The Chief Digital Officer (CDO) as a key driver of a successful digital transformation

Table of contents

Management Summary

Table of contents

Figure Index

Abbreviation index

1. The digital revolution
1.1. Definitions and characteristics of Industry 4.0, digital disruption and digital transformation
1.2. Chances of the digital revolution and the risks of missing the transformation
1.3. The process of digital transformation and the characteristics of each phase

2. The Chief Digital Officer
2.1. The sudden necessity of a digital leader
2.2. A CDO’s past and a brief demarcation to the CIO and CMO
2.3. The five types of a CDO

3. Starting the digital transformation
3.1. Preparing the organization
3.2. Cultural change
3.3. Reskilling the employees
3.4. What happens to the CDO after a successful digital transformation?

4. Conclusion: Does every organisation need a CDO to transform successfully?

Attachments

References

Figure Index

Management Summary

Digitisation is one of the most commonly used buzzwords of these days. Unfor- tunately, to many organisations it stays a buzzword and not a call to action. That is why many organisations have started to appoint CDOs who solely take care of the organisation’s digital transformation.

At first, digitisation and other buzzwords are to explained and defined. After that the project will deal with the typical progress of a digital transformation and the typical tasks and challenges of a CDO. In the end the results of the investigations will be concluded and an outlook of the future of the CDO is given regarding if the CDO is only a short trend or will become a permanent member of the C-suite.

Figure Index

Figure 1 From manual production to mass customisation as well as personalisation and regionalisation (retrieved from "Digital Disruption", Matzler et al., 2018)

Figure 2 Developing costs and size per transistor through the ages (retrieved from https://newsroom.intel.com/newsroom/wp-content/uploads/sites/11/2017/03/Mark-Bohr- 2017-Moores-Law.pdf, on the 11th of November 2018)

Figure 3 Performance and energy consumption of past, present-day and future transistors ages (retrieved from https://newsroom.intel.com/newsroom/wp- content/uploads/sites/11/2017/03/Mark-Bohr-2017-Moores-Law.pdf, on the 11th of November 2018)

Figure 4 Characteristic digital transformation process and its need for a CDO (retrieved from https://www.strategyand.pwc.com/media/file/The-2015-chief-digital-officer- study.pdf, on the 12th of November 2018)

Figure 5 Figure 5 Direct and indirect public financing on R&D in small and medium-sized enterprises as a percentage of total R&D expenditure by small and medium-sized enterprises (retrieved from https://www.e- fi.de/fileadmin/Gutachten_2017/EFI_Report_2017.pdf, on the 17th of November 2018)

Figure 6 Percental share of GDP in tax benefits of R&D investments in the EU (retrieved from https://www.e-fi.de/fileadmin/Gutachten_2016/EFI_Report_2016.pdf, on the 17th of November 2018).

Figure 7 Market capitalisation of US-companies in the ICT sector and the internet economy (retrieved from https://www.e- fi.de/fileadmin/Gutachten_2016/EFI_Report_2016.pdf, on the 23th of November

Abbreviation index

Abbildung in dieser Leseprobe nicht enthalten

1. The digital revolution

1.1. Definitions and characteristics of Industry 4.0, digital disrup- tion and digital transformation

After mechanisation, mass production and automating, digitisation is the fourth industrial revolution, which humanity has to face. It is distinguished by a digital crosslinking of all participants of the supply chain; a synonym to digitisation is Industry 4.0 (Pollert et al.; 2014; BDI, o.D.). Nowadays humans can interact more easily with machines and IT- systems, but shortly, the technology, which now supports the employees, will be able to replace human workforce and design an even more efficient way of generating the prod- uct of the supply chain (Roland Berger Strategy Consultants, 2015). To benefit from the advantages of the fourth industrial revolution, the organisation has to transform digitally; otherwise, it cannot stay competitive. As a result, any kind of information is available and accessible in real-time which is why big data counts to the top topics of digitisation as well (Matzler et al., 2016). Also, conventional business models will disappear in the next couple of years as they do not ensure future success (Gerberich, 2017).

