The role that technology has played in defining the new business operating environment has been massive. This role has not come as a surprise to companies, it has been predicted for many years and was defined by Klaus Schwab when he introduced the concept of the Fourth Industrial Revolution at a meeting of the World Economic Forum in Davos, Switzerland. The rate of this change, and its acceleration which has been caused by the Covid-19 Pandemic, has placed many companies in trouble.
Digital transformation will play a key role in business strategy in the coming years. Companies now need to look at ways of effectively addressing this so that they are not always fighting from a defensive position. I recently read an article on the Deloitte website which offers some basic truths about digital transformation and how to address it.
Truth No. 1: Your role as leader is important for any digital ambition—no matter the scale
The Deloitte article points out that the need for leadership involvement is often greatest when digital ambitions relate to a customer-facing business process or high-priority growth strategy, or when it is a prerequisite for more ambitious future transformation plans.
Digital ambition exists along a spectrum from digitization to full-scale transformation, and any or all of these levels are relevant based on the enterprise’s digital journey. Enterprises can be working on multiple digitization or digital transformation levels at once: One business unit may be focused on initiatives further to the left on the spectrum, while another may simultaneously be focused on strategies further to the right.
The Deloitte article adds that not every company is interested in full transformation. Moreover, most digital initiatives are not digital transformation, and that is fine. Many companies need to catch up to the competition, better enable future growth, or have other goals for which disruptive innovation is not required. For these and other digital ambitions that are less complex and holistic, less involvement typically is required. However, that does not mean zero involvement. All digital initiatives need at least some amount of engagement from the organization’s leader. The leader needs to maintain leadership of any digital ambition, and when multiple initiatives are occurring at once, the leader’s role in ensuring they map to an overarching strategy becomes even more important. While they might not need to drive day-to-day activities, they do need to influence the route—guiding teams to understand strategic impacts and dependencies. How often the leader intervenes depends very much on the project and its individual nuances, and that is where listening to the delegated leaders can be critical.
According to Deloitte interviews and analysis, the leader’s role during digitization has three key elements that apply to most digital journeys, from simple digitization to full transformation:
- Break through roadblocks. Typically, your most key role is clearing a path to success and empowering delegates to break through siloes and the status quo—and then keep going in the face of complacency. Digital transformations are never done, and they require continuous energy from company leadership to sustain them. “My role was to simply not let the organization back up, to continue to pump the vision of where we needed to be,” said J Eric Pike, CEO of Pike Enterprises, a North Carolina-based infrastructure solutions provider for electric, gas, and telecom companies. “And if anyone presented a roadblock, I told them to go under, over, through, around, any way to make it happen.”
- Help others see the bigger picture. Digitization can often be viewed by an organization as encompassing smaller, less ambitious digital initiatives and investments. As such, it does not always get the attention or effort it deserves. But this is not always the case. Digitization programs can include ambitious goals that move the enterprise along. One of your jobs is to show how digitization fits into the company’s larger strategic context of value creation, competitiveness, and growth; and
- Assign full-time ownership but keep your hand on the wheel. Marc Huffman, CEO of BlackLine, a global software company offering cloud-based financial close, accounts receivable, and intercompany financial management solutions, emphasizes the importance of assigning people to work on digitization full time: “Digital transformation is a full-time job, so you need people to work on it full time. You cannot just ask someone to do it on the side.”8 Without that dedicated focus, people’s day-to-day jobs tend to take priority and the digitization effort struggles to make progress.
Truth No. 2: As the digital vision gets more ambitious, your involvement should increase—particularly if your organization is not ready to change
The Deloitte article points out that as the transformation vision becomes bolder and more ambitious, a leader might encounter a large gap between the vision and the organization’s readiness to achieve it. If the organization is stuck and does not see the need for transformation, the leader will need to set a more active, hands-on role in developing incremental strategy milestones and driving change.
Ambitious digital transformation is often a response to a critical need for change. Familiar challenges to change—including fear of personal failure and a desire to avoid short-term revenue hits—should be considered but should be outweighed by the clear strategic imperative for transformation.
