The CEO’s Playbook for a Successful Digital Transformation

The CEO’s Playbook for a Successful Digital Transformation

Digital transformation is the CEO’s job. Only the CEO can make the fundamental changes required for a successful transformation. That’s because a business model reinvention requires different functions across the organization to work together in new ways, and that can only happen by making large-scale investments and large-scale changes that start from the top down.

That’s a tall order, not least because few CEOs have the experience of leading a digital transformation, and therefore lack the pattern recognition to home in on the most important make-or-break actions. Our experience working with more than 100 large incumbent companies on their digital transformations over the past 10 years has shown that there is a playbook for success. By focusing their energies on five areas of the playbook, CEOs can accelerate successful digital transformations.

Reimagine value and demystify digital.

The point of a digital transformation isn’t to become digital; it’s to generate value for the business.

A crucial characteristic of successful digital CEOs is that they can step back far enough from their current business to reimagine where transformative — not incremental — value is possible. We find that these CEOs spend a lot of time visiting companies and staying abreast of how new trends are generating value. That helps them to look at their own assets with fresh eyes and see where there’s new value.

Steve Timm, the president of Collins Aerospace, finds transformative value in being able to thoughtfully reimagine the business model. “Many CEOs have domain experience and they don’t want to get outside of that,” he told us during an interview. “They’re not thinking about redefining the broader architecture or ecosystem. We need to redefine the boundaries where value can come from.”

Taking on Digital Transformation

Moving your company forward in the wake of the pandemic.

With clarity on the business model established, targeting a domain — for example, a complete core process or user journey — has emerged as a critical element for focusing energies in a digital transformation. In our experience, as many as 80% of successful interventions in a struggling transformation are based on refocusing it on priority domains. A domain should be large enough to be valuable to the company, but small enough so that all the necessary changes can be implemented end to end, such as the entire process for opening an account or buying a house.

Consider the case of Chuck Magro, former CEO of Nutrien, who led a digital transformation during his tenure at Nutrien. Magro told us during an interview, “There were already many digital initiatives and apps underway in the business, but it was fragmented. By sponsoring the digital transformation, I was able to elevate digital and focus it on how to best serve our growers [customers] by creating a single platform that integrated all of our services.”

Give a reason for top talent to come work for you.

Hiring new talent is one of the fastest ways to accelerate a digital transformation. Successful CEOs are instrumental in helping the organization focus on what really motivates top talent, adjusting the company’s culture and approach to appeal to them.

Ted Doheny, President and CEO of Sealed Air, went all out to bring in digital experts and partners. “To transform into a digitally driven company we must act like a $5B startup disrupting the market, our industry, and our own business,” Doheny told us. “We created SEE Ventures to invest in disruptive technologies and businesses while partnering with the MIT Industrial Liaison Program and others. These moves didn’t contribute immediately to top-line growth, but they’re creating the culture of our digital future.”

Communicating a higher purpose is important as well. It can’t be something the CEO delegates to their CMO. Rather, the CEO needs to play a deciding role in crafting and communicating the message. While many pushed Nutrien to open an office in San Francisco, for example, CEO Magro insisted on staying at their headquarters in Loveland, Colorado, and focusing instead on their purpose, which was to “help feed the world.” Magro told us, “I talked to dozens of employees who came to work for us in Colorado because they could tell their children that they help feed the world.”

More tangibly, we see digital CEOs working closely with their CHROs to create flexible career pathways where talented employees have opportunities to progress, learn, and grow their skills. CEOs should be tracking meaningful talent “satisfaction” metrics — such as time to promotion and percentage of talent participating in technical communities — as closely as they do hiring ones.

Bring tech and data front and center.

While CEOs shouldn’t be expected to be tech experts, the most successful ones prioritize tech and data in two ways:

First, they focus on how to apply tech and data to solve business problems or crack open opportunities. For example, Ram Krishnan, formerly the CEO of Final Controls and now EVP and COO of Emerson, told us: “The fundamental tech architecture to drive value is having a pervasive sensing platform that generates data, collects it, and then applies AI- and ML-driven software to convert it into actionable insights.” Backing up his philosophy, he commits almost 50% of his capital expenditure to enhancing technologies. The allocation of technology spend is a leading indicator that CEOs should monitor to ensure that the business is succeeding on the digital front.

In a similar vein, Steve Timm at Collins Aerospace is moving towards a connected ecosystem of capabilities to enable real-time analytics for improved aircraft operations and maintenance. To do so, they recently acquired FlightAware, an aviation data analytics firm, as part of an effort to consolidate their technology stack to provide the company with a platform to deploy connected aircraft systems.

Second, successful CEOs make big organizational changes to ensure that tech and data are embedded into the DNA of the business. One of the most significant differentiators among successful digital companies is the degree to which digital technologists work closely with the business. That means expanding beyond the traditional G3 (Group of three) structure of the CEO, CFO, and CHRO to a G4 to include a top tech and data leader to shape decisions around capital allocation, strategy, organizational design, and risk. Successful digital CEOs make sure that the tech leaders are part of the inner circle in the C-suite and report directly to them.

Rebuild the operating model for speed.

We’ve found that the best-performing companies perform certain critical practices — such as reviewing data, sharing findings, and reallocating talent — more often than their peers. The CEO is instrumental in setting the tempo. The hard work that a CEO must do to drive that tempo happens in breaking through entrenched organizational constructs to nurture a culture that values the doer over the manager, and small teams over giant org charts.

CEOs are successful in developing this working model when they simplify the most important processes (e.g. funding tied to digital goals), clarify governance to reduce ambiguity in decision making, pare down the number of managers, and celebrate team progress. As important, they build a culture that learns so the business can adapt quickly. “[A digital transformation] represents a big bet on the future of any business, so we drive forward, learn, and adapt along the way,” Alain Bejjani, CEO of Majid Al Futtaim told us. “Mistakes are extremely valuable when they are the outcome of having done your best, especially when people learn from them so they don’t make the same mistake again.”

Commit to adoption of digital solutions with the same passion that you commit to strategy.

The digital CEO is as passionate about adoption as they are about strategy. Making digital “stick” at scale is hard to do, however, because of the far-reaching knock-on effects of digital platforms, and the need to continually recalibrate and realign across the entire business system to capture the full gains.

For example, when a company installs predictive maintenance technology, it needs to update how its inventory is managed, how crews are dispatched, and how savings are reallocated to other priorities. To help make these interventions, most successful CEOs we’ve seen have a clear view of what metrics to track and how to track progress towards them. The CEO of one major bank, for example, reports on three metrics: a) digital sales as a percentage of total sales, b) percentage of transactions done in branches, and c) NPS scores. When there are anomalies in any of them, he has the relevant business leaders figure out why.

One mistake we see is that companies don’t pay sufficient attention to these adoption and scaling issues until the digital transformation is well under way. Successful CEOs, in contrast, invest the time upfront. They insist, for example, on digital teams working closely not just with the business sponsors but also with the front lines. “We wanted to make sure from the beginning that the organization accepted and liked what we were developing,” says Magro. “So we built a digital platform that addressed their needs, such as allowing our agronomists to easily see each account they had. In less than two years, we were processing more than $1 billion in orders [through digital channels].”