from the herd. My name is Amanda Kramer. We are thrilled to be discussing the digital transformation with the Chairman and CEO of Barnes & Noble Education, Michael Huseby. Digital transformation is a topic on everyone's tongue, as new advancements and better uses of data promise game-changing ways to get the job done. But at the top, there's plenty of hesitancy about separating fad from fact and making costly decisions that introduce new tools that are quickly outdated. My guest today on Leeds Business Insights is a CU alumnus who has been managing the challenges of digital transformation in a number of industries, including retail, communications, and now, education. Welcome to Leeds Business Insights, Mike. And thank you so much for being here today.
[00:00:55] Michael: Thank you, Amanda. It's a pleasure to be with you. And I appreciate the opportunity to visit with you.
[00:01:00] Amanda: Looking forward to our conversation. So, Mike, you have a lot of experience managing digital transformation. Studies show that only a fraction of CEOs felt comfortable transitioning to digital when COVID started. However, you had already started to shift BNED to a more digital focus when the pandemic hit. Can you tell us more about the signs to look for to forecast that change is necessary or imminent?
[00:01:27] Michael: Well, that's a that's a great question. There is a lot to unpack to answer it. But I would say, just by way of background, I took the job as CEO of Barnes & Noble Education at the end of 2017. And as you mentioned, we did start to put in a digital strategy right away.
Signs to look for, in terms of the changes that are coming that points you towards a digital future are perhaps pretty obvious. In some cases, it can be more subtle. Where you all start is with the markets that you're serving, which means your customers. In our case, that's the schools that we serve. We serve approximately 800 physical bookstores and their websites, as well as approximately 650 virtual bookstores. What that means is that we are hired by those schools to go out and procure the courseware for the adoptions that the faculty wishes to teach from. So, our customers are the schools themselves, and ultimately, the students that the school serve. We consider those to be our mutual customers.
The other thing you look at is the competition. We have competition. In our world, that means who else is trying to sell courseware to schools. Competition is very, very healthy for offering academic courseware. And it's become much more competitive since digital offerings became increased. So, what we've seen—and I think everybody is familiar with higher education or education at any level—is seeing that the proliferation of digitally based courseware is, is growing quite a bit.
The other thing you can look at, and I'll get into that in more detail, but the other thing you can look at, especially in our case, we're a public company, but in any, any business, you require capital to keep the business moving forward. Especially when you're making a transformation from an analog or a physical product to a digital product, you have to familiarize yourself with the capital markets and where are investors putting their money. And more and more, we've seen over the last five years that investment funds are flowing into the digital sector of not just higher education but education in general.
So, looking at the overall trends of customers, competition, where is investment going, and I think just behaviors, in other words, the generation of students that we serve is digitally native. Most of them were born with a cell phone or an iPad in their hands. Or if not, they've got one very, very soon after—when they first learned how to walk, basically. So, we know that that's how they're used to interacting with information and how they're used to learning. Students are used to learning in a mobile way, where there's ease of use, lower costs. You don't have a typical supply chain where you have to walk into a brick-and-mortar store to buy something. So that, that all points to digital.
So, we have a digitally native customer base, the supply chain is electronic and not physical. There are many indicators. But we began the transformation journey at Barnes & Noble Education, I would say 2017 was probably the first year where we put a stake in the ground on the strategy that we started to realize, you know, in a fairly robust way just as COVID started. So, going into calendar year '20, and we had a lot of things going on. We were looking for our fiscal year '21, which started in May of that year, to be a big year for us. And then we got this huge curveball thrown at us called COVID.
Prior to COVID, approximately 10 to 15% of our courseware sales were digital. Now, you'll see that that is much, much higher, approaching 50%. That all happened in two years. So, COVID itself accelerated change in a number of ways in higher education.
[00:05:37] Amanda: You've had a busy couple of years. And BNED is really helping make radical transformational changes in the education industry. From a leadership perspective, how did you sell your stakeholders and team, both at the C-level and then funneling through to the rest of the company, specifically, those who maybe didn't understand your vision fully or thought that what you had in place was good enough?
[00:06:03] Michael: That's really the biggest and toughest issue in any kind of a transformation—it involves people. And wherever you have people, you have viewpoints that have been established over a long period of time. And that means you have to change. You have to change behavior. You have to change people, process, technology. And that's really where the skill set is for leaders in a digital transformation. And then in terms of answering your question of how do you accomplish that, it starts with the people.
So, my first job was to make an assessment. Once we set a strategy that we all agreed on as a management team and as a company, I had to make an assessment of, who would buy into the change? And, perhaps, who wasn't quite as ready to embrace that change? And then you have to make changes with the people. That's the first thing you do, because, you know, as a CEO, anybody who thinks they can do, do a job and—as a CEO and really impact the change by themselves has not been a CEO very long, because you have to, you have to build a great team, like in any organization, that can really embrace the message to change and design the new digital processes and products, and also, convince people that the pace at which you have to move has to be faster. It's what we call moving at digital speed.
