Leadership for Driving Digital Transformation

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Driving digital transformation is not primarily about technology but about leadership.

“Digital Masters excel at two essential capabilities. They build digital capabilities by rethinking and improving their business processes, their customer engagements, and their business models. They also build strong leadership capabilities to envision and drive transformation,” writes George Westerman in his latest book, Leading Digital: Turning Technology into Business Transformation.

The book, co-authored with Didier Bonnet and Andrew McAfee, grew out of a study of more than four hundred large global firms in traditional industries, from manufacturing to pharmaceuticals. The authors’ research was designed to, in effect, sequence the DNA of Digital Masters by studying the patterns underlying successful digital transformations.

Westerman is a Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy, where his research portfolio and teaching focus on digital technology leadership and innovation. His previous books include The Real Business of IT: How CIOs Create and Communicate Value, and IT Risk: Turning Business Threats into Competitive Advantage, both co-authored with Richard Hunter. The Real Business of IT, which CIO Insight magazine named the best IT-business book of 2009, showed CIOs how to change IT’s role from that of order taker to strategic partner by taking charge of the value conversation.  IT Risk, one of CIO Insight’s ten best books of 2007, showed CIOs how they can use risk concepts to change the nature of the IT/Business conversation. 

Westerman is a member of the Board of Directors of the Technology Business Management Council, Co-Chairman of the MIT Sloan CIO Leadership Awards, and faculty director of the MIT Sloan course “Essential IT for Non-IT Executives.” Prior to joining the MIT Sloan School of Management in 2002, George earned a doctorate from Harvard Business School. Earlier, he gained more than thirteen years of experience in product development and technology management roles.

In the following edited conversation with CIO Straight Talk Editor Paul Hemp and Associate Editor Venumadhav Pandit, Westerman describes some of the attributes of companies that have undergone a successful digital transformation.

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How did you go about studying companies that are “Leading Digital”?

We didn’t go out and look for companies that we knew were digital masters.  We started with companies that were big, at least $1 billion in annual revenue, and well-managed.  We wanted to see what they were doing with technology, as opposed to what the born-digital companies, the Amazons and the Googles of the world, were doing.  We chose not to focus on born-digital companies because executives in large companies often say, “Yes, I understand that Google does it that way.  It’ll never work for us.”  What we found was that there are large companies around the world who may not be doing it the Google way but who are doing great things with digital. 

Perhaps the biggest surprise was that every industry we studied, whether a technology industry or a financial services industry or even paint manufacturing, already had digital masters in it. These are not digital companies; they’re traditional companies that are using digital really well. Another surprise was just the broad diversity of exciting things that are happening in these less-than-exciting businesses, things that really transform the way that they’re working with customers and transform the way that they’re working internally. 

The last surprise would be the level to which the board room and the senior executive team have woken up to technology questions. They understand that they need to be smarter about technology.  They were willing to spend time with me, as a researcher, to talk through it; it was that important for them.  In the past, it was really hard not only for a researcher but for a CIO to get the attention of the rest of the senior team on these technology issues. 

So you found some digital success stories among the large incumbents you studied?

What we found was that a lot of companies were doing things; very few companies were doing things well. However, the Digital Masters – companies such as Caesars Entertainment, Nike, Asian Paints, Codelco, and Burberry – are in a variety of industries and geographic regions.  They are getting more value from technology and they’re using it in various ways to transform their organizations.

The big difference between Digital Masters and other companies is that they excel in two important dimensions of capability.  They have exceptional digital capability in their customer experience, operations, and business models.  Even more importantly, they have created the leadership capability – vision, engagement, and governance – to drive transformation.

You talk about vision.  Why does that matter?

The research has shown me, very clearly, how important it is to have a strong vision for the transformation that you’re driving. Nike doesn’t want to be a company that sells you things you wear.  It wants to be part of your life. Boeing doesn’t want to sell you airplanes.  It wants to be the center of the digital airline.  Burberry didn’t want to be a chain of stores selling fashion to wealthy older people.  It wants to serve the millennial customer in whatever way and at whatever time and in whatever channel that customer wants to work. 

These visions are extremely important because everybody in your company has a mental picture of how the company works. If you want to transform the company, you need to start by helping people see how the company will be different.  You need to change that mental picture.  Engaging your employees around a new vision – what it is and how they fit in -- that is a great starting point for driving transformation forward. 

For CIOs, this presents a tremendous opportunity – and also a requirement – to think beyond technology, to think how your company can be different in our digital world, and help the senior leadership team develop that vision of where you’re going to go. 

In the cases that you just mentioned, where did that vision originate?

In some cases, the vision came down from the CEO as someone who really got the change and the need to drive it.  In other cases, it came from the CIO. For example, leaders of Codelco, the world’s largest copper mining company, have a vision where no miner ever needs to work underground.  The vision, as they roll it out, was identified by the CIO and the transformation is being led by the CIO. But the entire senior team is involved in making that happen. 

In fact, technology is something that can’t be left to the CIO anymore.  The CIO has a really important role to play, but the real value of technology comes from the chance to change the customer’s experience, to change the ways that employees engage with each other, to change the way decisions are made. These are the sorts of things that business managers need to know how to drive.

