A version of this article appeared in the Autumn 2017 issue of strategy+business.
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A growing number of companies have embraced the need for strong digital leaders. Our 2016 study of chief digital officers (CDOs), which analyzed the presence of such leaders among the world’s 2,500 largest public companies, revealed that 19 percent of these companies have now designated an executive to lead their digital agenda. This number is up from just 6 percent of companies in our 2015 study. And the uptick has gained momentum in recent years: Sixty percent of the digital leaders we identified in our most recent study have been appointed since 2015.
Sixty percent of the digital leaders identified in our study have been appointed since 2015.
Such trends reflect the movement at many companies toward a state of more advanced digital competence. In our experience, it is typically at this stage that top management becomes focused on the need for digital leadership. In the early days of a business, different business units and corporate functions conduct scattershot experiments and pilot programs in hopes of kick-starting their digital efforts. But once a company decides to design a coherent, comprehensive strategy to capture the benefits of digitization, that decentralized approach will no longer suffice.
When it comes to implementing a digital strategy, the new class of CDOs often encounter several major obstacles upon assuming their role: ad hoc digital initiatives spread throughout a large organization, lacking central oversight; a traditional culture that resists change; a gap in the talent required; and legacy systems and structures that threaten to derail their ambitions. The right CDO for your company will have the background and experience to tackle these issues. The mix of requisite skills won’t look the same at every company, but will enable a CDO to lead your organization’s digital transformation, to the point at which fundamental changes in organization, governance, capabilities, business processes, underlying technology architecture, and culture take hold.
We use the title chief digital officer to refer to any executive tasked with putting into practice the digital ambition of his or her company or business unit. This could be a high-level member of the C-suite — a chief digital officer, chief technology officer, or chief information officer, among other roles. However, a company may instead have a vice president or director of digital operations leading the effort. Across industries, we see many of the latter positions represented: The percentage of CDOs who are members of the C-suite hasn’t changed significantly since 2015; it still hovers around 40 percent (see Exhibit 1).
Other findings have also remained constant. Larger companies, for example, are still more likely to have a CDO in place, as are companies based in North America and Europe, and it's still true that most CDOs are men (84 percent in 2016). But there are some notable distinctions among today’s CDOs. Our 2015 study showed that consumer-facing industries such as communications, media, and entertainment; food and beverages; and transportation and travel were leading the way in appointing digital leaders, as they sought to improve their customer experiences, connectivity, and business models. Their leadership position has changed in this year’s study, as other industries — most notably insurance and banking — seek not only to boost their customer-facing activities but also to more fully digitize their internal operations (see Exhibit 2).
We’ve also seen a shift in the background of new digital leaders. In 2015, just 14 percent of CDOs had acquired their primary expertise in a technology field; in 2016, that proportion more than doubled, to 32 percent. Meanwhile, the percentage of CDOs with marketing, sales, and customer service backgrounds fell from 53 percent to 39 percent. And the percentage of technology-oriented CDOs in the C-suite is even higher — 41 percent, compared with 33 percent for marketing and sales CDOs.
These shifts correspond to the circumstances that companies are facing. For example, some companies may be looking to digitize only their customer-facing activities, or just one business unit at a time. The ideal CDO for them may have a great deal of sales or marketing experience in a particular industry, or expertise in a specific technical area. Other companies have greater ambitions for their transformation. Such companies will likely be looking for a digital leader whose background includes not just the customer-facing or operational aspects of digitization, but also experience in managing large-scale change. And now, as more companies reach digital maturity, they need CDOs who can navigate the intricacies of both legacy IT architectures and new digital applications. Getting there requires an executive with a strong background in technology as well as experience in addressing the often fraught political and governance issues involved in approving major technology investments and implementing the new systems.
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The CDOs we interviewed for our study tended to have these qualities. Their experiences, their locations on the org chart, and even their specific missions varied. But they are facing similar challenges on their path to digital transformation.
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When a new digital leader assumes the role, there may be pockets of digital activity spread throughout the organization. This loose arrangement may work during the early stages of digital transformation, when experimentation is encouraged. But as the company begins to examine digital initiatives in light of a larger strategic goal, a lack of unity can quickly become problematic.