In the last decade or so, there has been a major shift in the capability of digital technology. Technology is no longer in the back office; no longer just about automation. Social, mobile, analytics, cloud and the Internet of Things (IoT) are changing the nature of competition. Customers demand personalized services; many expect to engage through social and mobile channels. Companies are getting faster, smarter and more efficient. New business models, enabled by analytics and digital technology, are emerging in every industry. If a company doesn’t step forward with digital innovation, then a competitor will.
Many senior executives still don’t understand this. But some do, and we can learn a lot from the way they drive digital transformation. More than four years of research (detailed in the book, Leading Digital]) found that large companies in any industry can become Digital Masters. In Digital Masters, leaders understand that digital is not technology challenge; it’s a transformation opportunity. It's not about turning into a digital firm; it's about using digital to be a better firm. And that requires attention, from the top of the company, to making transformation happen.
We looked around for examples of bottom-up digital transformation and, frankly, we didn't see it. Executives in digital masters all led their transformations strongly from the top down. Bottom up activity had a lot of value once the transformation had momentum. But we didn’t see it going the other way.
What makes Digital Masters different?
Digital Masters are better than their competitors at two key capabilities. The first is digital capability. The masters use social, mobile, analytics and cloud to engage with customers the way they want to work, not the way the company finds easiest. They make operational processes efficient while constantly introducing innovations to those processes. They enable their workers to collaborate fluidly and make data-driven decisions. And they transform their business models through data and technology.
While digital capability is exciting, especially for IT people, it’s less important than leadership capability. Leadership, not technology, drives transformation. Great digital leadership means crafting a compelling transformative digital vision and then helping your organization to make it a reality through active engagement and strong governance.
Vision: Vision starts at the top. How are you going to be a different company because digital is there? Nike doesn’t just want to sell you things to wear. It wants to be part of your life. Boeing envisions being the center of a digital airline, not just selling airplanes and parts. Setting out a clear vision is essential because otherwise people will work according to whatever vision they’ve formed internally, often years ago.
Engagement: Simply stating a vision is not enough. People need to understand what it means for them. That’s where engagement comes in. Through digital, executives can now engage at scale, holding two-way conversations in real time with anyone in the company. They complement vertical engagement with horizontal engagement activities such as collaborative contests and topical knowledge sharing conversations. As momentum builds, employees start to understand how they fit into the vision, and they often suggest ways to extend the vision.
Governance: Once you have the vision, once people are starting to get engaged is when you need to steer them. Who owns the digital vision and ensures the transformation is moving in the right direction? How are you building the right levels of coordination and sharing so that each investment leads to more value? Regardless of where digital governance resides, senior executives are beginning to realize that they can learn a lot from IT governance models that work well. Conversely, if your IT governance is poor, then it may be subsumed by digital governance models (and digital leaders) from outside of IT.
The critical role of the CIO
When you put these three elements together -- vision, engagement and governance – you have the recipe for strong digital leadership capability. The three elements tend to build in synergy over time, with each improving and extending the others as your organization moves along in its transformation.
One more piece of leadership capability is critical, and it can help all of the other three. That is strong technology leadership. In early stages of the research, many CEOs told me that their IT units were not ready for digital. Yet, digital masters all found ways to work with their IT units, not around them. Whether the leader of digital is the CIO, CMO, chief digital officer, or someone else, leading companies find ways for IT leaders to help drive digital transformation. This is not just about business executives waking up and realizing they need to work more closely with their IT counterparts. It's also about IT leaders transforming the IT unit so that it can operate in the digital world.
In the end, digital technology is enabling broad transformation for companies in every industry. The digital conversation has begun in executive suites and boardrooms around the world. CIOs should make it clear that they have a lot to offer in the digital conversation.
George Westerman is a principal research scientist with the MIT Sloan Initiative on the Digital Economy, co-author of the book “Leading Digital,” and the Digital C-Suite Academic Advisor for the CIO Executive Council (CEC).
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