Digital Transformation: Are CEOs ready for the Challenge?

Digital technologies will soon disrupt nearly all traditional companies’ business models regardless of industry, size or success. A CEO of Digital at a Media Conglomerate recently told us, “If we don’t transform the way we do business, we’re going to die. It’s not about changing the way we do technology but changing the way we do business.”

Working with the MIT Center for Digital Business, we set out to investigate how large traditional companies worldwide are achieving digital transformation by reinventing the customer experience, automating operational processes and building new business models. A banking company told us about their Twitter account for rapid response to customer complaints, which has the dual advantage of delivering a better customer experience more efficiently. A materials company automated many R&D processes so that its researchers can devote themselves to innovation instead of staying mired in repetitive efforts. And a grocery company is staying true to its traditional business while using digital tools to grow, with its e-commerce platform bringing 20% of new clients after two years.

Digital Transformation: Near and yet so far

Despite these examples, less than 20% of the companies we surveyed are truly reshaping their businesses for digital and many are only partially fulfilling their potential. For instance, one retailer is gathering detailed information on buyer behavior, but lacks the analytics capabilities to truly understand the power of the data. To deliver a true transformation, you need three factors in place: top-down vision, clear governance and investment.

A transformative vision requires changes in practices, processes and decision making across internal silos not just within them. We talked to financial services firms that are using tablets to replace paper in sales presentations, but haven’t integrated all their customer information or contracting tools into their new mobile applications. Successful digital transformation comes from envisioning new ways that digital technology improves performance and customer satisfaction, not by just trying to find a use for the new technologies.

While vision is the starting-point, strong governance is needed to inspire change. It requires top-down ambition to put the organization in motion, coordination to turn disconnected or poorly considered digital investment into true platforms for transformation and monitoring to ensure that progress is being measured and managed.

Transformation does not happen without investment. Digital transformation is no different. It may demand a large upfront investment, so a good place to start is doing a series of low-risk experiments like initial mobile apps or pilot experiments with mobile marketing which can later be scaled up. More often than not, however, it becomes a strategic bet that only senior executives can make.

Roadblocks to Transformation

Success also means being aware of barriers to digital transformation. In our study, 77% of the companies cited organizational gaps in skills within areas like mobility and analytics. Another 55% brought up culture, particularly the challenge of encouraging employees to be receptive to changes in their jobs including the use digital tools in decision making. Legacy IT—not to mention the often poor relationship between business and IT—is also a constraint for 55%, with hardware and applications often overlaid on one another creating complex, inefficient and costly systems.

The Road Ahead

Digital transformation requires skills and influence that only senior leaders possess, making the path forward clear. First, envision your digital future. This involves understanding what assets will be valuable in a digitally transformed business. Angela Ahrendts, the CEO who has led a digital transformation at the iconic fashion brand, Burberry decided right from the start to use digital to target their consumers and hired a young, dynamic marketing team who in essence was the millennial customer. This, in part, has put the company at the forefront in marketing innovation in the luxury sector, whether that’s launching their latest fragrance on Facebook, or developing the ‘Tweetwalk’ with Twitter, or being amongst the first brands on Google+.

Second, be willing to invest to ensure you get full value from your analytics, collaboration, and other initiatives in a coordinated manner that advances the vision. Manish Choksi, Head of Strategy and Chief Information Officer of Asian Paints invested in mobile technology to enhance the customer experience and sales performance, saying: “We provided salespeople with vital customer data in the field using mobile devices. A rollout of tablet devices, which are currently underway, will further enable the sales staff.” And third, lead from the top. You must create a transformative vision that is clear and compelling to galvanize the organization. Ahrendts again offers a great example – soon after she arrived at Burberry she took part in a global internal webcast to explain to the organization’s people that digital would dictate and drive many of their biggest decisions and allow them to write a new and exciting chapter in their history.

Other executives who take bold steps in these areas will be the ones that log into the power of the digital economy. You can download the executive summary of our research here.