Comparing Two Approaches To Digital Transformation

Dr. Chakib Bouhdary

A successful digital transformation requires the right approach—and the right leadership to drive it. What’s right for your company depends on your organizational maturity and the goal of your digital transformation. Some companies are looking to set up digital innovation outposts; others are planning full-scale transformations—but all projects call for commitment and a clear strategy.

Based on our work with customers, we have identified two distinct approaches and two types of leaders that companies use to drive digital transformation.

The top-down approach

  • When a business model change is required, digital transformation is mandated by the board or the CEO
  • Changes are required across the value chain, value proposition, and revenue model
  • The long-term vision is well-defined, and the projects funded are aligned to this vision
  • All options are considered to drive the change, including M&A and forging strategic partnerships
  • It is a multi-year journey, with multiple wins along the way

This transformation approach is popular in consumer-facing industries like retail, insurance, banking, media, and automotive OEM. It is led by strategic innovators:

  • Talented executives who can lead big business units and potential successors to the CEO
  • CDOs and CINOs who report directly to the CEO and the board and are directly responsible for the transformation objectives
  • Responsibilities and influence are not limited to innovation through technology, but also include business strategy decisions like new acquisitions, new products, and service introductions
  • When engaging with technology companies, they are not interested in specific products but instead look for long-term partnerships

Customer example of the top-down approach:

A large European home appliance manufacturer is transforming its business by building smart products and connecting them on a single platform to deliver connected lifestyle experience. By combining appliance, platform, and customer data, they can offer new services and understand customer needs better to customize products. Through digitization, they can also build the appliance-as-service business model, where customers pay per the usage of the appliance.

The bottom-up approach

  • The focus is on specific objectives, like step changes in productivity or improving the customer experience
  • Business units and LoBs nominate thousands of initiatives, but only 10-15 projects with clear ROI are funded
  • Rolling portfolio of projects is in place to drive the momentum
  • The emphasis is on quick wins, like predictive maintenance, automate repetitive tasks, making the operating environment safer using modern technology, and so on

This approach is popular with the asset-intensive industries like mining, chemicals, and oil and gas, where the CIO or CTO is leading the digital transformation. This approach is typically led by digital experts:

  • Leaders of digital CoE/accelerator units, or CDOs who report to the COO/CIO/CTO
  • Focused on multiple initiatives that drive a step change in productivity, employee engagement, and improve the customer experience
  • Work closely with LoBs or business units to funnel thousands of ideas into the running portfolio of digital projects
  • Most projects are funded through the IT or divisional budget, which puts ownership of execution on the CIO or COO

Customer example of the bottom-up approach:

A large chemical company is leveraging digital technologies for several projects to drive productivity and costs. They are using machine learning to eliminate voluminous and repetitive tasks in their back-office operations. For another project, they are leveraging predictive technology to improve maintenance effectiveness. They are also adopting cloud network solution to better collaborate with equipment manufacturers and other service providers.

Conclusion

Both approaches have their own set of opportunities and challenges, but the success ultimately comes down to how well digital initiatives are planned, prioritized and executed. Therefore, more and more companies are assigning digital leaders. However, the title, role, and responsibility of the digital leader vary from company to company. Some are appointing Chief Digital Officers (CDO) or Chief Innovation Officers (CINO), while others still see the CIO or CTO leading the transformation with some additional support. In fact, 19% of the 2,500 largest public companies have an executive in a CDO role. The common link between successful companies from both sides of the spectrum – it’s all about the business value and digital technology is the enabler.

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Dr. Chakib Bouhdary

About Dr. Chakib Bouhdary

Dr. Chakib Bouhdary is the Digital Transformation Officer at SAP. Chakib spearheads thought leadership for the SAP digital strategy and advises on the SAP business model, having led its transformation in 2010. He also engages with strategic customers and prospects on digital strategy and chairs Executive Digital Exchange (EDX), which is a global community of digital innovation leaders. Follow Chakib on LinkedIn and Twitter