So, in terms of convincing people, you try to do that for a while. And then when you find that, in some cases, unfortunately, you can't convince people, you have to make changes. So, that means you bring people in from the outside who, hopefully, have been through digital transformation. And then you—your first choice would be to bring people in from the organization to be leaders who can make that change. Other stakeholders that we have, we're a public company, so you have an outside set of investors and others, analysts, etc., that are evaluating your performance every quarter when you report your results. And that's one of the difficult things about doing a digital transformation, is when you're in a fishbowl like a public company, a digital transformation is generally a long-term exercise.
So, you have to be careful how you set the expectations. And when you have something like COVID come along that creates an environment of uncertainty where you have to adapt quickly and change to help your customers adapt with clients, the measurements and expectations are, are very, very hard to keep in line.
We also have a board of directors that's very supportive. They're helpful. But in terms of convincing and getting everybody together, it takes a while. You also have to be willing to experiment and fail quickly and then move forward because change is not going to be a linear progression where you can plot out the course and go from A to B to C all the way through Z and say, "Now, we're there. We're done." You know, things change. COVID pointed that out more than anything else I've ever been involved with in my life. And you have to be able to operate in an environment of ambiguity and uncertainty. You almost have to be able to embrace operating in that kind of an environment. And that's difficult for some people to do. It's difficult for all of us to do, but it's more difficult for some to do than others. And they just don't—they don't ever really get comfortable with that. So, it's usually not about what you have to do and where you have to end up. It's about how you do it and how fast you do it.
[00:09:41] Amanda: What I'm hearing is that digital transformation demands a cultural shift within corporations and industries. You have to be willing to move quickly to try, to experiment, to fail, to ascertain learnings, and then move forward. Do you have advice for our listeners about how to continue to remain adaptable in continued uncertainty when you're not sure what the future is going to look like? Or, you know, how to bake agility into corporate culture so that employees feel more comfortable operating in this type of environment?
[00:10:14] Michael: Yeah, you hit the nail on the head. Work culture, you know, it embodies all those elements of change. And changing a culture is not something that is easy to do. It's not something you necessarily want to do completely. You don't want to throw out those elements of the culture that existed that have gotten our company, Barnes & Noble College, Barnes & Noble Education, to where it is, which is a leader in its field, the great values that have been established over the years that build a culture is values like service, values like, you know, hard work, open communication, all those things you want to carry on. What's difficult is when you have a culture that is so strong, and you're trying to change it to more of a performance-based culture, so to speak, that's really geared towards collaboration with customers from—in the context of driving change. Because in a service culture, you're generally trying to respond to requests and a model that's been proven for a very long time in a dynamic, digital, uncertain, ambiguous environment. You have to also lead change, which means that you have to build services and products that customers may or may not want, who may not want to change, too, themselves.
So, you're in a position where you're leading, leading the market. It's a very iterative process of listening to your customers closely, what do they need? And then trying to translate that to how does that relate to your capabilities to help? And then how do you convince them to make the changes within their organizations? And our inclusive access courseware product is a great example of that. Our board members, investors, and others that listen to our description of what we call our first-day complete product, which is you get all your physical and your digital courseware, and in some cases, your digital self-study tools that we offer through a product called Bartleby, all bundled into one package. You pay one, one fee at the beginning of the semester for it. That's, that's kind of a concept, an idea.
And students have the ability to opt-out if they want to. So, the choice is still there. We never, we never do anything but purchase the courseware that faculty members want to teach from. So, there's complete faculty choice and autonomy in that. But nonetheless, you'll get different constituents, whether it's somebody in the faculty decision-making chain or a student who might be in the student government or who has to approve these kinds of changes. Keep in mind, you're going from a, a decision point where a student, you know, decides, "I want to buy each thing on an a la carte basis," to the school doing that for them, and saying, "Here's all the required courseware that your—or some recommended courseware that your faculty member says you need to have," and giving to you at first day of class. That's a big model change. It's a big shift.
So, whenever you have those kinds of big shifts, you know, you have to, not only change the culture internally of your company, you have to change the culture of many, many long-term customer campus relationships. We have some campuses we've served for 30 or 40 years. And they're used to doing a certain thing. So, it's a, it's a culture, not just internally, but it's a culture of how you do business, and making sure that trust gets established and continued that, you know, what you're doing and developing is in the best interest of your, your customers, not just your, your own people.
[00:14:08] Amanda: Absolutely. Thank you, Mike, for all of that information. And really, now, it would be interesting to hear from you, you know, what does the future look like for BNED? We have uncertainty continuing in higher education. And if we don't go back to the classroom full-time, what might this mean for the company?
[00:14:27] Michael: Yeah, that's a great question, Amanda. It's one that we ask ourselves every day and one that's embodied in our strategies and our operational priorities. And in fact, yesterday, I had the privilege of addressing about 95 of our, our leaders. It was so nice to have people back together that service our retail business and our direct-to-student business and some partners that we have, some strategic partners that we have. So, that's part of the answer to the question, is, I think we're going to continue to do what we have done. We're doing it in a different way. But fundamentally, what we do is we listen to our customers, both students individually, also, the schools that we serve because they all have their own objectives. So, a school may have an objective of four-year graduation rates. They have set various metrics they use. Obviously, their overall objective is they want the best—to give the best learning experience to prepare students for the next chapter in their lives. And during that journey through the school, they want it to be as responsive to the students' needs as they can be. So, there's a lot in that's changed since COVID. And there's a lot that stayed the same.
