Unleashing value from digital transformation: A real-world perspective

Q: Digital transformation is for organizations. But getting it right can be difficult. There’s no one-size-fits-all equation for figuring out what to do, how to do it, and how to assess the value it yields.

We’ll unpack it all today on the Press Room …

I’m Tanya Ott, and my guests today are uniquely situated to help us tackle the issue of tech value. 

John Marcante is the current CIO-in-residence for Deloitte Consulting LLP, but he spent most of his career at Vanguard in a mix of technology and business jobs. At various points, he was Vanguard’s Global CIO, but he also ran the high-net-worth business and wealth management.

Also joining us is Tim Smith, who heads up Deloitte Consulting’s Tech Strategy and Business Transformation practice in the United States and leads the global team in digital transformation research. Earlier this year, Tim’s team released a large-scale study assessing the way companies talk about digital transformation and how that talk translates into value. 

We’ll dig into that study in our conversation, but first I wanted to ask John to flesh out his resume a bit more because I think there are useful takeaways in how he’s approached his career.

Marcante: So, I started really early on, and I'll give away my age, but really early on as a programmer. In fact, I was one of three programmers in high school, or at least one of the three kids in high school that were allowed to program on the high school computer systems. In high school, I was a developer and I told no one because back then it wasn’t cool to be a geek. Today, it’s absolutely cool to be a geek, but I probably would never have had a date in high school if I would’ve told people I was programming.

But yeah, long-time programmer. I joined General Electric right after college in a computer science and engineering role. Spent seven-and-a-half years at GE, went through a management program in technology, and then I joined Vanguard in 1993. And Vanguard was really kind of a small startup, insurgent startup located in Pennsylvania, had one location and it’s grown to, I don’t know, probably an US$8.5 trillion company,¹ a global company today.

Q: So you are rising through the ranks with that back and forth between business and technology. As the global chief information officer, you helped to lead a massive transformation effort at Vanguard. First, set the scene for us. What was going on at Vanguard at that time that needed a reboot?

Marcante: In 2012, I moved to the global CIO role. And, you know, what do you do when you move into a role? You go out on a listening tour. So you spend a lot of time with your crew, your employees, your developers. You spend a lot of time with clients, external clients. You spend a lot of time with internal stakeholders. And it was really hard to hear, but back then, what was really interesting is you would spend time with a stakeholder and a stakeholder would say, look, at the end of the day, you know, I want to get a few things done, but—and this is a direct quote—but changing a line of code, one or two lines of code, costs US$1,000,000; it's a six-month effort and it’s really, really costly, which is, you know, an interesting thing to hear. Clients just wanted to do what they needed to do seamlessly and quickly.

Vanguard [was] measuring back from 2012, and we still do today, employee engagement. We have an external firm measure of how engaged our employees are. We take it very, very seriously. But IT was the worst performing, worst engaged organization back in 2012. In fact, I think it was about 27%. So less than a third of the staff in technology were engaged in what we do.

So that’s where we started. I think that caused a big drive for change. I think a seminal point was our chairman back then, Bill McNabb, and I took our senior team out of Silicon Valley in 2012, maybe beginning of 2013, and we spent time with startups. We spent time with large tech firms. We spent time with venture capitalists, Mark Andreessen, as an example, Andreessen Horowitz; Eric Ries, who wrote The Lean Startup ... and we were enamored [with] two things. We were enamored [with] how fast startups can move. And we were enamored with the insurgency of startups, like their mission, their drive, [and] their passion to overturn things. And that was the start for us in creating a new way of doing things at Vanguard. A lot of that had to do with tech, what we would call digital transformation, but that I think was the seminal moment for us early on.

Q: So I think 2011, 2012, 2013, that was a time when a lot of folks were really like go watch the startups, do what the startups do, fail fast, fail forward, all those sorts of things. I wonder what that environment was like for you, Tim, in talking with folks who were going through this and how you navigate is that the right approach for them? Is it not? Is this, you know, just something that's very popular?