Besides, big data is to bombard the organisation with myriads of information and data which have to be processed to plan the future for an organisation and draw conclusions from it. Those data are not only provided by the organisation itself but also from its cus- tomers, various cloud-services but also by news platforms, so every piece of data and information which is processed digitally can be used by big data (cf. World Bank, 2016).

As well as Industry 4.0, the digital disruption will have a significant impact in today’s way of living. It is going to change social structures, the understanding of the economy as a whole and offers heaps of new potentials, for instance, in cutting costs or shaping work. Thus, organisations need to impugn everything which they have ever done in their history (McQuivey, 2013; Gartner, 2014). Mercedes, for instance, has already taken measures and introduced “Mercedes Me” which offers numerous services regarding the vehicle on a digital platform. Furthermore, the company has opened various lounges which depict a new possibility for customers to interact with the brand. Hence, Mercedes can interact more easily with their customers and be more responsive to their wishes. Moreover, the same applies to software, too, as the stakeholders do not need to adapt to the software anymore because the software adapts them (Schreiber, 2017). Thus, the customers are more content, and the employees can work more efficiently.

All in all, the economy has moved from mass customisation in the 1950s to mass cus- tomisation (Koren, 2010; Matzler et al., 2018). Cars do not have to be black anymore but are now available in vibrant colours that is why its producers have had to develop new strategies, the same phenomenon is happening again today but more extremely.

Moreover, according to Moore’s Law, the computing capacity of computer chips is dou- bling approximately every 18 months, due to the higher capacities, the organisation can process a more considerable amount of data, so changes in the IT-hardware become more common. Simultaneously, the price and the need for energy for those transistors will shrink remarkably as well, for instance, the production costs of modern transistors are below US$ 0.10, whereas they have been above US$ 1, moreover they work more efficiently although they become more powerful (Intel, 2017; see figure 2 and 3). By now, humanity is at the tipping point, where the power of those chips will grow tremendously, e.g. the computing capacity of a chip in an iPhone today is as big as the overall compu- ting capacity of the whole CIA in the mid-1990s.

As a result of these trends and innovations in technology, innovation cycles will become remarkably shorter. Therefore, enterprises need to keep track of innovations and analyse them to generate an innovation margin to stay competitive and maybe even generate competitive advantages (Roland Berger Strategy Consultants, 2015). (Roland Berger Strategy Consultants, 2015).

1.2. Chances of the digital revolution and the risks of missing the transformation

Digitisation and digital transformation are the megatrends of the last and coming dec- ades, and, as always, these trends bear great chances for the success of the organisa- tion, but they can devastate it if it does not transform to tap the full potential.

One of the highest chances for an organisation lies in its economic success. Due to new technologies, they can redesign their whole supply chain as automating and robotics have never been easier to realise. Thus, processes do not only become more efficient but also the throughput time shrinks to a minimum which reduces the overall production costs and elevates the revenue at the same time (Malleck & Mecklenbräuker, 2017). Furthermore, new sources of revenue can be discovered, and even a unique selling proposition may be generated (Roland Berger Strategy Consultants, 2015; Esser, n.D.). Besides, the staff will possess more freedom of work as it can work from any place in the world at any time as data and further information will be accessible anywhere and at any time. As a result, the staff is not limited to a specific place anymore which offers more freedom of work to any organisation. This kind of “remote work”-model may also attract new employees who bring their individual mindset which may support innovation and success (Schreiber, 2017).

The earlier an organisation starts to digitise, the earlier it is prepared for the future be- cause the digital revolution is not going to be the last industrial revolution which is to be managed. It is the very different, as the 5th digital revolution has already announced itself; so, to maintain the organisational success in the future, the organisation has to transform digitally as soon as possible as the drivers of the next revolution will be ad- vanced robotics and artificial intelligence (von Boeselager, 2018).

