Do Chief Digital Officers Spell Trouble for CIOs?

When consumers wanted movies, TV, music and other media to be online and on mobile devices, entertainment companies started recruiting chief digital officers (CDOs) to transform their businesses.

Now the brisk hiring of CDOs and similar executives in other industries, including manufacturing, retail, food and financial services, leaves CIOs wondering where they stand. Contemplate too long, though, and you could be sidelined.

Twenty-five percent of companies will have a CDO in two years, Gartner predicts. In the past year, the number of employment searches for CDOs in the United States has grown by one-third, says recruiting firm Russell Reynolds. Some CIOs will get the job, no doubt.

About 20 percent of CIOs have already taken on digital officer duties, according to Gartner. For example, CIOs at the construction company Brady Corp. and clothier Burberry recently expanded their roles that way.

In many more cases, however, the CDO is an executive from outside the company–and outside IT–who parachutes in at the behest of a CEO who is adamant about corporate transformation. Usually reporting to the CEO, the CDO gets the authority to rearrange staff and request funding to launch big plans. (See “So What Does a Chief Digital Officer Do All Day?” at the end of this article”)

In other words, the CDO is handed the keys to drive the change the CEO wants but isn’t getting from the established hierarchy. Which means the future that elite CIOs thought they had sewn up–strategy setting and entrepreneurship–could be stolen. “You could call it a vote of no confidence,” says Dave Aron, a research fellow at Gartner. Companies that hire CDOs say the CIO is important, Aron says, but they’re clearly seeking something the CIO isn’t delivering.

The potential of becoming digital reaches beyond enterprise IT to ideas such as sending real-time pricing to customers’ mobile devices as they place digital orders to pick up later at a local store. Or, as at Starbucks, infusing technology innovation into the retail experience every bit as thoroughly as the fresh-ground coffee aroma permeates its stores. Or, as at Best Buy, completely transforming a dying core business. (See “Best Buy Trying to Give Customers That ‘Aha’ Moment.”) 

Ideally, CIOs should have already been setting up the technology needed for such a digital transformation, says George Westerman, a research scientist at MIT’s Center for Digital Business.

CEOs are apt to bring in a hotshot CDO in cases where the CIO lacks the political pull to reorient the company, Westerman says. CIOs “have the right skills, but this depends on relationships. You’re talking about asking business-unit and marketing chiefs to change,” he says. “That takes power and respect.”

Early CDO arrangements reveal further complications. Namely, there is no set job description nor any commonly accepted parameters for how a CDO and a CIO should work together.

The line differentiating the CDO from the CIO varies between companies, depending on their goals, says Jim Barr, who joined OfficeMax as CDO in 2011. He and CIO Randy Burdick discussed for a few weeks how they and their teams would interact. “We may have org charts, but those are formalities,” Burdick says. “We’re trying hard to remove perceived boundaries.”

Whether a CIO figures out how to thrive in this new ecosystem will dictate how relevant the CIO stays. As Westerman advises, “Don’t wait for someone to ask you to be strategic.”

Getting Along

The hiring of a CDO at a troubled company signals to Wall Street that senior leaders see the problem and are doing something about it. For example, OfficeMax, whose sales have slipped every year for the last five, likes to include Barr in calls with financial analysts.

Companies with high levels of “digital maturity” can reap impressive financial rewards, according to Westerman, who worked with Capgemini Consulting on a two-year study of 391 companies.

Companies that take digital initiatives, such as monitoring internal operations in real time, coordinating corporate activities across silos and engaging customers with technology for competitive advantage, book 9 percent higher revenue, 12 percent higher market valuation and 26 percent higher profits, the study found.

Given those figures, who wouldn’t want to do all things digital? But that’s a bad plan, Westerman says. The most successful digital transformations focus on one or maybe two objectives, he says. All potential projects and investments should be weighed against whether they further those clear goals.

At OfficeMax, the dual priorities are customer experience and online sales. Last year, the company revamped its search engine to provide more accurate results and recommendations, which leads to customers shopping faster. In the search engine’s first month in action, the conversion rate of browsers to buyers increased, as did the average revenue per visit. Customer satisfaction with site navigation also improved. 

