Why this CTO says you need a CDO to do digital transformation right

What does digital transformation really mean? Most CIOs and CTOs get it wrong by focusing on technology alone, says Wolfram Jost, Ph.D., CTO of digital business platform company Software AG. In the second of a two-part interview with The Enterprisers Project, he explains what most companies are missing. 

The Enterprisers Project (TEP): What are the biggest mistakes you see organizations making when they set out to do digital transformation? 

Jost: The biggest mistake is to believe digital transformation is only a technology topic. Of course, digital transformation needs new and innovative digital technology to change how a company acts in the market. Therefore, to continue to rely on outsourcing or off-the-shelf software is no option. Software based on the business process of five years ago will not provide a foundation for digital transformation. But in addition to the technology part, the real challenge of digitalization is to create new business models and processes connecting the physical and digital worlds.

To survive, traditional businesses need to develop and strengthen their in-house software innovation and development capabilities. To turn the clock back to before they outsourced their competitive advantages and take a new path. They have to get the power of innovation back to the company. 

TEP: For most companies, outsourcing and Software-as-a-Service has been a growing trend for quite a few years. How can they reverse that trend?

Jost: It starts at the top – innovation through IT is the only game in town at the moment. The CEO has to focus on bolstering enterprise innovation capabilities through agile in-house software development and software architecture know-how in the enterprise. We see that every business is becoming a software business, and it is imperative that every enterprise utilizes software to sharpen its own competitive edge.

Secondly, focus on doing things that impact your customers first. If you want to sell the benefits of digitalization, then focus on the customer. It is all about changing customer experience and simplifying the life of the customer. This is where the disrupters will start driving a wedge between you and your customers, and if you don't start there you are not only increasing business risk but missing your largest growth opportunity. Too many companies start with efficiency gains as their goal and not business disruption.

TEP: Speaking of efficiency gains, you've written that streamlining processes is one of the disciplines of digital transformation. That requires that people actually change how they do their jobs. How can IT leaders drive this kind of change and make sure it takes hold? 

Jost: It is all about combining people, business and things in a completely new way. Transformation, or change, is of course driven by people. Putting the right people in the right positions to drive change is essential, as is openness to change. Software vendors are themselves agents of change. Every customer that installs our software is changing something: the markets they can address, how they do business, the business models they use. Continuously discussing this with employees, and showing them the future the company can have, opens an organization up to change. 

Getting people involved is the most important single aspect of transformation. We are on the cusp of a digital revolution that will positively affect every enterprise, every country and every person on the planet. Our internal motto, "imagine, believe, and achieve," reflects this, and these are the three facets of change management we focus on. Imagine the possible future if we do the right things effectively, believe that we can do them, and show the success of whatever changes have been introduced. Showing success is vital; it removes doubt and drives commitment. 

TEP: What advice would you give CIOs and other C-suite leaders who are undertaking digital transformation?
 
Jost: Appoint a chief digital officer – the new Renaissance Man or Woman. She or he must have a multifaceted approach to business, having one eye on the many new IT technologies that are constantly emerging and one eye on how the almost infinite combination of these technologies can transform a business into a digital business. This can be an expanded role for the CIO, naturally.

The CDO plays a central and pivotal role in the digital enterprise and therefore in the future success of any business. Why? Because digital companies, digital disrupters, base their new digital business models on software, connecting the digital and physical worlds. Therefore, if software is the connection between the digital and the physical, the CDO is the connection between IT and business. They are now two sides of the same coin.
 
Based on software, digital companies can create enhanced or totally new business models that offer completely new digital customer experiences. We have seen this with the newborn digital enterprises that are typically free of any physical assets such as fleets, factories, machineries or goods. It is through this software platform-only based business model they can move so fast, often resulting in exponential growth. 

TEP: So a software platform-only model can allow established enterprises to compete effectively with startup disrupters? 

Jost: It is not a natural law that the new digital-only challengers can hijack the customer relationships of traditional companies. The asset rich can fight back with the same weapons, a digitalized weapon powered by their own digital software platforms. Suitably armed they can fearlessly face today's challenges.

And this is where our Renaissance Man or Woman, the chief digital officer, steps in. Every executive board needs this expertise if digital strategy is to become corporate strategy.