– in “ Digital Transformation “ and by “ Innovating for Impact “
With changing markets and new opportunities, rising User expectations, the increasing need to leverage technology for advantages, constant change and disruption, etc. – an effective CEO leads by having :
A. Great insights on opportunities and navigating change
B. High awareness of challenges and what’s needed to move the organization forward
C. An appreciation and competencies to manage the changing nature of risk
D. The ability to –
- get buy-in for the new vision from stakeholders
- leverage current capabilities for advantage
- develop new competencies
- effect change
- create meaningful new value
For this to occur is why being good at “ Digital Transformation ” and “ Innovating for Impact “ are important. This includes–
- Developing new thinking
- Implementing new tools, platforms, and business models
- Changing processes and expanding capabilities
- Delivering high value with a great User experience
…. to meaningfully improving outcomes for Customers and the business, for competitive differentiation, expand opportunities, increase relevance and revenue, etc.
But while CEOs constantly hear that they should lead significant digital transformation and innovation initiatives, it’s frequently not clear when or how ! As technology continues to become more pervasive and grow in complexity plus the need for the organization to deliver new digital services having high appeal, it’s hard for a CEO to take a direct role in leading these projects – especially since many CEO’s do not have a background in systems, technology competencies, providing a great UX, doing disruptive innovation, etc. Because of this and that enterprise IT tend to view new projects as more work and potentially putting current information services at risk – it’s a real challenge for a CEO to meaningfully contribute to good decision making, becoming more sophisticated in the development and delivery of new digital services, and managing the risks associated with innovation, transformation and change. Despite these challenges, increasing internal and external demands as well as the need to benefit from disruption, etc. – being accomplished at digital transformation and innovating for impact are increasingly important strategic levers that a CEO must utilize to lead. And have the requisite metrics to confirm project progress.
So, what’s a CEO to do ?
The CEO’s role is not only critical for important digital transformation and innovation initiatives, but also varies depending on the CEO’s objectives and ambitions as well as the organization’s readiness to adapt in the creation and delivery of new capabilities, defining and adopting new processes, providing new value, and making other changes to move themselves and the organization forward. While each transformation and innovation project is unique, the common principles that can help CEOs increase the probability of success are –
1. Setting Objectives and Ambitions for Transformation & Innovation
Regardless of how the CEO is involved in transformation and innovation, the CEO’s singular, big-picture vision needs to guide the initiative. This vision should embody a strong “ theory of the case ” that clearly articulates why we’re pursuing the objectives as well as a blueprint for how the organization is expected to create value and competitive advantage – to expand opportunities and meaningfully grow the business.
To explain further, the goals and objectives of Digital Transformations and Innovating for Impact initiatives vary significantly. For example, creating new digital services to attract new Clients and/or to upsell current Clients, implementing a new enterprise resource planning (ERP) system, move the selected services from inhouse IT to the cloud, utilizing artificial intelligence (AI) for added value / insights / intelligence, having more customer-facing mobile applications, extending brand digital presence in the metaverse, etc.
An example of this is –
“ The CEO is a change agent, recognizing that the world in their sector can be very different in the future. They need to state their vision for what the industry or world will look like and then articulate how the company needs to change and adapt to that world.” — Daniel Saks, CEO, AppDirect
Importantly the CEO’s ambition for innovation and transformation needs to go beyond implementing new digital tools and capabilities because of availability or a trend – to highlight how they add real value for Customers and the business, better position the organization to win in the market and reward stakeholders, etc.
In this context, the first question for the CEO to answer is –
How ambitious does our digital transformation and innovation initiatives need to be to meaningfully improve outcomes and create new value ?
To answer this question, recognize there are levels of ambition (see Figure 1 below) that include –
- Am I looking to create and deliver at scale new digital capabilities ?
- Do we need to digitize or change the existing business model ?
- Do I want to develop a new product ?
- Are we doing what it takes to – significantly grow current markets and/or successfully enter a new market, gain competitive advantage, be better positioned to attract and retain top talent, benefit from disruption, significantly increase business valuation, etc. ?
With this, recognize there generally isn’t a focus on one level at a time or moving steadily up the ambition scale. Instead, the CEO needs to lead and 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.
Incremental Digital Transformation & Innovation
Level 0 transformation and innovation are foundational initiatives that digitize existing processes with minimal change to the business. Much of the work involves taking analog processes (such as filling out paper forms) and making them digital (switching to office tablet computers or preregistration online). While these efforts aren’t necessarily “transformative or innovative” they’re often an incremental change that prove an organization can adapt and build momentum for a more ambitious initiatives in the future.
