Being the CEO of a large company facing digital disruption can seem like being a gambler at a roulette table. You know you need to place bets to win, but you have no idea where to put your chips.
Of course, digital transformations aren’t games of chance. But they do require big and bold commitments in the midst of uncertainty to reinvent the business rather than just improve it.
Many of the digital initiatives large incumbents have already tried to date have tended to operate at the margins of the business. Innovation labs or apps can be useful for learning and can even provide a boost to the company. Meanwhile, the legacy business remains in place, largely unperturbed.
Without a transformation of the core—the value proposition, people, processes, and technologies that are the lifeblood of the business—any digital initiative is likely to be a short-term fix.
The legacy organization will inevitably exert a gravitational pull that drives a reversion to established practices. Reinvention of a business is, by its nature, bold. But it’s one thing to be bold; it’s another to be thoughtfully bold.
A digital reinvention requires the CEO to make tough decisions, which involve hard trade-offs that it is tempting to ignore, defer, or rush into. Yet knowing which decisions to prioritize and how to implement them can make the difference between a successful transformation effort and one that struggles.
Here’s how successful CEOs guide their business’s reinvention:
DISCOVER—Set the ambition for the business.
Decision 1: Where the business should go: Few decisions are more momentous than choosing the business direction. While the almost existential nature of this decision can seem overwhelming, most incumbents don’t have a choice, since they are already facing disruptions that can threaten their long-term viability.
DESIGN—Create a plan for the digital transformation.
Decision 2: Who will lead the effort: A program that will deliver the needed degree of transformation is not something CEOs can delegate; they must lead the charge themselves. The CEO should select leaders who embody and will forward the key values of a digital culture: customer-centricity, a collaborative mind-set, and a tolerance for risk. This leadership team doesn’t need to be large. In fact, it can be quite small, as long as its members, and the people working with them, have the requisite skills.
Decision 3: How to ‘sell’ the vision to key stakeholders
Any change effort requires active communication of the vision and an explanation of why it’s necessary. For this reason, the CEO needs to decide not only what to say but also how—and how long—to communicate. One approach is to think of the change program as a product and brand it.
It’s crucial to decide when to communicate and with whom. The CEO should focus first on winning over influencers both inside and outside the company, then on propagating the change to their networks. CEOs also need to adopt a campaign mentality. This means delivering crisp and clear messages, in a steady cadence, using all relevant formats and channels. It’s an influencing program, so messages need to be tailored to each audience—from employees to the board to shareholders.
Decision 4: Where to position the firm within the digital ecosystem
New companies are able to challenge established businesses because an ecosystem of relatively cheap and plentiful resources—from technologies to platforms to vendors—is in place. This has been a boon to disruptive attackers, but the same resources can be used by incumbents, too.
CEOs need to figure out which capabilities, skills, and technologies available in the ecosystem complement and support their business’s strategic ambitions. How much to rely on these relationships and how to structure them, are also crucial decisions. Making them requires a clear sense of how to secure the company’s most valuable assets, such as relationships with customers or data.
Decision 5: How to decide during the transformation
As boxer Mike Tyson once said, “Everyone has a plan ’til they get punched in the mouth.”11 No matter how well a transformation effort is designed, there will be surprises and unforeseen developments. To deal with this reality, the CEO and top team need to decide on governance and escalation rules to allow for inevitable course corrections.
Frequent check-ins—at least weekly—with senior leaders should be planned to gauge whether the digitization effort is on course and institute changes if it is not. That sounds like a lot, but devoting even one hour a week to a program that transforms the company is just 1 to 2 percent of a CEO’s time. The challenge is to book this time and stick to it.
DELIVER—Execute the transformation plan, allowing for ongoing adaptation and adjustment.
Decision 6: How to allocate funds rapidly and dynamically: The key lever CEOs and senior teams have to drive a digital transformation is resource allocation. This isn’t just about making sure resources get to the right places, a decision CEOs already make as part of their everyday work. With a digital transformation, the CEO needs to decide what the allocation process should be and at what tempo it should operate.
DE-RISK—Increase the transformation’s prospects for success.
Decision 7: What to do when: More than 70 percent of transformation programs fail.14 While the decisions covered in this article go a long way toward improving the odds, loss of momentum can undo even the best transformation efforts. To forestall that possibility, CEOs should carefully decide how to sequence the transformation for quick wins that yield revenue payoffs and reduce costs, gains that can then be reinvested. One e-tailer, for example, unlocked $300 million in just five months by prioritizing initiatives with the fastest payback. That turned into more than $800 million within a year, thanks to momentum from the early windfall.
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Source - McKinsey&Company (Adapted from report written by Peter Dahlström, Driek Desmet, and Marc Singer)