Two years ago, analysts predicted that at many organizations, the role of Chief Digital Officer would become obsolete. “As digital drives the business transformation, and ultimately the entire business, the CDO will start to slowly disappear,” one analyst, from Forrester, wrote.
This pending obsolescence would clearly signal that incumbent companies have started successfully transforming into digital economy players, alongside startup-disruptors. The seminal work from Harvard Business School’s Clayton Christensen on the Innovator’s Dilemma — which argues that long-standing companies will “accelerate their innovations to defend their business” from disruptive newcomers — has now been read by founders and executives from all kinds of companies.
While we see impressive — and well-deserved — successes at startups (one good example is Stripe, which provides payment infrastructure for on-line businesses), we’re starting to see large incumbents throwing back punches. Think, for instance, about the New York Times (“winning at digital,” read one headline about its recent revival). Indeed, digital transformation is a competitive battle with victories emerging from both fronts.
But how are incumbents taking the lead in this digital revolution? And what are some lessons for stragglers still trying to catch up? Considering that only 16 percent of McKinsey-surveyed organizations say their digital transformations “have successfully improved performance and also equipped them to sustain changes in the long term,” let’s look at three strategies for a better digital transformation positioning.
1. Transform — don’t toss — your core
In Pivot to the Future, Accenture’s Omar Abbosh, Paul Nunes, and Larry Downes mention a few critical features of a successful digital transformation. One stands out: the idea of transforming and growing the core business (to drive up investment capacity) while concurrently scaling new businesses. This dual approach, supported by creating synergies between the old and the new, is critical.
Schneider Electric, where I work, was founded during the First Industrial Revolution more than 180 years ago and has pivoted several times. For us, digital transformation requires the same fundamental roadmap as any other significant change. You should know where you want to go, well before you start the digital journey. The company’s mission is always the strategic framework. When that’s the case, transformation becomes a way to enhance the core business — not override it.
In the end, digital is not just about the new because — even if proofs of concept are lovely — scale matters. Tinkering on the edges with digital won’t make a difference. It’s as much about transforming the core as it is about scaling the new. And the key to scalability is often efficient prioritization and resource allocation across lines of business. A practical way to do this is to create an internal engagement model that offers digital capabilities to enhance the business units’ domain-specific expertise, allowing them to scale faster.
2. Go digital — and digitize — at the same time
There’s another dual strategy at work in successful transformations: “digital and digitize,” which the MIT Center for Information Systems Research has described as two discrete, complementary things. This is a very profound realization. Digitization, as they put it, is basically about standardizing processes, with a view toward cutting costs while maintaining operational excellence. “Digital,” meanwhile, requires a new way of thinking about the company’s value proposition – and operations.
This interdependent approach leads to new ways to deliver the product and capture its full value. Take, for example, Berto Coffee Roaster, the machine builder that developed a fully digitized, automated coffee roaster machine to improve production output, quality, and consistency. By connecting their machines to the network, Berto can now add digital services and apps to a bundled mix, driving business beyond just the specialized machine itself to improve customer experience and allow Berto to stand out in a growing market.
3. Embrace the digital ecosystem
This third key strategy goes well beyond a duality. Multiplicity — or many-to-many — is the theme, because, without question, no company can innovate in a silo in today’s fast-paced digital economy. Between the decisions about whether to make or buy, there are many interesting shades of partnerships and alliances to consider. Collaborative networks are critical for companies trying to extend their value chain in an asymmetrical marketplace, where one-to-one relationships and transactions are no longer enough to compete. Among top-performing digital enterprises that responded to Gartner’s 2017 CIO Agenda survey, 79% said their organization engages in digital ecosystems.
Digital ecosystems, such as Schneider Electric Exchange — the first cross-industry open business platform dedicated to solving real-world efficiency and sustainability challenges — present a win-win scenario. A collaborative posture allows organizations to address customer problems from multiple lenses, with agility and speed.
In Schneider Electric Exchange, for instance, start-ups can connect to scale better by aligning use cases to what potential customers actually need. That’s important, given that 42% of start-ups cite “no market need for the innovation” as one cause of failure. A start-up in predictive maintenance software, for example, Senseye engages in the open ecosystem for direct interaction with a wide range of communities, including end users with real business problems, that can drive forward what Senseye is doing in the relatively new but fast-developing predictive maintenance market.
As we rethink digital transformation strategies heading into 2020, take the time to build a comprehensive strategy based on digital. Developing technology in isolation falls flat. Instead, creating a holistic digital transformation strategy to address specific business challenges (starting from the customer problems and use cases and then matching them with new digital technologies… and not the opposite) is the best roadmap for advancing a digital revolution in which incumbents can emerge ahead of the curve, too.
Hervé Coureil is Chief Digital Officer at Schneider Electric, a global energy management and automation company.