Last but not least, the organisation’s customers will profit from a digitised business model as well because the organisation’s products and services can be personalised on the highest level. So, the customer does not need to adapt to the software anymore as the software adapts to the customer (Schreiber, 2017). Thus, organisations cannot only keep its customers but may also attract new customers as the product and service portfolio diversifies and can be personalised to a very high level. The trend personalisation in mass customisation is illustrated in figure 1.

Also, the organisation can establish a big data system so they can predict, for instance, the customer behaviour more efficiently and perform better in their markets or make more validated decisions (McKinsey, 2014; Schreiber, 2017).

On the one hand, a digital transformation brings massive advantages and secures the continuity of the organisation, but on the other hand, it has to take and manage many risks. Redesigning the strategy means that the organisation has to collect any data and information about its past and carefully define a vision to draw conclusions and recom- mendations from it. Moreover, it cannot copy any measurements and digitisation projects from its competitors as every organisation has an individual digital status quo and, above all, its own corporate culture. VW, for instance, cannot transform in the same manner as a Ford, they can analyse each other’s success, but at last, they have to map out their own strategy. Especially the planning process is critical, and an organisation needs to spend time on it because a shortcut will lead to cost-intensive failure which may even endanger the whole organisation in its continuity (Gerberich, 2017; Esser, n.D.). That is why many industries, like aviation, automobile and even retailers, build up innovation and digital labs all over the world to keep track of the digitisation and to not be diminished from the market due to unknown trends or developments. It is publicly known that Google and Apple are both working on automobiles themselves, although they are producers of software. However, this is the main point; they like to equip their software to new auto- mobiles, so present-day’s successful automobile producers are about to be diminished to hardware-suppliers, whereas the real revenue source lies within the software which is enormously scalable (Matzler et al., 2016; Stübinger, 2018).

Thus, a non-digitised organisation will not only lag but will also lose its influence in the customer and supplier relation as Google and Apple have their own mindset regarding the design. Moreover, customers are driven apart from the brand image from VW and at the same time pulled to their preferred operating system of the car, so in the long term, the organisation will be displaced from the market (Roland Berger Strategy Consultants, 2015; Christensen, 2015).

Additionally, the organisation has to face even more challenges, the longer it waits re- garding digital topics and its transformation. All of these challenges have to managed at the same time which is quite impossible as the organisation cannot handle every single information and piece of data individually. As a result, it cannot act due to the vast amount of information which then may lead to the failure of the organisation. However, the or- ganisation may survive a couple of years, but as soon as the 5th industrial revolution penetrates the market, it will disappear because it has not prepared itself for future mar- ket needs and new competitors (Gerberich, 2017; von Boeselager, 2018).

All in all, the chances are worth, and if the digital transformation is successful, the gross added value will grow exponentially. For the EU, for instance, the gross added value will be about 1.25 trillion Euros higher than it is predicted but if the EU loses track of digiti- sation, it will not only lose 625 billion Euros gross added value but also its economic power and impact in the world (Roland Berger Strategy Consultants, 2015).

1.3. The process of digital transformation and the characteristics of each phase

Especially managers of small and medium-sized enterprises in Germany have not un- derstood the reach of digitisation, yet. Most of the managers are of the opinion that buy- ing new computers, new software and having an online shop means to be digitised. After all, they are working in a digitised business since the early 2000s. However, today’s digitisation is not the same as the digitisation of the 2000s (Deutsche Telekom AG, 2018). Most often, organisations of any size do not know the real meaning of digitisation and the benefits which will come with it (KPMG, 2016). Therefore, many authors and experienced managers of digitised businesses are dealing with the topic and share their knowledge and explain in detail which characteristics digitisation has in the different phases.

