CEOs and other senior executives are increasingly engaged as their companies step up efforts to build digital enterprises.
As businesses continue to embrace digital tools and technologies—especially when engaging with customers—C-level executives in a recent McKinsey survey say they are stepping up their own involvement in shaping and driving digital strategies. This is vital to the success of digital programs, as survey respondents most often cite a lack of senior-management interest as the reason for an initiative’s failure. Respondents also suggest that organizational alignment is critical to seeing real business impact from digital.
In the survey, we asked respondents about five digital-enterprise trends: big data and advanced analytics, digital engagement of customers, digital engagement of employees and external partners, automation, and digital innovation. Specifically, we inquired about their companies’ adoption of and focus on each trend, what impact digital technologies can (and do) have on their businesses, and what obstacles companies face in meeting their digital goals. We found that despite the organizational and talent challenges, executives remain optimistic about digital business.
They report, for example, that their companies are using digital technology more and more to engage with customers and reach them through new channels. What’s more, growing shares report that their companies are making digital marketing and customer engagement a high strategic priority. Nevertheless, there is more work to do: most executives estimate that at best, their companies are one-quarter of the way toward realizing the end-state vision for their digital programs.
Focusing on customers and the top line
Executives say each of the five digital trends we asked about is a strategic priority for their companies. Of these, the trend that ranks highest is customer engagement: 56 percent say digital engagement of customers is at least a top-ten company priority, and on the whole respondents report notable progress since 2012 in deploying practices related to this trend (Exhibit 1). Companies have made particularly big gains in their use of digital to position material consistently across channels and to make personalized or targeted offers available online.
By comparison, companies have been slower to adopt digital approaches to engaging their own employees, suppliers, and external partners. Here, executives say their companies most often use online tools for employee evaluations and feedback or knowledge management; smaller shares report more advanced uses, such as collaborative product design or knowledge sharing across the supply chain.
Responses also indicate growth in the company-wide use of big data and advanced analytics, matching our experience with companies of all stripes, where we are seeing executives consider analytics a critical priority and dedicate increasing attention to the deployment of new analytic tools. Notably, respondents report increased use of data to improve decision making, R&D processes, and budgeting and forecasting (Exhibit 2). What’s more, executives say their companies are using analytics to grow: the largest shares report focusing their analytics efforts on either increasing revenue or improving process quality; reducing costs tends to rank as a lower-level priority.
Likewise, when asked about the next wave of business-process automation, respondents say their companies are automating a wide range of functions to improve the overall quality of processes (by removing breaks or errors, for example) or to build new digital capabilities (for example, remote monitoring) into the processes; few say their companies have automated processes primarily to replace labor. When asked about innovation practices, more than 40 percent of respondents say their companies are either incorporating digital technology into existing products or improving their technology operating models (for instance, using cloud computing). Just 23 percent say they are creating digital-only products.
Across most of the C-suite, larger shares of respondents report that their companies’ senior executives are now supporting and getting involved in digital initiatives (Exhibit 3). This year, 31 percent say their CEOs personally sponsor these initiatives, up from 23 percent who said so in 2012. This growth illustrates the importance of these new digital programs to corporate performance, as well as the conundrum that many organizations face: often, the CEO is the only executive who has the mandate and ability to drive such a cross-cutting program.
Thirty percent of respondents also report a chief digital officer (CDO) on their companies’ executive teams, a sign of the widespread awareness that these initiatives are important. This result also squares with our experience that some organizations have created the CDO role as an executive-level position with cross-cutting responsibilities for all digital initiatives. In a sign that this new role is already creating value, respondents whose organizations have a CDO also indicate significantly more progress toward their digital vision than those without one.
Organizational challenges continue
Despite the host of technical challenges in implementing digital, respondents say the success (or failure) of these programs ultimately relies on organization and leadership, rather than technology considerations. We asked executives to think of past initiatives at their companies (one initiative that worked and one that didn’t) and then identify the most decisive factors behind each outcome. Executives most often attribute the success of digital programs to managerial factors—senior management’s interest and attention, internal leadership, good program management, and alignment between organizational structure and goals—and are less likely to cite any technical considerations (Exhibit 4). Interestingly, the absence of senior-management interest is the factor respondents most often identify as contributing to an initiative’s failure.
Organizational issues can also hinder companies’ efforts to meet goals and see real impact from digital. As in 2012, executives most often say misaligned organizational structures are the biggest challenge their companies face in meeting digital goals. This is followed by insufficiently reworked business processes (to take advantage of the digital opportunities) and difficulty finding functional talent (such as data scientists or digital marketers). In contrast, a lack of infrastructure and absence of good data are less pressing than they were last year.
At companies where organizational structures do pose a challenge, fewer report a corporate-wide financial impact from digital business: 31 percent of these executives say their digital efforts have yielded a measurable impact on top- or bottom-line results, compared with 43 percent of executives who aren’t facing this issue. At the same time, many respondents are unsure of how best to measure their efforts: only 36 percent say their companies have a top-line metric for monitoring their digital programs’ overall progress.
High expectations and continued investment
Challenges aside, executives remain bullish on digital business: 65 percent say they expect these trends will increase their companies’ operating income over the next three years, similar to last year’s results. CEOs are more positive than executives in any other role, with more than one in five saying they expect income from digital to increase by more than 30 percent in three years’ time.
When asked about their expectations for digital’s top line, executives at business-to-business companies are actually more optimistic than their business-to-consumer peers, perhaps due to the increased consumer expectations, price transparency, and competitive pressures that business-to-consumer companies face. While respondents see value from all five trends, they are hoping for more value from customer engagement than other trends: executives who expect an income boost from digital business attribute the largest part of that increase to digital customer engagement (Exhibit 5). Among those expecting a negative impact on company income, the largest share of respondents say it’s due to their inability to adequately respond to changing customer behavior and expectations.
Executives say their companies continue to invest heavily in their digital programs—and, on average, expect to spend more relative to last year’s results. There are some notable differences across regions: respondents in North America, for example, say their companies are investing at levels well ahead of those in other regions, including Europe, where companies traditionally keep pace with North America (Exhibit 6). But currently, only about one-third of executives say their companies are spending the right amount on digital, and many worry about underinvesting in these programs. Still, the responses indicate that companies have a long way to go in accomplishing their digital-business agendas. Fifty-seven percent say their companies are up to one-quarter of the way toward realizing their end-state visions for their digital programs, and just 40 percent say their organizations’ digital efforts have yielded a measurable business impact thus far. Executives who say their companies spend the right amount on digital are much likelier than average to report real business impact (60 percent), as are those who say their companies are at least halfway toward their end-state visions (56 percent), but overall, there is room for improvement.
- Find the right digital leaders. Leadership is the most decisive factor for a digital program’s success or failure. Increasing C-level involvement is a positive sign, and the creation of a CDO role seems to be a leading indicator for increasing the speed of advancement. These developments must continue if companies are to meet their high aspirations for digital.
- Manage expectations. Just as important as finding the right leader is setting the right agenda and maintaining an aspirational vision without straying into overexuberance for digital. Leaders will have to walk this line carefully, given executives’ reports of organizational, technical, and cultural challenges.
- Prioritize talent. Not surprisingly, survey respondents indicate concerns about finding the talent their companies need to realize their digital goals. Technical, functional, and business skills are all critical for digital programs. We have seen some companies begin emulating the high-tech practice of “acqui-hiring” (that is, acquiring small companies largely for their employees rather than their products). But finding and hiring talent is only part of the solution; no matter where the talent comes from, development and retention are equally important in a sellers’ market.