Being the CEO of a large company facing digital disruption can seem like being a gambler at a roulette table. You know you need to place bets to win, but you have no idea where to put your chips.
Of course, digital transformations aren’t games of chance. But they do require big and bold commitments in the midst of uncertainty to reinvent the business rather than just improve it.
Many of the digital initiatives large incumbents have already tried to date have tended to operate at the margins of the business. Innovation labs or apps can be useful for learning and can even provide a boost to the company. Meanwhile, the legacy business remains in place, largely unperturbed.
Without a transformation of the core—the value proposition, people, processes, and technologies that are the lifeblood of the business—any digital initiative is likely to be a short-term fix. The legacy organization will inevitably exert a gravitational pull that drives a reversion to established practices. Reinvention of a business is, by its nature, bold. But it’s one thing to be bold; it’s another to be thoughtfully bold. A digital reinvention requires the CEO to make tough decisions, which involve hard trade- offs that it is tempting to ignore, defer, or rush into. Yet knowing which decisions to prioritize and how to implement them can make the difference between a successful transformation effort and one that struggles.
These decisions occur in the four phases of a successful digital transformation program:
- Discovering the ambition for the business based on where value is migrating
- Designing a transformation program that targets profitable customer journeys
- Delivering the change through an ecosystemof partners
- De-risking the transformation process to maximize the chances of success
In each of these areas, the CEO has a lot of things to do, from modelling new behaviour to driving a change in culture to executing strategy. But the focus here is on some of the big decisions CEOs need to make, and how they can go about making them. Based on experience with dozens of digital transformations, it is believed that these seven decisions are the most important ones.
DISCOVER—Set the ambition for the business.
Decision 1 Where the business should go
Few decisions are more momentous than choosing the business direction. While the almost existential nature of this decision can seem overwhelming, most incumbents don’t have a choice, since they are already facing disruptions that can threaten their long-term viability.
Data and analysis, as well as a disciplined framework for thinking through options, provide a helpful structure for making the decision. As a starting point, it is recommended that a thoughtful review of the market and business based on those stalwarts of economic analysis, supply and demand. It’s important that any analysis be dynamic and forward-looking, based on an understanding of how digital technology could lead to changes in the future.
Almost every notable digital innovation identified has been based on using connectivity and data to transform the customer experience or to reshape products and services by allowing customers to interact with them in new ways. So that’s a good basis for thinking through the possibilities. Incumbents can also look to approaches used by digital innovators—both within and outside their sectors—to spur fresh thinking.
While analysis is crucial, it is no substitute for imagination. C. S. Lewis called imagination “the organ of meaning,” and CEOs need to tap into it. One approach might be to imagine how the industry would work if it were completely digitized. Often, a creative leap is needed to identify how the firm might serve customers in new ways across their entire journey.
DESIGN—Create a plan for the digital transformation.
Decision 2 Who will lead the effort?
A program that will deliver the needed degree of transformation is not something CEOs can delegate; they must lead the charge themselves.
CEOs, however, can’t do this on their own. Like the conductor of an orchestra, the CEO provides vision and on-going direction. But a group of other senior leaders needs to drive the effort day-to-day. Thus a key decision for the CEO is selection of the members of the orchestra, based on the skills needed to be harmonious and effective.
One criterion for inclusion, naturally, has to be skill in and knowledge of digital. That’s why some CEOs turn to a chief digital officer (CDO). Appointing a CDO is the right answer for many companies, but it’s only part of the solution.
This decision needs to extend to putting in place the right team of people to drive the change. Since digital affects almost every aspect of the business and requires an unprecedented level of coordination across the entire organization, any leadership group has to include executives from multiple functions. While it can be important to have persons who are visionary and inspiring, the team will also need respected executives with a deep understanding of the mechanics of the business, as well as expertise in change management. In addition, the CEO should select leaders who embody and will forward the key values of a digital culture: customer-centricity, a collaborative mind- set, and a tolerance for risk.
This leadership team doesn’t need to be large. In fact, it can be quite small, as long as its members, and the people working with them, have the requisite skills.
