Over the last decade, the C3.ai team and I have deeply engaged in a number of CEO-led digital transformations with customers across multiple industries and geographies. Through that experience, we have developed a proven methodology—the 10-point CEO Action Plan—to accelerate digital transformation success.
Getting started with a digital transformation initiative can be a daunting undertaking due to the challenges of both implementing new technologies and managing the associated business process changes. Many organizations are paralyzed into inaction. Others hurtle headlong into transformation projects without a proven methodology, reducing their likelihood of success. Employed by multiple organizations that have approached their digital transformation initiatives in a strategic and methodological way to great effect, the CEO Action Plan encapsulates best practices, providing a clear guide for organizations to move forward with confidence.
Rather than a sequential, step-by-step process, think of the CEO Action Plan as a set of 10 principles—or key success factors—to guide the transformation initiative. Some actions will be taken in parallel, some in sequence, and every organization will adapt to fit their particular situation. Ultimately, however, all 10 points are essential, as they touch on the key areas of leadership, strategy, implementation, technology, change management, and culture.
CEO Action Plan for Digital Transformation
The Opportunity Is Exceeded Only by the Existential Threat
1. Marshal the senior CXO team as the digital transformation engine.
2. Appoint a Chief Digital Officer with authority and budget.
3. Work incrementally to get wins and capture business value.
4. Forge a strategic vision in parallel, and get going.
5. Draft a digital transformation roadmap and communicate it to stakeholders.
6. Pick your partners carefully.
7. Focus on economic benefit.
8. Create a transformative culture of innovation.
9. Reeducate your leadership team.
10. Continually reeducate your workforce—invest in self-learning.
1. Marshal the CXO team as the digital transformation engine.
A leadership team committed to the digital transformation agenda is an absolute requirement and a first priority. Your C-suite must become the engine of digital transformation. Don’t take this to mean the CEO or CMO are suddenly writing code or wrangling new technologies. As Stephanie Woerner, a research scientist at the MIT Sloan School of Management’s Center for Information Systems Research, writes: “This need for digital savviness doesn’t mean that CEOs are going to be coding, but it does mean that enterprises are demanding that CEOs and other top-level executives know what opportunities digital opens up for their enterprise and how to create a digital value proposition that distinguishes their enterprise from others.”6
This is a change from previous eras when CEOs required only a rudimentary understanding of how technology worked. Today, CEOs have to keep up with a deluge of information about ever-changing technologies, able to decide what is relevant to the business and prioritize which new technologies to focus on, and which to filter out.7 Because competition, particularly from digital natives, can come from out of the blue, this task takes on more weight.
The senior CXO team needs to marshal the funding, resources, and relationships necessary to enable digital transformation.8 Reinventing a company requires this commitment from the C-suite to ensure the entire workforce is aligned behind the vision.
This is not a trivial task. It can be hard to get the C-suite on board. The CEO of a large European heavy-equipment manufacturer experienced this lesson firsthand. His mission to own and drive digital transformation as a core evolution across the business was clear—transform the company for agility, insight, and growth. But each business unit had individual priorities and an unclear understanding initially of what digital transformation meant. This created confusion and the misperception that the answer was to “buy IT.” Only after establishing a common understanding of the digital transformation mandate and clarity about its goals was the CEO successful in getting his CXOs on board.
Digital transformation requires adopting a long-term perspective. It requires moving beyond just measuring financial performance for the next quarter to also thinking toward a broader, bigger picture of the future and how the enterprise will fit within it.
It also requires a certain personality type. Leaders need to be able to handle risk, they need to be willing to speak out, and they need an experimentation mindset.9 Leaders must also be comfortable with technology and conversant with technology terms and concepts. This means spending time to understand the capabilities of relevant technologies and what the development teams are doing. CEOs need to surround themselves with a C-suite and a board that share these traits in order to propel transformation.
2. Appoint a Chief Digital Officer with authority and budget.
While the entire C-suite must be the driving force behind the digital transformation agenda, there needs to be a dedicated senior executive singularly focused on digital transformation results—a chief digital officer (CDO) who is empowered with authority and budget to make things happen. I have seen this model work very effectively.
The CDO’s primary role is chief evangelist and enabler of digital transformation—the one focused on the transformation strategy and who communicates across the organization on the action plans and results. The CDO needs to have, or be able to establish, strong relationships throughout the organization to help business line leaders transform their processes.
The CDO’s role is focused not just on IT implementation or technology change, but on enabling the full spectrum of digital transformation. The CDO’s role is to think about what’s next and how the organization needs to evolve in order to seize new opportunities, create new value for customers and the business, and manage potential risks and disruptions. Just as the chief security officer role took on importance as a result of threats posed by cyberattacks and breaches, the chief digital officer has taken on new urgent meaning in the age of digital transformation.
