Kathy Gibson at Gartner Symposium, Cape Town – For this generation of business leaders, digital transformation could be a defining career issue, so they are serious about making it work.
This is a major departure from how CEOs thought about IT and technology in the past. “Today, digital disruption is real,” says Gartner analyst Mark Raskino. “It is now impacting industries that, 10 years ago, did not think they would be affected.”
Even some CEOs who were thought to be driving hard on digitalisation have been found to be moving too slowly.
“There are many challenges facing business leaders today as a result of digitalisation. Every industry will be digitally remastered – and so its defining the fates of CEOs.”
This necessarily changes the way CEOs look at technology, and how they look at the CIO.
But where are we in the digital journey? “Broadly speaking, the centre of gravity has shifted,” Raskino says. “Most companies have done something. They have done their defining and some of their ambition.
“Most companies have some kind of digital programme or project of work.”
They will soon migrate to the next stage – scaling their projects up. “Overall, we can say that digital business is no longer the future anymore.”
Now that the digital business has been initiated, the issue is about how the CEO will work with the CIO to scale up the digital business.
The focus areas include putting detail into the destiny, Raskino says. “Have we described what the digital business is, and is everyone on the same bus?”
Digital initiatives need to be made a lot bigger, quickly. “So we need to power that progress, adding resources including money.
“The journey we think we are on, or that we start on, is often not the business we end up on,” Raskino adds. CEOs may need to leap a level.
The scaling issues speak to what CEOs do, which is grow the company.
“So you will do something with digital to prove you can do it,” Raskino points out. “The price of that is a bigger order. Growth is top of mind for CEOs.”
In 2017/2018, CEO’s busniess priorities for the year are growth (58%), followed by IT-related issues at 31%.
“It was not always like this,” Raskino says. “Just a few years ago it was barely on the map. Technology just didn’t feature in the imaginations of business leaders.”
This is possibly the peak of inflated expectations, he adds.
“Another thing that has risen considerably this year is a focus on product and product innovation,” Raskino says.
“These three things really seem to matter this year to CEOs: growth, technology and improving the product.”
So CIOs should try to bias their team more towards the product itself rather than the delivery of the product.
Even the CEO has a boss, Raskino points out – and 47% of them are experiencing pressure from the board of directors to make progress on digital. This is why 35% of CEOs have created someone in a chief digital officer role. And digital investments are paying off: 56% of CEOs believe their digital investments have already improved net profits. They are also driving new value like renewed interest or excitement.
For the first time this year, CEOs understand that it is going to be difficult and painful to go digital. “But they dare not stop, because they know they have to,” Raskino says.
So what do business leaders need to do?
The first thing, Raskino says, is to get metrics – to define what the digital business is. “The first thing you need to help the executive team get agreement on, is what digital is for you. What matters here is that the executive team agrees on a definition.”
The next focus is to find the single, purposeful driving metric. “How will we know we are getting there? What is the primary measure of progress?
“And how would that be decomposed into a set of KPIs that will drive the behaviours that are needed.”
Gartner asked CEOs what their definition of digital is. A lot of them were vague and came up with technologies, some old, that are not applicable to digital.
Some came up with more leading-edge ideas, but they are not directed to a particular solution or game.
The leaders are those who have leading-edge ideas that are targeted to business outcomes.
Almost half of CEOs were unable to come up with a metric at all. For the others, most metrics are to do with selling, or customers, or revenue, or profits.
“Very few mean making the company more efficient in its internal operations. This is not what business people mean when they talk about the word digital.”
CIOs should take note of this, Raskino says.
Companies are now happy to report their digital revenue separately from their traditional revenue. “And although companies are shifting the KPIs for digital, many are not really doing it properly.”
The next phase of the game is about industrialising and scaling, Raskino says. The business needs to change its KPIs, change its measurement systems.
Traditional companies are looking at ideas for digital business. They include: buying into digital entities, creating digital joint ventures, setting up venture capital funds creating an open innovation challenge, creating a new digital unit or subsidiary and more.
“At this stage, no-one knows what the best methods are. Digital business has just not been going long enough.”
Once they’ve decided on the move they need to make, companies have to find the revenue to do it. These would usually be internally self-funded, with digital funding itself. Other sources include existing operating budgets, using reserves, cutting other budgets and more.
“As they spend this money, they realise they need more technology people closer to the core of the company,” Raskino says.
Most CEOs want to bring technology capability into the company – completely opposite to the trend for the last 10 years where they contracted it out.
These people need to be knowledgeable and adaptable and they have to commit to digital, Raskino says. “As CIOs we have to be the agents of the mindset change.
“We have to be provocative, poke people, be ambassadors and act as role models going forward.”
The final move is that companies have to leap a level. And the CIO has to help them to reset the rules of competition. “You have to stop your organisation from playing e-business copy catch-up,” Raskino says. “You have to define a new digital business game.”
CEOs are starting to recognise the power of the four transformational technologies: 3D printing, blockchain, artificial intelligence (AI) and Internet of Things (IoT).