Digital transformations come in all shapes and sizes. Savvy CEOs tailor their leadership efforts to suit.
In the face of constant disruption, effective chief executive officers (CEOs) lead by scanning the environment, identifying the dangers that might be lurking or the opportunities that might exist, and determining whether and how to act. Often, those actions involve what’s commonly called “digital transformation”—implementing new tools, platforms, and business models to create competitive differentiation. But while CEOs constantly hear that they should lead any significant digital transformation, it’s not always easy to know exactly how to do that. As technology continues to grow in complexity, it is harder for CEOs to take a direct role in leading these transformations. At the same time, intensifying environmental disruption makes transformation an increasingly strategic lever that CEOs must lead. So, what’s a CEO to do?
Over the past five years, we’ve spoken to more than 400 CEOs about how they view the chief executive’s role in digital transformation initiatives. To help further clarify when and how CEOs should lead and when they should delegate, we recently conducted targeted interviews of 20 CEOs across industries and around the world. Here’s the picture that emerged: The CEO’s role is not only critical for most digital transformations, but also fundamentally different depending on the CEO’s ambition for the transformation and the organization’s readiness to carry it out. Each transformation is unique in its circumstances, but we’ve identified common principles that can help CEOs boost the odds of getting the results they want.
Setting the transformation ambition
The goals and objectives of digital transformations vary significantly. Some involve implementing a new enterprise resource planning (ERP) system, for example, while others move the entire organization to the cloud, begin to leverage artificial intelligence (AI), or focus on new customer-facing mobile applications. But the CEO’s ambition for the digital transformation should go well beyond implementing new digital tools because they’re readily available or trendy. It should encapsulate how the transformation adds real value to the organization. Therefore, the first question for the CEO to answer is, How extensive is my ambition for our digital transformation?
We’ve identified five levels of ambition that characterize the digital transformations we’ve seen. For example: Am I looking to digitize my existing business model? Do I want to develop a new product? Am I hoping to disrupt my industry?
Regardless of whether or not the CEO is involved in lower-level transformations, the CEO’s singular, big-picture vision should guide them. This vision should embody a strong “theory of the case” articulating why to pursue the transformation, as well as a blueprint for how the transformed organization is expected to create value and competitive advantage.
And organizations won’t necessarily focus on one level at a time or move steadily up the ambition scale as they evolve. Instead, they’ll likely manage multiple projects that simultaneously involve various levels. For instance, to develop new digital products (level 3), an organization might also need to digitize specific associated processes (level 0 or 1) to establish the enabling infrastructure.
Level 0 transformations are foundational initiatives that digitize existing processes with minimal change in other aspects of the business. Much of the work involves taking analog processes (such as filling out paper forms at a doctor’s office) and making them digital (switching to office tablet computers or preregistration online). While these efforts aren’t necessarily “transformative” in the most sweeping sense, they’re often essential incremental changes that set the underpinning for a more ambitious transformation.
CEOs frequently initiate level 0 transformations, but they usually delegate much of the execution, supporting their team only as needed (we call them level 0 because the CEO typically doesn’t need to be heavily involved). That’s appropriate considering the transformation’s limited scope for change. Besides clearly articulating the imperative for change and ensuring appropriate communication and collaboration within the executive team, the CEO’s most frequent task may be to remove obstacles rather than take a personal hand in running the effort.
Advanced digitization, entering new markets, and creating new products
Levels 1 to 3 go beyond incremental digitization by aiming to extend the existing business offerings to pursue new sources of revenue and value creation. These transformations affect all parts of the organization and require intense collaboration across the C-suite. Moreover, they often need extensive and ongoing change management throughout the organization.
While existing C-suite key performance indicators (KPIs) won’t need to be changed, a transformation within one of these levels will require new mechanisms to track its execution. Sometimes, this can go as far as creating a dedicated group: Giny Boer, CEO of fashion retailer C&A Europe, told us that she “set up a whole transformation office to determine if [our digital transformation efforts] are on track.” A level 1–3 transformation will also likely require new ways of communicating and collaborating across organizational boundaries, and the CEO often needs to get involved to put them into effect.
Radical business transformation
Level 4 transformation fundamentally changes the business model—how an organization operates or makes money. In level 4 transformations, the CEO’s role shifts from merely championing the transformation to embodying it. The CEO’s vision for change becomes the rallying cry around which the organization reconstitutes its structure and culture.
All transformations take relentless advocacy, engagement, and inspiration, as they are frequently riddled with hurdles, obstacles, and pockets of resistance. But as level 4 involves wholesale changes to the organization, these challenges take greater CEO involvement to address. Doing so isn’t always easy. For example, the CEO may need to redefine or, in extreme cases, even eliminate the role of many executive team members, as well as create new KPIs. Level 4 transformations likely also require a different horizon of measurement (for instance, years versus quarters), giving the CEO the huge job of managing board, investor, employee, and others’ expectations on the duration and concomitant fortitude needed for a level 4 transformation.
Courtesy Deloitte. Click here for full report