The 2017 Digital Strategy Framework: Why CIOs Need to Take the Lead on Digital Transformation

This article was originally written by Marco Cavallo and published on CIO.com - https://www.cio.com/article/3140450/leadership-management/why-cios-need-to-take-the-lead-on-digital-transformation-in-2017.html

Technology has been changing the world as we know it, and in a quite fast pace. Companies that were born with a digital DNA are now taking over the market, and there are no signs that this will change in a near future. For the past 30 years, the so-called “creative destruction” has been a source of fascination for many professional, researchers and universities. The almost obsessive interest is not surprising, given the ever-changing, never-ending list of transformative threats, which today include the rise of CPS(Cyber-Physical Systems), the Internet of Things, Cloud Computing, Big Data, A.I. and virtual reality, or, as many like to refer as the 4th Industrial Revolution, mostly known as Digital Transformation, but the question that is constantly in the back of everyone’s minds (especially Technology professionals and leaders) is what does that really mean for companies and for their roles?

No matter how much these topics are being discussed, analyzed and theorized, there’s still a significant gap between the perception of CEOs and Digital experts on who should be leading this Digital Transformation. In one hand, we have the need of a good understanding and knowledge of technology and the applicable tools to digitally transform processes and reinvent platforms, and on the other hand, we have the need of a clear and collaborative strategy and the organizational culture change or adaptation to this new platform. A comparison between Gartner’s 2016 CEO Survey, conducted with 400 CEO’s globally, and Altimeter’s The 2016 State of Digital Transformation, conducted with 500 digital experts globally, illustrates this existing gap of perception:

It is clear that those who aim to or blaze new trails are forging and leading the path to Digital Transformation. However, still it isn’t clear who should drive or own within companies, if the CMO, the CIO, the CEO or the newly appointed CDO (Chief Digital Officer). But, they often operate in isolation simply because of the nature of everyday business. The CIO was initially the obvious choice, when the idea was that Digital Transformation was focused on technology only, but when User Experience (UX), Revenue generation and Customer Satisfaction (NPS, VOC) became just as important as the technology itself. With that in mind, what is still missing for the CIO to become the ultimate Digital Leader companies are looking for?

In the past, the CIO and IT roles were mostly about control, and that means controlling costs, business processes, support and only other simple back office tasks. IT was never seen as a strategic part of the business, and that reflected on the perception of the CIO, who was seen as a support role rather than a strategic role, rarely seen on board tables discussing methodologies, paths to follow or how revenues were to be achieved. That time is over.

Unfortunately, history has created an unfortunate heritage for the CIO’s who are now facing the new Digital Economy, for most of them, still have a very technical background and lack the strategic mindset of combining the current technologies to the business and then becoming a high-value piece of the board. It is due time for CIO’s to understand that Digital Transformation has created a wide range of opportunities for them to finally become the strategic reference of the companies and show the extremely high value of technology for any kind of business. This article is not intended to go through the organizational cultural aspects, such as collaboration and interaction with other areas, but to create a framework that will help and assist CIO’s to better understand the market their companies act and establish a valuable relation with all available technological tools to create more business opportunity and revenue and, more importantly, understand how vulnerable your business is to Digital Transformation and its new economic scenario, and 2017 will bring some important marks according to many research companies, such as Gartner and IDC. Let’s list some of them:

·      By the end of 2017, revenue growth from information-based products will be double that of the rest of the product/service portfolio for one third of all Fortune 500 companies (IDC)

·      In 2017, 30% of consumer-facing G2000 companies will experiment with AR/VR as part of their marketing efforts (IDC)

·      By year end 2017, over 70% of the Global 500 will have dedicated digital transformation/innovation teams (IDC)

·      2017 will be the year that Smart Advisors and Virtual Personal Assistants will be globally accelerated and should reach 90% of adoption by 2020 (Gartner)

·      In 2017, wearable devices will reach the mark of 322 million units worldwide, which represents a leap of 39% when compared to 2015 (Gartner)

Having the data listed above, we may observe that the market will make a significant move on Digital Transformation in 2017, and CIO’s must look beyond technical factors and the available technology in the market, they must start thinking how to select and use it in a strategic framework. One of the most important aspects of the new Digital Economy, which was, in most part, enabled by CPS (Cyber-Physical Systems), is the significant change in way people and companies consume products and services. This is an aspect that can be seen in any Industrial Revolution through history, for the two most significant changes we may observe in all of them are the way people consume and the change on the way people work. Let’s explore the changes on the behavior of consumption through a four-quadrant methodology within the relation Demand vs. Supply of any market, as shown on the graphic below:

Each one of the four quadrants shows specific topics that were disrupted by Digital Transformation within markets. Let’s explore them a bit further and better understand the two main aspects of each considered in this framework:

Digital Market

It explores how the demand has evolved with the new platforms and types of products and services that are available, and how it has created new markets or covered latent needs that were there before Digital Transformation became a reality. In this quadrant, the two main aspects to be further explored are:

·      Demand Consciousness: Products and services have evolved with the new Digital Technologies, which made people more conscious on what they really want to consume. For example, before, I would have to buy a full CD to enjoy 2, maybe 3 of your preferred tracks, but today I can simply buy the tracks I want on ITunes. That process has created unbundled products and reduce infrastructure costs, once digital platforms enable those to be purchased at any time and place.

·      New Market Demand: The fact that products became less bundled and more affordable for consumers, once they don’t have to buy an entire range of items to enjoy a part of it, new demands were created, as well as business opportunities, such as tailor-made products. You now can design your own pair of sneakers, from your favorite brand, using the colors, shapes and features you like the most, all online. And that comes with a bonus of very specific data about costumers for companies to analyze and make better products for a specific group of consumers, as well as more efficient marketing campaigns.

Consumer Behavior

New consumption platforms and new economic rules create new expectations from consumers on what they will find available to fulfill their needs and how they will be able to access those products or services. In this quadrant, the two main aspects to be further explored are:

·      New Consuming Processes: Digital technology has enabled people to perform purchase processes much faster, being that a demand matching, a switch, creation of rules and standards, supplier verification amongst others. A good example is eBay, where you can buy and sell very quickly and it connects people that want to buy with people that want to sell through an online platform that runs all processes for them, such as reputation, satisfaction etc.

·      Smart Products: As consuming habits evolve, products must evolve as well, for consumers expectations increase. A good example is Nike enhancing its sneakers with sensors that provide information to the people wearing them for sports or health purposes.

Supply Methodology

This quadrant analyzes how companies can understand demand and connect with consumers through digital platforms, as well as redefining the supply cost structure using the new digital tools. In this quadrant, the two main aspects to be further explored are:

·      New Business Systems: The Digital Economy, and the technology it brought together, has made possible for companies to change and improve their supply systems by virtualizing it, automating and making it more accurate and predictive, dismissing the need of physical channels and intermediates. Netflix is a good example, once you can access and watch your favorite movies without the need of going to a store to rent them. That not only improves cost efficiency for the companies, but also makes services and products more affordable.

·      Collaborative Supply Chain: Reinventing the way companies do business is a great change that the digital economy has brought to us by enabling the market to provide an unlimited supply system stimulating a higher utilization, unlumping supply capacity, for example watching a specific video on YouTube, and by creating opportunities for new suppliers through digital platforms, such as Airbnb, which enlists lots of people with spare rooms to rent at a much better price.

Market Reach:

This quadrant is possibly one of the most impacted (and enhanced) one by Digital Transformation, for it analyzes how companies are connecting each line of business with each channel to the right consumers, and how they are enhancing this experience. In this quadrant, the two main aspects to be further explored are:

·      Value Perception and UX: This has been one of the most discussed topics recently. Using Digital Technologies to enhance the value of products by increasing their level of information or usability through virtual and mobile devices, promote interaction or making them social has become just as important as the kind of products your company is going to commercialize.

·      Hyperscale: This is where the major transformation happens by creating new ecosystems and new value chains, which may redesign markets forever. Facebook is a good example of how information production and media have completely changed. The same situation starts to happen with banks and telecommunications.

At the end of the day, using this framework and using all the available information CIO’s manage within companies, they will be able to create a highly strategic plan that will not only mitigate possible vulnerabilities within your companies’ products and services, but will provide a market analyses that will measure the impact and economic mechanisms of the disruption of Digital Transformation for your company, as well as add more aspects to each quadrant, to better fit your company’s reality. By doing so, CIO’s will combine their technical expertise with a great market comprehension that will lead companies to prior products, understand market synergies and align lines of business, channels and clients, as shown on the graphic below:

As uncertain the current market may be for CIO’s, I prefer to look at the current scenario with optimism and excitement, once these are the times to finally transform the CIO role into something vital for companies, to make them the strategic reference and to, once and for all, set the IT chair in the board of the companies, right beside the CEO’s.