Decision 3 How to ‘sell’ the vision to key stakeholders
Any change effort requires active communication of the vision and an explanation of why it’s necessary. For this reason, the CEO needs to decide not only what to say but also how—and how long— to communicate. One approach is to think of the change program as a product and brand it.
It’s crucial to decide when to communicate and with whom. The CEO should focus first on winning over influencers both inside and outside the company, then on propagating the change to their networks. CEOs also need to adopt a campaign mentality. This means delivering crisp and clear messages, in a steady cadence, using all relevant formats and channels. It’s an influencing program, so messages need to be tailored to each audience—from employees to the board to shareholders.
A bold, long-term orientation, well communicated to all key stakeholders, can be a crucial counterbalance against pressures to hit short-term financial targets once the transformation program begins.
Decision 4 Where to position the firm within the digital ecosystem
New companies are able to challenge established businesses because an ecosystem of relatively cheap and plentiful resources—from technologies to platforms to vendors—is in place. This has been a boon to disruptive attackers, but the same resources can be used by incumbents, too.
CEOs need to figure out which capabilities, skills, and technologies available in the ecosystem complement and support their business’s strategic ambitions. How much to rely on these relationships and how to structure them, are also crucial decisions. Making them requires a clear sense of how to secure the company’s most valuable assets, such as relationships with customers or data.
Decision 5 How to decide during the transformation
As boxer Mike Tyson once said, echoing Joe Louis, “Everyone has a plan ’til they get punched in the mouth”. No matter how well a transformation effort is designed, there will be surprises and unforeseen developments. To deal with this reality, the CEO and top team need to decide on governance and escalation rules to allow for inevitable course corrections.
Frequent check-ins—at least weekly—with senior leaders should be planned to gauge whether the digitization effort is on course and institute changes if it is not. That sounds like a lot, but devoting even one hour a week to a program that transforms the company is just 1 to 2 percent of a CEO’s time. The challenge is to book this time and stick to it.
To support this approach, the CEO needs a dashboard developed to track progress on key initiatives that reflect the ambitions of the transformation. A digital transformation is a long-term effort, and as a result, yardsticks that focus on the short term, like ROI, can be misleading. Non-traditional metrics that evaluate digital adoption, such as new registrations on digital channels or digital-engagement levels, are better gauges of the progress of a digital transformation.
DELIVER—Execute the transformation plan, allowing for on-going adaptation and adjustment.
Decision 6 How to allocate funds rapidly and dynamically
The key lever CEOs and senior teams have to drive a digital transformation is resource allocation. This isn’t just about making sure resources get to the right places, a decision CEOs already make as part of their everyday work. With a digital transformation, the CEO needs to decide what the allocation process should be and at what tempo it should operate.
Research shows that raising a company’s Digital Quotient, or DQ®, requires targeted allocation of both capital and operating expenditures. The CEO and top team should act like venture capitalists by following a digital initiative’s progress closely, pulling the plug for projects that lag expectations, and investing more in those that do well.
This requires speeding up budgeting processes, which at large companies tend to follow annual cycles. During a digital transformation, budgeting should shift from annual to quarterly or even monthly cycles. Succeeding with a digital transformation often requires cutting budgets for legacy operations.
DE-RISK—Increase the transformation’s prospects for success.
Decision 7 What to do when
More than 70 percent of transformation programs fail. While the decisions covered in this piece go a long way toward improving the odds, loss of momentum can undo even the best transformation efforts. To forestall that possibility, CEOs should carefully decide how to sequence the transformation for quick wins that yield revenue payoffs and reduce costs, gains that can then be reinvested.
Effective sequencing requires clear criteria to evaluate the potential payoff of various parts of the transformation initiative. These should include a hard- nosed assessment of projected benefits, the time needed to capture them, dependencies, investments required, and impact on the overall transformation journey. Sequencing with an eye toward cumulative effect is also necessary, so the business builds towards a cohesive digital whole rather than a jumble of loosely affiliated programs, which can undermine the ultimate benefits of scale.
Digital is the defining challenge for today’s generation of CEOs. And the decisions they make will determine whether their businesses thrive or fade.