In the face of constant disruption, effective chief executive officers (CEOs) lead by scanning the environment, identifying the dangers that might be lurking or the opportunities that might exist, and determining whether and how to act. Often, those actions involve what’s commonly called “digital transformation” – implementing new tools, platforms, and business models to create competitive differentiation. But while CEOs constantly hear that they should lead any significant digital transformation, it’s not always easy to know exactly how to do that. As technology continues to grow in complexity, it is harder for CEOs to take a direct role in leading these transformations. At the same time, intensifying environmental disruption makes transformation an increasingly strategic lever that CEOs must lead. So, what’s a CEO to do?
Over the past five years, we’ve spoken to more than 400 CEOs about how they view the chief executive’s role in digital transformation initiatives. To help further clarify when and how CEOs should lead and when they should delegate, we recently conducted targeted interviews of 20 CEOs across industries and around the world. Here’s the picture that emerged: The CEO’s role is not only critical for most digital transformations, but also fundamentally different depending on the CEO’s ambition for the transformation and the organization’s readiness to carry it out. Each transformation is unique in its circumstances, but we’ve identified common principles that can help CEOs boost the odds of getting the results they want.
Setting The Transformation Ambition
The goals and objectives of digital transformations vary significantly. Some involve implementing a new enterprise resource planning (ERP) system, for example, while others move the entire organization to the cloud, begin to leverage artificial intelligence (AI), or focus on new customer-facing mobile applications. But the CEO’s ambition for the digital transformation should go well beyond implementing new digital tools because they’re readily available or trendy. It should encapsulate how the transformation adds real value to the organization. Therefore, the first question for the CEO to answer is, How extensive is my ambition for our digital transformation?
We’ve identified five levels of ambition that characterize the digital transformations we’ve seen (figure 1). For example: Am I looking to digitize my existing business model? Do I want to develop a new product? Am I hoping to disrupt my industry?
Regardless of whether or not the CEO is involved in lower-level transformations, the CEO’s singular, big-picture vision should guide them. This vision should embody a strong “theory of the case” articulating why to pursue the transformation, as well as a blueprint for how the transformed organization is expected to create value and competitive advantage.
And organizations won’t necessarily focus on one level at a time or move steadily up the ambition scale as they evolve. Instead, they’ll likely manage multiple projects that simultaneously involve various levels. For instance, to develop new digital products (level 3), an organization might also need to digitize specific associated processes (level 0 or 1) to establish the enabling infrastructure.
Level 0 transformations are foundational initiatives that digitize existing processes with minimal change in other aspects of the business. Much of the work involves taking analog processes (such as filling out paper forms at a doctor’s office) and making them digital (switching to office tablet computers or preregistration online). While these efforts aren’t necessarily “transformative” in the most sweeping sense, they’re often essential incremental changes that set the underpinning for a more ambitious transformation.
CEOs frequently initiate level 0 transformations, but they usually delegate much of the execution, supporting their team only as needed (we call them level 0 because the CEO typically doesn’t need to be heavily involved). That’s appropriate considering the transformation’s limited scope for change. Besides clearly articulating the imperative for change and ensuring appropriate communication and collaboration within the executive team, the CEO’s most frequent task may be to remove obstacles rather than take a personal hand in running the effort.
Advanced Digitization, Entering New Markets, And Creating New Products
Levels 1 to 3 go beyond incremental digitization by aiming to extend the existing business offerings to pursue new sources of revenue and value creation. These transformations affect all parts of the organization and require intense collaboration across the C-suite. Moreover, they often need extensive and ongoing change management throughout the organization.
While existing C-suite key performance indicators (KPIs) won’t need to be changed, a transformation within one of these levels will require new mechanisms to track its execution. Sometimes, this can go as far as creating a dedicated group: Giny Boer, CEO of fashion retailer C&A Europe, told us that she “set up a whole transformation office to determine if [our digital transformation efforts] are on track.” A level 1–3 transformation will also likely require new ways of communicating and collaborating across organizational boundaries, and the CEO often needs to get involved to put them into effect.
Sony Group: Transforming For 40 Years And Counting
The Japanese multinational entertainment company Sony Group has adapted to digital disruption for nearly a half-century. Sony Group CEO Kenichiro Yoshida described the disruption the company experienced when smartphones supplanted its signature electronics, the Walkman and the compact disc – and, more recently, when streaming services changed the business model of the music industry.
Sony isn’t afraid to take a very different path from its competitors, carving out a space where it is uniquely positioned. For example, Yoshida noted a new strategy for music streaming: “We are trying to become the most artist- and songwriter-friendly music company, rather than the largest one. We are now providing a digital platform to inform them how much they’re gaining from the platforms in almost real time.” He added: “Gen Z is spending a huge amount of time on TikTok. Some artists are going online directly through TikTok before receiving help from major record labels. This trend could be an opportunity for artists, and we need to change our business with that in mind.”