While the CEO frequently initiates level 0 projects, they usually delegate much of the execution to others – but provide support to the team when appropriate. This is because these projects tend to have limited scope or impact. However, there is a need for the CEO to continue articulating the imperative for change and ensuring effective communication and collaboration as well as to remove obstacles to progress.
An example of this –
“ In terms of day-to-day, did I do anything ? Probably not. My role was to simply not let the organization back up. If anyone presented a roadblock, I told them to go under, over, through, or around … any way to make it happen.”
— Eric Pike, CEO, Pike Corp
2. Developing new Digital Services to create new products and enter new markets
Levels 1 to 3 go beyond incremental digitization or innovation by aiming to extend the existing business offerings to pursue new sources of revenue and value creation. These initiatives affect all parts of the organization and require intense collaboration across the C-suite and other stakeholders. Moreover, they often need extensive and ongoing encouragement to change processes, thinking and habits throughout the organization.
While many existing C-suite key performance indicators (KPIs) typically don’t need to be changed, a significant transformation or innovation initiative within one of these levels frequently requires new metrics and mechanisms to track execution and progress on achieving objectives. Sometimes, this can go as far as creating a dedicated group to monitor, analyze, and advise on progress to achieve objectives. A level 1–3 initiative will also likely require new ways of communicating and collaborating across organizational boundaries – that frequently requires the CEO to be involved to put them into effect.
Examples of why this is important are –
“ People want to work for a company that’s going to change the world. When we announced that GM was going to make the light-duty fleet electric, we saw job applications go up.” — Mary Barra, CEO, GM
Sony Group : Transforming for 40 + years
The Japanese multinational entertainment company Sony Group has become better at innovation and adapting to digital disruption for nearly a half-century. Sony Group CEO Kenichiro Yoshida described the disruption the company experienced when smartphones supplanted its signature electronics, the Walkman and the compact disc—and, more recently, when streaming services changed the business model of the music industry.
Sony isn’t afraid to innovate to take a very different path from its competitors, carving out a space where it is uniquely positioned. For example, Yoshida noted a new strategy for music streaming : “ We are trying to become the most artist / songwriter friendly music company, rather than the largest one. We are now providing a digital platform to inform them how much they’re gaining from the platforms in almost real time. With Gen Z spending a huge amount of time on TikTok, some artists are going online there directly – before receiving help from a major record label. This trend could be an opportunity for artists, and we need to innovate to change our business with that in mind.”
Sony is also pursuing a distinctive strategy around video streaming whereby instead of developing a general streaming platform of its own, Sony has partnered with already established platforms to distribute content broadly, pursuing a contrarian streaming platform strategy focused on communities of interest to learn from users directly. With this Yoshida explained : “ Platform providers with our direct-to-consumer (DTC) services are our most important partners for delivering content. With our focus on niche offerings—what I describe as communities of interest—like Crunchyroll, our anime DTC enable communities with a shared interest fit with our purpose of filling the world with emotion through the power of creativity and technology.”
3. Disruptive Business Transformation & Innovation
Level 4 transformation and innovation fundamentally changes the business model — how an organization operates or makes money. In level 4, the CEO’s role shifts from articulating and championing the cause to being involved in the project. This is because the CEO’s vision for change signals the need for the organization to re-imagine and reconstitute its structure and culture, change the notion of value, develop a new mindset, etc. – that requires people learning new concepts, getting outside their comfort zones, developing new skills and competencies, etc.
All meaningful transformation and innovation initiatives require relentless advocacy, engagement, and inspiration – since there are many challenges, obstacles, and pockets of resistance to change and developing new thinking. With level 4 involving significant adjustments as well as a different mindset and culture, there is a need for high CEO involvement to effect change. Doing so isn’t always easy since the CEO may need to alter, redefine or eliminate selective executive positions, create new KPIs, change compensation to reward achieving new goals, etc. Further, level 4 initiatives frequently require a different horizon of measurement (for instance, years versus quarters). Because there is extensive change, the CEO has added responsibilities of engaging and managing the BOD, investors, employees, and other stakeholder – with updated expectations for results, corporate strategy, nature and duration needed for a successful level 4 initiative, etc. – so the organization is better positioned to be where the market is going and where money is going to be.