The CDO role is an important one but insufficient to broker all the functional innovation that needs to happen across the organization in order to transform. Best practice also requires a central organization to act as the hub of digital transformation—i.e., a Center of Excellence. A CoE is a cross-functional team of software engineers, data scientists, product specialists, and product managers who work collaboratively in an enterprise to develop and deploy AI and IoT applications. The CEO and CDO play key roles in forming, supporting, and engaging with the CoE.
The CoE is particularly important for training the broader enterprise to be self-sufficient in digital transformation efforts. The CoE team should locate together, as they need to work closely and with the rest of the enterprise to affect change.
The CDO may recommend complementing internal capabilities with outside partner help. This can be a useful strategy to jump-start a digital transformation initiative.
The CDO needs to have the full support of the CEO and the clear authority to assume responsibility for the digital transformation roadmap, vendor engagement, and project supervision. He or she needs to act as the CEO’s full-time partner responsible and accountable for the result.
3. Work incrementally to get wins and capture business value.
Just as vital as assembling and aligning internal forces is the need to capture business value as soon as possible. Three simple pieces of advice:
• Do not get enmeshed in endless and complicated approaches to unify data.
• Build use cases that generate measurable economic benefit first and solve the IT challenges later.
• Consider a phased approached to projects, where can you deliver demonstrable ROI one step at a time, in less than a year.
Many organizations get hopelessly mired in complex “data lake” projects that drag on for years at great expense and yield little or no value. The landscape is l
ittered with such examples. Trying to solve the issue of building an all-encompassing data lake for analytics and insight is an unfortunately common occurrence. One oil and gas company took years to create a unified data lake that materialized only on paper. A U.S. heavy-equipment manufacturer wasted two years with 20 outside consultants to build a unified data model, only to see no results at all.
GE spent over $7 billion trying to develop its moon-shot digital transformation software platform, GE Digital—an effort that ultimately contributed substantially to the failure of the company and the replacement of its iconic CEO.
A large UK bank invested over €300 million with a major systems integrator, attempting to develop a custom-built digital transformation platform to solve its anti–money laundering problems. Three years later, nothing has been delivered, the bank continues to be fined, and it now operates under strict regulatory supervision.
The corporate landscape is littered with lengthy, expensive IT experiments that attempted to build digital capabilities internally. Is this really your corporate core competency? Perhaps you should leave that to experts with demonstrated track records of delivering measurable results and ROI in less than a year.
The way to capture business value is to work out the use case first, identify the economic benefit, and worry about the IT later. While this may sound like heresy to a CIO, a use-case-first model allows for focus on the value drivers.
By adopting a phased delivery model—this is essentially the agile development model popular in software development today—teams can achieve results faster. With a phased model, projects get addressed and delivered in short, iterative cycles aimed at continuous incremental improvement, each contributing additional economic benefit, enabling teams to focus on the end result and the “customer” (whether internal or external). For team members, this has the psychological benefit of helping them feel involved in productive efforts that contribute to company growth, instilling motivation around concrete digital transformation efforts.
4. Forge a strategic vision in parallel, and get going.
Digital transformation strategy should be focused on creating and capturing economic value. A proven approach is to map out your industry’s full value chain, and then identify steps of this value chain that have been, or that you expect to become, digitized. This will help you understand where your gaps are. Figure 11.1 shows an example of this mapping in the manufacturing industry.
FIGURE 11.1
Your value chain map—and your strategy—might initially center on inventory optimization, production optimization, AI predictive maintenance, and customer churn. How you sequence your strategy depends on how and where you can find business value. You should sequence these projects in the order that offers the highest probability of delivering immediate and ongoing economic and social benefit. Don’t boil the ocean. Tackle these projects in a phased approach proving out your strategy, fine-tuning your processes, and adding value to the enterprise incrementally with each project deliverable.
Two key elements of developing your strategy are benchmarking and assessing the forces of disruption in your industry.
Benchmarking
Like all aspects of business, digital transformation happens in a competitive context. You will want to benchmark your enterprise’s digital capabilities against those of your peers and best-of-breed exemplars. Where is your industry as a whole on the digital maturity spectrum? Who are the digital frontrunners in your industry? How do you compare with them? These are the critical questions you’ll need to answer to get an effective lay of the land.
A benchmarking process might be as follows: (1) audit current approaches to digital transformation in your industry; (2) rank your capabilities against peers; (3) identify best practices from more advanced peers; and (4) develop a roadmap for improving capabilities. Online benchmarks for measuring an enterprise’s level of digital transformation abound.
Once you’ve taken stock of your organization’s digital capabilities, you can begin to try to understand how your industry might be changing and how you need to be prepared for that future. Clearly identify the existential threats to your company in the coming decade. Think about alternatives to turn those threats into areas of strategic competitive advantage.