Smith: The replication of enterprise agility is not one-size-fits-all, and that’s been a recommendation that we’ve been trying to tailor to any client we run into. In fact, as part of the research we’ve been doing for digital transformation, one of the things we checked is that when enterprises were making these large bets to transform the nature of their enterprise by some new technology domain, by digital thinking, etc., we looked at statements made as to how often they were just focusing on things like agility, how often they were just focusing on getting the workforce to mobilize via digital thinking. And what we found is that enterprises that only focused on that, but did not link that back to broader strategies, did not link that back to the essence of who they were, actually, were in a pretty bad spot in terms of how they created value, etc. So the fail fast and break things aspect certainly works for the right enterprises, but if there is no throughline back to the strategy, we ask folks to maybe pump the brakes a little bit to understand whether that's really suited for them.

Q: John, you’re nodding your head there.

Marcante: (laughs) Yeah, because it’s just obvious today that technology and strategy, they’re just intertwined. They’re the same thing today. And you’re right; one of the challenges is to really ingrain your mission to change things—whatever the transformational change is—to real strategic things that are meaningful for you.

And it just reminded me of a story. Quite a few years ago, after we embarked on our digital transformation and we were doing quite well, Bill, [who] was the chairman of the company, took his team, 10 of us out to Boulder, Colorado. And the mission for us in Boulder during the strategy session was to try to figure out what the next generation of growth was for us. We had done a lot in the mutual fund ETF (exchange traded fund) world, but what was the next thing that Vanguard was going to disrupt? And we came out of a few days of work with the idea of disrupting financial advice. And then, at the end of it, you know, Bill turned to Tim Buckley, who’s the current chairman of Vanguard—at the time, Tim was the chief investment officer—he turned to Tim and I and said, look, “we got a board session coming up, you guys get to take this idea and make it real.”

So we go to the board, we pitch this idea of an internal startup and we want to put our best wealth management people, our best investment people, CFAs, our best technology people, marketing, and product people; we’re going to put them all together in one organization. We want it to report to me, the CIO, with the idea of creating this global platform that will allow Vanguard to roll out low-cost financial advice, not just digitally, but with users, so it would support Vanguard's financial planners. And not just in the United States. In every market globally we care about. And so, we go to the board; we put out these lofty statements—they sign up.

Fast forward, Vanguard rolls it out in the United States. We roll it out and create a direct market in the United Kingdom with financial advice. We go on a joint venture in China. We roll out some capabilities in Australia. We roll out in Germany. We [could] go back and said, we’ve done it. We’ve created a second engine of growth. But the point being is all of that is ingrained in strategy. And if you’re just doing this because you know your competitors are doing transformation, then you’re doomed to fail. You’ve got to do it for some noble mission. You’ve got to do it for some meaningful reasons, for why you want to drive change.

Q: Tim, what was it about Vanguard’s approach that caught your attention?

Smith: It’s exactly what John hit, right? That there was intentionality throughout all of it as to what to take on.

So, as an example, we get in conversations in which— it feels relatively fundamental, but you would be surprised—where we say, “Look, ultimately, whatever you’re going to take on with technology, it’s just an enabler. Let’s be frank. Right? It is a tool that you need to wield. You need to understand how to wield it. It’s got to be something that not only justifies the massive capital that you’re putting in right now, but it’s something that will sustain whether your stakeholders change, whether they get new jobs or the underlying technology happens. So let’s all step back and just make sure we get the strategy right.” And you would be surprised, even with those conversations, we run into folks saying, “Understood, but what do I do with gen AI?” or “Understood, but I hear 5G is going to be the right thing for me.” And we’re like, “maybe.”

So when I hear the Vanguard discussion and the thoroughness about talking about the ecosystems—just the web that has to be coordinated, linked back to the strategy ... that’s what we love to hear.  Because at least Vanguard is making sure in that approach and any enterprise that’s taking on that approach, you’re covering all your bases that, again, you can justify to anyone why this is the right move, why it involves that lift. Like, look, a lot of work that we do on technology, and John mentioned it earlier, some of those individual business cases if you really get into it and look at it, there’s a lot of sweat equity that you have to put in there, like opening up an application and totally changing it for something that’s baked and it’s running and it’s humming for a given business stakeholder. That’s hard to explain to them why, over the longer term, that’s going to pan out. And the only way you can do that is to tell a broader story and to tell a broader story that’s going to change the enterprise and their part to play.

