Leading a Digital Enterprise:The Personal Transformation of CEOs

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03LEADING A DIGITAL ENTERPRISE: THE PERSONAL TRANSFORMATION OF CEOS02

If you run a business of any kind, the odds are that your organization has a digital transformation strategy. And the chances are that you’re experimenting

with a variety of technologies, using new platforms, media and devices to reach your customers more effectively and streamline your business.

But the chances also are that your company has paid less attention to the personal aspects of digital transformation. As more and more organizations get past the early stages of technology implementation, they are finding that technology-enabled initiatives alone are not enough to fundamentally transform an organization. To achieve true digital maturity, companies need to invest in the unique leadership capabilities needed to create digital transformation. And that begins right at the top: with a chief executive who has the vision and self-confidence to change his or her own mindset for the digital era. Such change has little to do with being an old-fashioned charismatic leader who pushes the troops to charge toward victory – rather, it means looking inward, embracing innovation, serving as a role model for others’ transformation and being willing to change course as needed.

Research shows that this type of CEO is most likely to have the personality traits and competencies needed for an organization to succeed in the digital era. For example, a 2014 study on “career variety” that profiled the CEOs of Fortune 250 firms found that CEOs with experience in a range of functions and roles tend to develop more creative and innovative solutions than their lower-variety counterparts. “Adapting to new environments involves the acquisition of new information and skills, which, in combination with prior learning and experiences, can trigger creative solutions,” the researchers report.

Similarly, a CEO’s willingness to innovate correlates with his or her long-term investment in research and development, according to another study that used a longitudinal sample of 100 US manufacturing firms from 1998 to 2008. Research has also found that even after as little as five years in office, chief executives who wish to continue being successful must indulge in soul-searching, asking themselves how the company’s culture and competitive landscape have changed and whether the members of the senior management team are pushing one another to think creatively..

IntroductionTo seek insights into the ways that CEOs are changing their personal leadership styles, traits and competencies to seize competitive advantage in the digital era, in late 2016, FORTUNE Knowledge Group, with sponsorship from Mphasis, carried out a survey of senior executives around the world. All 400 respondents are C-level executives and half are chief executive officers. We also interviewed several C-level executives and CEOs, asking them to describe their own personal transformation experiences. This report discusses our key findings.

About the survey

05LEADING A DIGITAL ENTERPRISE: THE PERSONAL TRANSFORMATION OF CEOS04

When it comes to changing their own mindset, CEOs have some catching up to do. Our survey found that digital

transformation strategies are pervasive and do improve business performance – often significantly. But the kinds of performance seen as important today are innovation, profitability and agility, not necessarily the operational efficiency that would have been paramount in the past. In fact, it’s essential for a CEO to shake things up: 82% of our survey respondents believe that their chief executive can be called an innovator, and 59% think he or she could be considered a “disruptor.”

CEOs find it difficult to match personal growth with digital initiatives.

In which of the following areas does your CEO face the greatest challenges? Please select all that apply.

Percentage of respondents

By those standards, the heads of most companies are still struggling to meet the demands of the digital era. More than a third of executives believe their CEOs are unable to delegate tasks effectively, motivate subordinates or convey a clear vision for the company. And nearly a third of C-suite leaders feel their CEO is preoccupied more with preventing failure rather than pursuing success – a key signal of lack of readiness for a digital environment, in which experimentation is vital and success not always assured..

82%of our survey respondents

believe that the chief executive can be called

an innovator

59%think the CEO could be considered a "disruptor”

CEOs find it difficult to match personal growth with digital initiatives.

“You have to have a culture that values innovation, and implicit in that is one that recognizes failure as a learning opportunity. You have to be able to fail fast and move on, but you are going to fail, and that has to be OK. That’s a big piece of the puzzle.”Hannah Grove, CMO, State Street

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The perceived gap between what the ideal CEO should be and what he or she is now comes at a time when

intangible qualities like vision and inspiration are more important than ever. Quantitative measures of success still matter, but what used to be called “the vision thing” has resurfaced as the one attribute that can make or break a business. Our respondents value it far more than they do analytical thinking or a focus on action. But they also want their chief executive to express his or her vision clearly so that it can be translated into an actionable plan – and a substantial number of respondents do not believe this is happening currently.

Chief executives struggle to express and implement their vision clearly.

Which of the following CEO traits will be most important for leading a successful business in the digital era? % of respondents

53%

27%

12%

7%

Adigital enterprise is one place where the traditional hard-driving, dominant, win-at-all costs CEO just doesn’t fit. More than

80% of our respondents agree that the chief executive must personally transform himself or herself to cope with new challenges – largely by developing a willingness to learn new things, embrace diverse points of view, and self-assess oneself and identify areas for improvement.

There is a compelling reason for this change that goes beyond personal growth: chief executives who have personally transformed themselves achieve better business performance. In our survey, the companies that have realized the most benefits from digital transformation (“leaders” ) are more likely than the others to say that their CEOs are innovative visionaries who have successfully led the organization through the digital transformation process. Leaders are also much more likely (78%) than other firms (29%) to say that their CEOs are receptive and have fully adapted to change.