Sony is also pursuing a distinctive strategy around video streaming. Yoshida explained: “General direct-to-consumer (DTC) services are our most important partners for delivering content. By ourselves, we focused on more niche offerings – what I describe as communities of interest – like Crunchyroll, our anime DTC. These focused communities of interest fit with our purpose of filling the world with emotion through the power of creativity and technology.” Instead of developing a general streaming platform of its own, Sony has partnered with already established platforms to distribute content broadly, pursuing a contrarian streaming platform strategy focused on communities of interest to learn from users directly.
Radical Business Transformation
Level 4 transformation fundamentally changes the business model – how an organization operates or makes money. In level 4 transformations, the CEO’s role shifts from merely championing the transformation to embodying it. The CEO’s vision for change becomes the rallying cry around which the organization reconstitutes its structure and culture.
All transformations take relentless advocacy, engagement, and inspiration, as they are frequently riddled with hurdles, obstacles, and pockets of resistance. But as level 4 involves wholesale changes to the organization, these challenges take greater CEO involvement to address. Doing so isn’t always easy. For example, the CEO may need to redefine or, in extreme cases, even eliminate the role of many executive team members, as well as create new KPIs. Level 4 transformations likely also require a different horizon of measurement (for instance, years versus quarters), giving the CEO the huge job of managing board, investor, employee, and others’ expectations on the duration and concomitant fortitude needed for a level 4 transformation.
Bank Leumi: Digitally Transforming The Enterprise To A Whole New Business Model
When Rakefet Russak-Aminoach took over the helm of CEO of Bank Leumi, Israel’s oldest and then second-largest bank, she had already concluded that the bank was facing two distinct challenges that would rapidly endanger its economic viability. In the short term, a bloated expense structure had significantly eroded its profitability. In the long term, digital technology was pushing its brick-and-mortar business model toward obsolescence. Paradoxically, Rakefet saw this double threat as an opportunity to use the immediate loss of profitability as the burning platform necessary to effect radical change. As part of this change, she engaged in several activities:
- Implemented significant changes in the executive team’s membership, their KPIs, and the overall culture, mindset, and organizational structure
- Identified and personally engaged in the resolution of several critical operational challenges that were encumbering the bank’s ability to focus on the transformation
- Remained visible to management and employees, continuously communicating an increasingly extended version of the vision
- Developed a vision for a new neobank with a “digital body” as opposed to a mere consumer-facing “digital skin”
Additionally, Rakefet needed to overcome customer resistance. She explained: “We didn’t want to serve customers via tellers and people. We wanted them to use digital channels. When we started to shift, customers didn’t like it. Along the way, we had terrible results in customer feedback surveys. One of the things we had done was close many branches.” In response to customer dissatisfaction, Rakefet added 200 new call center reps and expanded bank access, allowing customers to bank with any branch rather than be limited to their local one.
Be Wary Of Limiting Your Ambition
One observation from our research is that most CEOs’ level of ambition for digital transformation isn’t ambitious enough. Many companies have crossed the finish line of a digital transformation only to discover that their efforts have barely kept pace with the world around them. While it may feel daunting, most organizations could benefit from aiming a level or two higher. Furthermore, less ambitious transformations can only get the organization so far before more ambitious efforts are required.
Although CEOs limit their transformational ambitions for many reasons, sometimes it results from organizational constraints rather than strategic considerations. This reason is a poor justification to limit the ambition because a watered-down digital agenda could damage an organization’s competitiveness and the CEO’s legacy. The CEO’s transformation ambition should be equal to the scale of opportunity or threat the CEO identifies.
Enterprise CEO Of Major Telco Organization: Overcoming Organizational Constraints To A Larger Vision
The CEO of a major telecommunications business knew that the organization wasn’t ready to execute on his ambitious digital transformation plan, but that didn’t stop him from launching it.
One way to overcome the chasm between the short-term difficulties and the longer-term payoffs was through plotting smaller transformative steps. He explained: “The CEO often has to create incremental visions as building blocks to that larger, more ambitious vision. I naïvely assumed we could move through the transformation quickly, but I had to adapt it to what [the company] could digest. And I needed to provide proof points before going on a more ambitious journey. We didn’t change the direction or ambition; we just needed to readjust the milestones.”
A real risk with this approach is that it’s tempting to be satisfied with these more incremental steps. For a successful transformation, they need to combine into a longer-term vision. As this CEO puts it, CEOs “need to start with the longer vision. Otherwise, you’ll never get there, or you’ll drift.”