According to Strategy&, a digital transformation is a 4-phase process with its individual need of digital leadership (see figure 4). In the first phase, the organisation recognises a need for a digital change and starts to focus on the increased use of digital technologies. At the same time, the trend of digitisation is in full swing and captures the whole industrial sector, so the need for a digital transformation does not result out of a yet out of external factors forcing it to transform (Strategy&, 2015). According to Baker, an organisation starts to explore the first digital possibilities for their current business model. These pos- sibilities are, for instance, an own company website with an online shop or an emailing- list. Furthermore, every single one of these possibilities generate data which are ana- lysed at least superficially, as the knowledge for deep-dive analysis available, yet (Baker, 2014). As these technologies are easy to implement, the need for a Chief Digital Officer (CDO) remains low, whereas, towards the end of the phase, the need for a digital leader grows drastically (Strategy&, 2015).

After that, the curve begins to rise immensely. Whereas the organisation can handle the first phase on its own, it now needs additional support by experts or other experienced persons. Those experts, or CDOs, support the organisation in developing a new strategy and vision to define a way on how to achieve its corporate goals. Due to his expertise and their knowledge they are essential in the “construction”-phase as no one in the hith- erto existing organisation is capable of generating the same amount of knowledge on his own as daily business hinders them from taking the time. Moreover, the “construction”- phase is critical in the process because a poor strategy destines the transformation to fail; though, a realistic and elaborated strategy ensures future success. Additionally, the whole sector focuses on its individual strategy because it is subjected to disruptive tech- nologies and new competitive start-ups (Strategy&, 2015; cf. Heckendorf, 2018). More- over, the organisation begins to develop responsive websites and focus on their social media image. So, they also gain new abilities in social media marketing; thus, they reach out to new customer segments which have been out of reach. Besides, the organisation can use the data more effectively to gain new insights into their customers and their environment (Baker, 2014). Besides, by the end of the phase, the sector has nearly ful- filled its transformation which is why the need for a CDO shrinks likewise (Strategy&, 2015). Germany for instance, is about to lag, as its organisations do not focus on pushing its digital strategy forward, accordingly, Germany can be ranged in the curve at least at the beginning of the second phase. Politicians and organisations have finally recognised their fate which is why they start to invest in fibre cable-networks, established a 5G strat- egy and just began to invest in R&D (Skala, 2018).

Last but not least, the organisation starts to play out its strategy and operation accord- ingly, most of the processes run digitally and may be automated. Now the organisation has established a more detailed digital strategy on several channels on which they op- erate. Due to the effective analysis of their data, they are capable of predicting the be- haviour of their customers and can react more precisely to future needs and demands accordingly. Additionally, mass customisation has become a standard as far as it is re- quired or even possible (Baker, 2014). Thus, the need for a digital leader shrinks dra- matically as the whole organisation has got in touch with digital technologies and gained new insights. So, if new problems or questions come up, the organisation is capable of coming up with an own solution. Furthermore, the industrial sector has completed its transformation in general. However, there is still a little slope in the graph which is the result of perfecting the business model (Strategy&, 2015).

Finally, digital technologies are fully established in the organisation, and everybody has gained at least some knowledge and understands the benefits of the new business model. As a result of the gain of knowledge, the necessity of a CDO shrinks to the same level as at the beginning of the process (Startegy&, 2015). Moreover, Baker supports Strategy&’s statement as every process of the company works digitally and any “report [is] available to any authorised executive” (Baker, 2014).

Although Strategy& forecasts an end of the need of the CDO, their recent statistics and various other sources state that the CDO will stay a permanent member of the C-Suite. Despite only 6% of the1500 biggest organisations who have had a CDO in 2015 the number of organisations who have a CDO has more than tripled (Strategy&, 2017a), nevertheless, this topic is to be discussed in chapter 3.4.