Marcante: I was just going to tag on because I think what Tim said, he said it perfectly, but you know, you're doomed if this thing is a technology initiative. Like, if your transformation is all about a technology initiative, you’re doomed. It really has to be CIO- and C-suite–led. These are things that people care about. You’re talking about the next engine of growth for the company. This is true strategy for the company.

As an example, I think one of the things to watch out for is—and this is what we hear clients talk about—how do I get alignment behind my drive for digital transformation? And that’s just the wrong question. Digital transformation is subservient to your strategy. And I think once you get that and once you have the CEO and the board behind you, that and everything that you're doing from a technology standpoint really is in line, a prerequisite of what you need to do in order to deliver the strategy [is] true alignment around the company.

Q: John, I’m going to out you here for a moment. In your copious free time, you spent a decade writing young adult novels.

Marcante: (laughs).

Q: And I couldn’t help but think about the adventures in your young adult novels and how you spun tales there, and also think about how creating the narrative around a vision is so important—being able to not only communicate the value proposition but also inspire people. I’m wondering if you have ever thought about it that way, that there’s like a connection between these two sides of your life.

Marcante: I haven’t really ever, ever even had that question before. But, I do think while you asked it, what pops in my mind is, there’s a creative art in telling a story. A story can be powerful. It can be meaningful. It can show the culture of the organization, a noble mission of why you do it. And let’s face it, part of what we do is strategy. Part of it, a good chunk of it, is execution. And in execution, you’ve got to take the entire organization with you. You do that by being a good storyteller and carving out the why.

The reality is, you know, 54% of our employees are more likely to stay with us over a five-year period if they’re purpose-driven, if they understand the mission of the organization. Not only that, they’re 30% more likely to be high performers that give that discretionary effort that’s required in order to do something big. And it really comes from defining the why, what is your true purpose, and then putting a spot on the wall and saying, well, in order to deliver that, we need to be here and [this is] where are we today, and now driving everyone through an execution plan that gets you from where you are today to where you need to be. 

If you were to ask me a decade ago, what's going to be hard part, I would have said ah the technical challenges. Well, the hard part today, you know, looking back, the hard part was culture.

Q: Tim, you published a really interesting article on Deloitte Insights that was called Unleashing the value of digital transformation. We can talk about mission and vision and all those sorts of things, which are core to it, but we also talk about, you know, what’s going to happen, what’s the end result? And in your article, Tim, you have the three things [companies] should do. And first of all, I wanted you to explain what it was you and your research team were interested in. What was the question that you were asking when you were doing this research?

Smith: We have a body of work regarding digital transformation that’s been ongoing for quite some time and the genesis around it all was just demystifying what digital transformation is. Everybody runs around and talks about it, but can anyone really point to exactly what it means? It means everything and nothing to a lot of folks.

So step one in that research was to ultimately define what it is, based off a host of research and interviews. In our view, it’s really about applying technology for growth and competitive advantage. But once we nailed that, to say, okay, but is digital transformation or digital thinking really that much different than just good strategic planning? And the answer is not really. There's really not much distance between corporate and enterprise strategy and digital strategy and digital thinking.

So then we went further down the rabbit hole to say, okay, fine, now that we know what it is and how you think about it as an enterprise, what are the tips and tricks to really make digital transformation succeed? We talked to a host of CEOs and came up with the different types of digital transformation, whether you’re digitizing or whether you’re really boldly reinventing.

And then to your question, Tanya, after all of that was done, we felt good saying, okay, fine, if you really know what digital transformation is about, if you’re really strategic about what you’re trying to hit, if you’ve really thought about some of the tips and tricks, how are you sure you’re still going to see the returns? There are so many things that have to go right for digital transformation. It’s not a one-and-done–type thing. It’s continuous. Where is the value or how do you increase those odds? That’s not something that you can answer via anecdotes. That’s not something you can answer via use cases.

What we decided to do was to try to answer that at scale. We went and looked at 10-Ks over the past 10 years or so for Fortune 500s, because that was standardized on US cap. And then we just did a statistical analysis. We used natural language processing to look for keywords about digital transformation. When an enterprise was stating out to the Street exactly what they were doing for digital transformation, we looked at ultimately what they were saying and whether there were patterns in there that yielded higher or lower market cap positions. And so what we looked at ultimately is that, yes, there are some patterns in there, three major ones.