Assessing the Forces of Disruption
Developing your strategy requires an assessment of your industry and the forces of disruption likely to shake it up. This is challenging. It means identifying threats not only from known competitors but also from unexpected areas, as countless examples in recent years have amply demonstrated. These could be competitors pursuing a higher-quality approach, low-cost upstarts, more nimble digital natives, companies that provide more visibility/insight, or existing entities expanding into new areas. Threats from foreign competitors are possible. Reputational threats, from security issues or PR problems, are more pressing than in previous eras.
Consider, for example, the impact Amazon, JP Morgan, and Berkshire Hathaway had when they announced in January 2018 intentions to enter the health care market. Stocks of existing insurers and drug retailers plummeted.10 Or the impact of Netflix on Blockbuster. Or Uber and Lyft on taxis, and so on.
Bain & Co. uses a model to focus on industries that could be digitally disrupted. Those industries that could benefit from real-time information, improved allocation of goods or resources, intelligent automation of highly routine processes, or improved customer experiences are all ripe for disruption. (See Figure 11.2.)
A few key measures help to indicate if your industry is particularly vulnerable. The first is operational efficiency. Are incumbents operating with high operating costs and facing pressure to improve efficiency? This could foretell the potential for new entrants that can operate with lower margins and greater efficiency.
Next, think about barriers to entry. Are regulation or capital requirements the sole reason large incumbent players are able to thrive in your industry? This could be an indicator of the potential for a new entrant to completely shake things up by bypassing these barriers. Look at how Airbnb has upended the lodging industry by sidestepping existing regulations.
Finally, think about to what degree your industry has high dependency on fixed assets. In the age of digital transformation, a high dependency on fixed assets can be a potential weakness rather than a strong barrier to entry. For example, banks need to reassess their investments in physical branch offices as consumers increasingly embrace digital banking channels. In today’s world, investing in AI-enabled processes is likely to deliver a significantly higher ROI than opening a new branch office.
On the flip side, the existence of proprietary technology, high operational efficiency, and control of distribution channels are all indicators that your market is less likely to be disrupted in the near future.
Understanding where your company and your industry sit in terms of their susceptibility to disruption will help guide critical strategic choices. The right time to start taking control of your unique state of disruption is now.11
5. Draft a digital transformation roadmap and communicate it to stakeholders.
At this point, you’ve convinced your C-suite to get on board, you’ve surveyed your industry landscape, taken stock of your own digital capabilities, benchmarked yourself against your peers, and taken lessons from digital leaders. It’s time to draft your enterprise’s own roadmap and set a game plan for communicating it to stakeholders across the organization.
FIGURE 11.2
As BCG writes, “This involves building a portfolio of opportunities—identifying and prioritizing functions or units that can benefit most from transformation. It also involves locating and starting to address roadblocks to transformation. During the design phase, companies also invest in framing and communicating the vision for the transformation to build support for needed changes, and they invest in systems to industrialize data analytics—making analytics a resource for every operation.”12
First, clearly define a future vision for yo
ur digital business. What does your ideal future state look like in terms of your organizational structure, people and leadership, product and services, culture, and adoption of technology? Use this ideal future state to compare against your current state and zoom in on any gaps. Put your transformation on a timeline with clear milestones—make the timeline aggressive, but not so aggressive that it becomes unfeasible and just gets ignored.
The best digital transformation roadmaps involve concrete plans and timelines to bring advanced AI applications into production. The development and rollout pace will depend on your specific objectives and circumstances, but in our experience a relatively small group can bring two large-scale AI applications into production every six months. A typical roadmap for a large global company is outlined in Figure 11.3.
Your roadmap will serve several purposes throughout your journey. First, it will be a concrete, actionable game plan against which to measure your company’s progress. Your plan might change, of course, but this roadmap will still be a useful bellwether for your progress. It will help keep your transformation on track. And it will help you unlock and measure business value early and often. Finally, it will be an actionable plan for your entire organization to align behind. Remember, associated with each project you should assign an expected recurring annual economic benefit. Focus every project on the attainment of that target. If you cannot quantify the expected benefit, scrap the project.
FIGURE 11.3
Organizational alignment is critical. As a business leader, you need to communicate effectively and sell your vision to stakeholders across the organization. Changing the organization, its culture, and its mindset requires buy-in from across product lines and stakeholders, not just at the C-suite level. As McKinsey senior partner Jacques Bughin writes:
It’s now widely understood that a digital transformation needs active CEO support throughout the journey. This top-down support, however, has to go beyond the chief executive. Companies should start by putting a chief digital officer in charge of the full digital agenda. Truly changing culture, moreover, requires that support for a digital reinvention flow through the management hierarchy right down to every front-line employee, so the full organizational pyramid is tuned towards digital. All leaders need to shift their style from top-down decision-maker to coach.13
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