Assessing Transformation Readiness
When a company’s transformation ambition is mismatched to its readiness, it is the CEO’s job to close that gap. But first, the CEO must assess the current level of organizational readiness for change. Organizational readiness spans four core dimensions that combine to determine the organization’s overall readiness:
Leadership: CEOs need to ensure that their C-suite and other key executives are motivated and capable of executing the vision. The CEOs we interviewed consistently emphasized the importance of the leadership team supporting the transformation vision and having a positive attitude and willingness to transform. This process might entail replacing key individuals who are not ready to contribute.
According to former Dow Jones and current The News Movement CEO William Lewis, an effective CEO “has empathy and understands how building a harmonious executive leadership team is crucial for success.”
But it’s not all about bringing in new people who are favorable to the effort; it’s also about bringing existing team members on board. According to the CEOs we spoke with, being provocative, accessible, and transparent, as well as showing personal vulnerability, are all strategies to create internal engagement and tolerance for change.
Culture: A significant potential barrier to readiness is the organization’s culture. Low cultural readiness typically takes the form of bureaucratic, reactive, and risk-averse ways of working that are at odds with the collaborative, proactive learning mindset needed for ambitious transformation.
In enacting cultural change, “communications [are] as important as the actual transformation of the systems,” said Owen Wilson, CEO of REA Group Ltd., a multinational digital advertising company that focuses on property.
In addition, a transformation-ready culture needs metrics tied to organizational change. Ohio Health CEO Stephen Markovich, for example, made a percentage of leadership compensation contingent on the transformation’s progress metrics. “It’s not just tying accountabilities; it’s tying the economic reward to the project’s success,” he said. “That way, if the project goes well, we all win. If the project goes badly, we all lose.”
Structure: If the organization hopes to operate differently, it may need to organize differently. CEOs often will need to lead the reorganization of teams, assignment of new roles, revision of incentives, strategies to collapse organizational hierarchies or layers to increase agility, and implementation of a new governance structure.
CEOs should also prioritize securing adequate resources. Digital transformation is not nights-and-weekends work. Dedicated resources should be put in place early to work out the logistics before implementing the changes across the business. Marc Huffman, CEO of accounting automation software leader BlackLine, acknowledged the importance of a dedicated team: “Digital transformation [is] a full-time job. It doesn’t get done if you don’t dedicate full-time people to the effort.”
Capabilities: CEOs also need to equip their organization with four key capabilities to harness digital for a superior capacity for change:
- Nimbleness: the ability to pivot when circumstances merit a significant change in direction
- Scalability: the ability to handle an unanticipated increase or decrease in demand by many multiples over a short period
- Stability: the ability to maintain operational excellence and a results orientation, even while nimbly pivoting and rapidly scaling
- Optionality: integrating new capabilities, often from third-party partners, to quickly become more nimble, scalable, and stable
These capabilities, often enabled or “supercharged” by digital technologies, are critical factors for competing in an increasingly disrupted world.
Taking Action As CEO
We’ve plotted ambition against readiness to identify four different transformation scenarios in which the CEO will play different roles (figure 2). These scenarios are more illustrative and directional than definitive. They don’t necessarily represent reality – rather, they represent an archetypal reality that may be instructive as CEOs determine their type and scale of involvement in digital transformation initiatives.
When both ambition and readiness are high, the CEO plays the role of “cheerleader” and “score taker.” They have articulated a strong imperative for change and a radical vision for the transformation, and the organization is energized and capable of transforming. The CEO can ensure consistency between the transformation’s vision and execution, help the organization stay focused on the North Star, and surgically intervene to overcome local resistance.
When ambition is high, but readiness is low, the CEO needs to be significantly involved in execution. In this scenario, the CEO often needs to lead a culture and mindset change to get the organization to think and operate differently. This may include reshaping the C-suite and the broader executive or management team by replacing individuals unwilling or unable to support the transformation. The CEO plays a visible, public role in communicating the imperative for change and the vision for the transformation to the broader organization, focusing on the implications for the stakeholders affected (including employees, customers, shareholders, and the board, as well as the broader community). In extreme cases of mismatch between ambition and readiness, the CEO may consider the unusual step of temporarily “outsourcing” certain critical leadership functions to start up the momentum for change.
When ambition is low, but readiness is high, even if the CEO’s ambition is modest, pockets of the organization are likely eager for change, and the CEO should support those efforts. For example, marketers may look to their competitors’ digital marketing efforts and realize more is possible. In this scenario, the CEO should identify where those pockets exist and support the desire for change lest these employees begin to leave the organization. More broadly, CEOs hesitant to embrace and lead digital transformation when necessary (which is the rule more than the exception in today’s disrupted world) should reflect on the conditions that will enable them to shift their mindset and behaviors.