Interestingly, in the early stages of the research, I talked to CEOs and other very senior executives at 50 companies.  A lot of them said, “This digital stuff is too fast; it’s too innovative.  We cannot leave it to our IT department because the IT department can’t handle it.”  What they wanted to do was to work around their IT departments.  Yet among the digital masters that we identified, the companies that are doing this right, every single one of them found ways to work with their IT department to drive the transformation.  Sometimes that meant changing the opinions of the business leaders. Often it involved changing how IT worked.  IT people have an interesting role to play; they just can’t do it alone. 

What is it that the digital masters are getting right? 

The way to think about this is that you can transform in three areas: customer experience, operations, and business models.  Transforming in one area makes transformation in other areas possible.  It’s really hard to create a phenomenal customer experience unless your operations are clean. If you’ve got great information and you’ve got great customer experience, new business models can emerge.  The digital masters, whether it be Caesars in hospitality or Nike in apparel or Asian Paints in paint or Burberry in retail, these companies often start with one area but they find that they end up transforming a lot of areas as they move on. (See the sidebar “Asian Paints: From Unification to a New Business Model.”)

The key thing about the digital masters is that they don’t think about it in terms of technology; they think in terms of transformation. They don’t think, “Hey, let’s put mobile into customer experiences.”  They say, “How can we get as close as possible to customers, wherever they want us, whenever they want us?”  With operations, they think about how processes can become more connected, smarter, collaborative. And by focusing on transformation rather than technology, companies are seeing opportunities to transform their business models. 

Progressive Insurance has changed the way that it rates car insurance by putting a device in your car to see how you actually drive, rather than basing rates on your demographics.  Daimler is connecting the trucks it makes directly to Daimler so, when a driver’s check-engine light goes on, Daimler can tell the driver immediately what’s wrong.  That new service-driven business model is built on digital capabilities. But the big thing is that drivers and fleet managers are far happier. 

What are some things that you recommend to companies when they say, “Where do we start?” 

Of course, you can start with some digital experiments to test the waters.  But do more than that. 

Digital is about changing the business, not just changing the technology.  Organizations need somebody who can own that vision and can work with the different parts of the business to drive that transformation, to identify the innovation needed to drive the change, to build governance.  The Chief Digital Officer is becoming more common in organizations, whether that is the actual title or not. 

The best digital transformation is built on a very strong technology backbone -- a very strong platform of operational and customer information.  You may need to rework your back office.  You may need to rework your platform to enable that truly stellar customer experience. 

Then you need very strong governance to steer your platform – and your organization -- in the right direction.  An important thing to remember about digital governance is that great IT leaders already know how to do this.  Great marketing leaders don’t always understand this. 

Why is that?

Because it’s a natural role for CIOs to play.  Governance across the organization is something that IT has learned over decades, and it is something that the rest of the business doesn’t always have much experience with. It’s an opportunity for CIOs to add to the conversation and show that they have a role to play. 

Let me put it this way: governance in digital is just as essential as it is in IT, but it’s now a broader thing.  It’s about the transformation of the whole business.  Governance needs to be aimed at the right level of coordination and sharing among all the things you’re doing around the organization.  Nike has its Nike Digital Sport unit that’s helping to drive digital transformation in marketing, in customer experience, and operations.  P&G has its Global Business Services unit.  Other companies have digital leadership roles and processes but not units.  Whatever the approach, you need to make sure that the right levels of sharing and coordination are happening. 

Vision and governance are an opportunity for great CIOs to step up and become a driver of the digital conversation. If you’re not helping to drive that conversation, you will become a support person for the person that is.

There’s never been a better time to be a truly great IT leader, and there’s never been a worse time to be an average IT leader.    


Asian Paints: From Consolidation to a New Business Model

George Westerman’s latest book, Leading Digital: Turning Technology into Business Transformation, focuses on companies that power much of the economy but are rarely mentioned as technology innovators. In this edited excerpt from the interview, Westerman describes how Asian Paints – India’s largest and Asia’s third largest paint company – leveraged digital capabilities to consolidate its businesses, thereby enabling improved relationship with its retail customers, a rethinking of its operations, and finally the transformation of its business model to create an extended enterprise:

Asian Paints was a business spread over 13 regions that operated largely independently. The company began its transformation by taking steps to unify these regions – to create a common platform, standardized processes, and a single corporate call center that would centralize routine order taking processes.  

This changed the nature of the relationship with the retailers who bought Asian Paints’ products because they now connected directly with the company through the call center rather than through a salesperson.  It made customer service more consistent and provided Asian Paints with analytics that told them which products were selling well and how to address customer complaints better. This allowed salespeople to change from order takers to relationship builders. 

The unification laid the foundation for other changes. Executives shifted their attention to operations and concluded that automated factories were better than those staffed with people. The factories had been difficult to staff and had high turnover, leading to quality problems. Today, Asian Paints is building large factories that have virtually nobody in them.

At the same time, though, the company is creating jobs in new areas. Executives realized that services are a huge opportunity for India’s busy middle class.  Today, Asian Paints can sell you a painted wall, not just a can of paint. Moving into services helped the company ensure that its products were applied properly, thereby enhancing customer satisfaction.  It also helped the firm to get closer to end consumers that it didn’t have contact with before.

What started as a unification exercise turned into a transformation of the company’s relationships with retailers. It led to operational changes in the manufacture and distribution of the product, which in turn led to services that brought the company closer to its end customers.  It even enabled global expansion; the company is now in 17 countries around the world.