Digitization has undoubtedly caught nearly everyone's attention -- from the C-suite down. In a recent CEB survey of nearly 600 US business leaders, 87% cited digitization as a priority for their company, and two thirds believe their company will lose its competitive position if they aren't significantly more digitized by 2020.
This attention on digitization creates two leadership opportunities for CIOs. The first is to help C-suite colleagues reach a common understanding of what digitization actually means. The second is to highlight digitization's potential and pitfalls.
By taking these steps, CIOs and other IT leaders can ensure that digitization becomes integral to company strategy.
When talking to CIOs about digitization, I am usually asked for a definition within 60 seconds. The term itself causes lots of eye rolling as, arguably, businesses have been digitizing since the first computer processed the first transaction. But it's a term that business leaders recognize and are excited about, so CIOs have an opportunity to help define it in concrete terms.
CEB defines digitization as the use of new technologies, processes, and skills in a company's operations, channels, and products. Initially, that means using technologies such as machine learning, internet of things (IoT), mobile, and social to enhance existing business activities. But over time, products, channels and operations begin to overlap and integrate in new and more customer-centric ways.
[Don't do it like this. Read 8 Ways to Fail At DevOps.]
For example, a credit card company could use machine learning to spot unusual patterns in customer behavior in order to quickly identify fraud. Likewise, a company that has traditionally sold its products in single transactions could start delivering an ongoing service through a digital channel.
Embedding Digital Into Company Strategy
Earlier this year, CEB surveyed more than 2,400 US business leaders and 500 US IT leaders to determine how organizations are taking advantage of digital opportunities and to understand the pitfalls. Interestingly, we found that three of the most common pitfalls have nothing to do with technology. Instead, organizational and leadership challenges are tripping companies up. CIOs and other IT leaders have a unique opportunity to help stay the digital course.
Here are three examples of the pitfalls encountered along the road to digitization, and how IT leaders can help their companies circumvent them:
1. Getting distracted by the risk of "being Ubered." Many executives fear being put out of business by new, digitally enabled "Uber-like" competitors but most industries don't face this sort of existential threat. Instead, they must be wary of more insidious risks from new digital entrants.
One immediate threat is margin erosion as startups take over the most attractive parts of the value chain. Another hurdle is management getting distracted about "being Ubered," instead of addressing digitization's real challenges and opportunities. A third challenge is addressing changing customer expectations.
What happens when your customers become accustomed to the economically unsustainable levels of customer service and price reduction offered by startups?
What CIOs Can Do: By keeping C-suite peers abreast of technology opportunities and the "art of the digitally possible," CIOs and other IT leaders can help them understand where margin erosion may occur, which competitive threats are real, and how the company can make reasonable changes to meet customer expectations.
2. Managing digitization as a technology change, not a business change. The majority of questions we receive from C-suite leaders about digitization relate to technology -- buzzwords like the cloud and IoT -- not about the business changes it requires.
Yet, our research shows companies focused on business changes -- such as redesigning incentives and operating models, upskilling staff, accelerating corporate speed, and getting serious about data management -- are 15 times more likely to get full value from digital initiatives compared to companies focused narrowly on getting the technology right.
For example, a new line of digital products may fall victim to internal resistance if sales reps feel it is cannibalizing existing business. Likewise, a big investment in analytics may disappoint if users lack the skills and judgment needed to use data to make decisions.
What CIOs can do: We know CIOs can't take on all of these changes themselves. What they can do is highlight the need for action with their peers and judiciously apply IT expertise in areas such as business architecture, change management, and user support.
3. Making "digital" a standalone effort. Creating a digital council, a digital strategy, or a chief digital officer role is often seen as necessary in digitization's first steps. While these actions send clear statements of intent, they risk creating misaligned incentives, unnecessary complexity, and a mindset in the rest of the organization that digitization is "someone else's job."
Conversely, letting digitization occur organically in each function and business unit is a recipe for duplication and wasted effort.
What CIOs can do: A better approach is for CIOs to push for digitization to be embedded in corporate strategy, and for the whole C-suite to take responsibility.
As CIOs help their companies avoid these digital pitfalls, they expand the scope of their role to include more time spent shaping business strategy, more focus on driving business change, and more influence in charting their companies' future direction and success.