Companies shouldn’t bottle up digital transformation in any one function.
Recent research on digital transformation has revealed how companies — particularly large legacy ones — are seeking to adapt to an increasingly digital world. For our most recent study, we asked managers, executives, and analysts, “Which functional area is primarily leading your company’s digital progress?” When we analyze their responses through the lens of an organization’s digital maturity — how close an organization is to the ideally transformed digital organization — we see patterns that have implications for how companies should approach digital transformation.
Digital Transformation Is Not Mainly About Technology
We’ve observed for a while that digital transformation is more of an organizational and managerial challenge than it is a technological one. As organizations mature, they are less likely to report that IT leads this digital progress; 23% of respondents at early-stage companies name IT as the primary leader of digitalization efforts, versus 16% at maturing companies. When digital progress is led by technologists, companies often end up with glittering technologies that either go unused or fail to meet the business’s objectives.
Marriott Hotels offers an example of technology-focused transformation gone awry. Marriott’s chief digital officer (CDO) led the development of a sophisticated customer-facing app with innovative features like mobile check-in and room service. Although the app worked flawlessly, it wasn’t integrated well with the hotel chain’s operations, so the technology delivered the promised outcomes only some of the time. Focusing on technology alone — even when it is expertly designed and implemented — can obscure the other organizational changes necessary for a new initiative to deliver business value.
Of course, not all IT teams fall into the trap of technology-centric digital transformation, and Marriott’s CDO began collaborating more closely with counterparts in operations to help ensure the app delivered the desired outcomes. But IT leaders often focus too heavily on technology at the expense of business transformation, a trend that leads MIT’s George Westerman to note, “There’s never been a better time to be a great CIO, and there’s never been a worse time to be an average one.”
Digital Transformation Is Not Only About (External) Customer Centricity
Many companies create digital initiatives to develop stronger ties to their customers, and chief marketing officers often have larger digital budgets than their IT counterparts. Yet, as organizations mature, the extent to which the marketing function leads digital efforts starts to decrease. Admittedly, this dip is not as steep as that of IT — it shifts from 10% at early-stage companies to only about 7% at maturing ones.
Our interviews suggest there is a limit to how far marketing-focused digital initiatives can take companies. For example, in 2015 we found that although The Walt Disney Co. has long been recognized as a leader in customer-facing digital efforts, employees were becoming increasingly frustrated with their lack of sophisticated digital tools on the job. From tasks ranging from ordering food to applying for new positions, employees found it easier to go outside the company than to work within it. Our research has shown that employees want to work for digitally mature companies because they allow employees to improve their productivity and further develop their digital skills.
Software company Adobe recognizes the need for an integrated digital approach, having combined employee and customer experience into a single position. Executive Vice President Donna Morris says, “Adobe’s entire business is based on people. We’ve always considered people our most important asset, and our people include both our employees and our customers.” To integrate the experiences of these two groups, Morris leads the product, customer service, and technical support experience for all Adobe products, in addition to all aspects of human resources and the workplace. All organizations should remember that employees are also customers.
Digital Transformation Cannot Be Led by the C-Suite Alone
As organizations mature, C-suite leaders begin to lead transformation efforts. Forty-one percent of respondents at maturing companies indicate that the CEO’s office leads their organization’s digital progress, compared with only 22% of early-stage companies.
There are probably many reasons for this trend. First, according to many respondents, support from the CEO is essential for the significant changes a company must make to become digitally mature. Without strong, consistent, and visible support from the top of the organization, managers and employees may not have the will or the courage to change.
Second, the changes necessary for digital transformation must be aligned with an organization’s overall strategy. One of the biggest differentiators between early and maturing digital businesses is the presence of a clearly articulated digital strategy. For a company to be successful, the CEO must understand and communicate what the company is transforming into and why.
Third, the types of changes that must be made often have implications for other areas of the organization. If a company bottles up digital transformation in any one function, it may not make the changes necessary elsewhere in the organization to realize the value. When the CEO drives the transformation, the organization is more likely to make those changes.
The driver for digital transformation, however, cannot come only from the C-suite. In 2018, we observed that a key factor of digitally mature companies is they push decision-making further down into the organization. The CEO must not only drive change but also inspire others in the organization to champion that change as well. If someone other than the CEO leads an organization’s digital transformation efforts (59% of maturing companies lead digital transformation from areas other than the CEO’s office), the CEO must provide strong support and guidance for those efforts, even if he or she is not leading the initiative directly.
Digital Transformation Could Be Product-Driven
Another functional area that shows a definitive positive trend as companies mature is product development. Although few companies are taking this approach, it raises an intriguing question: Can an organization’s digital transformation be accomplished by focusing on product digitization?
We find some evidence for this approach in the automotive industry. Harley-Davidson and Volvo Cars have recently developed connected vehicles, and both organizations have found that digitizing their product has necessitated widespread changes across the organization. Volvo learned that developing connected vehicles had implications for multiple aspects of its business, including production, contracting, innovation approaches, and partnerships.
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David Cotteleer, vice president and managing director of Harley-Davidson, echoes this experience: “It’s no longer just about product engineering. It is about software design, system integration, and other elements that fall outside traditional product engineering. Multiple functions in the company are now realizing that what used to be their domain is now also a domain of technology.”
One way to enable digital transformation may be simply to develop digitally enabled products, then adapt the organization as needed to deliver those products.
The functional area leading an organization’s digital efforts may change as a company matures. Centering transformation efforts in IT or marketing at early-stage companies may make sense. For example, John Hancock Financial situated its nascent digital efforts in marketing because it needed to be protected from established bureaucratic processes to flourish. Only when those initial efforts were effective did the core team use those successes to drive change across the organization. While it may be wise to begin digital efforts within a particular functional area, those efforts can also drive greater change across the entire organization.