The first one is enterprises that are talking an awful lot about what we call their digital strategy. We are using a promise of digital or digital thinking to enter new markets or stand up new products or change customer experiences. Then we would see enterprises talk about technology strategy. We’re using AI to delight our customers by bringing to bear new data and insights. And then we would see folks talk about digital change. We mentioned this earlier, which is we’re going to change our operating model. We’re going to be agile everywhere, [with] new ways of working, digital skill sets, etc.

So we looked at all these patterns. And the long and the short of that was the enterprises that were the most intentional in statements in 10-Ks about their digital strategy, the tech bets they were making aligned to that digital strategy and the enterprise moves, the change they were enacting, all of those that were coherent and clear and you could tell in the statements that they were mentioning all of it and they would do so with quite high-density—they were in the best spot. If everyone in the Fortune 500 behaved as they did, we were talking about a market cap increase of about US$1.25 trillion.

Funny enough, when we started looking at these individually, the ones that were actually in a bad spot—not the worst, I’ll get to that in a second—were those that just talked about change. So enterprises that were talking to the Street about how they were digitally transformed with new digital skill sets, they’re going to be digital everywhere, they’re going to fail fast. You can think of a whole bunch of words that they could state, but then there was no through-line strategy or technology or anything like that—it was better off [if] they stated nothing at all. It turned out that they were actually in a market cap–erosion situation.

But the ones who were in the worst spot were those that talked about their digital strategy, they knew what they wanted to do, they talked about the technology they were betting on, but they had no mention of the change. So they didn’t talk about how they’re going to bring the enterprise along with it. If all enterprises behave that way by the statistical analyses that we had, there would be actual market value destruction of about US$1.5 trillion.

So I’m not here today to be like, here’s the exact equation that if you do X and Y, we can tell you it’s going to be these returns. But more importantly, the biggest message was, think of these extremes. It was basically a 14% swing in terms of creation or erosion based on how intentional you were. And the fulcrum was, simply put, change. How well you were mobilizing the enterprise to not only catalyze these transformations, but to sustain them. When we discuss this with folks, everybody feels it on the ground. You’re like, yes, I understand it. That’s what I feel like at the micro level. But now we have the macro results that should stiffen the spine for anyone that’s coming across these digital transformations or trying to shape them. Like, if you don’t see these two things together, is it worth your while?

Q: John, you’ve been at this—don't take this the wrong way—but a really long time.

Marcante: (laughs)

Q: I’m wondering how you may have seen the way that companies go about measuring the value that they get out of a tech investment, how that’s changed over those years.

Marcante: That's a great question. It has changed. I actually think it was more difficult in the past. It was harder and here’s why. In the past, we came from very siloed organizations. There’s technology and there’s business lines and it’s very siloed. And it was a lot about negotiating with your business partners. The conversation tended to be, well, we’ll spend this on technology and we’ll get these efficiencies and this productivity. And by the way, the CFO is going to build that productivity and efficiencies into your budget. So inevitably, the change cost more than what we did in the old days. It was going to cost more and the budgets got rationalized. So when it was time to take it out of the budget, it was like, well, things have changed, we got more business, blah, blah, blah. I think that’s the way the past looked.

Today, I think, is much different. Today’s technology is integrated in everything we do. Cross-functional teams are focused on the same outcomes. Teams are accountable to their businesses, to business outcomes, and to client outcomes. And in a true product organization, we tend to measure things like growth, conversion rates on the website, whatever your growth measurements [are], but it’s your business client outcome, it’s revenue, it’s efficiencies, the client experience. I think today more integrated teams means, for us, it’s no longer about time, schedule, cost, it’s about achieving the business outcome, it’s about measuring and achieving those outcomes. And when you don’t, it’s don’t be tied to your idea. If you have a fast foundation, we’re going to pivot. We’re going to move quick in order to achieve those outcomes.

