By Heidrick & Struggles
As mobile technology, constant connectivity, and data analytics become increasingly embedded in the fabric of daily life, few businesses have been left untouched. Digital disruption—the changes that result from applying new technology to goods or services—is not limited to digital natives such as Google or Uber. Traditional industries from manufacturing to banking are contending with rising customer demand for consistent engagement, hyper connectivity, on-demand delivery, and product or service innovation—and yet this growing appetite for an improved customer experience is just one among many factors driving digital innovation.
Effective responses require investment not only in technology, but also in people. The chief digital officer (CDO)—the executive responsible for overseeing an organization’s digital strategy and spearheading business transformation through the application of technology—is becoming an increasingly prominent role. By some estimates, the number of CDOs worldwide is doubling each year, and high profile corporations from Nike to Morgan Stanley have recently created CDO roles.
Regardless of the scale of a company’s technology investments, digital transformation remains difficult, demanding fundamental changes to the ways that organizations approach, formulate, and deliver their products or services. This article seeks to identify the factors that make a digital transformation successful and the common pitfalls to avoid. By developing an understanding of the pressures created by digital disruption and innovation, companies can better capitalize on the opportunities presented.
Mapping a transformation strategy
CDOs rarely arrive at their new company with a detailed road map. Being able to understand the expectations of the entire company, and its customers, is the first step to understanding the journey ahead. CDOs should view themselves as agents of change and must be able to communicate their vision and objectives to all those touched by that change.
Understand disruptive pressures
At its root, digital transformation is about preserving or enhancing an organization’s competitiveness. Louise Daley, AccorHotels’ executive vice president and CFO for the Asia Pacific region, recalls the transformation that was necessary at Accor Plus, the group’s subscription loyalty program, due to the revolution in price transparency stemming from customers’ increased access to information about hotel and restaurant rates. When she took over as CEO of Accor Plus, Daley also became the de facto CDO, driving digital transformation in the unit as the group was undertaking a €230 million transition. Change was an obvious strategic necessity: “What struck me [at Accor Plus] wasn’t the lack of digital capability; it was that the business model was failing,” Daley says. “That led to a review of the business to find out how to survive and grow, and to determine what we needed to do.”
The scope and challenges associated with transformation depend on the industry and the company in question. In insurance, for example, “human intermediaries still play an enormously important role in distribution, transactions, and claims,” notes Andrew Brem, CDO of the insurance multinational Aviva. “That’s simply not the way consumers are living the rest of their lives. So when I think about transformation, it’s not about crazy, wacky, futuristic ideas. Actually it’s about recognizing that our industry hasn’t moved with the times, and about enabling consumers to interact with Aviva digitally.”
“Technology is still not well integrated into the [fastfood] business,” says Sakechai Choomuenwai, chief digital and restaurant excellence officer of fast-food chain KFC, Yum Restaurants International, in Thailand. “With the consumerization of tech, consumers expect more from the brand”—for example, ensuring customers can place orders and provide feedback via mobile devices—“therefore the whole industry is catching up to make sure we can meet customer demand and expectations.”
Recognize the breadth of the CDO’s role
CDOs must step up to become change agents, not merely technologists. CDOs often have technology backgrounds, and some organizations tack CDO-style responsibilities onto the CIO role, or draw their CDOs from the ranks of their IT department. However, as a leading agent of changes that cut across multiple critical functions, from human resources to customer service, the CDO must also have a solid footing in the broader business environment, and the ability to communicate with all its constituents.
Dr. Soo-Jung Shin, chief information officer (CIO) and senior vice president in charge of digital strategy for KT, South Korea’s dominant telecom provider, says his time as CEO of the information security provider SK Infosec helped him assess the state of affairs at KT, develop a digital blueprint, and rebuild customer loyalty. “IT leaders tend to use technical terms for communication with non-IT leaders in the company. . . . It just isolates IT from the other business divisions,” he says. “My professional experience . . . helped me communicate with other business teams.”
Since many digital initiatives target customer interaction, consumer-facing experience can also prove valuable in the CDO role. “I come from a highly consumer-focused background, and part of the transformation is about making us a more consumer focused business,” says Aviva’s Brem.
