Because digital transformations change every process — from strategy to execution — and alter every function, they’re often challenging to pull off. CEOs have to be digitally literate and get personally involved if they wish to succeed. Yet, it seems that many companies don’t have the kind of CEOs, top management teams, and boards of directors they need to tackle digital transformations. Not only do CEOs have to be digitally literate, but they also need to play the pivotal role of the change agent. 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 from the front, inspire confidence in her vision, and rally the Company to believe in what might appear to be a distant destination.
As business increasingly becomes digital and data-driven, many companies that once appeared to be built for success suddenly seem structured to fail. That’s evident in the lackluster results that recent digital transformations have delivered; according to a recent BCG study, over 80% of companies accelerated their transformation projects last year, but 70% fell far short of their objectives.
Because digital transformations change every process — from strategy to execution — and alter every function, they’re often challenging. To successfully pull one off, CEOs have to be digitally literate and get personally involved. This means understanding the nuances of the digital world and helping to shape product design, user experiences, and technology direction.
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 they need to tackle digital transformations. According to a study of about 2,000 companies that was published in Sloan Management Review in March, only 7% were led by digitally competent teams; that is, a team where over half of the members are digitally savvy, with a firm understanding of how emerging tech will shape their Company’s success. Unsurprisingly, those companies outperformed the rest by 48% in terms of revenue growth and market valuation.
Fewer than 25% of CEOs and about 12.5% of CFOs in the sample could be regarded as digitally proficient, which comes as no surprise to me. 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. Clearly, companies everywhere need to rethink the composition of their top management teams.
Company boards aren’t that different either; another MIT study of around 3,000 companies with over $1 billion in annual revenues showed that 76% of boards weren’t digitally savvy — be it in terms of directors’ backgrounds, the number with digital experience, or the manner in which boards interacted with executives on technology-related issues. 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.
Don’t forget, boards exercise more control over legacy companies than they do over digital firms.