Smith: We had a survey that went out to folks as to how they measure value for digital transformations [and that] hardens what John was talking about. We ask, ultimately, what are the challenges in measuring digital transformation for you and I? The top four were effectively the following: Number one was lineage—how do I trace a through line from believing that this is going to impact customer efficiency to this degree down to then, okay, exactly what functional changes do I have to make? And then down to the what has to happen to the applications and the infrastructure and the data, like understanding that if I expect to see X change in this value, do I truly understand what I'm pulling lever-wise to get that done?

The second was folks getting stuck between direct and indirect measures. Almost like analysis paralysis, where they’re like, well, this is very clear to me. If I bring in this net new platform, I can get rid of this old one. This old one cost X. Okay, fine, that’s a direct benefit that goes away. But then all of the indirect and the knock-ons that happen on that. You come up with net new technology that is going to allow you to inculcate, for example, new engineering culture, that’s going to attract more tech talent to you. They’re going to more excited to be working on that. That’s really indirect and hard to size. [So] folks being stuck on wanting to embrace the math, which is super important, but also not sure if they capture it all and that that diminishes how much they can get.

The third is this dirty data. No matter how hard they try to pull it, they can’t get it to actually measure the metrics the right way. They’re not sure exactly where to measure it in the system once it goes live.

And then last, but not least, organizational silos, digital transformations. There’s not one overarching digital transformation for an enterprise that everybody salutes to. There are a whole bunch. And if you are rallying different business units to get it done, they all think about metrics and how they calculate a different way.

All of those combined make it really hard to not only size the digital transformation, but again to measure it. It is getting better, especially because of some of the sophistication, financial-modeling tools that are out there, especially because of the adoption of cloud, etc. But there’s still a journey ahead.

Q: What are the burning questions that you two hear from tech leaders, like what keeps them up at night?

Marcante: You can’t start any conversation without talking about cyber. I mean, cyber keeps people up at night for sure. But, you know, in today’s modern world, risk mitigation is kind of built into those platforms. As you build new technology, build microservices, you deliver on cloud-native services, you’re allowed to think about risk and build it into the application. I think these old monolithic applications, it’s kind of bolted on. So there’s a safer journey to tearing down old monolithic applications [where] one change brings the entire system down to really implementing more modern applications. I think that’s one thing.

I think from an organizational topic, you hear a lot about the proliferation of tech chiefs. You know, it’s the CIO, the CTO, the CDO, the CxO, [or] the CSO. (laughs) I was lucky enough in my organization to have all of the technical chiefs report to me, but most organizations don’t have that. And I don’t think they actually need it, but what happens when you have a lot of people with technical roles and technical chiefs, you run the risk of having a lack of accountability and unclear roles and responsibility. I think one of the things that we have to have is we have to together create alignment and direction. We have to create a spot on the wall that we’re all moving towards and we have to ensure our roles and responsibilities are clear. We can do that without directly reporting to each other. We can do that in a matrix organization, but you have to put a lot of effort in that.

Smith: The burning question I alluded to as well earlier was harnessing the power of data analytics and AI. Everyone staring at what I can do to their process flows through their insights to how they automate. Folks understand the potential, but there’s still lack of clarity as to how they get there.

What I mean by that is maybe to use the term data debt. It’s one thing to say that you’re going to be an insights-driven organization, you’re going to be able to harness or leverage all the data you have to be that much more disruptive in the market. But it’s the plumbing to get that done, the ability to actually clean up all that data, establishing the foundation in which it’s actually streamlined so you can democratize it all is very hard. And the clients that we were talking to are trying to understand the fastest path to get to a clean set of data that they can leverage for AI, ML (machine learning), gen AI (generative AI), and that seems to be more top of mind these days than ever.

The second piece is just operating at [an] efficient scale. And what I mean by that is gone are the days of clients asking us to say, hey, I'm spending X, should I be spending Y? Where they’re more sophisticated is thinking about the architecture that they have, whether the architecture makes sense, looking at those applications and figuring out if I just did different things with my applications, if I thought more about leveraging hyperscale relationships, if I thought more about leveraging platform provider relationships, if I thought more about what’s truly core to me in my applications versus those which I can rely on partners—if I take that to an extreme, what am I left with in terms of my technology estate? And then from that, what does that mean really in terms of my spend? What does that mean in terms of my operating model?