Although the CDO’s job necessitates a certain amount of familiarity with their company, some executives believe it can be helpful to come into the role from outside. A new hire can view long entrenched practices or problems in a different light, and may feel the pressure to push through much needed changes more keenly.“Because I came from outside, I was less focused on relationships than tasks and goals,” notes Shin. “I think [executives] from outside, like me, should work to achieve notable goals within their first year.”
Executing the transformation
Once the objectives are defined, a CDO must take a broad-based approach to a transformation project. This includes understanding which parts are a priority or easiest to achieve, what the potential hindrances are and how they can be resolved, and how best to utilize often limited resources.
Draw a clear road map
As with any far-reaching business initiative, a clear road map is crucial to a company’s successful digital evolution. In Shin’s case, when he was assigned to tackle security at KT, he documented the whole picture, addressing everything from hacking threats to vulnerabilities at business partners or with employees’ PCs—and drew up a task list for each. These lists were shared with relevant divisions, and progress reports were delivered to senior management teams.
While the digital leaders we spoke to were unanimous about the need for transformation programs to be ambitious, tackling too many initiatives at once, or spreading resources too thinly, can be risky. In the early stages of a journey, notching up tangible achievements in one or two areas is often more conducive to building support for future change.
Aim for unwavering management support
Even if the CDO is a consummate diplomat, an organization’s senior leadership sets the tone. KT’s Shin says that support from the CEO is especially important because digital transformation projects frequently receive criticism, especially when people have difficulty adjusting to new technologies or roles, or when transitions don’t proceed as smoothly as anticipated.
HSBC’s Thompson says that simply obtaining management buy-in for a transformation project may not be enough. “Buy-in is intellectual acceptance, but unwavering support is acknowledging there will be difficulties along the way yet they’ll still always be with you,” he notes. “If you pick up the phone and want to speak to the CEO, do they put you through? If you want to take one hour of a board meeting, do they let you? You know whether you have unwavering support based on people’s behavior, and the access you have to them.”
Aviva’s Brem agrees: “Incredible CEO sponsorship is the difference between ‘it’s important’ and ‘it’s absolutely critical.’ Getting the actual financial resources and backing is very important as well.”
This type of loyalty is best cultivated through deep rooted senior management involvement in the transformation process. Establishing a governance framework that incorporates management representation from different business divisions is one means to achieve this, and also encourages the collaboration necessary for a company wide initiative to thrive. Increasingly, boards play an important role in ensuring alignment around the organization’s digital objectives.
Build a digital culture across the organization
The need to cultivate internal support springs from the reality that digital transformation is fundamentally a people-driven process and not a technology-driven one. This is why companies such as Visa have gone to great lengths to promote internal philosophical changes throughout their transformation programs. The CDO must serve as the driving force and main change agent throughout this journey, “educating and helping people understand why we need to transform today in order for us to succeed in future,” says KFC’s Choomuenwai.
But this is not necessarily a message people want to hear, especially when it threatens or displaces longstanding roles or internal business practices. The CDO must therefore walk the difficult line of overturning old models without alienating large swaths of the business in the process.“It takes a lot of patience and explaining internally in a way that people can understand rather than talking about it in technical terms,” AccorHotels’ Daley says. “It is a bit daunting. A lot of the vocabulary used is not in people’s everyday vocabulary, so you get pushback.”
HSBC’s Thompson agrees: “You have to make sure that you as an individual do not become the reason not to change.” He adds: “People might not like what you say, but they should always like who you are, your intention, and how you say it. The issue with digital [transformation] is that no one department or group can drive the change; it has to be a collective purpose.”
Just as successful digital transformation must engage the leadership, it must also include the staff who will bear the brunt of the changes. A new digital offering is unlikely to gain traction with an organization’s customers, for example, if it’s still largely unfamiliar to its sales representatives. Similarly, employees must be prepared to monitor and engage with new forums for customer interaction, including social media.This need to understand the benefits and potential pitfalls of new channels of customer engagement informs Visa’s emphasis on ensuring its employees are digitally literate, as well as KT’s focus on digital transformation–related training programs. Shin personally led change-management seminars for over 1,000 employees, and also introduced education on the risks posed by hackers and how the company could address them.
