Digital Transformation: A Management Road Map

February 22, 2016

carlacicoby Carla Cico
Member of the Board, Alcatel-Lucent

Innovation, the search for talent and reorganization: these are three topics that nowadays we hear about again and again, as if they are new concepts in the corporate world. This is not true. Companies have always created success through searching for and implementing innovation, by attracting and retaining the best talent, and by reorganizing themselves according to the demands of their market.

So what is different today? Firstly, the speed of change each company is facing, no matter what industry sector they are in. Secondly, financial and operational barriers to participation in that industry, that once also acted as protection from outside competition, have fallen rapidly and in many cases no longer exist.

The cause of all of this change is the impact of digital platforms and technologies, that are reshaping many, if not all parts of the business in each industry – from marketing to supply chain, from IT services to the time to market of new products, as well as the impact of new entrants to the market.

But while digital transformation is the real innovation that all businesses are facing today, it is not only about technology, otherwise most companies could easily succeed in this process. Digital transformation starts with a simple yet sometimes difficult question for companies to answer: “What business are we in?”

This is actually the key question all businesses are facing. It is the most significant impact of digitalization: it has reshaped the environment for every business. If as a CEO or senior management team you do not understand where you stand, what your consumers want, how can you reach them in a more efficient way, and if you do not constantly check for new competitors and how they act and react, your company will quickly be out of that market. This applies to both B2C and B2B companies.

Change can always be a threat or an opportunity: it depends on how you react to it.

Burberry, the fashion house, was facing a very tough financial situation and was quickly losing market share. It was able to overcome this by reinventing itself, going digital and becoming a leader in digital transformation of the retail and fashion industry.

For Kodak, however, the impact was the opposite: management did not understand that digital was the new frontier and would make or break their entire business. Even though they had been the first to develop a digital camera back in the 1970s, they failed to bring it to market, and in the end their direct competitors (Sony and Canon) did and Kodak lost their entire business. Once you have decided what business you are in, then you have to start to reshape your company accordingly. It is of course human nature to resist change, as individuals don’t like to be forced to leave their comfort zone. So this transformation needs the full engagement of the company as a whole, from the Board level down, including all employees. The “Project Leader” of this transition has to be the CEO, with the support of all the “C” Executives. As the entire organization will be affected, it requires the commitment of every person in the company.

The role of the CEO in this process is pivotal to success. It is to engage and motivate each part of the organization and each employee during the change and to make sure that the right tools are available to reach the final destination: to bring the company into the digital era. It is much easier said than done.

Establishing a road map for digital transformation

Here are some of the variables which companies need to take into consideration:

1. Do you need to change your line of business?

2. Should you change the organization of the business?

3. Do you need to change your supply chain?

4. What is your current time to market and how can you speed it up?

5. What is your real competition and how do they behave and react?

6. What IT / Technology and systems do you have and do they need to be upgraded?

7. How can you manage the transformation within your budget constraints?

There is no easy or right way to go about the process: each company and management team has to work it out, based on their own resources, capability and market reality. However, there are some pillars than can be taken into consideration by any company in order to be a winner in this game:

Do you want to attack or defend? Due to much lower entry barriers in most markets, companies are facing competition from unexpected directions and from newly created entrants. Do you want to continue to defend your position or do you want to go on the attack? This is a dilemma that most of the incumbents, in any industrial sector, are facing, because they have to balance their position as market leader and thereby not cannibalize their profitable business, and at the same time they have to offer new, cheaper products, or to offer entirely new services.

Will the transformation be organic or achieved through acquisition? Some companies find it easier, cheaper and less time consuming to buy a small competitor and/or a company that has the right technology and /or the right business model, rather than develop the technology in-house or to set up a new business unit from scratch. This way you get new technology and new talents in one go. Others set up a completely new Digital unit, hiring people from outside. While both approaches can be a short cut and can give results in the short term, nevertheless if there isn’t strong leadership from the top to make sure that this new venture will become part of the company and that its capabilities will be spread through the whole company, the two entities will compete with each other, creating problems rather than solving them. It is important to balance the old and the new parts of the business, to make sure that the competences you already have are not lost during the transformation, but are blended with the competences brought into the organization from outside, thus creating a stronger overall culture and stronger skill base.