The article adds that, in this situation, when digital ambitions are high, but the organization’s readiness for transformation is low, you have five key elements to consider.
Tell a compelling story. Create an integrated vision beyond just technology and deliver it with powerful and consistent messaging that brings people along on the journey. Clearly explain the need for change, including the benefits of digital transformation—both for the company and its employees—and the consequences of inaction. Look for creative ways to deliver that message in a way that will resonate with each stakeholder group (one leader described the unusual step of creating a comic book) and make sure to drive the point home through regular communication and updates to bring your stakeholders along in the process.
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But remember: You cannot delegate building your narrative to the communications and PR teams. Instead, either personally own the storytelling yourself, or create a role focused specifically on “storytelling” for someone who can translate data and strategy into a compelling, clear narrative journey for your stakeholders.
The Deloitte article points out that if Scott Sanborn, CEO of LendingClub, had said the next evolution of the California-based fintech’s strategy was to buy a bank, he may have been met with disbelief. The digitally native company’s strategy would allow LendingClub to remove bank intermediaries, unlock new revenue streams, improve funding stability, and gain regulatory clarity, among other advantages. But first, Sanborn had to help others see the opportunity, so he crafted a compelling story, anchored by one of its core values to “evolve with purpose.”
“We made evolving to an entirely new business model one of our key goals for the year,” he said. “The transformation was significant because we not only had to rethink how we operate, but we also had to take over the legacy banking technology and build a more modern, scalable, and flexible system. But we were convinced that the demanding work would pay off.” With stakeholders on board, the company acquired Radius Bancorp in 2021.
Align incentives with digital transformation. If you ask people to embrace and focus on digital transformation but keep measuring and rewarding them in the same old way, you will not see much change in their behaviour and priorities.
“One of the biggest things we did was to establish a long-term incentive plan for our senior executives,” said Stephen Markovich, CEO of Ohio Health. “We tied a third of their money to the success of this work, so they all had an economic incentive. If the project goes well, we all win. If the project goes bad, we all lose.”
The Deloitte article points out that, as for individual incentives, traditional financial factors such as stock options, equity ownership, and performance-based rewards can all influence their decision-making. So can personal factors such as a desire to make their mark on the organization or fear of failure. Here is where it can be helpful to flip your perspective. In some instances, embracing deterrents—such as the aforementioned fear of failure—can conversely be liberating, and free you to make harder decisions.
“I was a risk officer in my previous life,” one CEO said. “Most CEOs get fired or destroyed in the press at some stage. When I got this job, I agreed with my spouse that I would get fired. It is a liberating statement. If you start there, you do the stuff you think should be done.”
Address weaknesses exposed by the digital journey and be willing to accept a little short-term pain in exchange for long-term gain. Digitization and digital transformation can expose internal weaknesses that leaders should acknowledge and take a hands-on approach to tackling. The key is to listen and think critically.
“Don’t get into too much detail,” said Giny Boer, CEO of C&A, a Dutch retailer. “But when people talk to you and you do not get a proper answer to the question, ‘How well is it really going?’ stay close to those key strategic areas. If something is unclear, it is time to dig in.”
The article adds that although it is impossible to completely eliminate the risk of short-term disruption, investment in digital transformation sends the market a powerful signal about your organization’s potential for long-term gain.
Create optionality for the organization to take digital transformation in multiple directions in the future. Disruptive innovations are constantly emerging and evolving, making it difficult to determine the right strategic direction for all eternity. That is why it is essential for a digital strategy to provide multiple options for the future. This strategic flexibility should be accompanied by building an organizational culture and structure that can capitalize on the available options. In this way, you can also better prepare your organization to pursue multiple digital initiatives at once.
The CEO of a British insurance company inherited an ongoing digitization initiative with many moving parts, including technology transformation, business and organizational transformation, and rebuilding internal systems. Her approach featured overlapping stages with multiple simultaneous changes across the organization, including replacing the C-suite. A big key to success was having mechanisms that allow for simultaneous innovation on different threads, versus testing and learning on one thread at a time. Another key was creating an agile, cross-functional culture across the organization, which was especially challenging given the sweeping changes at the top.
