Mass-extinctions don’t just happen. In the current mass business extinction event, the key factor is Digital Transformation. Those who ignore Digital Transformation will become extinct. Survivors drive their Digital Transformation from the top, personally mandated by the CEO.
Thomas Siebel is clear and passionate in Why Digital Transformation is now on the CEO’s shoulders, published in McKinsey Quarterly, December 2017.
Siebel likens the current disruption in the global business arena to past episodes of both biological and economic mass extinctions. He points to events from history – from the discovery of fire, the printing press, urban electrification and the microprocessor as cases where innovations collided with a society that had been in a period of relative stasis—creating a massive disruption.
Mass-extinction events don’t just happen for. In the current extinction event, the causal factor is Digital Transformation. Siebel says that Digital Transformation is everywhere on the agendas of corporate boards and has risen to the top of CEOs’ strategic plans.
He illustrates the power of the transformation agenda by pointing out that an estimated $2 trillion is being spent this decade to upgrade the US electricity grid to smart grid status, adding sensors throughout the grid’s value chain infrastructure so that all components are remotely machine addressable.
Siebel explains: When a power grid is fully equipped with connected sensors, utilities can aggregate, evaluate, and correlate the interactions and relationships of vast quantities of data from all manner of devices—plus weather, load, and generation-capacity information—in near real time. They can then apply AI machine-learning algorithms to those data to optimize the operation of the grid, reduce the cost of operation, enhance resiliency, increase reliability, harden cybersecurity, enable a bidirectional power flow, and reduce greenhouse-gas emissions. The power of IoT, cloud computing, and AI spells the Digital Transformation of the utility industry.
He laments that many CEOs seem to be asleep at the switch, not seeing the massive disruption headed their way from digital threats, and not understanding that it will happen very quickly. But he also sees that an expanding cohort of CEOs are taking up the challenge, with a clear trend to Digital Transformation being driven from the top, personally mandated by the CEO. Siebel sees this as new and exciting.
Siebel says that visionary CEOs are the engines of massive change that is unprecedented in the history of information technology—possibly unprecedented in the history of commerce. He reinforces the imperative for change by drawing on the views of Cisco Systems Executive Chair John Chambers, who predicts that 40 percent of today’s businesses will fail in the next ten years; 70 percent will attempt to transform themselves digitally, but only 30 percent will succeed. He draws further support from highly regarded business academic Michael Porter, who regards the Internet of Things as not simply a matter of competitive advantage; it is existential.
Siebel provides examples to reinforce his message:
- Paris based energy company Engie, has revamped the C-suite to drive Digital Transformation, with updated strategy and new business targets for digital value creation.
- A healthcare CEO used scenarios to craft a road map for hundreds of next-generation application improvements across its businesses.
- CEOs retooling executive perspectives with boot camps on digital innovation.
- Germany’s leading industry CEOs formed a working group, Industrie 4.0, to advise the federal government on industrial policy needed for the “fourth industrial revolution.”
Digital Transformation changes everything about how products are designed, manufactured, sold, delivered, and serviced—and it forces CEOs to rethink how companies execute, with new business processes, management practices, and information systems, as well as everything about the nature of customer relationships.
Siebel insists that Digital Transformation is not about shiny objects: Tinkering is insufficient. He recommends that CEOs should be should be talking about it all the time, with their boards, in the C-suite—and mobilizing the entire company.
Siebel concludes with a powerful echo of messages early adopters have been delivering since 2012 and earlier. It’s increasingly clear that we’re entering (have entered) a highly disruptive extinction event. Many enterprises that fail to transform themselves will disappear. But as in evolutionary speciation, many new and unanticipated enterprises will emerge, and existing ones will be transformed with new business models. The existential threat is exceeded only by the opportunity.
Siebel’s paper is significant because, building on a cache of valuable insight from the firm, Siebel absolutely locks the McKinsey Message onto the message about the behaviour and competencies of business leaders who are also Digital Leaders.
It strongly endorses our mission for the Digital Leadership Institute, to equip business leaders with the competencies they need to lead their organisations into the digital era.
Prepared by Mark Toomey
20 December 2017