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Are CEOs serious about digital business in 2014?

30 Apr 2014

Every company is becoming a technology company.

This is the message I take away each time I meet a CEO or senior business executive to discuss their strategy for growth.

It’s the direction that every leading organisation, business and government agency is evolving toward.

I’m seeing a shift from the old e-business to a new digital business, or d-business, mindset, where leaders no longer simply utilise technology to deliver efficiency and improve functionality, but digitally reimagine every aspect of the enterprise, from product and service creation, to production and delivery.

We decided to dig deeper and look beyond the conversations I’m having with CEOs to determine the broader nature of this trend. Our logic is that if this is indeed true, if organisations are increasingly moving to a d-business mindset, then surely their public statements will talk about digitalisation in some way.

Their annual reports should contain some degree of detail on initiatives regarding digitalisation from a competitive perspective, how business opportunity is being created from digitalised processes and value chains, and how new business models and digitalised products and services are driving growth.

So we read the 2013 reports of 25 randomly selected companies from the global top 500 to look for indications of their focus on d-business. And, I suppose both surprisingly and unsurprisingly, we found very little about d-business at all.

Here’s what we found:

* 15 of the 25 companies have no mention of technology, IT or digitalisation in their annual reports. They do have a standard mention of IT systems in the risk section — but this appears in every annual report.

* The 10 companies that do mention technology, digitalisation, Internet of Things or big data in their annual report are in the financial services industry, communication service providers or outliers in their industry.

* When companies do mention digitalisation, it’s in the chairman’s and/or CEO’s message. But it’s always toward the end of the message and ranked lower than all other areas of focus.

We were surprised because the shift to d-business appears to be across all industries, so we expected to see at least some mention of it in the majority of annual reports.

On the flip side, we were not that surprised because we accept that annual reports tend to be conservative and backward-looking, typically not revealing information that is truly strategic.

So because annual reports are lagging indicators that don’t point to a future necessarily characterized by d-business, we decided to look at two Gartner surveys that focus more on emerging trends.

First, Mark Raskino and I both recently wrote about our annual CEO Survey, research that Mark leads. Mark found that CEOs are indeed more focused on technology but still lagging in their understanding of d-business.

As Mark states, CEOs think e-business circa 2004, not d-business 2014. So at a high level, our CEO survey results suggest a continued need for CEOs to be more engaged in how digitalisation can fundamentally change their business.

Secondly, in the Gartner benchmark business, we have performed over 250 digital benchmarks. One of the key questions we asked all participating organisations about is their ability to execute and their completeness of vision today and in 18 months in terms of moving to d-business.

The data suggests a significant change is expected in the next 18 months that will far outstrip the existing capabilities of their organizations.

It’s clear to us that organisations are overoptimistic about how fast they can achieve business change. They do not have the skills and change management culture to make such a leap. This is squarely an issue for CEOs, who need to step up to provide direction on d-business.

So Gartner research recommends that CEOs and boards do three things.

First, they need to be explicit about the business opportunity technology (not just information technology) presents. If they are serious, then investors need to know.

If they want to capture the opportunities that exist, they need the public — their customers — to know. They need to make this explicit in their annual reports.

Secondly, they need to focus on developing the digital skills of their organisation. They need to start today. Change management for d-business needs to happen now. Ensuring the right management skills exist in the organisation is critical.

Lastly, pilot, and pilot now. D-business is a journey. Starting is important! And starting is not e-business of 2004.

D-business of 2014 requires entirely new digital product development, new digital service approaches and reassessing where digital technology can integrate the entire value chain.

By Peter Sondergaard - Research Director, Gartner