Barr has also asked the IT group to change its software development habits so it can deliver 20 upgrades per year instead of just a few. More frequent releases create more opportunities to respond to customer wants, maybe even getting ahead of them, Barr says. “We have 20 chances to learn and adjust our course.”

“Jim brought this passionately to the table,” CIO Burdick says. As a result, the IT group has adopted some agile methods. The CIO-CDO duo, who both report to the CEO, have also teamed up to coax the legal and financial departments to tweak their processes to approve technology proposals faster. In particular, Burdick and Barr jointly convinced the CFO to modify his approach to ROI. Instead of seeking the business case on an individual project, it’s more productive to consider the hard and soft benefits of the entirety of the work, Barr explains.

A cautious CFO agreed but requested monthly progress reports, which have since been relaxed to quarterly. “Nothing like getting corporate results to make the CFO happy,” Burdick says.

At Starbucks, CIO Curt Garner and CDO Adam Brotman have worked diligently to define the borders and overlaps of their roles. Brotman has P&L responsibility for e-commerce and digital consumer endeavors, such as mobile apps and loyalty programs.

Garner builds, supports and maintains the IT behind those ventures. But they collaborate at the inception of nearly every major project, Brotman says. Because their offices are next to each other, they’ve naturally fallen into the habit of frequently chatting and checking in, Garner says, adding, “We spend a lot of time in each other’s space, pushing each other in a healthy way.”

They address potential conflicts right away, Brotman says. For example, some mobile development work was recently expanded, requiring more staff members from Garner’s group than previously allotted. The issue came to a head on a Friday afternoon, Brotman recalls. Saturday morning, he was on the phone with Garner. “He could have told me I was asking for too much. He could have said, ‘We had a plan, stick to it.’ But he literally said, ‘I trust you,’ and he went to bat for me with the financial team.”

“We have mutual trust and respect,” Garner adds. “Without that, this digital innovation wouldn’t happen.”

The results of that development work are expected later this year in new mobile features for the Starbucks loyalty program.

Power Shift

At electronics retailer Best Buy, there’s extra tension as sales and profits slide and observers predict dire outcomes. Best Buy’s hometown paper, the Minneapolis Star Tribune, recently ran a long article enumerating the challenges ahead and missteps behind, calling the company “the lost empire.”

Store sales have dropped in three of the past four years and Best Buy’s e-commerce business, which is competing with powerfully hungry Amazon, isn’t growing fast enough to make up the difference. Best Buy lost $1.2 billion last year.

Like other retailers, Best Buy sees a future in omnichannel shopping, where customers move with ease between the physical, Web and mobile realms to browse and buy. To make that happen, Best Buy last March created a new position: president of digital, global marketing and strategy. To fill this post of digital czar, the company recruited Stephen Gillett from a high-profile job running digital ventures at Starbucks, a role that branched far beyond his position then as CIO.

In announcing the hire, Best Buy’s CEO at the time extolled Gillett’s “tremendous accomplishments” and his “rare combination of business leadership skills, retail transformation experience and digital and technological acumen.” Last November, Gillett spoke for 20 minutes during Best Buy’s presentation of its transformation plan to Wall Street.

A few months later, however, a new CEO arrived with a newer transformation plan and hired another digital executive. A superstar known for global and online operations expertise, Scott Durchslag was lured from his position as president of Expedia Worldwide to be Best Buy’s president of online and global e-commerce, reporting to Gillett. Then just weeks later, on a chilly Wednesday amid the holiday shopping crunch, Gillett suddenly quit Best Buy. He had accepted an offer of the COO spot at vendor Symantec.

Was there strain at a company that, at one point, simultaneously had a CIO, a CDO and an online president? Durchslag maintains that all of Best Buy’s senior leaders agreed on the company’s priorities, though he acknowledges that perhaps there were too many technology cooks.

“Less is more in organizational questions during a turnaround,” he says. In any case, hours after Gillett called the CEO to resign, power was consolidated under Durchslag: He now oversees online business and marketing as well as the customer loyalty program. He praised Gillett as “an inspiring leader” in a recommendation he wrote on LinkedIn after Gillett left. Gillett declined to be interviewed.

