How the CEO’s leadership in digital transformation can tip the scales toward success

The goals and objectives of digital transformations vary significantly. Some involve implementing a new enterprise resource planning (ERP) system, for example, while others move the entire organization to the cloud, begin to leverage artificial intelligence (AI), or focus on new customer-facing mobile applications. But the CEO’s ambition for the digital transformation should go well beyond implementing new digital tools because they’re readily available or trendy. It should encapsulate how the transformation adds real value to the organization. Therefore, the first question for the CEO to answer is, How extensive is my ambition for our digital transformation?

We’ve identified five levels of ambition that characterize the digital transformations we’ve seen (figure 1). For example: Am I looking to digitize my existing business model? Do I want to develop a new product? Am I hoping to disrupt my industry?

Regardless of whether or not the CEO is involved in lower-level transformations, the CEO’s singular, big-picture vision should guide them. This vision should embody a strong “theory of the case” articulating why to pursue the transformation, as well as a blueprint for how the transformed organization is expected to create value and competitive advantage.

And organizations won’t necessarily focus on one level at a time or move steadily up the ambition scale as they evolve. Instead, they’ll likely 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 digitization

Level 0 transformations are foundational initiatives that digitize existing processes with minimal change in other aspects of the business. Much of the work involves taking analog processes (such as filling out paper forms at a doctor’s office) and making them digital (switching to office tablet computers or preregistration online). While these efforts aren’t necessarily “transformative” in the most sweeping sense, they’re often essential incremental changes that set the underpinning for a more ambitious transformation.

CEOs frequently initiate level 0 transformations, but they usually delegate much of the execution, supporting their team only as needed (we call them level 0 because the CEO typically doesn’t need to be heavily involved). That’s appropriate considering the transformation’s limited scope for change. Besides clearly articulating the imperative for change and ensuring appropriate communication and collaboration within the executive team, the CEO’s most frequent task may be to remove obstacles rather than take a personal hand in running the effort.

Advanced digitization, entering new markets, and creating new products

Levels 1 to 3 go beyond incremental digitization by aiming to extend the existing business offerings to pursue new sources of revenue and value creation. These transformations affect all parts of the organization and require intense collaboration across the C-suite. Moreover, they often need extensive and ongoing change management throughout the organization.

While existing C-suite key performance indicators (KPIs) won’t need to be changed, a transformation within one of these levels will require new mechanisms to track its execution. Sometimes, this can go as far as creating a dedicated group: Giny Boer, CEO of fashion retailer C&A Europe, told us that she “set up a whole transformation office to determine if [our digital transformation efforts] are on track.” A level 1–3 transformation will also likely require new ways of communicating and collaborating across organizational boundaries, and the CEO often needs to get involved to put them into effect.

Radical business transformation

Level 4 transformation fundamentally changes the business model—how an organization operates or makes money. In level 4 transformations, the CEO’s role shifts from merely championing the transformation to embodying it. The CEO’s vision for change becomes the rallying cry around which the organization reconstitutes its structure and culture.

All transformations take relentless advocacy, engagement, and inspiration, as they are frequently riddled with hurdles, obstacles, and pockets of resistance. But as level 4 involves wholesale changes to the organization, these challenges take greater CEO involvement to address. Doing so isn’t always easy. For example, the CEO may need to redefine or, in extreme cases, even eliminate the role of many executive team members, as well as create new KPIs. Level 4 transformations likely also require a different horizon of measurement (for instance, years versus quarters), giving the CEO the huge job of managing board, investor, employee, and others’ expectations on the duration and concomitant fortitude needed for a level 4 transformation.

Be wary of limiting your ambition

One observation from our research is that most CEOs’ level of ambition for digital transformation isn’t ambitious enough. Many companies have crossed the finish line of a digital transformation only to discover that their efforts have barely kept pace with the world around them. While it may feel daunting, most organizations could benefit from aiming a level or two higher. Furthermore, less ambitious transformations can only get the organization so far before more ambitious efforts are required.