Wanted: self-transforming CEOs

“To me it is a delightful experience to learn from others. Every day I uncover how ignorant I am. And that process of growing as a result of learning is a fascinating journey. I don’t think it should be seen as a burden. I see that as a lifeline.”

DINESH VENUGOPAL,President, Direct Business,

and Head of Digital, Mphasis

IT’S NO SURPRISE that CEOs often have a vision and ideas that don’t quite mesh with those of other C-suite executives or team members. This can often be an advantage when the organization needs strong direction and must be transformed radically, but the chief executive needs to be aware of the various viewpoints that are brought to the table and to incorporate them into high-level strategic considerations.

Our survey found some moderately significant differences between CEOs and other C-level respondents, although both groups were not from the same companies.

The top five differences are the following:

1. CEOs are more likely to say that digital initiatives are led by an enterprise-wide digital team (37% vs 27%).

2. CEOs are less likely to say that the sales function has been most impacted by digital transformation (25% vs 37%).

3. CEOs are more likely to say that their organization has implemented a plan for cultural change (39% vs 33%) and that the culture is constantly assessed (45% vs 35%).

4. CEOs are more likely to cite discerning people’s motivations (19% vs 14%) and motivating others (38% vs 28%) as the most important aspects of a CEO’s emotional intelligence.

5. CEOs are more likely to strongly agree that the CEO provides strong leadership for digital transformation. The biggest gaps between the two groups are in the extent to which they agree with the statements “the CEO is an innovator” (48% vs 39%) and “the CEO is a disruptor” (35% vs 28%).

CEOs think differently from other C-level executives

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The traits required of a CEO today are subtler and more nuanced than those that were required to lead the analog companies of the past. Traditional leadership and management training does not deliver these skills – rather, CEOs must develop them through a combination of listening, learning, and understanding on an ongoing basis, as well as stepping back and letting others lead when necessary. The following are key strategies for personal transformation that C-suite executives shared with us.

How does personal transformation occur?

LEADING A DIGITAL ENTERPRISE: THE PERSONAL TRANSFORMATION OF CEOS

Understand what’s unique about a digital enterprise.

Unlike companies such as Uber and Airbnb, which have grown up in the digital era, most traditional or “analog” firms have difficulty making the transition. C-suite executives emphasize that a digital business involves a wholly different way of

thinking, behaving and strategizing. “In a truly digital enterprise, the funding of new technology initiatives has to be a completely different process," says Wolfgang Bauriedel, executive director at Russell Reyolds Associates. "It’s about empowerment, when you think about it. There need to be digital asset or digital product owners controlling their own budgets. Each owner has to have decision rights in terms of how to drive the product/ service development forward. That’s completely different than it was in the past.”

Beth Ford, group executive vice president and COO at Land O’Lakes, Inc., concurs with this view. She says that analog organizations must ask themselves some fundamental questions: “Does everybody understand that we want fact-based, analytical approaches to different decisions? What is the cultural shift required? How are we leveraging digital tools to enable the business? Does this shift roles and responsibilities? What change management is required for that?”

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Respond to the needs of your own organization.

Going completely digital may not suit everyone. “Not all customers are born on the web,” says Przemek Czarnecki, former head of e-commerce systems at Motorola. “It's important to identify the real objective of digital

transformation. Is it only about cost savings for the company? You could theoretically move all your service transactions to digital. Then you would achieve 100% digitization, but do you really want to do this? The willingness of customers to use those services is limited. It’s a matter of change management. Customers have to be willing to adopt the digital technology too.”

The executives in our survey are clearly conflicted on this issue. Although the majority believe digital transformation has substantially benefited their organization, they also think it’s more prudent to go with building digital offerings rather than a completely digital enterprise. This approach contrasts with the holistic enterprise-wide strategy that our respondents generally support. It may reflect the fact that the impact of specific offerings is easier to measure, especially during the initial phases of digital transformation.

Much moreimportant

Much moreimportant

Moreimportant

Moreimportant

Equallyimportant

Increasing innovation

Gut-based approach

Fostering agility

Intensive focus

Fast decisions

Digital offerings

Outcome-based criteria

Increasing efficiency

Evidence-based approach

Fostering staility

Versatile focus

Considered decisions

Digital enterprise

Process-based criteria

25%

12%

23%

22%

20%

26%

24%

19%

16%

24%

23%

22%

21%

26%

21%

19%

25%

27%

25%

20%

27%

16%

25%

15%

17%

18%

18%

14%

18%

29%

14%

11%

16%

16%

9%

How would the ideal CEO set priorities in order to maximize effectiveness?% of respondents

Cultivate an appetite for risk.

This can be scary for an analog company that’s used to playing it safe, but executives strongly agree that being able to take risks is essential

if a CEO is to implement a successful digital transformation strategy. “It’s all got to start with your appetite for risk — how you understand, manage, control, and mitigate that risk,” says Hannah Grove, CMO of the financial services firm State Street. “There have to be very, very tight controls over it, but you’ve got to have that latitude to experiment. The absolutely critical piece is to fail fast, because the worst thing you can do is be reluctant to give up on something you’ve tried that doesn’t work.”

