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Why Digital Transformation Needs the CEO at the Helm

Manufacturing companies consider digital transformation extremely important because it has the potential to help them improve their performance in incredible ways across nearly every business and operational function. These performance improvements not only help increase revenue and profits, but also fundamentally change the way companies operate, sell, engage with customers, and provide services.

This explains the reason behind manufacturing companies making massive investments in digital transformation initiatives. According to Mordor Intelligence’s report, the digital transformation market is projected to grow from its estimated USD 263.93 billion in 2020 to USD 767.82 billion by 2026, clocking a Compounded Annual Growth Rate (CAGR) of around 19%.

A survey report by McKinsey points out that more than 80% of companies that participated in its survey have stated that their organizations have undertaken digital transformation efforts in the past five years. The same report also highlights that less than one-third of organizational transformations succeed at improving a company’s performance and sustaining those gains. The fact that massive investments are taking place in digital transformation projects highlights the importance that companies attach to digital transformation.

These reports bring to light two important observations:

  • Large investments that manufacturing companies are making in digital transformation projects indicate that they find the expected benefits attractive, despite the high rate of digital transformation project failures.
  • Lower rates of success points to challenges in navigating digital transformation projects. Therefore, companies attempting to digitally transform must take effective steps to mitigate the impeding factors that lead to these challenges.

Considering the importance of digital transformation to a manufacturing company and the challenges associated with its successful implementation, it should be clear that the project team be headed by one who has all the wherewithal to be the change agent. The qualities of this type of leader include a comprehensive understanding of the company, the power to take tough decisions and act on them in the overall interests of the company, and the authority to direct, control, and motivate so that the project team achieves the set objectives.

It is typically the CEO of the company that exudes these qualities.

It is the CEO’s Responsibility to Build The Team

Digital transformation is not a technology pursuit, but an organization’s attempt at achieving business performance improvement objectives by leveraging technologies. It is well recognized that for a company’s digital transformation to succeed it requires not only a competent multifunctional team comprising of people proficient in technical, functional, and project management, but also those that possess the business, process, and operational knowledge about the company. It also requires a leader who can motivate people to act and achieve the desired outcomes by providing direction, guidance, and support for cohesive and committed functioning of the team.

With many companies finding it difficult to assemble a team with the necessary capabilities, they engage consultants and technology companies for executing transformation projects. However, it is necessary for a company with digital transformation aspirations to have a core in-house team and a leader from the organization to spearhead the entire transformation team.

This responsibility to spearhead naturally falls on the shoulders of the CEO who must lead the team from the front. It is generally expected that the CEO commands the respect of the company’s functional managers, have authority over them, and enjoy the support of the company’s board of directors, some of the essential prerequisites of a digital transformation leader.

The CEO is Best Suited to Provide the Needed Decisive Leadership 

Digital Transformation, by its very nature, is meant to be transformative, changing the way companies operate by enabling technologies such as Industrial Internet of Things (IIoT), artificial intelligence (AI), and digital twins. Unlike in other business and production processes and operation management/improvement projects, the overall focus of Digital Transformation is not on a single function, but spans many functions, including production, operations, quality improvement, maintenance, and others.

The concepts behind Digital Transformation is to look at the organization’s entire value chain to identify areas which, when transformed, will enhance the performance of many of its business and production processes and operations, conceive ways to deploy technologies that will bring about the necessary changes, and develop software solutions that will result in realizing those goals.

Companies taking this transformation path should be prepared to encounter obstacles and overcome challenges. That calls for a decisive leadership which on one hand is empowered and on the other can take quick decisions and personal ownership if things go wrong, stay engaged with the team during times of crises, and deviate from the playbook should the situation demand. The CEO is best suited to provide such a leadership.

It is the CEO’s Role to Bring About Work Culture Change

Manufacturing companies continually initiate various actions to streamline and improve its business, production, and operational processes. It learns from these experiences, which then are expected to help the company in its attempts to achieve further improvements. Unfortunately, leveraging past experience may not help companies in implementing the digital transformation projects.

Many of the companies that take on digital transformation initiatives might have already made significant investments in various operational technology (OT) systems, information technology (IT) solutions, and business process management (BPM) methodologies to enhance their performance. Such implementation examples include the deployment of distributed control systems to manage safe and regulated operation of the plant, enterprise resource planning solutions to manage planning processes, and total quality control management to manage the quality of the company’s goods and services.

Regarding implementation of such OT, IT, and BPM projects, there is clarity regarding the leadership that will manage them, the procurement and implementation practices, and their funding and ownership. Such projects primarily involve the use of processing and networking capabilities of information technology to streamline and improve some of the company’s functions.

On the other hand, digital transformation is very different. Since successful implementation of transformative efforts spans many functions, there will be challenges in ensuring collaboration across the company and ambiguity regarding who or which department will be responsible for managing the digital transformation efforts. Digital transformation solutions are to be custom developed and not procured as off-the-shelf solutions. Each solution requires a unique implementation strategy and is built around the use of enabling technologies’ analytical, simulation, and cognitive capabilities in addition to their processing capabilities to uncover additional information. This will be used to develop new ways of performing business and production processes and operations, so as to achieve business objectives.

Thus, with these two approaches aimed at bringing about changes, differing fundamentally, there arises a need for a company to take an unfamiliar and untrodden path aided by a new work culture, an amalgam of norms, values, and principles shared among people in an organization, for the digital transformation efforts to succeed.

Digital transformation requires a work culture that supports learning from experience and even from failures, information-driven decision making, agility, experimentation, collaboration, and adaptation to changes. According to Logicalis CIO Survey 2017-2018, an overwhelmingly large number of the survey participants (CIOs) had indicated that the organizational culture is the key barrier to successful implementation.

Bringing about a change in an organization’s work culture is not easy. The best person to bring about the necessary changes to the set working culture of the company and transform it is its CEO. They have the influence and required authority to successfully implement the company’s digital transformation project.

Rajabahadur V. Arcot
Rajabahadur V. Arcot
Rajabahadur V. Arcot is an independent industry analyst/columnist and digital transformation consultant, a life member of ISA and member of ISA's Smart Manufacturing & IIoT Division. He is an ISA accredited mentor and trainer, and authors industry and technology trend articles, market research reports, case studies, white papers, and automation and operational technology insights.

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