2. The Chief Digital Officer

2.1. The sudden necessity of a digital leader

The CDO is an entirely new appearance in the C-suite as digital has never been a big issue before and if so, a Chief Information Officer (CIO) or Chief Marketing Officer (CMO) has handled the problem. However, today disruptive technologies and new business models penetrate the organisation, and none of the chief officers can handle the prob- lems anymore for the overall organisation. Moreover, the technological improvements of artificial intelligence (AI) and machine learning will give a new boost to the digitisation (Ermisch et al., 2018a). Consequently, the organisation will face new digital challenges more frequently. Besides, if the organisation – no matter of what size it may be – does not appoint a CDO, the divisions tend to develop their own strategy which leads to ex- pensive redundancies as the divisions often do not communicate their progress (KPMG, 2016). To avoid those redundancies, the organisation can install a CDO who works out a general strategy for the organisations and its division. Moreover, due to the new strat- egy, the communication skills will enhance as well, as the same vocabulary is used in every organisational unit. VW, for instance, has been in need for a promising digital strat- egy which is why they appointed Johann Jungwirth as CDO who has been responsible for the development for the “iCar” at Apple and has been the Chief Executive Officer (CEO) for Daimler’s R&D-division in the US. All in all, Jungwirth has successfully pre- pared VW for the digital future by inventing new concepts for future mobility, like “Sedric”. However, analysts forecast that Jungwirth is to leave the enterprise as the new CEO, Herbert Diess, prefers to manage the digital future on his own, although he has not the same qualifications as Jungwirth. According to the analysts, VW is about to lose its fast progress in digital issues, if Diess does not extend Jungwirth’s contract which probably is about to happen (Dahlmann, 2018).

Next, many organisations have not dealt with their digital strategy, yet. Only 45% of small and medium-sized companies in Germany have implemented digital measurements to their corporate strategy which is a plus of 3% in comparison to 2017. However, 20% have not planned anything yet or have just begun to plan their transformation superfi- cially. In contrast to companies with less than 250 employees, 62% of companies with more than 250 employees have a digital strategy; in general, bigger organisations are more progressed regarding their digital transformation, as they have more capacities of any kind (Deutsche Telekom AG, 2018). Nevertheless, there are only 1000 CDOs all over Germany, and only 6% of the DAX or MDAX enterprises have had a CDO (Pütter 2015).

Although Germany directly invests the second highest amount in digitisation projects in small and medium-sized companies, it still lags in European comparison as other gov- ernments offer, for instance, tax benefits, like the Netherlands and France (EFI, 2017; see figure 5 and 6). That is one of the main reasons why many organisations have waited for so long regarding digital issues. Moreover, the organisation is too afraid of the risks and does not have sufficient employees who can transact the investments (EFI, 2016). As a result, the German internet economy is worth a fifteenth of the corporate value of Amazon, Google, Facebook and Apple (see figure 7). However, they have finally recog- nised that no incentives are to be introduced which is why they lag try desperately to catch up to their (international) competitors, for this reason, they start to install a CDO (EFI, 2016).

Moreover, humanity misperceives digital innovations. Digital technologies are still a somewhat new component to the organisation although humanity uses digital technolo- gies since the 1970s (Digitale Lernwerkstatt, o.D.). Within these nearly 50 years of use, the technologies have evolved exponentially, but humanity is of the opinion that it evolves linearly. As a result, many organisations do not know the possibilities which lie within the effective use of up-to-date digital technologies (Veuve, 2015).

Until 2025 the whole world will produce 163 Zettabytes¹ per year which is ten times as much as the world has produced in 2016 (Renisel et al., 2017). If these data are ana- lysed, organisations of any kind can predict their customers' behaviour. Moreover, the data not only show the external environment but also show internal potentials for changes and innovations. As a result of a careful analyse, managers can design slimmer processes, so the throughput time shrinks, and potential for process innovations are shown (Celonis, 2018; Gartner, 2018). Additionally, those data may show new interde- pendencies, which results in an everlasting increase in complexity. Simultaneously with the growing amount of produced data, Big Data will change the environment, too. Until 2025, Big-Data solutions will generate an estimated global revenue of US$ 88.5 billion, in 2026 even US$ 92.2 billion. Although Big Data is not as trending in Europe like in other parts of the world due to the General Data Protection Regulation, the organisation has to take measurements in other parts of the world to max out its potential. Moreover, it has to establish highly effective security barriers to protect its data from abuse (Korkmaz, 2016; KPMG, 2016).

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¹ 1 Zettabyte 1 trillion Gigabyte