Executive Leadership Makes (or Breaks) Digital Transformation Success - Here's Why
In recent years, companies across the globe have rapidly accelerated digital technology adoption. There’s a reason for that: Research shows digital investments made prior to the COVID-19 pandemic have allowed companies to respond with greater agility and that companies not already pursuing digital transformation are investing now to keep pace in a largely digital world. Driven by shifting customer expectations, increased supply chain demand, and a new hybrid workforce, forward-thinking organizations are reorienting themselves around a “digital first” approach to stay competitive in this new business and economic environment.
In the industrial space, leveraging digital technology to innovate in engineering, to manufacture efficiently, and to deliver top-notch customer service can spell the difference between success and failure for organizations. At PTC, we think of digital transformation as a closed loop between the digital and physical worlds, transforming how everything around us is engineered, manufactured, and serviced.
Despite the myriad benefits of adopting digital technologies, the fact of the matter is that large-scale digital transformation programs can be difficult to get off the ground. In fact, a recent PTC survey of 1,500 digital transformation projects shows that nearly half failed to achieve positive ROI, with common pain points like data inaccessibility and siloed systems forestalling efforts.
Arguably, the most critical factor in driving digital transformation success is alignment between stakeholders on program vision and expectations. Successful transformation programs hinge on more than digital technology itself – they require bold executive leadership willing to drive systemic change, inspiring cross-functional collaboration throughout all levels of the organization and fostering a company culture dedicated to true transformation. Organizations with leadership that possess these qualities are nine times more likely to uncover more value in their digital transformation efforts than those that don’t.
Read on or watch the video below to explore some of the reasons why executive leadership makes (or breaks) digital transformation success:
Setting the Vision for Digital Transformation
Investment in digital transformation is commonly in the seven figures – PTC research shows the majority (77%) of programs spend more than $1 million annually, with 30% spending more than $5 million per year – making it critical to define priorities and expectations at the program outset. To do this effectively, leadership must state clearly and unambiguously where digital transformation efforts fit into overall company strategy. Equally important, executives must set the vision for what digital transformation will enable for the company in the future.
For some organizations, it’s a new business model; for others, it’s a more efficient way of doing business or unlocking new business opportunities that will drive the growth of the company. So the digital transformation effort is either making a massive difference to the top line, which is the company growth, or it’s making a big impact to the bottom line, which is taking massive amounts of cost out of the business through better automation or a more seamless digital thread throughout the value chain.
The challenge, however, is that sometimes even the most clearly defined vision gets lost in translation – particularly when, as is most commonly the case, multiple business units are involved in transformation efforts. To overcome what often becomes a complicated game of telephone tag, executive leadership must hold stakeholders accountable through an executive steering committee, outlining the strategic goals and vision of the program and tracking milestones along the way. In parallel, companies should consider appointing an executive sponsor of the committee, a person responsible for defining who is tasked with what and prioritizing (or re-prioritizing, as the program unfolds) where to focus efforts. It’s that system of closed loop feedback that drives overall program success.
Driving Cross-Functional Collaboration
An executive steering committee is critical in setting (and executing on) the vision for digital transformation across the organization. But the world isn’t static – business changes and, given that digital transformation pursuits are often years long, company priorities can shift as well. Senior leadership has the most holistic view of shifting company priorities, making their role in directing (or redirecting) the digital transformation initiative imperative.
What’s most crucial in any digital transformation effort is for executive leadership to drive fundamental changes to the way work gets done. This requires leaders to have a rich understanding of the opportunities afforded by greater cross-functional collaboration and to take a committed role in making necessary changes to departmental and functional boundaries.
The reason for this is simple: The opportunities that offer the greatest potential value for digital transformation are often those where information and collaboration span organizational siloes. For example, using quality data generated by a field service organization to inform design decisions in product development. But bridging siloes with new workflows invariably results in an intersection of distinct priorities, expectations, and hurdles. Every new opportunity challenges the status quo of these interdepartmental dynamics.
Executive leaders are responsible for recalibrating these relationships by defining a new set of shared priorities and expectations, redefining the boundaries of siloed systems by either blurring them, redrawing them, or eliminating them. In this way, executive champions promote cross-organization communication so that information generated by one department can be leveraged by all.
This commitment from leadership is essential for cross-departmental projects, where it can be very or extremely difficult to drive collaboration, measure overall success, or even identify valid success criteria. Conversely, without these leaders, siloed digital transformation initiatives lack the necessary political power to address interdepartmental hurdles. As a result, these programs might lag far beyond initial timelines, consuming more resources and delaying ROI.
Instilling Cultural Change
Even with sound leadership, cross-functional collaboration, and best-in-class technology, a digital transformation project will not succeed if it’s not embraced by company culture. In that sense, there’s a significant change management component involved with any digital transformation effort – in other words, how are existing processes and roles changing as a result of the initiative?
This is where senior leadership once again plays a pivotal role, preparing for the change, executing on the change, and making sure the change is working. This requires alignment between leadership’s vision for the initiative and employee commitment to execute on that vision. But fostering this type of commitment is often easier said than done because it relies on all employees’ willingness to change processes, behaviors, and/or roles. In fact, failure to properly invest in this type of change management initiative is often one of the places where digital transformation programs break down – if the people who need to implement digital transformation don’t embrace it, it doesn’t matter how robust the technology is.
Organizations tackling cultural change with the most success are those that inspire a sense of project ownership at every level in their organization through a top-down and bottom-up approach. PTC research, in fact, shows companies that take a combined top-down and bottom-up approach to their digital transformation initiatives are two to three times more likely to beat their financial expectations than those that do not.
With a top-down approach, executive leadership aligns the transformation initiatives with long-term company strategic goals – it’s a necessary component for evaluating achievements against the long-term needs of the company. A bottom-up approach, on the other hand, identifies valuable use cases at the department level, instilling ownership within each individual department and improving KPIs that matter most to these functions.
The challenge, however, is getting these two distinct approaches to work in concert, which is where the executive steering committee again comes into play. By forming a collection of stakeholders across the company who are responsible for ensuring project execution and ongoing success, the governance committee provides a continued sense of project ownership across functions, ensuring that each group is operating within the guidelines and best practices of the broader business and identifying new opportunities for collaboration across stakeholders.
Final Thoughts
In today’s ever-shifting, hyper competitive marketplace, investment in digital transformation is paramount: IDC research shows, for the first time ever, the majority of enterprise organizations have a company-wide digital transformation strategy in place. Organizations that see the greatest success with digital transformation pursuits understand that true transformation requires bold leadership to enact change and foster collaboration throughout all levels of the organization. Only then can adoption of digital technologies transform the ways work gets done.