A month after Gillett left, CIO Jody Davids resigned. Davids had joined Best Buy in 2010, after a decade as CIO of $107.5 billion Cardinal Health. As part of an executive shuffle last fall, Best Buy’s chief administrative officer left and Davids was reassigned to report to new CFO and CAO Sharon McCollam.

It was unclear during Gillett’s short tenure what role Davids’ internal IT group would play. Durchslag says he plans to procure most of his technology and staff himself, not draw from corporate IT. “Enterprise IT is inward facing. I am responsible for outward,” he says.

All major IT spending requests now go to Durchslag before proceeding so he “can see where they sit in the [overall company] priorities,” he says. If the request does clear that hurdle, it proceeds to McCollam, the CFO and CAO. “Sharon and I will be partners,” Durchslag says.

Executive shake-ups are common in a digital transformation, says Aron at Gartner, and that’s when a CIO can lose standing. It’s a particularly dangerous time for CIOs who have a “guardian” mentality, trying to keep everything stable and safe, he says. “CDOs thinking about strategy are potentially threatening to the CIO.” So CIOs need to decide whether to work with, or in the shadow of, a digital executive, he advises.

Russell Reynolds predicts that CDOs, with their credentials in general management, operations, revenue generation and technology strategy, can succeed CEOs. Few say that about even the best CIOs.

Virgin Territory

CIOs who feel snubbed or who worry that they have little to contribute to a digital transformation do themselves no favors. “Get over it,” Westerman says. “You didn’t get the job as CDO. That doesn’t mean you don’t have a strong role to play.”

After all, a CIO knows all the systems and processes at a company, plus how funding works–vital information. In partnership with a digital officer, a CIO can break new ground.

Garner and Brotman pulled off a record-setting Starbucks promotion, partnering with LivingSocial, a daily-deals site. A one-day offer last September gave takers a $10 Starbucks e-gift card for $5. People bought 1.5 million gift cards, making it the biggest promotional campaign ever for LivingSocial, Garner says.

He and Brotman set up a war room to monitor the action. A large screen displayed a dashboard of metrics about customer activity and any technical glitches that could have messed with the registration of new cards at starbucks.com.

This was no time for an IT failure. “A big cheer went up from the technical side as we started to go past LivingSocial’s record,” he says, which was 1.16 million half-price Amazon gift cards, a record set in 2011. “Adam’s side cheered as we exceeded our record for number of concurrent transactions.”

OfficeMax is contemplating its own first-ever moves. For example, the company wants to offer a wider array of products online, some of which would be drop-shipped from the manufacturer or distributor without winding through OfficeMax’s existing supply chain, Barr says.

That would require changes to back-end financial and fulfillment systems. It’s part of an “endless aisle” concept that’s meant to fulfill more customer needs, he says. OfficeMax may also partner with local providers, such as website contractors, to offer services to small businesses.

Helping the company try new ideas is critical for CIOs looking to enhance their skills and reputations, Westerman says. He tells the story of the French yellow pages, PagesJaunes, whose CEO told employees a few years ago that they would no longer make thick paper books.

Instead, they were in the business of connecting small businesses to local customers. The company got into consulting, helping small businesses to set up websites, do search engine optimization and write mobile applications–with a new CIO involved.

Co-Opt the Threat

Best Buy has ventured into new lands via “connected” stores outfitted with a fiber-optic backbone and Wi-Fi so customers can try out fully working versions of phones, tablets and other electronics. A highly trained sales force answers customer questions, helps set up new devices and offers follow-up support, all for free.

A key goal of its turnaround is to become a trusted, unbiased source of information about competing and confusing products, says Josh Will, vice president of connected stores. (See “So What Does a Digital Exec Really Do?” above.)

Corporate transformations require executives to imagine how to unearth–or create from scratch–a new, somewhat unfamiliar company out of the remains of the old one, Durchslag says. “A future lens is needed,” which he’s not sure some CIOs can muster.

Typically, a CIO gets to the top of the IT organization because he knows how to manage risks “and prevent conflagrations,” he says. “It’s intrinsically defensive, learning from mistakes and making people very focused on the past.” Going digital, with a CDO in charge, “doesn’t have to be a threat. It can be a career path,” Durchslag says, but only for CIOs who can break out of historical patterns.

So What Does a Chief Digital Officer Do All Day?