Make the entire organization part of the transformation. Digital transformation requires culture change. Like any change of culture, it needs nurturing on a daily basis, making sure that each employee understands what the changes are, what the benefits are, and which role he/she will play in the new organization. The transformation needs to be explained over and over again. This can be done by webcast by the CEO. The Chief Digital Officer (CDO), if he/she is appointed, will need to reach out to the entire organization, running company-wide training programs. As said above, digital transformation it is not only about technology: technology is the tool that allows the company to interact with its customers and suppliers in a different and more sophisticated way. It is also transforming the hiring process as well, among other functions. In essence, it is about how you will deal with all the information and data that is generated.

Appoint a Chief Digital Officer. The CDO is important to driving the transformation. He/she is a senior executive who sits at the right hand of the CEO and is seen as instrumental to the future of the organization. The CDO needs to be someone who not only has digital acumen but also is a seasoned general manager who can operate within a large-scale business and influence effectively across the organization. This is a relatively new type of leader and one who is hard to find, attract and retain.

Be obsessed with the customer. Whether you are in a B2C or B2B industry, in the new digital environment customers are more knowledgeable and have access to more information than ever before. Customers are now reached through new channels, especially social media, and the company has to be able “to read” and to make the most of all the data available. The entire organization needs to understand the needs of the customer, their preferences, and which products they want. Time to market of new products has shortened, meaning that the new organization has to be agile and ready to adjust to changes in the market quickly, both in terms of supply and demand.

Think about new business m o d el s . In this new environment, most if not all relationships are changing. Opportunities for new alliances and new partnerships are being created, which enable companies to reduce costs and to maximize revenues. Partnerships can be formed with a direct competitor or with one or more suppliers.

Project control. Companies have spent billions to try to achieve the successful digital transformation of their businesses, and in many cases the results did not match expectations. Digital transformation is a project and it has to be treated as a project: with appropriate attention to actions, timing and costs. Check points need to be built into the implementation of the project, so that corrections can be made if needed.

Digital transformation is a lifetime project: it has to become the new culture of the company, and above all an entirely new way of doing things. The goal for a company from the process of digital transformation is to be an important player in the new digital environment – maintaining its position in the market, while not losing its skills and talent during the process, but rather adding new ones, controlling costs, and importantly not only protecting its existing revenues, but also growing them.

Carla Cico, born in Verona, Italy, earned her MBA at the London Business School. Carla is a former CEO of: Brasil Telecom, S.A., (the third largest Brazilian fixed-line operator); Ambrosetti (Beijing), China, (part of the Ambrosetti Group, an international strategic consultancy company headquartered in Milan, Italy); and Rivoli S.p.A., (an infrastructure Company, based in Verona).

She was the first female CEO in the South American telecoms sector. Carla has strong M&A experience, having listed Brasil Telecom on the New York Stock Exchange, making it the first, and still the only, Brazilian telecommunications company listed abroad. She was ranked 25th in Fortune Magazine’s “The World 50 powerful Women in International Business” (October 2004) and 32nd in Forbes Magazine’s “The World’s 100 Most Powerful Women” (August 2005). In 2003 she was elected best CEO in the Latin America Telecommunications Sector (Reuters Institutional Investor Research).

Carla is now an Independent Director on Boards of both listed and not listed companies: Alcatel- Lucent, (listed on the New York and Paris Stock Exchanges); Allegion, (listed on the New York Exchange Stock Exchange); and Epta a privately owned company. Carla is a sought after speaker at many industry summits, with a focus mainly on telecommunications, management strategy and developing countries.