Every so often you find a “wake-up-and-smell-the-coffee-people” report. Gartner’s recently released 2015 CEO Survey: Committing to Digital is one such piece of research. The wake-up call here is for CEOs who think they're ready for digital business. Based on this research, it seems most are not.
Fixing this, according to Mark Raskino, research vice president at Gartner, will require substantial investment in the business itself. But that’s not all. What is really requires is a change in the way business is done.
Ready for Digital?
The survey of 400 senior business leaders, which was conducted in the last quarter, shows business conditions are favorable for investment in core technologies. It also shows that technology-related change is viewed as the key driver for growth for the next two years, with many CEOs describing it as a key to a competitive edge.
That's is a good thing, right? However, the research also raised concerns about the readiness of many enterprises to move forward. The report warns that business leaders do not fully understood the "massive implications of a digital business world" — and that too many business leaders only see the opportunity as a chance for better marketing and selling online, as well as through social and mobile.
“While those tools are very valuable and will yield some results — they are simply not sufficient. This gap in understanding could lead to a digital business crisis in just two or three years," it continues.
Too many enterprises have focused on the superficial areas of digital business and are obsessed with digital marketing or e-commerce, Raskino told us. But this is not enough. To construct a truly digital business, organizations also need to undertake a root-and-branch review of their business model.
In this respect, Raskino draws a parallel with the old days of television. In the first broadcasts, companies simply placed radio presenters in front of a camera. It was a new technology, being used with old material.
"We collectively always use a new technology to do an old thing. We have mostly the old way of doing business being done on the Internet. What we haven’t done is take the Internet as a given and ask how we can do business on it,” he told us. "We are now 15 years in and we are starting to arrive at this point and asking fundamental questions about things like this, but it’s only beginning.”
Digital Marketing vs. Digital Business
But let’s go back a bit. The problem with digital business is that, to a certain extent, it is misunderstood. If there is a buzz around digital marketing or e-commerce, these elements are only one piece of the puzzle.
The IT space, Raskino said, is still only recovering from the first decade of this century when the shift online was consolidated and developed. That decade also reverberated with the fallout from the dot.com crash and, in the final years, the impact of the recession. As a result, organizations spent a lot of time trying to slash IT costs. He explained:
Most of the conversation then was about outsourcing and offshoring, outsourcing and shared services, and basically marking technology down as a commodity function. It’s only post-recession that companies have woken up. When they did it turned out that a lot of companies missed the cloud, the cloud services turned up, the app stores turned up, social turned up."
Adding salt to the wounds, companies like Google and Amazon started telling organizations how they should be doing business and what digital should be.
This was coupled with the rise of truly digital companies like Uber, which led many CEOs to question whether some other upstart company would emerge to disrupt them from their own vertical.
"This kind of thinking created a complete inversion of thought at the macro level in boardrooms," Raskino said.
Companies outsourced a lot of their business processes in the early 2000s. But now they're trying to figure out how to build a coherent organizational structure that brings together the external processes and the internal.
The research uncovered some impressive findings.
- Technology is the business priority this year and next for 25 percent of CEOs
- 63 percent of CEOs will increase technology investment in 2015.
- Digital revenues will double to 41 percent by 2019
- 95 percent of CEOs do long-term planning and 75 percent do very long term planning
- Two-thirds of CEOs say their enterprises are involved in industry-level digital initiatives
- Only a third of CEOs plan to change their business models in the next three years.
- Most CEOs have improved the digital capability of the board and C-suite or will do so by 2016
Customer-facing and analytics capabilities remain among the most sought-after technologies. About 37 percent of respondents ranked customer engagement management (CEM) as the leading technology-enabled business capability, followed by digital marketing (32 percent) and business analytics (28 percent).
Many companies are allocating from 40 percent to 60 percent of their marketing budgets to digital.
So if digital marketing and e-commerce are only two element of a truly digital business, what is a truly digital business? Raskino explained:
Just repainting the outside of your corporation — doing more digital marketing or even electronic commerce — and not examining the deeper factors I’ve been talking about is not going to work. Your product must become digital and your business model must change as a result. A lot of excitement is being spec on that superficial level and they are not going to that deeper level."
In addition, the C-suite has to buy-in to the process. Many companies delegated technology decisions to IT departments, gave someone in the marketing department responsibility for creativity and then focused on business themselves.
The research also showed that only one-third of CEOs are going through a business model change or expect to see one in the next two to three years.
To thrive in a digital age, companies need to embrace long-term digital and technology planning, and build new business platforms to create digital businesses.
This is the only way that today's industry leaders can intersect and block the disruptive attacks coming at them from startups and tech giants. Apple has already moved into payments, Google is into cars and Amazon is into technology services. Many other sectors, such as insurance and higher education, are beginning to realize that they could be next, the report warns.