Business Leaders Must Drive Transformation, Not CIOs or CDOs
Originally published as part of, “The Day Before Digital Transformation” by Phil Perkins and Cheryl Smith
Many CEOs and executive leaders now know they must do something about digital and understand that successful digital efforts are from the top down inside the organization. But instead of pulling together the leadership team, knowledgeable board members, and experts throughout the organization, they hire an expensive search firm to bring in a Chief Digital Officer (CDO). This individual, when hired, will bring in a small but expert digital team and will be responsible for digitally transforming the organization.
Can you spot the problems with this approach?
New roles with Digital in the title—Chief Digital Officer, Chief Innovation Officer, Chief Transformation Officer, Chief Disruption Officer—are sexy new titles that have been touted as solving the organization’s digital issues. The CDO typically hires other ‘digital’ experts as members of his or her team. Not specific technology experts, just individuals who have experience in the ‘digital’ world. A year into the executive hire, the organization is still having problems with outside digital competitors and start-ups, and now the organization has the additional fixed costs of an expensive group of senior ‘digital’ experts.
Two years into the relationship you find—and the CDO realizes also—that there is not much valuable ‘digitizing’ going on…nothing that is industry disruptive or even close to being revenue-generating. Organizations are finding out that this solution has not worked out the way they hoped it would.[i] Why? This strategy is basically the same as outsourcing digital, just doing it inside the organization. The reasons for the lack of success are typically the same, cited in study after study:
- No clear organization-wide approved and accepted digital vision and strategy have been established, and there is no path to create one. ‘Digital’ is the responsibility of the expert (and expensive) CDO and his or her team, not the day-to-day leaders and operational teams.
- No defined digital portfolio with an eye toward either P&L responsibility or even value creation in a specific area has been identified.
- No defined or single business sponsor exists since none of the business leaders want to change what they are doing quite successfully now. The responsibility lies with the CDO and his or her team.
- No controlled, absolute budget. Budget meetings are cutthroat in even the best organizations. Knowing that the executive leadership team is depending on the CDO to create the “future,” dollars will be allotted to CDO’s group. But those dollars are often discretionary and when financial emergencies arise, as they tend to do each quarter, the digitization dollars that the executives may not know or understand how they are being spent are at risk of being delayed, cut, or removed.
To add to the problem, too often the new CDO responsible for creating the organization’s market-disrupting products and services do not even have a seat at the executive table. In many cases, the CDO and team report to an EVP, a VP, or the CFO who sits at the CEO’s table. What happens in those cases is predictable:
- If the position reports to the CFO, the effort most likely is not funded for even the two- to three-year average CDOs are in their positions. There are better ways to spend the organization’s money in the opinion of the CFO, who is not an operational expert to begin with but who is responsible for the digital efforts.
- If the position reports to one of the organization’s operations leaders, a narrow digital effort may result that supports that specific line of business. It becomes an IT project using new technologies which may be useful, but even that division typically is not digitally transformed.
- If the position is set up in a separate entity, then the problems we have discussed of attempting digital transformation efforts from the outside (as Walmart has experienced) come into play.
How do organizations successfully address digital transformation? The answer is quite simple: the digital technology experts must be embedded in the business as equal partners to their peers. Not outsourced to a separate small team, or loaned out from IT, or made the responsibility of IT, or hired to operate separately from the day-to-day business operations via any other path. The executive leaders of the organization must take responsibility, both individually and collectively, for incorporating the emerging digital technologies into the business. Otherwise, our experience is that failure is nearly guaranteed at the outset. To save the organization time, pain, and cost do not hire a fad title and cross your fingers.
In the earliest stage of any age, the inventors of the technologies are often the founders of the businesses built around them because others simply do not have the understanding of the product or service or the vision to see its potential. New industries are created, and the inventors (if smart, careful, and passionate) are usually the direct recipients of the initial wealth generated.
But as existing organizations begin to change and adopt the new technologies and the Deployment Phase takes hold, organizations, and leaders other than the original technology founders, are rewarded. Trained, experienced business leaders take responsibility for understanding customer needs, the market, the channels, and the technology. They are responsible for the design, development, and deployment of the products and services that incorporate whatever the new technologies are at the time. The inventors who created the technologies then often refocus on the evolution of the technologies themselves.
Hiring and embedding technology experts inside the operational business teams have been taking place in organizations since the First Industrial Revolution. Steamboat manufacturers needed experts who understood how the steam engine worked. Automobile manufacturers needed experts who understood how the internal combustion engine worked. Business leaders lead the operations of the organization, employing the relevant technology experts as members of their teams.
