Sunday, April 28, 2013

The era of the Chief Digital Officer

The new buzz word in the techno-business landscape is the role called the Chief Digital Officer (ominously enough, the CDO). Gartner believes that one-quarter of firms will have someone with that responsibility by 2015. Starbucks and Harvard have one, and apparently so do city governments like New York.
Here are my two cents on this topic.
The move to digital, while varying across industries, is a strong trend.
One would have to be blind to not recognize the magnitude of digital presence that is seeping across industries. As they say these days, every business is a digital business today.  In some, such as retail trade, entire channels are now digitally driven. In more physically constrained industries such as discrete manufacturing, digital control systems and sensor-enabled monitoring are pervasive (tomorrow, with the emergence of the 'Internet of things' digital will penetrate deeper). Finally, in knowledge-intensive areas of R&D and product design (for example, Pharma R&D, energy exploration or even financial product design), the use of large-scale Big data and analytics is now commonplace enough.
As a large number of operating  processes become digital, there is the need for new capabilities and  mental models in structuring businesses
The rules of the game in the digital enterprise are often substantially different from the traditional world.
Consider the operating blocks of the digital enterprise: that require utilizing new technologies such as mobility, social, cloud and big-data - so different from traditional approaches that utilized more constrained, capital intensive, and less flexible models.
Re-architecting entire value chains using these new building blocks lays an emphasis on:
  • Rapid innovation and experimentation (for example, leveraging the cloud to quickly build test capacity for new solutions)
  • Decision-making that is more  data and analysis driven vs. based on qualitative hypothesis (for example, utilizing big-data technologies to process real-time information)
  • Propositions  are more responsive in real-time to consumer needs (for example, customized offerings that reflect preferences communicated through social media)
  • Solutions that provide a greater range of customer access (for example, mobile-based offerings that are geo-location sensitive)
Consider also the cost structure of digital offerings: which is often a fraction of the traditional, fueled by cost-effective access to computing power, with minimal investments in capital-intensive assets, and with minimal IT personal oversight. At the time of Instagram's billion dollar valuation by Facebook, when it served 10 million+ users, it had about 20 engineers managing its infrastructure. Such cost effective capacity at scale was unimaginable traditionally.
Successfully leveraging these requires more than just an expertise with managing technology - one also needs an expansive grasp of business and operating models, and a creative bent in harnessing new technologies in creating innovative business models.
Will traditional CIOs be comfortable at stepping into the shoes of a CDO?
Traditionally, CIOs have remained comfortable managing cost-centers and leading delivery units. Stepping up to becoming P&L owners will be a different experience.
This will require them to externalize their focus and direct their understanding deeper towards business customers and markets . This will be a different from the traditional focus on the internal customer - and the change will require a whole new range of capabilities. It is, of course, quite another question as to how easy would be the 'permission-to-play' from their business brethren as they cross new boundaries.
Yet, if they do succeed in making this transition, it could see them becoming true business partners - an objective that has dominated business-IT alignment discussions for some time now.
Finally, do CDOs need a board level presence?
This is an interesting question, and aligned to whether digital efforts are significant enough to warrant a board-level focus. While the answer will vary by industry, here are few perspectives to consider:
  • Traditionally, there have been cases of CIOs reporting to the COO, CSO or another CxO, and therefore being a level removed from the Board. However, as digital initiatives span business and technology boundaries and in some cases business units, there may be the case for an elevated office of the CDO with greater sponsorship.
  • Organizationally, the question is also whether digital efforts are substantially strategic.  Consider the case of Walmart, which utilized a few acquisitions to create the digitally-focused Walmart Labs. In cases where digital is as strategic as causing a transformation in the core business, one would believe that a board representative is justified.
In sum: As every business out there transforms to becoming digitally-enabled and eventually digitally-led, the office of the Chief Digital Officer is likely to become an important one. The operating requirements and capabilities of this new role are beyond a mere evolution of the CIOs role, and may need a deeper rethink of organizational setups.