An effective digital transformation—one that truly transforms the core of a business rather than simply operating on the margins as a short-term technological fix—involves what might seem like a bewildering array of tough decisions. And while CEOs of companies facing digital disruption know that such decisions need to be made, it’s not always clear exactly which decisions matter most and which require particularly careful consideration and planning.
Fortunately for those CEOs, a recent article from McKinsey & Company addresses precisely this question. Read on for a look at the seven decisions that McKinsey analysts have designated as the ones most critical to a successful digital transformation.
Where should the business go?
Digital disruption is profoundly altering the long-established patterns of industries across the board. In this new climate of drastic change, incumbents are being forced to re-examine the very fundamentals of their businesses, including the question of what direction the company should go in this new digital economy. Meeting this challenge requires a special combination of analysis and imagination: analyzing market conditions and what digital innovators within and outside the sector are doing, as well as imagining how the industry would work if it were fully digitized and how the company’s offerings could be reshaped to allow customers to experience or interact with them in new ways. This is perhaps the most momentous decision that business leaders must make in a digital transformation, so it’s important to create a disciplined framework for thinking through the options thoroughly and making an informed and structured choice.
Who will lead the digital transformation effort?
We’ve seen before that in order for a digital transformation to be successful, the vision and drive must come from the very top of the business: the CEO. However, CEOs clearly cannot be singlehandedly responsible for creating and delivering the necessary programs that will lead to digital change. CEOs therefore need to focus on assembling a team of senior leaders, possibly including a chief digital officer, who will be in charge of driving the effort on a day-to-day basis. The team doesn’t need to be large, but its members do need to have the requisite skills and vision, including expertise in change management, experience with coordination across multiple silos, and a thorough understanding of the mechanics of the business.
How can the company create buy-in for its digital vision from key stakeholders?
Change can be alarming for a company’s stakeholders. During a digital transformation, therefore, the CEO must be ready to communicate not only the details of the vision being implemented, but why the transformation is necessary. Employees, board members, shareholders—each stakeholder audience needs a tailored, but consistent message, communicated crisply and clearly across all relevant formats and channels. McKinsey analysts recommend that CEOs adopt a “campaign mentality” when planning their communication approach.
Where should the firm be positioned within the digital ecosystem?
Disruptive attackers have benefitted enormously from an ecosystem that is full of inexpensive and abundant resources, including technologies, platforms, and vendors. But these resources are up for grabs for incumbents, too, if the CEOs from those firms can figure out which of the ecosystem’s capabilities, skills, and technologies are the best fit for advancing the company’s strategic ambitions. In making this decision, CEOs also need to clearly define how the company’s most valuable assets, such as data or customer relationships, will be secured.
How will decision-making during the transformation be handled?
It’s extremely important for businesses to have a plan for digital transformation, but it’s just as important to establish how impromptu decisions will be handled if and when the plan goes off the rails. Surprises and unforeseen developments are an inevitable part of almost any digital transformation. Rather than ignoring this reality, the CEO and the digital leadership team need to establish key ground rules to deal with course corrections as they are needed. For example, a regular check-in with senior leaders on a weekly basis—at a minimum—should be planned to determine whether the digitization effort is proceeding smoothly and whether changes need to be made if it is not.
What is the resource allocation process?
Resource allocation is a critical driver of digital transformation, and CEOs must decide not only how the allocation process should operate, but at what tempo. A “venture capitalist” mentality is often recommended for digital transformation efforts. The CEO and senior leaders should closely track the progress of a digital initiative and be ready to rapidly terminate projects that are underperforming and invest more in projects that show promise. This often involves speeding up a company’s typical annual budget cycle to a new, more dynamic cycle that operates on a quarterly or even monthly basis.
What needs to be done when?
A loss of momentum—such as flagging of interest when the initial excitement of a new digital transformation initiative has worn off—can be the undoing of even the best transformation efforts. Carefully determining the sequence of the transformation is therefore a key decision. CEOs should thoroughly evaluate the potential payoff of different elements of the transformation initiative and prioritize those that can yield the fastest payback, which can then be reinvested.