Within every large corporation today, a power battle is brewing. The battle is over who will own the digital enterprise; that is, who will have the authority, people, budget and responsibility to develop digital revenue streams and move their corporation into the digital economy? ONUG Community members are building and running secure digital enterprises but are confronted with a series of organizational, cultural, skills, budgeting and technical challenges. These challenges are questioning the role and structure of Chief Information Officer (CIO), Chief Technical Officer (CTO) and Chief Digital Officer (CDO) organizations. This shift in responsibilities and organizational design is the largest change corporate executive suites have managed since the early 1990s’ business process re-engineering. This reorganization will impact all IT vendor relationships within the large enterprise market. After the dust settles, a new team will emerge, and we call it the Chief Transformation Officer or CTO organization.
There are two battle fronts coming into play that are driving this corporate digital reorganization: 1) new requirements for technology plus where technical talent is placed and 2) favorable digital economics.
New Requirements for Technology and Technical Talent: To understand what is taking place in the large enterprise, look no further than the CDO organization. Many CDOs have preferred access to executive management and members of their corporate boards. The reason is that being more digital offers greater gross margins and market valuation. Look no further than Netflix, Tesla, Wayfair, Amazon, Spotify and so many others that have transformed an industry, thanks to understanding and servicing digital customers. CDOs, while they have executive management’s ear and can explain the value and excitement of being digital, they often fall short on their organization’s ability to deliver. That is, many do not have the technical skills and knowledge in mobile, cloud, automation, etc. to deliver the envisioned digital outcome. When the technical heavy lifting is needed, many CDO organizations lean upon CTO and CIO technical personnel.
These technical resources are specialized, scarce and focused upon existing projects when CDO personnel come knocking. This causes executive management discussions on resource reallocation and re-prioritization of projects. This is happening all the time and often escalates to corporate boards to the point that it’s not a corner case, but systemic in many of the large ONUG enterprise members’ corporations.
Favorable Digital Economics: As the population in the U.S. and developed world reaches full saturation of digital devices, a new digital economy and digital consumer has emerged, which has the attention of ONUG’s executive members. It’s pretty safe to say that all executives focused on driving high gross margin and market valuation for their corporation is rooted in being digital. That is, business strategy is digital strategy. Fact in point, most large corporations in the Fortune 500 and Global 2000 have extracted as much productivity as possible through traditional Information Technology. It used to be that IT would deliver 7 to 10% productivity improvement, measurable through gross margin. Now that number is between 0 to 1%, according to James Fowler, CIO, Nationwide, and ONUG Community member.
From a market valuation point of view, Tesla is worth more than 100-year-plus companies such as Ford and GM at times. Spotify’s market capitalization is greater than the entire revenue of non-streamed music sold, either singles or albums, by nearly a factor of two. Netflix is approximately 1.8 times greater in market capitalization than AT&T’s purchase price of Time-Warner last year. Five years after Wayfair’s IPO, it is nearly two times bigger than the combination of its three main competitors: Restoration Hardware, Bed Bath & Beyond and Williams-Sonoma. In short, margin and valuation gain has shifted toward digital transformation.
And the economy is only going to get more digital. According to U.S. Commerce Department’s Bureau of Economic Analysis, the digital economy has been growing at triple the pace of U.S. GDP. As the digital economy becomes a larger percentage of overall GDP, reorganization will only accelerate the introduction of the Chief Transformation Officer.
At ONUG Fall in NYC on October 16-17, hosted by Cigna, the ONUG Community will dive into this topic during the keynote panel titled “CTO Fireside Chat: Top 5 Challenges to Operationalizing Digital Strategy.”
Paul Michelman, Editor in Chief of MIT Sloan Management Review, will moderate this discussion with the following executives:
I invite you to join us at ONUG Fall and help define the Chief Transformation Officer’s organization.