Although CEOs limit their transformational ambitions for many reasons, sometimes it results from organizational constraints rather than strategic considerations. This reason is a poor justification to limit the ambition because a watered-down digital agenda could damage an organization’s competitiveness and the CEO’s legacy. The CEO’s transformation ambition should be equal to the scale of opportunity or threat the CEO identifies.

Assessing transformation readiness

When a company’s 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: CEOs need to ensure that their C-suite and other key executives are motivated and capable of executing the vision. The CEOs we interviewed consistently emphasized the importance of the leadership team supporting the transformation vision and having a positive attitude and willingness to transform. This process might entail replacing key individuals who are not ready to 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.”

But it’s not all about bringing in new people who are favorable to the effort; it’s also about bringing existing team members on board. According to the CEOs we spoke with, being provocative, accessible, and transparent, as well as showing personal vulnerability, are all strategies to create internal engagement and tolerance for change.

• Culture: A significant potential 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.

In enacting cultural change, “communications [are] as important as the actual transformation of the systems,” said Owen Wilson, CEO of REA Group Ltd., a multinational digital advertising company that focuses on property.

In addition, a transformation-ready culture needs metrics tied to organizational change. Ohio Health CEO Stephen Markovich, for example, made a percentage of leadership compensation contingent on the transformation’s progress metrics. “It’s not just tying accountabilities; it’s tying the economic reward to the project’s success,” he said. “That way, if the project goes well, we all win. If the project goes badly, we all lose.”

• Structure: If the organization hopes to operate differently, it may need to organize differently. CEOs often will need 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 governance structure.

CEOs should also prioritize securing adequate resources. Digital transformation is not nights-and-weekends work. Dedicated resources should be put in place early to work out the logistics before implementing the changes across the business. Marc Huffman, CEO of accounting automation software leader BlackLine, acknowledged the importance of a dedicated team: “Digital transformation [is] a full-time job. It doesn’t get done if you don’t dedicate full-time people to the effort.”

• Capabilities: CEOs also need to equip their organization with four key capabilities to harness digital for a superior capacity for change:

o   Nimbleness: the ability to pivot when circumstances merit a significant change in direction

o   Scalability: the ability to handle an unanticipated increase or decrease in demand by many multiples over a short period

o   Stability: the ability to maintain operational excellence and a results orientation, even while nimbly pivoting and rapidly scaling

o   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 disrupted world.³

Taking action as CEO

We’ve plotted ambition against readiness to identify four different transformation scenarios in which the CEO will play different roles (figure 2). These scenarios are more illustrative and directional than definitive. They don’t necessarily represent reality—rather, they represent an archetypal reality that may be instructive as CEOs determine their type and scale of involvement in digital transformation initiatives.

When both ambition and readiness are high, the CEO plays the role of “cheerleader” and “score taker.” They have articulated a strong imperative for change and a radical vision for the transformation, and the organization is energized and capable of transforming. The CEO can ensure consistency between the transformation’s vision and execution, help the organization stay focused on the North Star, and surgically intervene to overcome local resistance.

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 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 start up the momentum for change.

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 support those 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 lest these employees begin to leave the organization. More broadly, CEOs hesitant to embrace and lead digital transformation when necessary (which is the rule more than the exception in today’s disrupted world) should reflect on the conditions that will enable them to shift their mindset and behaviors.

Finally, 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 original thinkers 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. Ultimately, the CEO is, more than anybody else, the custodian of the future and distinctively responsible for preparing the organization to face its challenges.

One of the CEO’s most crucial roles in leading through disruption is to be ahead of the organization and be more ambitious about realizing “the art of the possible” than everyone else. Panote Sirivadhanabhakdi, group CEO of Singapore-based multinational real estate firm Frasers Property, puts it this way: “The endgame is making sure I drive a better organization that allows us to evolve even after me.” Leading a successful digital transformation is one way a CEO can get there.