The week before Christmas found Scott Durchslag, Best Buy’s top digital leader, experiencing his first holiday shopping period as a retail executive. Every morning he combed through online sales figures from the day before, adjusting plans for the day.

As it happens, his boss, Stephen Gillett, submitted a surprise resignation that week and Durchslag, unperturbed, absorbed some of those duties, including oversight of all marketing. The youngest office manager in McKinsey’s history, Durchslag had learned to expect the unexpected while in previous jobs as president of Expedia Worldwide and COO of Skype.

(For much more on chief digital officers, see “Do Chief Digital Officers Spell Trouble for CIOs?”)

Hired in October to help Best Buy turn around slipping sales and build an omnichannel company that’s digital to its core, Durchslag says no two days are alike. But he does like some structure in his schedule. 

[A typical week]

Daily, 4:00 a.m. to 7:00 a.m.: Private think time. “It’s easy to get caught up in being responsive to everyone’s needs,” Durchslag says. These nonnegotiable three hours let him “be thoughtful about what needs to happen to have the right discussions with the right people.”

Daily, 8:30 a.m.: Digital and e-commerce team meets with representatives of the supply chain, call center, merchandising, IT and marketing operations to look at online sales figures. Discuss sales, conversion rates, order size and promotions overall and by product category. Tweak the plans for today and next week if necessary. Get updates on back orders and call-center abandon rates.

Once a week: Miniature version of the daily meeting, focused on exceptions, surprises and strategic planning. A small governance committee can decide, for example, to extend the length of a price match if it’s driving business or allow back orders across a broader set of categories if supply-chain activity otherwise looks healthy.

Two or three times per week: Meet with CEO Hubert Joly and the executive steering committee to discuss digital business and the overall turnaround plan, dubbed Renew Blue, for the blue shirts of Best Buy store employees.

Several times per week, afternoon: Meet with individual teams for specialized tasks. For example, get a deep dive on the merits of cloud computing versus Best Buy’s own data center from the technology team, or finalize scripts for Super Bowl ads with the marketing team.

Best Buy Trying to Give Customers That ‘Aha’ Moment

The top digital exec at Best Buy has the hard job of making today’s retail systems produce the shopping experience of the future

Scott Durchslag, president of online and global e-commerce at Best Buy, talks of reshaping the company’s processes, habits and mind-set for a new objective: to be a digital, omnichannel retailer that puts customers first.

“This is hard stuff,” says Durchslag, a University of Chicago graduate with a Harvard MBA. (For much more on chief digital officers, see “Meet the New Chief in Town: Chief Digital Officers.”)

Hard for him to execute, but also for customers to wrap their heads around, he says. He likens the change to the debut of Apple’s iPhone in 2007. “This product didn’t come into being through market research,” he says. “Only when customers had it did they have an ‘aha’ moment.”

Durchslag sees his job as providing bread crumbs to connect the shopping present to the shopping future. He’s starting with in-store pick-up. Customers can order a product online and pick it up at the store within an hour–making a reservation of sorts for a product.

Sounds simple, but behind the scenes, fulfillment, inventory and other systems now suddenly need to know what’s going on online, he explains. The store becomes a mini distribution center.

About 15 percent of people who come to pick up reserved products end up buying something else. But the goal is not to cross-sell, says Josh Will, vice president of connected stores. Rather, Best Buy wants to make it easy and fast for customers, getting them in and out in 10 minutes or less, he says. Best Buy even sets aside special parking for those customers.

The company hopes those bread crumbs will lead to a 15 percent increase this year in U.S. online revenue and to $4 billion in online sales by 2016.

Another bread crumb is the connectedness of revamped stores, where customers can shop with their own devices and collar a salesperson for a demo or more information. At the launch of Samsung’s Galaxy S III phone in October, the wait to check out in some Best Buy stores was up to an hour due to overwhelming demand, Durchslag recalls.

But some customers saw an opportunity: They walked over to a tablet on display, ordered the phone at bestbuy.com and arranged for in-store pick-up right there–15 minutes later. “We want to give customers something they don’t know they need but soon won’t be able to live without,” he says.

Kim Nash is a senior editor for CIO Magazine. Follow her on Twitter @knash99.

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