The other top-of-mind question is a radical rethink as to the nature of the technology estate, knowing those ecosystems and then really where they should be spending and investing for what’s truly core to them. And that just seems to be way more accelerated these days, and I think it’s because the others have been a catalyst in just modern engineering thinking to be that much different.

Marcante: I just love Tim’s answer because it’s just rooted in practicality and what we all experience as CIOs.

Q: We’re just about out of time. I want to give you each a chance to ask each other a question.

Marcante: Tim, I want to start. I think what we’re finding often in conversations with CEOs and C-suite individuals and CIOs is that they’re looking to make the case for digital transformation, for some type of big initiative and they’re thinking it’s going to be done. Like done is done. And I think what we’re finding is the stuff we put into the cloud five years ago is our new legacy. We’re now [thinking] generative AI is the next generation of productivity for organizations all around the world. So are we really ever done with transformation?

Smith: Someone asked me the question separately saying, is digital transformation really a phase that needs to persist over time? And is it really distinct from business transformation? My take is [that] it’s continuous. It’s not like you’re one and done and you’re suddenly digitally transformed. A, the pace of technology change is huge, but B, the wielding of various technologies and different combinations are always going to disrupt you. So you always have to have the eye on it.

But more importantly, everybody is so tech-savvy these days. Everyone’s expecting to have that at the foundation, that no, it’s just that it’s a continuous thing in which over time, I’m not sure if we should be talking about digital transformation. It’s just how you do business. But I think the focus on it now is to make sure this type of thinking permeates from board down until everybody understands that, hey, the way we’ve been looking at tech investments and in enterprise, if that’s something that is handled by the CIO only or the CFO sometimes on thresholds, if digital transformation is continuous and if it should permeate you, is that really something that should remain there or elevate itself to a board-level concept? Should you think even at the board level as to committees or management of massive digital assets?

I don’t have the answers for it. But it’s a long-winded way of saying I don’t see this as really being an acute phenomenon. It’s continuous, but to be honest with you, all of us should be asking about why were even mentioning the digital transformation as a separate thing besides being a function that it was all focusing on it to make sure permeates the enterprise.

Marcante: Every leader in the organization has to have technical acumen today. Every leader of the organization has to understand what technology can enable in their business.

Smith: My question to you was [what are] some things you just learn as being a technologist. Some things you learn by being in the trenches and running large teams. What were the hardest skill sets for you to master? What do you believe the most important skill sets are for CIOs to master in this new age of digital, [the] age of AI?

Marcante: What you hear a lot is, oh, I need to be at the table. I’m not sure in every organization the CIO reports to the chairman. It did in Vanguard. It always did. So, you know, it’s great to have to report to the chairman. But why? Why do CIOs [have] this desire to be at the chairman’s table [or] at the CEO’s table? It’s just the wrong question.

For CIOs in particular, the CEO need[s] people who of course understand technology, but they need people at their table who can further the business strategy. They can further the business development, that can further the search for talent. So the further you understand what the finances of the company are, if you’re a public company, as an example, ESG, diversity, all the things that are driving the organization, you need to be able to further that conversation.

So where CIOs might have grown up in a silo, it’s problematic today. We have to figure out how we increase our competencies in executive presence, in business development, in leading and empowering organizations instead of coming through the command and control. And really, we have to be creative in how we build business acumen. You know, for me, it was rotating out of technology into running businesses and P&Ls. To me, it was getting certified and FINRA [Financial Industry Regulatory Authority] certifications as an example, because that’s what the business cared about. I had a broker’s license and then being principal broker to run my own brokerage firm if I wanted to. But the reality is that you have to do those things to further your competencies and understanding of the strategy in business.

Q: Well, thank you. It was a great conversation. And I’m sure our audience is going to get a lot out of it.

Marcante: Thank you. Appreciate you guys having me.

Smith: Thanks.

Q: John Marcante is CIO-in-residence for Deloitte, but he spent most of his career in a mix of technology and business jobs at Vanguard, including serving as the global CIO.

Tim Smith heads up Deloitte’s tech strategy and business transformation practice in the United States and leads the global team in digital transformation research. Their report Unleashing value from digital transformation: Paths and pitfalls is available on our website, deloitte.com/insights.   We’ll put a link to the report in the show notes.

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