Finally, when both ambition and readiness are low, the CEO needs to step back and reflect on balancing the tensions between the strategic imperatives and the organization’s realities. The CEO needs to understand the constraints on their ability to develop or execute an adequate vision to secure its long-term survival and success. They may need to expand their circle of advisors, seek input from original thinkers willing to challenge the status quo, and reflect on potential personal or organizational dynamics hindering their ability to push the envelope. Some of these organizational dynamics may be hard to ignore, but in many other cases, the barriers faced by the CEO are likely to be personal. Ultimately, the CEO is, more than anybody else, the custodian of the future and distinctively responsible for preparing the organization to face its challenges.
One of the CEO’s most crucial roles in leading through disruption is to be ahead of the organization and be more ambitious about realizing “the art of the possible” than everyone else. Panote Sirivadhanabhakdi, group CEO of Singapore-based multinational real estate firm Frasers Property, puts it this way: “The endgame is making sure I drive a better organization that allows us to evolve even after me.” Leading a successful digital transformation is one way a CEO can get there.
originally posted on deloitte.com by Benjamin Finzi, Rich Nanda, Anh Nguyen Phillips, Tom Schoenwaelder and Dr. Gerald C. Kane
Benjamin Finzi: Managing Director | Chief Executive Program
Benjamin, a managing director with Deloitte Consulting LLP, and a co-leader of Deloitte’s Chief Executive Program. The founder and former leader of New York’s Deloitte Greenhouse® Experience, he has designed and facilitated hundreds of immersive “lab” experiences for CEOs and their leadership teams where he combined principles of business strategy with behavioral science and design thinking to address clients’ challenges. Previously a senior member of Monitor Deloitte’s Strategy practice and a co-founder and president of a private equity-backed 300-person telecommunications provider, Benjamin has been focused for more than 20 years on researching and understanding how companies succeed in disruptive markets.
Rich Nanda: Principal | US Strategy & Analytics Offerings Leader
Rich Nanda is a principal in Deloitte Consulting LLP, where he serves as the leader of Consulting’s Strategy & Analytics portfolio of offerings. He has significant experience in guiding clients through strategy-led transformation to achieve profitable growth. He routinely advises boards, CEOs, and executive teams at consumer products companies on topics spanning growth, business model innovation, operating models, capability building, analytics, and technology adoption.
Anh Nguyen Phillips: Director | Deloitte Touche Tohmatsu Limited
Anh is a researcher, author, and former management consultant who has dedicated her career to exploring the interplay between technology and humanity. She is co-author of numerous articles and reports, as well as three books: The Technology Fallacy, a data-driven look at the centrality of culture to digital transformation; Work Better Together (June 2021); and The Transformation Myth (Sept 2021). Her work has been cited in leading publications such as the Wall Street Journal, MIT Sloan Management Review, Forbes, Fortune, and CIO Magazine. As the research director for Deloitte’s Global CEO Program, Anh directs research teams that help executives and other leaders navigate a changing world. Prior to her research roles, Anh spent over 10 years leading business and technology teams in implementing CRM and order management solutions for clients. Specialties include: Future of Work, Digital Business and Transformation, Digital Culture, Digital Talent and Leadership, Social Business, Thought Leadership Strategy, CRM, Order Management.
Tom Schoenwaelder: Strategic Growth Transformation Leader
Tom is a New York based principal at Deloitte and leads the Strategic Growth Transformation market offering at Monitor Deloitte. Previously, he was a partner at Monitor Group, where he consulted for 14 years and was co-head of Monitor’s New York office. Tom focuses on working closely with senior leadership teams to develop their growth strategies and architect the enterprise-wide transformations. Tom has worked over a wide range of sectors spanning manufacturing; oil and gas; retail; travel, leisure and hospitality; consumer goods; financial services; and media, with a particular focus on consumer industries. He has helped clients accelerate growth in their core business, plan category, channel and geographic expansion programs, design new business models to pursue transformational growth opportunities, and revive underperforming businesses. Tom has worked extensively with client teams in North America, Europe, and Asia. Recent engagements include engineering a digital transformation for one of the world’s largest CPG companies, an innovation-led transformation for a large oil and gas player, transforming the customer experience for a leading US retailer, building a new US business for a leading Indian conglomerate, developing emerging market business models and entry strategies for a global consumer and industrial products conglomerate, and redesigning the customer experience for one of the world’s leading airlines. Tom is a frequent speaker on the topics of strategy, innovation, and business transformation. Tom has worked in Boston, Frankfurt, Moscow, and New York and has also lived in South East Asia for many years. Tom holds a BA from Harvard University, and an MBA from Kellogg. He currently lives in New York City with his wife Zeynep and sons Alexander, Theo and Markus.
Dr. Gerald C. Kane: Professor
Gerald C. Kane, professor and C. Herman and Mary Virginia Terry Chair of business administration at the Terry College of Business, University of Georgia, researches how companies can respond to digital disruption. He has published over 100 papers, articles, reports, and two MIT Press books: The Technology Fallacy: How People are the Real Key to Digital Transformation and The Transformation Myth: Leading Your Organization Through Uncertain Times.