Modern CEOs and digital strategy
Modern Digital CEOs are not defined by their use of digital aids, their understanding of the power of digital technology or the employment of a Chief Digital Officer. Modern Digital CEOs are defined by sensing the conditions of the new digital economy and leading organizational changes to create the new competitive advantage by developing the digital capabilities of their organizations.
Every organization has by now recognized the changing landscape of their business. Some are already profoundly impacted by these changes, while others can expect to be in the near future. The realization that even the largest corporations cannot significantly alter their market position is crucial. Only organizations such as Amazon, Apple, Alibaba, Tesla, Facebook, Google and Alphabet may have some leverage. As many of you have no doubt become aware, the digital business in these organizations is so developed that it co-creates the conditions of the digital economy. Moreover, many currently unknown competitors await in the shadows of these large digital players. Their key advantage is agility and an above-average ability to use digital technologies to satisfy the needs of their customers without having to make large investments upfront.
Customers themselves are the second (maybe even the first) most influential force to influence the business models of organizations. Consumers are no longer satisfied with mass manufacturing produced on economies of scale. They need and want personalized products and services, adapted content, extraordinary customer experience and a tailored customer journey from the provider. People from the Y and Z generations have no problem changing jobs if they experience anything that may disturb them and are not reluctant to switch brand (with notable exceptions, such as Apple). A larger extent of personalization is just one aspect of digital economy, aside from sharing economy, constant connectivity and tracking, as well as a direct economy with shorter value chains. The conclusion is clear - companies must adapt to changing conditions or risk becoming fringe players, as was experienced by many well-known organizations, just recently in the S&P 500 market index.
WHO is driving DIGITAL?
All too often, organizations leave the management of their digital activities to the IT Department or maybe to a newly appointed role – a Chief Digital Officer (CDO). However, different terms and their corresponding meanings involve diverse people with shared responsibilities for connected activities. The role of the Chief Digital Officer in Digitalization can be simply fulfilled by the IT Manager or the Production Manager for Industry 4.0. The CDO may drive a Digital Business, but successful Digital Transformations can only be assured when CEOs themselves takes on the role of Chief Digital Officer. In this case the digital role of the CEO includes: being an owner and a person who is responsible for the digital business transformation, being a key element in the digital business transformation, adding digital strategic elements into the overall business strategy, ensuring financial and other resources (most importantly finding digital talents in cooperation with HR), establishing conditions for business model innovation, sponsoring the development of digital capabilities, encouraging digital leadership and digital culture, providing support for achieving balance between an extraordinary customer experience and cost-savings for short-term profits.
HOW to switch to DIGITAL?
The digital strategy is first and foremost a strategy; therefore its primary role is to establish strategic goals and to help us understand how to transition from the current to a desired more competitive state. Only then is it digital, meaning that digital technologies are used during the transition to the future business state. Digital abilities give us more energy during the transition with the ultimate goal of achieving a larger number of enthusiastic followers (customers and employees). Since a Business Strategy is the essential document within an organization, it must incorporate the Digital Strategy into an organization’s business development and together digitally transform the company into the desired future business state. In practice, this requires predicting the use of digital technologies for reaching existing strategic goals faster and with more value for internal and external stakeholders, while it also establishes new strategic goals connected to the principles of the digital economy. The final goal of this two-sided coin is to ensure the competitive advantage for the organization that will, in turn, bring better business results. In short: The Digital Strategy is an integral part of the Business Strategy and not an external add-on or an addendum to the strategy or some of its extensions (such as the part IT Strategy).
Critical CHALLENGES of the digital transformation!
Key challenges of a digital transformation that should always be on the mind of a CEO:
- building a digital culture,
- building innovation processes and capabilities, especially those for Business Model Innovation and Design Thinking,
- maintaining a balance between short-term profitability and excellent Customer eXperience in the Business Strategy,
- decided to shift from a product-based business model to a customer-centric one,
- putting customers first while developing or reshaping products or services to ensure more value to customers than competitors, but not forget on employee experience,
- an ability to execute required changes,
- establish permanent cooperation between different business functions (breaking silos),
- identify the gap between the current and the required (digital) capabilities of the organization to facilitate a successful transformation to the future (digital) state and
- develop new digital capabilities that will enable transferring the elements of the digital strategy into business operations.
A meta-challenge is to ensure that the best talent within an organization spends more time on devising and providing the future of an organization, which is undoubtedly connected with its digital transformation within the digital economy.
EVOLUTION or REVOLUTION?
Considering the challenges above, it is clear that only rare organizations are capable of undergoing quick digital transformations to bring about a revolution in their own business. Many successful digital organizations that began as small companies (Uber, Airbnb, Dollar Shave Club, Outfit7) and organizations that modelled their business models on digital technologies (Facebook, Google, Apple, Amazon) have a significant advantage in this regard. On the other hand, organizations must also be aware that the speed at which digital technologies and digital business models develop increases as revolutionary change is applied to a growing number of business areas. This leaves companies with little time for internal business development, which then evolves on its own. Revolutionary digital development usually brings more value (i.e., Alibaba) than evolutionary business development (i.e., Walmart). As a result, organizations and their CEOs are faced with more motivating factors than ever - not only positive ones, such as business opportunities, but also negative ones, such as digital threats. They need to embark on the journey of digital business TODAY. I hope this article encourages them to take this first step because it should make the road ahead more comfortable.