But there is a difference in the Digital Age. It is unlike any of the prior Industrial Revolutions in that the technical expertise required to learn and then embed the emerging digital technologies into customer-facing, revenue-generating products and services often seems similar to the skills that the organization has in its IT department, a department that business has relied on for technical support since the 1970s.
The roles and responsibilities of the business leaders have not changed from the previous ages. They must continue to be responsible for all customer and operational activities—except now those activities have the word digital in front of them. (Digital) customer experience management; (digital) marketing; (digital) commerce; (digital) channel management; (digital) content management; (digital) customization and personalization; (digital) market and customer intelligence—these are all responsibilities of business leaders.
Business leaders must own the vision for how emerging technologies will be incorporated into the business, which means they must personally invest the time to understand the emerging technologies impacting their industry. If they sit back and wait for an operational department (IT) focused on infrastructure and cost containment to bring them ideas, they are doomed to fail.
We could not find examples of winners that left the incorporation of the emerging technologies to a back-office department in any prior age. If you look at most digital start-ups today, they will have large engineering teams, that they call product development teams, long before they hire a CIO. While the teams in the IT department may have the technical skills to learn the emerging technologies, this should not be their job. The CIO and the IT teams rarely have been responsible for designing, manufacturing, managing, and maintaining the products and services that an organization offers to its customers. These are not the responsibilities of the IT leaders and teams. They never have been, and at this critical point in the Digital Age, this is not the time to start. Although there are a few exceptions, most CIOs do not have the business skills, training, or even the interest to be responsible for digitally transforming the core revenue offerings of an existing organization, or even successfully running and managing a start-up.
A CIO’s role is primarily one of taking risks out of the system. Five 9s of uptime (5.26 minutes of unplanned downtime per year) across the infrastructure is the typical CIO goal. If the organization’s website goes down for two hours, even if there is little risk to the business, the CIO will risk job loss. Even if the cost to the business was minimal, the perceived risk to the CIO (and the tendency of many business leaders to overreact to imperfect technology outcomes), creates a bizarre incentive for the CIO to increase spending on risk-averse processes that carefully control every possible change. These control systems are great for stable IT infrastructures, but it limits the business’s ability to manage their own risk-taking. The business leaders are forced into the risk management processes of IT.
To address this issue, organizations and consulting firms are now talking about the concept of a “two-speed” IT organization. This popular business phrase today illustrates why organizations are struggling. The idea makes little sense when viewed through the lens of previous ages. The skills of strong, competent business leaders and those of expert, experienced IT leaders are completely different. CIOs are pressured by the business to meet goals around reliability, availability, scalability, and performance. It is their job to ensure that risk-averse infrastructure and processes are in place. The distinction between digital efforts that are new, evolving, and risky, and traditional IT projects are critical because they require vastly different leadership styles due to their different risk/reward profiles.
But if technology now is the business, what are the differences in the roles and responsibilities between the business and IT leaders?
When there are no clear definitions between digital technology (which involves the emerging technologies) and information technology (which involves the infrastructure technologies), they all end up being reduced to ‘technology.’ This lack of understanding will confuse everyone inside an organization who does not understand the difference between the technology tools and support systems they use today and the new emerging technology tools and systems being created to digitize customer-facing products and services. One sure way to failure is to view digital transformation efforts as just another ‘IT project.’
Two significant drivers of failed digital transformation efforts are: (1) the relationship and clarity around the roles and responsibilities between the business operating units responsible for embedding the emerging technologies into products, services, and ways of doing business, and (2) IT that supports the infrastructure that enables the delivery of those digitized products, services and ways of doing business.
Business leaders need to learn how to identify, hire, and incentivize technology experts to stay permanently as part of their business teams and not simply ‘borrow’ them from their IT organizations. Business teams must hire the technology skills and expertise needed directly into their groups and manage them as an integral part of the product or service team.
This is a big change in responsibility for today’s business leaders.
[i] The number of studies and references supporting this claim are too numerous to list. Simply google ‘chief digital officer challenges’ and at least a dozen recent studies will be listed. Among them: “Chief Dinosaur: The Chief Digital Officer role is already heading toward extinction (IBM),” “The chief digital officer era is ending (PWC report),” “Chief Digital Officer Challenges (CIO magazine).” Articles noting this trend began around 2017 and continues through today.