What we do know through all our studies, and we have various studies on our websites, one, College 2030, and another—other studies in the student mental health. I won't get into citing all the specifics, but I'd encourage your listeners to take a look at those because they're widespread surveys that encompass students, faculty, and academic leadership, all three segments. And what they tell us really goes to the answer to your questions, what are we going to look like? What we're going to look like an organization that provides services that are more personalized, that they're more adaptable to all kinds of students. But it also involves how we work with the schools so that they have access to, you know, to tools that they can make life easier for their students.
Mobility is important. So, making sure that everything we offer can be used on a mobile device, making sure that we can offer on-demand learning like we do with our Bartleby product, where you can get access to expertise in a number of subjects. And self-study, perhaps, self-tutor, no matter what time of day it is, 24 hours a day, seven days a week.
So, it's, it's moving away from just the physical classroom, or even just the virtual classroom, to, when is it convenient for me as a student to learn? How is it convenient for me to learn? And then designing what you do in terms of delivering, you know, learning material so that you can have that experience?
That's good for our business relationship, too. It's not just because we're great really nice people. It's, you know, what we should be doing to enhance our, our value to customers and keep those relationships strong.
[00:17:36] Amanda: The future is exciting for BNED. And, you know, Mike, before we move into our final question, every episode, we have an LBIdea or a key takeaway. And I think the key takeaway here is that change is inevitable and digital transformation, and transformation more generally, is a never-ending process. It's important to keep your customers' needs in mind, ensure that your business model is adaptable, be ready to move quickly, learn from mistakes and successes, both internally and externally, every single day to keep improving your product or services and to continue to successfully serve your target customers.
[00:18:16] Michael: Yeah, I think that's a great summary. And I think the other important part of that is take care of your people. And in a digital environment, in remote work and virtual settings, you can really set yourself up for some stress. The barriers are kind of broken down that you usually have in a physical office or physical classroom location situation. So, we actually have rules in place where we try and get people not to—let's not leave people texts at 3:00 in the morning even if they're up, you know because people are so used to responding now to screens and notification sounds and that type of thing. You could be on edge all the time. So, respect boundaries. And if you're, you know, working hard, make sure you take time for your own health—mental health, emotional health, physical health, and your family's health.
[00:19:07] Amanda: Yes, that is a really important point and a great segue into our last question. You know, the use of technology is really accelerating in terms of the necessity for both delivering education and also delivering most services that we consume. How do you see artificial intelligence shaping consumer behavior and vice versa?
[00:19:33] Michael: That's a really important question. And it's one that really has not yet been answered in higher ed, at least not based on my conversations with some really smart and also intelligent people that, that work in the higher ed industry and and leadership positions. But it's a real area of focus. AI-enabled study tools, AI-enabled analytics in terms of what works the best in which situations, there's a lot of examples of when AI and machine learning are going to be very valued. In fact, we have some schools that are requiring that students earn badges or certifications and things like artificial intelligence, emotional intelligence, and analytics.
And, you know, I was just with a president of one school, one of our Florida schools. They actually have ten certificates they offer. Those are three of them. And they offer them not just to students. But they offer them to the whole broader community because they view one of their obligations to the community is to help kind of elevate the whole community through what they do.
So, there's the AI itself in terms of technology. We bought a company called Student Brands in 2017. It's now part of our DSS group. And they offer writing assistance in many, many forms, have 22 million, you know, unique users every month. It's a very—through 18 different domains. But they're also part of our Bartleby Write in Bartleby package, Bartleby Plus, which is—Bartleby Learn and Bartleby Write together. But they've had a machine learning AI learning group together for six years now. They had it when we purchased them almost five years ago. And they do a tremendous job of understanding what's really important to present to online to learners that are looking for a specific help. And through their years of developing the algorithms through AI that they need. Now, so that's an example. And there's a number—there's a lot of other examples. But technology, in general, is important for the reasons we discussed. It helps you learn better, more efficiently, and less expensively. All that's good, especially with the inflation we're seeing everywhere else.
[00:21:51] Amanda: Absolutely, many rippling benefits to technological enhancements and AI. Mike, thank you so much for joining us today for this podcast episode. We really enjoyed having you.
[00:22:03] Michael: Amanda, I really appreciate the opportunity to represent not just Barnes & Noble Education but this industry. And we're trying to do the right things for students and educators and look forward to seeing the progress at University of Colorado and across the, across the industry. And with that, being an alum from 1976, I can say, Go Buffs!
[00:22:30] Amanda: Thank you again for listening to Leeds Business Insights. And a special thank you to my guest, Mike Huseby. Don't miss a single episode. Subscribe to Leeds Business Insights wherever you get your podcasts. You can also find more information about our podcast series at leeds.ly/LBIpodcast. We'll see you next time.
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