What you’ll learn: Organizations that succeed with digital innovation engage three types of leaders: initiative leaders, shared resource leaders, and portfolio leaders. Each has distinct areas of responsibility and complementary knowledge and expertise.
Many organizations struggle to convert data and artificial intelligence investments into assets that advance strategy and deliver measurable business impact.
To succeed, they need effective and efficient structures that support digital innovation and ensure that the time, money, and talent poured into digital initiatives aren’t wasted.
One way to accomplish this: harnessing a troika of leaders, each with distinct areas of responsibility and complementary knowledge and expertise.
In a new research briefing, Nils Fonstad, Martin Mocker, and Jukka Salonen from the MIT Center for Information Systems Research highlight how successful organizations marshal initiative leaders, shared resource leaders, and portfolio leaders to weed out underperforming AI initiatives and increase bottom-line value.
“Traditional approaches worked when conditions were more stable, but in today’s dynamic environments, it’s impossible to assume any single leader or unit is capable of doing it all,” said Fonstad, an academic research fellow with MIT CISR. “What you actually need is a whole network of leaders.”
What gets in the way of digital innovation?
Most companies struggling to drive value with digital innovation share a trio of bad habits, according to Fonstad:
- Using traditional project management techniques that fully fund initiatives upfront and gauge success based on standard metrics like being on time, within budget, and within scope, as opposed to resourcing initiatives in phases based on evidence of business value.
- Forgoing a coordinated, holistic approach to digital innovation that helps initiatives scale and realize impact and instead fostering initiative independence. This means initiatives duplicate efforts unnecessarily and struggle to overcome barriers to scaling on their own.
- Delegating digital strategy to a single leader or centralized innovation unit within the organization, which impedes digital from realizing strategic ambitions, promotes silos, and discourages reuse.
3 types of leaders and what they do
The researchers recommend engaging three types of leaders — with each taking a hypothesis-driven, test-and-learn approach — in the following roles to drive digitial initiatives forward:
Initiative leaders: These managers are accountable for developing and operating digital offerings that contribute to the strategic objectives of the organization. As part of their remit, initiative leaders spearhead the development of innovations in phases; generate evidence about a project’s desirability, feasibility, and viability; and secure resources for the next phase when continued investment is warranted.
The most successful companies assign two initiative leaders to co-lead a cross-functional team. One leader, typically from IT or a digital group, focuses on feasibility — making sure that prototypes are working well and that the offering is equally proficient when deployed at scale. An initiative leader from the business side is tasked with making sure that end user needs are being met and that projects are aligned to the strategic ambitions of the organization.
Initiative leaders in action: Repsol, a global multi-energy organization, embraced a five-stage funding and innovation process and the desirability, feasibility, and viability standard for its digital program, a portfolio of digital innovation efforts. Repsol appointed two co-leaders for the digital program: a product owner from the business side and a technical lead from the digital side. The result: Business units launched 505 digital innovation initiatives and successfully scaled more than three-quarters of them over a five-year period, increasing profits (cash flow from operations) by 20%.
Shared resource leaders: Teams need autonomy to get results, but autonomy is not synonymous with independence. Without coordination, initiatives typically duplicate work, struggle to scale, and waste resources on building components that have already been developed elsewhere. In the long term, organizations that lack coordination accumulate an unnecessarily complex and risky patchwork of data, systems, processes, and external providers.
Shared resource leaders are functional experts who hail from digital domains (such as cloud computing, AI, cybersecurity, or user experience) and nondigital domains like HR, risk and compliance, or legal. These leaders are tasked with managing teams of specialists that are driving toward targets and overcoming common scaling constraints. Each team assembles a set of reusable resources — such as platforms or talent — that have cross-initiative appeal and utility.
Shared resource leaders in action: Repsol’s digital program invested in shared resource centers of excellence (hubs) that concentrated technology and talent in areas like data and AI, robotics, and UX design. Each hub was explicitly tied to an initiative outcome. In one example, the Data Analytics and AI Hub was able to persuade over 60% of initiatives to use those technologies to contribute to cash flow targets.
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Portfolio leaders: Successful digital innovators invest in portfolios of initiatives, all with different business outcomes and time horizons. Determining where limited resources should be directed or how and when to change allocations is complex. That’s where portfolio leaders come into play. These top-level executives regularly update strategic priorities, realign initiatives based on expected impact, and reallocate key resources to initiatives with the most potential. These leaders make criteria and decisions visible, revisit outcomes on a regular basis, and put the brakes on projects that no longer merit investment.
“Without a fair process for updating priorities and reallocating resources, organizations waste money, talent, and time on low-priority or noncomplementary initiatives,” Fonstad said.
Portfolio leaders in action: Spanish financial services company BBVA launched a process called Single Development Agenda to ensure that resources were allocated to the innovation initiatives most aligned with strategic priorities — a portfolio of more than 2,000 initiatives. Every quarter, corporate and business unit leaders update strategic priorities, and, based on those findings, about 10% of initiatives are shelved and their resources are reallocated to higher-potential projects.
A path to high-value results
Fonstad and his research collaborators recommend that in addition to developing these three types of leaders, organizations should take the following actions to improve digital innovation results:
- Link leaders to clear strategic outcomes and invest in a variety of educational resources to build skills and confidence.
- Empower the three leader types to embrace test-and-learn practices in a disciplined way to reduce waste and increase impact.
- Sync the work of all three leadership roles to the organization’s strategic ambitions so resources are prioritized toward what matters most.
In the end, fostering leadership partnerships that are bolstered by a set of structured processes is what will set successful digital innovators apart from the pack. “In order to be spontaneous and respond quickly and efficiently to new opportunities and threats, you can’t respond in firefighting mode,” Fonstad said. “You have to be able to step back and reflect on the learning process, which requires discipline.”
Read the research briefing: “Leading Digital Innovation”
Nils Olaya Fonstad is an academic research fellow at the MIT Center for Information Systems Research. He researches competitive digital innovation and how organizations are redesigning themselves to realize greater impact from a diverse portfolio of innovation efforts. Drawing on both in-depth qualitative data and survey data from hundreds of firms, he has identified what investments and innovation practices distinguish the most competitive companies.
Martin Mocker is an academic research fellow at MIT CISR and a professor of information systems at ESB Business School, Reutlingen University. His teaching and research focus on the digital transformations of large, established companies aiming to stay competitive in an increasingly digital economy.
Jukka Salonen is an academic research fellow at MIT CISR and a professor of practice at Aalto University. His research focuses on how to steer digital investment portfolios to best support companies’ strategic goals and create value in efficient ways.