An example of improving outcomes from disruption is –
Bank Leumi : Digitally transforming the enterprise to a whole new business model
When Rakefet Russak-Aminoach became CEO of Bank Leumi, Israel’s oldest and then second-largest bank, she had already concluded that the bank was facing two major challenges –
A. In the short term, a bloated expense structure had significantly eroded bank profitability
B. In the long term, technology was making its brick-and-mortar business model obsolete
Since Rakefet saw these threats as an opportunity to better position the bank for the future, she –
- Implemented significant changes in the executive team’s membership, their KPIs, and the overall culture, mindset, and organizational structure
- Identified and personally engaged in the resolution of several critical operational challenges that were encumbering the bank’s ability to focus on the transformation
- Remained visible to management and employees, continuously communicating an increasingly extended version of the vision
- Developed a vision for a new neobank with a “ digital body ” having innovative services and new capabilities – as opposed to a mere consumer-facing “ digital skin ”
Additionally, Rakefet needed to overcome customer resistance. She explained: “We didn’t want to serve customers via tellers and people. We wanted them to use digital channels. When we started to shift, customers didn’t like it. Along the way, we had terrible results in customer feedback surveys. One of the things we had done was close many branches.” In response to customer dissatisfaction, the bank was innovative in adding 200 new call center reps and expanded bank access, allowing customers to bank with any branch rather than be limited to their local one.
4. Set Aggressive Goals / Be wary of limiting your ambition
Research has shown that most CEOs’ level of ambition for digital transformation and innovation needs to be higher. Many companies have crossed the finish line of a digital transformation and innovation initiative only to discover that their efforts have barely kept pace with the world around them ! While it may feel daunting, most organizations would benefit by setting higher expectations. Furthermore, less ambitious projects can only get the organization so far before more ambitious efforts are required – if the objective is to create meaningful new value and prudently manage the changing nature of risk.
Although CEOs limit their ambitions for many reasons, sometimes it results from organizational constraints rather than strategic considerations. This is a poor justification to limit the ambition because a watered-down digital agenda means you’re not positioning yourself and the organization to evolve or realize potential and/or undermine an organization’s competitiveness or the CEO’s legacy ! Fundamentally , the CEO’s transformation and innovation goals and ambition should be equal to the scale of opportunity and/or the magnitude of the potential threat to the business.
For example – Ask yourself : “ What is needed to generate another $1B in revenue ? “
Enterprise Telco CEO on overcoming organizational constraints to a larger vision
The CEO of a major telecommunications business knew the organization wasn’t ready to execute on his ambitious digital transformation plan, but that didn’t stop him from launching it.
One way to overcome the chasm between the short-term difficulties and the longer-term payoffs was through plotting small steps. He explained : “ The CEO often has to create incremental visions as building blocks to that larger, more ambitious vision. I naïvely assumed we could move through the transformation quickly, but I had to adapt it to what people could digest. And I needed to provide proof points before going on a more ambitious journey. We didn’t change the direction or ambition – we just readjust the milestones.”
A real risk with this approach is that it’s tempting to be satisfied with these more incremental steps. To Innovate for Impact and a successful Digital Transformation that meaningfully improves outcomes, the need is to combine incremental changes and improvements into a longer-term vision. And recognize change starts with the discipline to pursue the objectives – and avoid drifting.
5. Assessing Innovation and Transformation Readiness
When a company’s innovation and transformation ambition is mismatched to its readiness, it is the CEO’s job to close that gap. But first, the CEO must assess the current level of organizational readiness for change. Organizational readiness spans four core dimensions that combine to determine the organization’s overall readiness:2
- Leadership : The CEO needs to ensure the C-suite and key stakeholders are motivated and capable of executing the vision, have a positive attitude, a willingness to change, and ability to develop a new mindset to create new value. This process might entail replacing key individuals who are not ready to adapt or contribute.
According to former Dow Jones and current The News Movement CEO William Lewis, an effective CEO “ has empathy and understands how building a harmonious executive leadership team is crucial for success.”
In addition to bringing in new people who are favorable to the effort, it’s also about encouraging existing team members to get on board with new thinking as well as the confidence they can meaningfully contribute to increasing relevance and revenue. For this to occur, the CEO needs to be pro-active, confident, credible, accessible, and transparent, as well as showing personal vulnerability. This is important to be more open minded, have a willingness to try, have a “ can do “ attitude, an interest and tolerance for change, a belief in the ability to overcome challenges, and a huge desire to realize the significant benefits from success.
- Culture : A significant barrier to readiness is the organization’s culture. Low cultural readiness typically takes the form of bureaucratic, reactive, and risk-averse ways of working that are at odds with the collaborative, proactive learning mindset needed for ambitious transformation and innovation initiatives.
In enacting cultural change, recognize communications is as important as the actual transformation of the systems and new innovations in the business.
In addition, a transformation and innovation ready culture needs metrics and rewards tied to organizational change and improvement. This includes making a percentage of leadership compensation contingent on change progress – based on relevant metrics for accountability and economic reward to the project’s success. With this – if the project goes well, we all win – If the project goes badly, we all lose.
