5 myths about digital transformation every CEO must know
Set the right foundation for digital transformation without getting carried away by hype or sales pitches.
I spoke to more than 30 CEOs over the last 12 months about a range of topics including digital transformation.
These CEOs represent midsize to large companies in financial services, consulting and IT services, retail healthcare and other industries from Australia, United States, India, United Kingdom and Japan. I wanted to know what they thought about the digital revolution sweeping the world, reinventing industries, redefining new business models and creating great opportunities for proactive businesses and individuals.
The good news is that more than 50% of CEOs believed that digital sales, digital marketing, social media and analytics will seriously impact their business and revenue in the next three years. Their understanding of what digital means varied, but almost all of them are keen to explore what it means for their customers. Ironically, CEOs of some consulting and IT firms are keen to develop a suite of digital solutions to help clients. But, appeared less enthusiastic and unclear about their own transformation agenda.
I found five common myths about digital transformation during my conversations. This post is an opinion to dispel these myths, to help improve the success of those embarking on the journey.
1. Strategy myth: Digital transformation is all about technology.
Digital transformation is redefining a business strategy based on the potential of digital technologies. It is a new way of thinking about customers, products and services, business models, talent pools, organizational structures and the ecosystem the business relies on. For some organizations, it would also require a significant cultural change, and some changes in the top talent, to move forward. My engagement with CEOs or boards about digital transformation involves questions of business strategy, leadership talent, culture, change management, organisational structure, strategic alliances and partnerships — not just technology and what it can do.
2. Accountability Myth: We need a chief digital officer to be accountable for our digital strategy.
Contrary to popular belief, a chief digital officer (CDO) cannot and should not be accountable for the digital strategy. It should be the CEO. In many industries, the future survival and growth of the business will depend on the success of digital transition. Therefore, the CEO should be accountable for its success.
As a matter of fact, I am not convinced a CDO is needed. There is a trend where chief information officers (CIOs) call themselves CDOs. I agree that just like the chief financial officer, the CEO needs someone to manage digital initiatives. Someone to facilitate the creation and execution of the digital strategy. Whether you call someone a CIO or CDO or chief transformation officer or chief innovation officer, the bottom line is that businesses require an executive to develop and execute the digital strategy. An executive chosen to facilitate the digital agenda should be highly experienced to work at the interaction of technology and business, strategic, adopt an "outside-in" approach, and must know enough about the technology to creatively use it in the business. Most importantly, they should be a collaborator and excellent facilitator. I know many CIOs who fit this skill set, so these organisations do not need a separate CDO. As we stated in our previous article Stop undervaluing the CIO’s role in shaping business growth, only one in three CIOs report to the CEO. For the success of a digital strategy, a CIO or CDO must report to the CEO as a member of the executive team.
3. Customer Centricity Myth: We are a customer-centric business, externally focused. We do not need much internal change as we have a capable team.
During my interaction with CEOs, and some of their executive, I found a pseudo client centricity where the executive appeared only focused on "pitching and winning" a deal. These organizations have invested heavily in their sales and marketing with limited investment in innovation, people or work practices. They have done well for more than a decade by opportunistically targeting customers for short-term wins. Education, healthcare, consulting, IT services, legal services and recruitment sectors — all have organizations that are now struggling to maintain growth or, in some instances, merely survive.
Customer-centricity in the digital era is no longer about opportunistic targeting of customers for short-term wins. It is about partnerships with customers to co-create/innovate jointly, enlisting them as brand ambassadors, leveraging their customer networks and lobbying for customers to invest in their growth. This is a longer-term value adding (not just cost-cutting) relationship.
4. Competition Myth: We are a leading industry player. We know what our competitors are doing and we are not far behind.
The traditional model of competition makes very clear who the competitors are. With the coming of the digital era, the lines of competition are blurred with new competitors entering the industry from outside the industry. These rivals are different from traditional players. They offer a unique value proposition and use new business models to serve customers. Amazon, Airbnb, Alibaba and Apple are good examples of these new organizations.
I recognize it may be very difficult to create these radical industry disruptors. However, it is clear the definition of competition has changed in the digital era. Digital technologies are enabling new ways of doing business using platform business models. This allows one business to provide a "brokerage" service to multiple businesses to add maximum value to their clients. This creates a different kind of competition. CEO must recognize the changing landscape of competitors and develop appropriate strategies to effectively compete. Competitors in old regime can become alliance partners in the digital era.
5. Vendor Expertise Myth: We have experts from a well-known consulting firm/IT vendor. These experts know what they are doing as they have taken many clients through this exercise.
Based on the results of the survey we published earlier in the year in the report Global Consulting and IT Service Provider Trends, there is no doubt that all vendors consider digital transformation a major opportunity for business growth. And, rightly so.
Clients we interviewed told us that the majority of vendors they work with are too slow at changing their legacy business models. When it comes to transformation, it is common they do not follow the advice they give to their clients. We also found a couple of examples where vendors are doing an excellent job of "walking their talk" by transforming their own businesses, as well as their clients. Many vendors are learning just like their clients about the possibilities and opportunities that digital provides.
In conclusion, CEOs should not assume that a big brand consulting or IT firm will automatically have the necessary expertise to help. Often this expertise may reside with niche digital firms. They must check on their vendor’s own transformation agenda and experience before partnering with them for digital success. CEOs should not assume that just by hiring a well-known big-brand, their success will be guaranteed or assured or they will be safe, if things go wrong. Effectively dealing with the hype and identifying the right partners would allow for timely realistic outcomes in the digital era.
I wish all those who are on the digital journey a great success!