Adapted from War and Peace and IT: Business Leadership, Technology, and Success in the Digital Age by Mark Schwartz.
Leaders of digital transformations often look around their organizations and see heads nodding. Everyone seems to agree that change is needed to survive in the digital age. Everyone understands that it’s urgent and that there is a risk of being disrupted if the company doesn’t transform quickly enough. Capital markets are demanding growth and innovation, while the board wants management to invest in becoming future-ready. Executives are aware that competitors are learning how to build closer digital relationships with customers. Frankly, it’s rare to so easily arrive at consensus.
But nothing seems to be happening. Heads are bobbling yes-yes-yes, plans are being discussed, priorities are being set . . . but the digital prince remains an analog frog. It’s easy to blame the lack of progress on corporate culture, a lack of up-to-date skills among employees, rigid bureaucratic processes, lack of cohesion across business silos, heavy compliance requirements, accounting rules, or inflexible auditors. For any large enterprise, those are indeed important factors. But many of them are within the company’s control and others, as I’ll show later, are outputs of successful transformation—not prerequisites.
If you want to unlock your enterprise’s digital transformation, you must change not only its relationship with technology, but its relationship with its technologists. Conventional wisdom has settled on a way of integrating IT into the enterprise that hasn’t been very effective up to now and remains much less likely to be effective in the digital future. IT and the business face each other across a daunting chasm of stereotypes and perceived risk like rows of bobblehead dolls, bobbling and smiling at each other with goodwill and mutual respect, coupled with a formality that precludes intimacy. The key to digital transformation is to change the way IT and the business interact.
Over the decades that IT has been part of the corporate landscape, it’s been regarded as a sort of arms-length contractor serving the rest of the business. A business unit decides what IT capabilities it needs, writes a requirements document, negotiates an understanding with IT about scheduling and costs, then tosses its requirements over the wall for delivery. IT is then responsible for fulfillment, delivering what was requested on the schedule it agreed to. We speak of “IT and the business” as if we’re referring to two different things, and we encourage IT to treat the business as its customer. It’s as though IT were an outside service provider full of people who just happen to be employees of the same company.
Digital transformation, on the contrary, means making technology central to the way an enterprise defines itself, rather than a utility or support function that can just as easily be outsourced. But this can only happen if the technologists are as much a part of the business as employees in marketing, finance, and operations.
Changing this relationship can be uncomfortable for both sides. On one hand, business employees have gotten used to being treated as IT’s customers, whether the customer service they received was tip-worthy or not. This contractor-like model has given the illusion of control to the business—the feeling that even when they don’t understand the technological details, they can at least hold IT accountable to some performance standard. They can feel like they’ve shifted the burden of technical uncertainty, complexity, and change onto the IT folks, and thereby gained predictability and simplicity for themselves. As long as IT said a project would be completed by a certain date, uncertainty had been managed away, or at least could be overseen by way of conventional risk management practices.
On the other hand, IT departments have never had to take responsibility for business outcomes. Someone else always decides which technology capabilities will create business value; someone else works to harvest the business value from the products IT delivers. IT has been able to say, “We can’t do anything until we get your requirements,” while enforcing policies and standards that might constrain business operations. By pushing the burden of value determination to the business, IT can feel like it’s free of the biggest uncertainties and complexities in its activities.
As we move into today’s digital world, uncertainties and complexities are becoming an everyday matter for everyone—IT and non-IT alike. We can no longer separate technology risk from business risk, or technology opportunity from business opportunity. The business must accept the risk and uncertainty that comes with technology, while IT must accept the risk and uncertainty that comes with business.
It’s not just IT that finds itself distanced from the core strategic activity of the enterprise—there is a deeper and more general issue at play. As business and technical functions became more complex and specialized, organizations came to structure themselves into functional silos. Finance was expected to focus on finance, marketing on marketing, and IT on IT. Each area was assigned goals specific to its functions, which were then further subdivided and passed down to subspecialty areas. In this way, the reasoning went, each functional area could be held more accountable for things that no one outside completely understood anymore. But organizations are now paying the price for this fracturing as they try to develop a coherent strategic approach to the digital world.
The chief financial officer (CFO), for example, has often wound up focused on cost reduction and the operational efforts of seeing that the books get closed on time. According to a McKinsey study, two-thirds of CFOs think they should spend less time on traditional finance activities and more on strategic leadership. About 30% of the finance department’s effort is invested just in the mechanics of assembling data and resolving inconsistencies.
The digital world, however, demands that the CFO play more of the role of strategic business advisor—the custodian of shareholder value or mission delivery. In a digital organization the CFO drives competitive advantage by applying capital to opportunities as they arise, turning data into actionable business insights, and managing risk strategically. In place of cost reduction, the digital CFO focuses on making processes leaner, thereby removing waste and increasing the enterprise’s velocity.
Among chief marketing officers (CMOs), the story is similar: 74% say their role doesn’t allow them to have the impact on the business that they should. Today, marketing must handle more countries, more customer segments, more media, more distribution channels, and more price points than ever before—as many as twenty million price points per year for a consumer products company, according to a McKinsey study. But despite the complexity, what the CMO really wants is to deepen relationships with customers, develop the company’s brands, and work with colleagues in other functional areas to grow the business.
Boards of directors now find they must take a more proactive approach to ensuring that their companies survive digital disruption—particularly by overseeing decisions that balance risk and opportunity. They need to make sure the company is building a sustainable position, which, as I’ll show, largely depends on building agility and nimbleness into assets and processes. Given the increased pace of competition, they need to find leading or current indicators they can use to assess their company’s performance in place of the trailing metrics of traditional financial reporting. Audit committees must ensure that controls are effective despite the increased pace of change, the new risks of the digital world, and the increasing stringency of compliance frameworks.
The pattern is that each of these specialist executives must participate outside of their area of specialization by working with colleagues on strategic issues that cut across the enterprise as a whole. The CFO is not just in charge of finance and the CMO is not just in charge of marketing—both are responsible for bringing their functional expertise to bear on all of the company’s activities and working across silos to accomplish business outcomes. So too for the CIO, who can no longer be responsible solely for running the technology function, but must bring technology expertise to bear on companywide strategy.
The task is harder for CIOs than for the rest of the executive suite, as I’ll show in the next chapter. IT was suddenly injected into the enterprise landscape only five or six decades ago and has yet to find its place. As McKinsey reports, “There is little awareness of or agreement on how IT can meaningfully shape a business’s future.” But, the report continues:
. . . the results suggest one clear element of high-performing IT organizations: active CIO involvement in the business. Where respondents say their CIOs are very or extremely involved in shaping enterprise-wide strategy, they report much higher IT effectiveness than their peers whose CIOs are less involved.
As we move into the digital era, it’s IT that can help the CFO, CMO, and the board realize their objectives, supporting them as they move to the strategic role they were meant to play—and indeed must play for the digital enterprise to succeed. IT can make the other CXOs superheroes.
Continue reading in Mark Schwartz’s War and Peace and IT: Business Leadership, Technology, and Success in the Digital Age.