Seek input beyond the usual channels
Another trait of effective digital transformation projects is that they successfully extend beyond a company’s core competencies. Collaboration is the name of the game. Centuries old bricks and mortar retailers are having to grasp ecommerce engines, while manufacturers are being called on to analyze data from their supply chains. This means CDOs should be willing to seek and even embrace outside expertise, partnerships, and opportunities to cooperate. Visa, for example, has opened its payments network to third-party application developers, and teamed up with financial technology community Next Money (formerly Next Bank) to launch competitions for fintech executives.
At the same time, companies should not abandon their long-standing principles or core businesses. Rather than jettisoning everything and starting over from scratch, savvy CDOs seek to build on the capabilities and knowledge that are already housed within the organization. And instead of trying desperately to become digital natives at any cost, companies, and their CDOs, should strive to balance the need to preserve and enhance the organization’s traditional strengths with the pursuit of new digital possibilities.
The primary objective of a digital transformation isn’t to create the ultimate digital platform or resource, but to use digitization to enhance business performance. A CDO should recognize that a company’s journey is never over—every step forward in a project or advancement in technology can bring an organization closer to its ideal digital self.
Align with business objectives
Careful planning and exemplary leadership can lead to tangible digital wins, but defining success is another matter. In the view of many CDOs, alignment with the business is the main metric to evaluate the performance of a transformation initiative.“The CDO should define success in business metrics rather than digital metrics,” notes Jaspreet Bindra, senior vice president of digital innovation and e-commerce at Indian conglomerate Mahindra & Mahindra. “It’s not about getting 600,000 Facebook likes; success is helping to surpass previous margins by, say, 7 percent.” Similarly, HSBC is framing its transformation targets in business terms—such as increasing sales through its digital platform by 75 percent from 2014 to 2017, and keeping its cost base the same over the period partly through the realization of digital efficiencies.
Daley of AccorHotels sounds a note of caution about the need to manage expectations. Management might equate “digital transformation” with “exponential growth,” but the reality may be more prosaic. “We hear in marketing about the explosive growth of online channels, but less than 4–5 percent of businesses are getting that explosive growth,” she warns. “You have to be reasonable about expectations. . . . I’ve found that in digital transformation everything takes longer than you thought, it’s a lot more expensive than you imagined, and you won’t be able to [plan for] all of it.”
A common theme for CDOs is collaboration: they must serve as a bridge between technology and other segments of the business and help their organizations seize the business opportunities technological developments bring. This by necessity involves some adjustment, and even a certain level of discomfort, so the CDO also has to be prepared to act as an ambassador, championing the need for change with senior management and enduring (though not ignoring) occasional rumblings of criticism.
The journey never ends
Even as achievements are notched up, the transformation process is never complete, and the CDO’s role is constantly evolving. Mahindra & Mahindra’s Bindra sees an increasing convergence between the CDO and chief marketing officer (CMO) functions, since a large amount of digital disruption is concentrated in the marketing space. Grooming the future digital-talent pipeline is also becoming a greater priority for many CDOs, since “there is massive demand and very low supply,” he adds.
The good news is that most of the new entrants to companies have grown up “speaking digital,” and are already well accustomed to digital interactions and transactions—meaning CDOs can likely expect less resistance, and more support for transformations, in future. “They are fully immersed in this new way of working,” says Thompson of HSBC. “I think the next generation of talent coming into organizations will all be CDOs in a sense, because they won’t understand why businesses would operate in any other way.”
About the authors
Vikram Chhachhi ([email protected]) is a principal in Heidrick & Struggles’ Mumbai office and a member of the Consumer Markets Practice.
Karen Fifer ([email protected]) is the regional managing partner of the Consumer Markets Practice for Asia Pacific and the Middle East; she is based in the Hong Kong office.
Mark Sungrae Kim ([email protected]) is partnerin- charge of the Seoul office and a member of the Consumer Markets Practice and the Healthcare and Life Sciences Practice.
YH Yeonho Kim ([email protected]) is a principal in the Seoul office and a member of the Global Technology and Services Practice.
Victoria Stead ([email protected]) is a partner in the Dubai office and a member of the Consumer Markets Practice.
Jeffrey Greg Stryker ([email protected]) is partner-in-charge of the Bangkok office and a member of the Industrial Practice.
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