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The Need for Executive Digital Competencies to Meaningfully Improve Outcomes

Innovating for Impact and Digital Transformation change –

  1. strategy, execution, processes, the business model, products, services, etc.
  2. many functions, company culture, core of the business, etc. over time
  3. what competencies and skills are needed to meaningfully increase relevance and revenue
  4. the nature of prudently managing risk

Not surprisingly, for these and other reasons, it’s often challenging to make these changes. To improve the probability of success, CEOs have to be digitally literate and get personally involved. Yet, many companies don’t have CEOs with these capabilities or experiences.  Because of this, how do CEOs have valuable insights on how to –

  • be opportunistic
  • value new digital services
  • assess how change will impact operations / Customers / and company personnel
  • address rising User expectations
  • navigate the changing business landscape
  • etc.

Further, without digital competencies, how does the CEO (and others in the C-Suite) have insights needed to create new wealth, better position the organization for the future, etc. ?    It’s a blind spot.  This is a huge issue in organizations not having high calibre digital competencies at the top.   

As business increasingly becomes digital and data-driven, many companies that once appeared to be built for success become structured to fail. That’s evident in the lackluster results that recent digital transformations have delivered; according to a recent BCG study, where over 80% of companies accelerated their transformation projects but 70% fell far short of their objectives !

Because Innovation and digital transformations change many things, CEOs have to be digitally literate and be involved to understand the nature and elements of the digital world, this includes being able to contribute to product design, the user experience, technology / product / services direction, etc.

As Tom Siebel, founder of Siebel Systems, recently wrote in McKinsey Quarterly, “What I’m seeing now is that, almost invariably, global corporate transformations are initiated and propelled by the CEO. Visionary CEOs, individually, are the engines of massive change that is unprecedented in the history of IT — possibly unprecedented in the history of commerce.”

Yet, it seems that many companies don’t have the kind of CEOs, top management teams, and boards of directors needed to meaningfully improve outcomes from innovation or achieve the objectives of digital transformations. According to a study of about 2,000 companies that was published in Sloan Management Review, only 7 % of new initiatives were led by digitally competent teams (where +50 % of the leadership are digitally savvy), with a firm understanding of how emerging tech and changing expectations, more options for consumers, etc. will determine their company’s success. Unsurprisingly, the companies with high digital competencies outperformed those without by 48 % in terms of revenue growth and market valuation.

Further, fewer than 25 % of CEOs and about 12 % of CFOs in the sample could be regarded as digitally proficient !  Even among those leading the technology function, just 47 % of CTOs and 45 % of CIOs made the cut; the rest focus on IT infrastructure and back-office operations more than capturing value from digital technologies. From this, it’s clear organizations need to rethink the composition of their Leadership teams.

Similarly, a MIT study of around 3,000 companies with over $1 billion in annual revenues showed that 76 % of boards weren’t digitally savvy — in terms of directors’ backgrounds, digital experiences, or interactions with executives on technology and related topics. Interestingly, companies with three or more digitally savvy directors on their boards reported 17 % higher profit margins and 38 % higher revenue growth than those with two or fewer directors !

To understand why Innovating for Impact and meaningful Digital Transformation is very challenging in enterprises has to do with their BOD having more control over traditional businesses than in the newer digital firms. For example, the board of a Silicon Valley company usually consists of tech company founders, the venture capitalists, and seasoned executives from digital companies – who understand technology, newer business models, the odds of success, etc. That’s why Amazon’s Jeff Bezos could say, back in 1997, that Amazon would make bold, rather than timid, investment decisions – of which some would pay off while others would not – and “we will have learned another valuable lesson in either case.” Unfortunately, that isn’t something CEOs and BODs of many enterprises say to their boards or shareholders !

While most CEOs don’t have digital competencies initially, most successful ones learn to understand some technology on the job.  For example,  Brian Chesky (Airbnb), Tim Westergren (Pandora), Sean Rad (Tinder), and Evan Sharp (Pinterest) are all non-tech entrepreneurs who set up digital giants. They focused on learning about their respective industries from a systems perspective, being involved in technology strategy, coming to understand systems concepts, doing computer programming, etc.

Tech companies succeed when they are led by a digital holy trinity – a world-class Product Head, User Design Chief, and Chief Technology Officer. While each of these areas may be led by experts in those fields, the CEO in a digital firm plays an active role in determining product requirements, designing user experiences, and making technology choices. In contrast, these roles are often buried in the corporate hierarchy in traditional enterprises (ie:  more than three layers deep in the organization where the CEO loses sight of, and involvement in, those decisions). Plus, there is the managerial bureaucracy and operational processes associated with product, technology, user experience, and decisions requiring lengthy reviews and inter-departmental approvals. The result in many enterprises is slow change and mediocre outcomes — which is the enemy of agility, efficiency, providing great value and UX, etc.

To get past this, not only do CEOs have to be digitally literate, but they also need to play the pivotal role as the change agent. To Innovate for Impact and do meaningful Digital Transformation is about so much more than adopting new technologies and processes. At its core, it’s about overcoming inertia and resistance to changing the way people think and work. The CEO needs to lead by example, inspire confidence in the vision, their leadership and belief in the new objectives, environment,  and destination.

It’s easy to see CEOs arguing in established enterprises that they can’t afford to be hands-on, that they hire great people, and that their role is to facilitate work. While that can work, the greater probability of success occurs when leaders are digitally engaged with the requisite knowledge. Further, an obsession with detail is important – as characterizes Amazon’s Jeff Bezos, Apple’s Steve Jobs, Google’s Sergey Brin and Larry Page and Tesla’s Elon Musk. It’s the same with non-tech companies led by digital leaders such as Nike’s John Donahoe and Starbucks’ Kevin Johnson. They all understand that focusing on change management, great products, and user experience isn’t living in the weeds – they’re the seeds of the future.

With every organization needing to become a digital and data business, every CEO, C-Suite Executive and BOD member needs to have digital competencies and be able to meaningfully contribute to the creation of new digital services, expanding revenue streams, further improving operational efficiencies, prudently managing the changing nature of risk, etc.  And since these are the building blocks to create value, expanding opportunities, increasing organization relevance and revenue, etc. – having decision makers with digital competencies are a foundation of success going forward.

March 15, 2022     By Dan Graves / CAIL Innovation commentary       905-940-9000