To compete in the face of sweeping digital change, business must transform. Digital transformation — the use of technology to radically improve performance — is a hot topic.
Executives in all industries are under increasing pressure to adopt digital advances such as analytics, social media and smart devices to enhance customer relationships, internal processes, and value propositions.
Yet while experts urge companies to begin their digital transformations, such initiatives are difficult to pull off — 70% of transformation programs fail, according to research from the consultancy McKinsey & Company.
The need for future business leaders to lead mass organizational change and to drive innovation is clear.
“Companies developing enterprise-level digital strategies are moving ahead, while those that aren’t are struggling,” says Doug Palmer, principal at Deloitte Consulting. “Digitally maturing companies embrace innovation and collaboration, and have leaders who understand both technology and its potential impact on the business.”
A recent report from Deloitte and the MIT Sloan Management Review found the ability to digitally reimagine a business is determined in large part by leaders who foster a culture able to change and reinvent their organizations.
Investment in digital talent is critical for companies to realize innovation — analytics skills are chiefly in demand. A study by Capgemini, the consultancy firm, found executives are desperate to hire outside talent to manage new digital initiatives.
“There is a war for [digital] talent and ‘human capital’ now matters more than ever,” says Ted Malloch, fellow in management practice at Oxford Saïd Business School and chief executive of The Roosevelt Group, a strategic management company.
Digital has the potential to transform operational processes, consumer experiences, and ultimately top-line growth.
This represents huge potential employment opportunities.
Dr Jim Hamill, who leads the Digital Leadership initiative at Strathclyde Business School, says: “A new breed of senior executive is required to help large organizations progress easily and successfully through digital transformation.”
At a senior level, demand is evident in the rise of the chief digital officer — the number of digital chiefs is expected to double this year to 2,000, according to the CDO Club, an executive community.
The consultancy Gartner forecasts that by 2020, 75% of companies will be a digital business or will be preparing to become one, but only 30% will be successful, due to lack of talent and technical expertise.
Nicolas Glady, director of the Center for Digital Business at ESSEC Business School, says companies need managers who can master digital tools, but who are still driven by commercial outcomes. “Digital is a means, not an end,” he says.
Nonetheless, digital leadership is becoming a focus for companies and business schools everywhere.
“You need talented leaders and managers, as well as a digital culture that supports what you’re trying to achieve with digital technologies,” says David Kiron, executive editor of the MIT Sloan Management Review and a former senior researcher at Harvard Business School.
David’s research has found there are key dimensions where leadership matters — skills and understanding in digital technologies, having a sense of urgency, and keeping the big picture in mind.
Firms are under increasing pressure from competitors who threaten to rival established models, and from their consumers and employees, who are demanding change, according to the Capgemini study.
“The innovations and disruptions of the past decade or so have been warm-up acts for what’s still to come,” says Strathclyde’s Jim. A combination of social media, mobile, the cloud, big data and the Internet of things are leading to the “end of business as usual”.
Yet even some of the oldest corporations can transform their business models. Société Générale, the French bank, launched a three-year digital transformation program for its private bank, offering private clients easy-to-use wealth management services online.
Speaking to BusinessBecause, Jean François Mazaud, head of SocGén’s private bank, says clients want easy access to all its products and services, anywhere, anytime, but also want to maintain human interactions.
“For private banks, the threat is thus to miss the boat and be outdistanced by competitors who would be more efficient at adapting their model to these new trends,” he says.
Martin McPhee, senior vice president at Cisco Consulting Services, says: “Every country, every city and every business will be required to become digital in order to thrive and survive.” Yet a recent survey of executives by Cisco and IMD, the Swiss business school, found 43% either do not acknowledge the risk of digital disruption or have failed to address it.
Digital demands are driving a shift in emphasis in the education and training of future business leaders.
“The digital revolution has come to business schools,” says Jaideep Prabhu, professor of enterprise at Cambridge Judge Business School, and there is a revolution in schools’ curricula.
The challenge executives face in driving digital change has given rise to a suite of specialist centres and programs to help firms manage innovation.
For example, the Global Center for Digital Business Transformation at IMD was established last year, funded with $10 million from Cisco.
“The biggest challenges are not technical, but organizational,” says Mike Wade, director of the IMD center. “Strong and focused leadership is critical to drive true organizational change and transformation.”
Business graduates coming out of such centres will need to drive the future growth of digital initiatives. Yet there are many hurdles they will face.
Alva Taylor, associate professor and faculty director of the Center for Digital Strategies at Tuck School of Business, says traditional enterprises face the hurdle of reforming established philosophies and cultures when trying to implement and pivot with technology.
“Managing that evolution requires rethinking longstanding trade-offs between standardization and innovation, efficiency and flexibility, and centralization and decentralization,” he says.
An example of failed digital transformation is the BBC’s Digital Media Initiative, aimed at changing the way the UK broadcaster made content for its audiences. It scrapped the project in 2013, resulting in the write-down of £100 million in assets and the suspension of its chief technology officer.
However, firms are often too risk averse — business leaders must embrace failure as a perquisite for success, says MIT Sloan’s David. Some companies take a half way approach; others want to do it on the cheap. “Real digital transformation is difficult, all embracing, and takes time and serious effort,” says Oxford Saïd’s Ted.
Governance and regulation are also common problems. “Massive issues exist in both areas,” says Strathclyde’s Jim. Taxi app Uber and accommodation booking site Airbnb are two digital businesses that have been in the media limelight for data security and regulatory issues.
But most businesses see the need for digital transformation. A survey of chief executives by PwC found that 86% said championing the use of tech is key to success. “Digital has changed everything,” says Tuck School’s Alva. “Executives who do not use technology to decrease costs and increase productivity will lose,” he says.