The Deloitte article adds that the CEO told us she focused on preparing the business for different forms of change and instilling an evolution-oriented mindset—ensuring that the business is able to innovate and transform more quickly.
Think beyond your tenure, and plan for succession. In addition to maximizing business performance during their tenure, most leaders will want to ensure the changes they institute will endure after they are gone, and that they have left the organization well placed in terms of its long-term market position, brand, and stature. To the extent digital transformation helps enable any of that, it is important to think beyond the time that you leave the organization.
The Deloitte article points out that, in today’s world, digital journeys are ongoing and will outlast the tenure of any single leader—especially with the competitive bar constantly rising in response to new innovations and competitor actions. With that in mind, whoever takes the reins after you are gone will need to have a clear view of your rationale and, wherever possible, be brought along on the journey with you so they can continue to build upon your digital strategy once you have moved on.
According to Panote Sirivadhanabhakdi, CEO of Frasers Property, a Singapore-based multinational real estate and property management company, “The end game is making sure I create a better organization that is able to evolve even after me.” Push the limits for what you can achieve, but also look for champions of your vision to continue the work. This will allow your vision to become lasting.
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Truth No. 3: Organizations with high digital savvy and readiness still need leadership to lead on strategy, innovation, and growth
The Deloitte article adds that organizations with high digital readiness might not need the leader to be deeply involved in day-to-day transformation activities, but there is still a need for leadership—particularly on strategy. Here, the role involves working with the CSO, CIO, and CTO to identify the next opportunities for innovation, growth, and disruption. Always be assessing if your business model should change and how digital technology can help enable your broader strategy, whether it is to enhance your existing business, respond to a competitive threat, maximize an M&A opportunity, disrupt the existing industry or ecosystem, or achieve some other strategic goal. Creating a strong sensing function can help leaders stay on top of this.
Keep nurturing innovation—even if your company is a digital native. Even digital natives and traditional innovators can quickly become digital followers if they get complacent, forcing leaders to become more active again in driving transformation—especially if structural changes are needed to the company’s business model and culture. An innovative, evergreen culture is something that should be continually nurtured.
The article points out that Sony, which has a long and celebrated history as an innovator, is actively working to shape the future of digital music with new digital services for musicians. “Artists and songwriters are important partners in light of our purpose of filling the world with emotions, so we are trying to become the best company for them,” said Sony Group CEO Kenichiro Yoshida. “For example, we are providing a digital platform to inform them how much they’re gaining from their online music in real time.” This constant focus on creating new digital tools for creators enables Sony to continue to nurture its ability to pivot and grow.
Continually assess the market for opportunities, and do not be afraid to look far into the future. CEOs are uniquely positioned to identify and act on potential opportunities before there is a burning need to do so. However, according to our interviews, leaders of digital natives and start-ups are more likely to do this than their traditional counterparts.
“One of our values is jumping at 60,” said Hardy TS Kagimoto, CEO of Healios, a regenerative medicine start-up in Japan. “If we feel like we know 60% [of the details about an opportunity] and the probability of success is strong enough, I take the risk to jump in. That is how we get to know the innovative tech and what is real or not.”
The article adds that it is important to look at technologies that are five to 10 years away from becoming mainstream while still balancing the need to respond to current disruptive technologies through short-term sprints.
“Our core works very well, so I spend my time gazing at the periphery,” said Vincent Roche, CEO of Analog Devices, an American semiconductor company. “We hired field marshals who can grasp what customers are struggling with, curious leaders keeping an eye on the periphery and building a nuanced vision for how we are moving ahead, how our customers are evolving, and figuring out the software and ecosystems.”
It is clear that digital transformation will not replace human skills. Especially when it comes to organisational leadership.
The Mystery Practitioner is an industry commentator that focuses on the shifting dynamics and innovative thinking that BRPs and turnaround professionals will need to embrace in order to achieve success in their businesses.
