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 organizational design is the largest change corporate executive suites have managed since the business process re-engineering of the early 1990s. 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 for this corporate digital reorganization:
- New requirements for technology and technical talent
- Favorable digital economics
After the dust settles, a new team will emerge, and we call it the Chief Transformation Officer or CTO organization.Nick Lippis, Co-founder of ONUG
New Requirements for Technology and Technical Talent
To understand what is taking place in the large enterprise, look no further than the Chief Digital Officer (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. Consider Netflix, Tesla, Wayfair, Amazon, Spotify and so many others that have transformed their industries, thanks to understanding and servicing digital customers.
CDOs, while they have executive management’s ear and can explain the value and excitement of going digital, often fall short on their delivery. Many lack the technical expertise 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 personnel. These technical resources are specialized, scarce and focused on 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; 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 US and developed world reaches full saturation of digital devices, a new digital economy and digital consumer has emerged.
It’s safe to say that all executives focused on driving high gross margin and market valuation for their corporations are committed to digital transformation. After all, business strategy is digital strategy.
Case 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 7-10% productivity improvement, measurable through gross margin. Now that number is 0-1%, according to James Fowler, CIO, Nationwide.
From a market valuation point of view, Tesla is worth more than 100-year-old companies like Ford and GM. Spotify’s market capitalization is greater than the entire revenue of nonstreamed 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 the US Commerce Department’s Bureau of Economic Analysis, the digital economy has been growing at triple the pace of US GDP. As the digital economy becomes a larger percentage of overall GDP, reorganization will only accelerate the introduction of the Chief Transformation Officer.
The ONUG Community will dive into this topic during the keynote panel titled “CTO Fireside Chat: Top 5 Challenges to Operationalizing Digital Strategy,” at ONUG Fall in NYC on October 16-17, 2019.
Paul Michelman, Editor in Chief of MIT Sloan Management Review, will moderate this discussion with the following executives:
- Tsvi Gal, Managing Director, Morgan Stanley;
- Don Duet, Senior Advisor, McKinsey & Co, ex-CTO Goldman Sachs;
- Stephen Davy, Managing Director & Chief Technology Officer, Société Générale;
- Eric Reed, CTO, Cigna.
I invite you to join us at ONUG Fall and help define the Chief Transformation Officer’s organization.
Nick Lippis is a guest author for the 451 Alliance blog. He is Co-founder and Co-chairman of ONUG, a 451 Alliance partner.