- Structure : If the organization hopes to improve and operate differently, it may need to organize in a new way. Because change is frequently challenging for people, the CEO often needs to lead the reorganization of teams, assignment of new roles, revision of incentives, strategies to collapse organizational hierarchies or layers to increase agility, and implementation of a new initiatives to improve outcomes and demonstrate progress on people developing a new mindset.
With this, the CEO should also prioritize providing resources to recognize Innovating for Impact and Digital Transformation is not part time work. Dedicated resources should be put in place early to work out the logistics before implementing the changes across the business.
- Capabilities : CEOs need to equip their organization with four key capabilities to meaningfully improve outcomes from Innovation and Digital Transformation by having a superior capacity for change:
- Nimbleness : the ability to pivot or kill projects when circumstances merit a significant change in direction
- Scalability : the ability to handle an unanticipated increase or decrease in demand by many multiples over a short period
- Stability : the ability to maintain operational excellence and a results orientation, even while nimbly pivoting and rapidly scaling
- Optionality : integrating new capabilities, often from third-party partners, to quickly become more nimble, scalable, and stable
These capabilities, often enabled or “supercharged” by digital technologies, are critical factors for competing in an increasingly on-line, real-time, all-the-time world
– with rising User expectations and new notions of value.
Taking action as CEO
“You have to understand your organization to figure out how best to move it forward. There’s no simple recipe. It’s great to be a champion, but sometimes you need to give it a shove.”
– Dr. Barbara Griffith, CEO, Woman’s Hospital, Louisiana
The following chart plots ambition against readiness to identify four different transformation and innovation scenarios in which the CEO plays different roles (figure 2).
A. When both ambition and readiness are high, the CEO plays the role of “ Cheerleader ” and “ Score Keeper ”. They have articulated a strong imperative for change and a radical vision for the transformation, and the organization is energized and capable of making it happen. The CEO can ensure consistency between the vision and execution, help the organization stay focused on the new North Star, and surgically intervene to show support and overcome resistance.
B. When ambition is high, but readiness is low, the CEO needs to be significantly involved in execution. In this scenario, the CEO often needs to lead a culture and mindset change to get the organization to think and operate differently. This may include reshaping the C-suite and the broader executive or management team by replacing individuals unwilling or unable to support the transformation. The CEO plays a visible, public role in communicating the imperative for change and the vision for innovation and the transformation to the broader organization, focusing on the implications for the stakeholders affected (including employees, customers, shareholders, and the board, as well as the broader community). In extreme cases of mismatch between ambition and readiness, the CEO may consider the unusual step of temporarily “outsourcing” certain critical leadership functions to build momentum for change.
C. When ambition is low, but readiness is high, even if the CEO’s ambition is modest, pockets of the organization are likely eager for change, and the CEO should identify these people or groups and support their efforts. For example, marketers may look to their competitors’ digital marketing efforts and realize more is possible. In this scenario, the CEO should identify where those pockets exist and support the desire for change and avoid enlightened people from leaving the organization. More broadly, CEO hesitancy to embrace and lead important innovation and digital transformation, when necessary (which is the rule more than the exception today), should reflect on the conditions that will enable them to shift their mindset and behaviors.
D. When both ambition and readiness are low, the CEO needs to step back and reflect on balancing the tensions between the strategic imperatives and the organization’s realities. The CEO needs to understand the constraints on their ability to develop or execute an adequate vision to secure its long-term survival and success. They may need to expand their circle of advisors, seek input from thought leaders or enlightened people willing to challenge the status quo, and reflect on potential personal or organizational dynamics hindering their ability to push the envelope. Some of these organizational dynamics may be hard to ignore, but in many other cases, the barriers faced by the CEO are likely to be personal and hard to identify. Regardless, the CEO has the ultimate responsibility for preparing the organization for the future by identifying and addressing challenges and doing what it takes to get results.
Summary
One of the CEO’s most crucial roles in leading through change and disruption is to be ahead of others + be more ambitious about realizing “ the art of the possible ”. And recognize the endgame is the CEO driving the organization to – be better, evolve, create new opportunities, meaningfully increase relevance, revenue and value. And learning how to Innovate for Impact and leading a successful Digital Transformation is essential for a CEO and the organization to –
- Become more entrepreneurial and opportunistic
- Attract and retain top talent
- Create new wealth
- Better manage the changing nature of risk
- Improve the probability of success going forward
With these being significant benefits, please contact CAIL if interested in sharing insights or exploring the options to meaningfully improve outcomes in your organization.
Aug 18, 2022 – by Deloitte / CAIL – Business Innovation / Transformation – www.cail.com