Not only do digital enterprises take risks, but they also do big and bold things. "In many cases, an enterprise is challenged by a number of competitive disruptors from within or an adjacent industry," says Nathan Pieri, chief product officer at Amber Road, which produces global trade management software. "These disruptors are themselves digital enterprises, with long-term views and the ability to make huge investments in transforming how business is conducted, value is created for customers, and barriers are created for other market participants."

“True ongoing transformation cannot be technology-driven. It needs to be people-driven. Organizations need to really understand this concept and the C-suite needs to push it and marry it with technology, with product management, and with digital marketing in order to really bring some tangible results to market.”Wolfgang Bauriedel, Executive Director, Russell Reynolds Associates

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W hether it’s blockchain or the Internet of Things (IoT), new technologies will affect businesses in ways they never have before – and CEOs have to be

personally prepared to anticipate and handle the impact. "Market disruptors are constantly creating obstacles through speed and degree of change," says Amber Road's Pieri. "To respond, the transformative enterprise has to have a shared vision, a commitment to invest in new technologies, and to differentiate and improve their offer over what is currently available."

For example, Land O'Lakes is making a big bet on predictive farming technology. "We think prescriptive planting will have a big impact on our industry," says COO Beth Ford. "Essentially, that's a system that tells farmers, with pinpoint accuracy, which seeds to plant and how to optimize their crops on the land available to them based on data collected from various sources. That kind of precision agriculture is poised to create a paradigm shift in the way we feed the world’s hungry.”

One size fits mostRegardless of the size or geographical location of the organization, CEOs and other C-suite executives largely think alike. For the most part, they responded to our survey with similar answers about the extent of digital transformation and what they considered critical factors for success. There are two significant differences, however, between smaller and larger companies:

1Companies with less than $1bn in annual revenue (slightly more than half of the sample) are more

likely to focus their digital transformation efforts on cost savings through operational efficiencies and improved customer service. By contrast, companies with more than $5b in revenue tend to focus on product and service innovation. This may be because economies of scale may provide an advantage over the generally greater agility of smaller firms in these areas.

2 Respondents from larger companies tend to rate their CEO more highly in some key

areas, particularly in terms of encouraging all employees to innovate within their own space – 62% strongly agree, compared to 36% from smaller firms. Larger businesses also rely more on digital experience from executives and experts (58% vs 36%). But the large size of the business challenges these CEOs in some areas. For example, they tend to delay decisive action because of perpetual information gathering.

49%

33%

46%

45%

45%

49%

44%

33%

26%

27%

28%

24%

26%

34%

56%

25%

28%

27%

25%

30%

26%

16%

29%

19%

Small (<$1bn)Medium (<$1bn- $5bn)Large (>$5bn)

Improvedcustomer

experience

Revenuegrowth

Cost savings through

operationalefficiencies

Real-timeevidence-based

management

Improvedemployee

collaboration

Transformedoperating

model

Product/serviceinnovation

Transformed business model

Which of the following business objectives are most important in driving your organization's digital transformation strategy?% of respondents

Anticipate the impact of new technologies and trends.

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Never stop learning.Perhaps the most critical element of a CEO’s personal transformation is the ability to put one’s own ego aside and keep learning – from experiences, customers, other industries, and the expertise of employees and peers. This may also mean withdrawing from situations and allowing others to lead and make decisions.

Executives use a wide variety of ways to learn. “I always look outside my industry,” says Faith Taylor, senior vice president of corporate social responsibility at Wyndham Worldwide. “Innovation, to me, comes from outside. I would look at the best examples and at how we can apply that to our industry. That pushes us out of the box.” Joe Ripp, former CEO of Time Inc., believes one’s entire career is a learning experience – “I’ve always said to people as I’ve counseled them over the years, ‘If you’ve stopped learning, go get yourself a new job,’” he says. And Dinesh Venugopal, president of direct business and head of digital at Mphasis, sums up the purpose and meaning of personal self-transformation: “To me it is a delightful experience to learn from others. Every day I uncover how ignorant I am. And that process of growing as a result of learning is a fascinating journey. I don’t think it should be seen as a burden. I see that as a lifeline.”

About FORTUNE Knowledge Group FORTUNE Knowledge Group, a subsidiary of Time

Inc., a leading global media company, develops

unique editorial content for senior executives. FKG

works with global brands to create groundbreaking

thought leadership that predicts and shapes the

future of business. FKG also drives creative and

distribution initiatives intended to deliver thought-

provoking industry insights to corporate leaders

seeking fresh, useful business ideas.

About Mphasis

Mphasis enables chosen customers to meet the

demands of an evolving marketplace. Recently

named by American Banker and BAI as one of

the top companies in FinTech and as the “Most

Distinguished Digital Company in 2015” by The

Economic Times, Mphasis fuels this by combining

superior human capital with cutting-edge solutions

in hyper-specialized areas. Contact Mphasis through

www.mphasis.com.

@ Time 2017.

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