Digital technologies, such as social, mobile, analytics, cloud, internet of things, artificial intelligence, and blockchain, are changing the competitive landscape. In doing so, they are providing new opportunities – and requirements – for CIO leadership. But digital leadership is harder than it looks. In particular, it involves recognizing two very different but complementary ways that digital technologies can transform a business.
Specifically, digital technologies can support digitization – the implementation of disciplined business process to deliver operational excellence. But digital technologies can also support new digital business models – the adoption of new customer value propositions inspired by data and connectivity.
[ Read also: Digital transformation: 6 hallmarks of successful teams. ]
Eventually, every company must be both digitized and digital. However, these two efforts require very different business designs – and implementing two different designs is no easy feat.
Digitization Is an operational necessity
Digitization involves standardizing business processes. It is associated with cost-cutting, reliability, efficiency, and transparency. The integrated software packages that burst onto the scene in the 1990s helped lead the way to more digitizing. Digitization was a painful process then – and for companies that have not yet been able to standardize core processes, it is an ongoing struggle.
For all the pain that it entails, digitization is an essential undertaking. Without digitization, companies cannot scale; they cannot absorb the complexity of expanded product portfolios; they cannot personalize services. Disciplined, standardized business processes, where appropriate, ensure the accuracy and security of transactions and back office processes. They make data accessible and reliable.
As companies have attempted to digitize, leaders often haven’t recognized that they must commit to fundamental changes in how people work. Consequently, most digitization efforts have cost more – and have generated fewer benefits – than anticipated.
[ Read also: Digital transformation ROI: How to check a project’s payoff. ]
But heightened customer expectations make seamless transactions and accurate customer data more important than ever.
How CIOs can help
CIOs can help lead digitization initiatives by narrowing the focus of these efforts. Most companies have approached digitization by trying to standardize processes that aren’t worth the effort. Some back-office processes can and should be outsourced; others can be localized.
Another common mistake is to try to clean up all important data at once. In fact, one kind of data –customer, product, supply chain – is the most important for any given company. Few companies are willing to designate one type of data as their most important. They pay for their indecision with repeated failures to clean up any data.
Finally, some businesses are simply too complex. They have become addicted to innovation. The costs of the resulting complexity far exceed the benefits. These companies need to eliminate product lines or divest entire businesses, or at least manage business independently.
Digitization is table stakes in the digital economy. It will not, however, be sufficient to avert business model disruption. To compete long-term, companies must also become digital.
Digital involves business model changes
Digital technologies are introducing so much speed and connectivity that they create opportunities for entirely new customer value propositions. Companies deliver digitally inspired customer value propositions in the form of digital offerings. We define digital offerings as information-enriched customer solutions delivered as seamless, personalized customer experiences. Digital offerings introduce new business models and provide new sources of revenue.
Companies can implement digital offerings by starting with a small, simple product or service – just like a digital startup. Companies maintain a competitive edge by continuously introducing new features and services that enhance the value proposition of that offering. They also develop related offerings for different customers.
Developing and constantly enhancing digital offerings requires that a company build and reuse technology, data, and business components. The reuse of components allows a company to respond rapidly to constantly evolving customer demands – even those that customers don’t know they have. To develop and reuse digital components, companies are designing digital platforms where they can manage repositories of components that can then be configured into new digital offerings.
How CIOs can help
Digital companies are designed around their components. For established companies, that is no easy feat. We have found that successful companies start small. They kick off a digital transformation by assigning a small number of empowered teams to experiment with customers. Through these experiments, they learn what is possible and what customers are actually willing to pay for.
Defining, building, and reusing components demands a commitment to empowered teams that can innovate, test, and learn. Unlike digitization, which invariably involves senior executive mandates for adoption of enterprise standards, the accountability for digital offerings must rest with the individuals who develop them and test them with customers. Any other arrangement will be too slow.
Become digitized and digital
Successful companies in the digital economy will be both digital – to provide customer value – and digitized – to provide scale and efficiency. Although companies still struggle to digitize, what that means and how to do it are now well established; it’s just hard to do it well. How to be digital, in contrast, is less well established. CIOs who are willing to take on these dual challenges can help their companies become digital powerhouses.
Jeanne Ross will be speaking on the topic “Designed for Digital: How to Architect Your Business for Sustained Success” at the 2019 MIT Sloan CIO Symposium in Cambridge, Massachusetts on May 22. For more information or to register to attend the Symposium, please click here.
[ Want lessons learned from CIOs applying AI? Get the new HBR Analytic Services report, An Executive's Guide to Real-World AI. ]
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