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How to be a digital master: A Q&A with MIT Sloan’s George Westerman

Never mind Apple, Google, or the next big startup. Any company can find competitive advantage through technology.

December 12, 2014

Research scientist George Westerman

Research scientist George Westerman

Paints. Sneakers. Copper mining. Not always industries that excite the tech publications. But companies of all types are combining new digital tools and thoughtful leadership to build competitive advantage and lead their markets. Those that aren’t should start or risk being left far behind.

That’s the lesson in Leading Digital: Turning Technology into Business Transformation , a new book by George Westerman, of the MIT Initiative on the Digital Economy, Didier Bonnet, of Capgemini Consulting, and Andrew McAfee, also of the MIT Initiative on the Digital Economy.

In an interview, Westerman explained why success through digital leadership is not limited to tech firms and what leaders must do to transform their businesses with technology.

Leading Digital is a guide to becoming what you call a “digital master.” What does that mean?

Being a digital master does not mean being a purely digital firm. Any firm can be one. We didn’t study Internet startups or high tech leaders like Apple and Google. We looked at the digital activities of large firms in traditional industries like hospitality, insurance, and manufacturing. These industries comprise more than 90 percent of the economy, but they traditionally get much less media attention when we talk about digital technologies like social media, mobile, and big data analytics.

In studying more than 400 large companies around the world, we found a set of firms that average 26 percent higher profit margins than their industry peers and that have a common approach to using digital technologies. We called them digital masters.

These digital masters—firms like Caesars, Nike, Burberry, and Asian Paints—don’t just adopt technology. They use technology to transform the way they do business.

Digital masters excel in two dimensions. They use digital technology to fundamentally change their customer experiences, internal operations, or business models. More importantly, they have the leadership capabilities to drive transformation in the company. These companies are adept at using new technologies to overcome old barriers and create new opportunities.

You emphasize that digital mastery is not about the technology itself, but about how it supports business transformation. What are the most important ways that leaders can move their organizations toward digital mastery?

Leaders in digital mastery understand that digital is not a technology challenge. It’s an opportunity to transform their businesses. And they take steps to actively drive transformation. Every successful digital transformation we saw was led very strongly from the top of the company. We saw no examples of emergent or bottom-up transformation being successful. People in the middle of the company, or in the company’s technology organization, can have strong roles to play. But leaders at the top must actively drive the effort.

To play your role in leading digital transformation, focus on three things: vision, engagement, and governance. Create a vision of how your firm will be radically different because of technology. Executives at [Chilean mining company] Codelco envision a copper mine where no human will ever need to work in the dangerous underground environment again. Boeing envisions a digital airline with its planes at the center, while GE plans to be at the focus of the industrial Internet of things. Next, engage your employees to make the vision a reality. Show them how they have a role to play in the new order. Then encourage them, through contests and conversation, to suggest ways to move the company in the new direction. Finally, you’ll need to steer the energy and investment so that you move forward in an efficient way. Consider what governance roles and mechanisms—such as a chief digital officer, digital innovation committee, or shared digital unit—you’ll need so that you can coordinate digital investments, create standards, and build on the right foundation. Starbucks, The Guardian, Lloyds Bank, P&G, and many other companies find these digital governance mechanisms very helpful to steer their digital activities in the right direction.

Although your digital vision and leadership capabilities shouldn’t be technical, they will need to use technology. Find a way to work with your IT leaders so that they can connect you with what’s valuable in your legacy systems, help you to manage risk appropriately, and develop ways to operate at a speed that the new digital world requires.

Of all the companies you cover in Leading Digital, which most surprised you with its leadership and success in using technologies to transform the business? How?

That’s a really tough question. Each of the digital masters we studied was doing something fascinating. What really surprised me, though, was the extent to which digital transformation is already underway across the economy. CEOs and other senior leaders are really paying attention to the digital opportunity and they are taking action. Some are doing better than others, and some industries are moving faster than others. But every industry we studied, from pharma to mining to paint manufacturing, already had digital masters at work. The sheer scope of digital transformation underway in these traditional industries, combined with the immense level of interest we saw in talking with senior executives, spurred us to write the book. I hope it gives people some great ways ideas to turn their companies into digital masters.